[Federal Register Volume 85, Number 106 (Tuesday, June 2, 2020)]
[Notices]
[Pages 33639-33643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11818]


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DEPARTMENT OF EDUCATION


Annual Updates to the Income-Contingent Repayment (ICR) Plan 
Formula for 2020--William D. Ford Federal Direct Loan Program

AGENCY: Federal Student Aid, Department of Education.

ACTION: Notice.

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SUMMARY: The Secretary announces the annual updates to the ICR plan 
formula for 2020 to give notice to borrowers and the public regarding 
how monthly ICR payment amounts will be calculated for the 2020-2021 
year under the William D. Ford Federal Direct Loan (Direct Loan) 
Program, Catalog of Federal Domestic Assistance number 84.063.

DATES: The adjustments to the income percentage factors for the ICR 
plan formula contained in this notice are applicable from July 1, 2020, 
to June 30, 2021, 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: Travis Sturlaugson, U.S. Department of 
Education, 830 First Street NE, Room 113H3, Washington, DC 20202. 
Telephone: (202) 377-4174. Email: [email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service, toll free, at 1-800-
877-8339.

SUPPLEMENTARY INFORMATION: Under the 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 Adjusted Gross Income (AGI), family size, loan amount, and 
the interest rate applicable to each of the borrower's loans.
    ICR is one of several income-driven repayment plans. Other income-
driven repayment plans include the Income- Based Repayment (IBR) plan, 
the Pay As You Earn Repayment (PAYE) plan, and the Revised Pay As You 
Earn Repayment (REPAYE) plan. The IBR, PAYE, and REPAYE plans provide 
lower payment amounts than the ICR plan for most borrowers.
    A Direct Loan borrower who repays under the ICR plan pays the 
lesser of: (1) The monthly amount that would be required over a 12-year 
repayment period 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, as 
required by 34 CFR 685.209(b)(1)(ii)(A). 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 2020, 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 2020
 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 updated the 
income percentage factors that were published in the Federal Register 
on May 22, 2019 (84 FR 23539). 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 2019 and December 2020.
    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. 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.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. You may 
access the official edition of the Federal Register and the Code of 
Federal Regulations at www.govinfo.gov. 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 
this site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department. Program Authority: 20 U.S.C. 1087 et seq.

Mark A. Brown,
Chief Operating Officer, Federal Student Aid.

Attachment 1--Income Percentage Factors for 2020

[[Page 33640]]



                                       Income Percentage Factors for 2020
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                            Single                                          Married/head of household
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                    AGI                           % Factor                    AGI                   % Factor
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$12,392....................................             55.00   $12,392.......................             50.52
$17,051....................................             57.79   $19,552.......................             56.68
$21,940....................................             60.57   $23,300.......................             59.56
$26,940....................................             66.23   $30,461.......................             67.79
$31,715....................................             71.89   $37,736.......................             75.22
$37,736....................................             80.33   $47,398.......................             87.61
$47,398....................................             88.77   $59,444.......................            100.00
$59,445....................................            100.00   $71,496.......................            100.00
$71,496....................................            100.00   $89,573.......................            109.40
$85,929....................................            111.80   $119,691......................            125.00
$110,029...................................            123.50   $161,860......................            140.60
$155,839...................................            141.20   $226,369......................            150.00
$178,683...................................            150.00   $369,903......................            200.00
$318,265...................................            200.00   ..............................  ................
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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 amounts would be under the ICR plan. The calculator 
is called the ``Loan Simulator'' and is available at studentaid.gov/loan-simulator. Based on information entered into the calculator by the 
borrower (for example, income, family size, and tax filing status), 
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 2020 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 2020 were published in the Federal 
Register on January 17, 2020 (85 FR 3060).
     All of the examples use an income percentage factor 
corresponding to an adjusted gross income (AGI) in the table in 
Attachment 1. If an AGI is not listed in the income percentage factors 
table in Attachment 1, the applicable income percentage can be 
calculated 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 Briana, has a 
total outstanding Direct Loan debt of $60,000, of which $40,000 belongs 
to John and $20,000 to Briana, we would apportion 67 percent of the 
monthly ICR payment to John and the remaining 33 percent to Briana. 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 loan entered repayment;
 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 expressed 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 expressed 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 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 
1 by the result from Step 2.

 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. In each of the examples, the Direct Loan 
amounts represent the outstanding principal balance at the time the 
loans entered repayment.
    Example 1. Kesha is single with no dependents and has $15,000 in 
Direct Subsidized and Unsubsidized Loans.

[[Page 33641]]

The interest rate on Kesha's loans is 6 percent, and she has an AGI of 
$31,715.
    Step 1: Determine the total monthly payment amount based on what 
Kesha 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 Kesha's AGI. In this example, an 
AGI of $31,715 corresponds to an income percentage factor of 71.89 
percent.

 0.7189 x $146.38 = $105.23

    Step 3: Now, determine the monthly payment amount equal to 20 
percent of Kesha's 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 HHS Poverty Guideline 
amount for a family of one from Kesha's AGI, multiply the result by 20 
percent, and then divide by 12:

 $31,715-$12,760 = $18,955
 $18,955 x 0.20 = $3,791
 $3,791 / 12 = $315.91

    Step 4: Compare the amount from Step 2 with the amount from Step 3. 
In this example, Kesha would pay the amount calculated under Step 2 
($105.23), since this is the lesser of the two payment amounts.

    Note: Kesha would have a lower payment under other income-driven 
repayment plans. Specifically, Kesha's payment would be $104.79 
under the PAYE and REPAYE plans. However, Kesha's payment would be 
$157.18 under the IBR plan, which is higher than the payment she 
would have under the ICR plan.

    Example 2. Paul is married to Jesse and they have no dependents. 
They file their Federal income tax return jointly. Paul has a Direct 
Loan balance of $10,000, and Jesse has a Direct Loan balance of 
$15,000. Each of their Direct Loans has an interest rate of 6 percent.
    Paul and Jesse have a combined AGI of $89,573 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 Paul's and Jesse'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 Paul and 
Jesse 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, their 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 Paul and Jesse's combined AGI. In 
this example, the combined AGI of $89,573 corresponds to an income 
percentage factor of 109.40 percent.

 1.094 x $243.96 = $266.90

    Step 4: Now, determine the monthly payment amount equal to 20 
percent of Paul and Jesse'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 then divide by 12:

 $89,573-$17,240 = $72,333
 $72,333 x 0.20 = $14,466.60
 $14,466.60 / 12 = $1,205.55

    Step 5: Compare the amount from Step 3 with the amount from Step 4. 
Paul and Jesse would jointly pay the amount calculated under Step 3 
($266.90), since this is the lesser of the two amounts.

    Note: For Paul and Jesse, the ICR plan provides the lowest 
monthly payment of any income-driven repayment plan available. Paul 
and Jesse would not be eligible for the IBR or PAYE plans, and would 
have a combined monthly payment under the REPAYE plan of $530.94.

    Step 6: Because Paul and Jesse are jointly repaying their Direct 
Loans under the ICR plan, the monthly payment amount calculated under 
Step 5 applies to Paul's and Jesse's combined 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. Paul has a Direct Loan debt of $10,000 and Jesse has a 
Direct Loan debt of $15,000. For Paul, the monthly payment amount will 
be:

 $10,000 / ($10,000 + $15,000) = 40 percent
 0.40 x $266.90 = $106.76

    For Jesse, the monthly payment amount will be:

 $15,000 / ($10,000 + $15,000) = 60 percent
 0.60 x $266.90 = $160.14

    Example 3. Santiago is single with no dependents and has a combined 
balance of $60,000 in Direct Subsidized and Unsubsidized Loans. Each of 
Santiago's loans has an interest rate of 6 percent, and Santiago's AGI 
is $37,736.
    Step 1: Determine the total monthly payment amount based on what 
Santiago 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 Santiago's AGI. In this example, an 
AGI of $37,736 corresponds to an income percentage factor of 80.33 
percent.

 0.8033 x $585.51 = $470.34

    Step 3: Now, determine the monthly payment amount equal to 20 
percent of Santiago's 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 HHS Poverty Guideline 
amount for a family of one from Santiago's AGI, multiply the result by 
20 percent, and then divide by 12:

 $37,736-$12,760 = $24,976
 $24,976 x 0.20 = $4,995.20
 $4,995.20 / 12 = $416.27

    Step 4: Compare the amount from Step 2 with the amount from Step 3. 
In this example, Santiago would pay the amount calculated under Step 3 
($416.27), since this is the lesser of the two amounts.

    Note: Santiago would have a lower payment under each of the 
other income-driven plans. Specifically, Santiago's payment would be 
$154.97 under the PAYE and REPAYE plans and $232.45 under the IBR 
plan.

    Interpolation. If an AGI is not included on the income percentage 
factor table, calculate the income percentage factor through linear 
interpolation. For example, assume that Jocelyn is single with an AGI 
of $50,000.
    Step 1: Find the closest AGI listed that is less than Jocelyn's AGI 
of $50,000 ($47,398) and the closest AGI listed that is greater than 
Jocelyn's AGI of $50,000 ($59,445).
    Step 2: Subtract the lower amount from the higher amount (for this 
discussion we will call the result the ``income interval''):

 $59,445-$47,398 = $12,047

    Step 3: Determine the difference between the two income percentage 
factors that correspond to the AGIs 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


[[Page 33642]]


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

 $50,000-$47,398 = $2,602

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

 $2,602 / $12,047 = 21.60 percent

    Step 6: Multiply the result of Step 5 by the income percentage 
factor interval that was calculated in Step 3:

 11.23 percent x 21.60 percent = 2.43 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 an AGI of $50,000:

 2.43 percent + 88.77 percent = 91.20 percent (rounded to the 
nearest hundredth)

    The result is the income percentage factor that we will use to 
calculate Jocelyn'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 AGIs under each of the 
income-driven repayment plans and the 10-Year Standard Repayment Plan. 
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 calculations in 
Attachment 3 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 and that the 
borrower's spouse does not have Federal student loans. A field with a 
``--'' character indicates that the borrower in the example would not 
be eligible to enter the applicable income-driven repayment plan based 
on the borrower's AGI, loan debt, and family size.

                                            Sample First-Year Monthly Repayment Amounts for a Single Borrower
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                                                                     Family size = 1
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                                          AGI               Plan              $20,000         $40,000         $60,000         $80,000        $100,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Debt......................         $20,000  ICR.................            $116            $161            $195            $209            $232
                                                    IBR.................              11              --              --              --              --
                                                    PAYE................               7             174              --              --              --
                                                    REPAYE..............               7             174             340             507             674
                                                    10-Year Standard....             222             222             222             222             222
                                            40,000  ICR.................             121             321             390             417             463
                                                    IBR.................              11             261              --              --              --
                                                    PAYE................               7             174             340              --              --
                                                    REPAYE..............               7             174             340             507             674
                                                    10-Year Standard....             444             444             444             444             444
                                            60,000  ICR.................             121             454             586             626             695
                                                    IBR.................              11             261             511              --              --
                                                    PAYE................               7             174             340             507              --
                                                    REPAYE..............               7             174             340             507             674
                                                    10-Year Standard....             666             666             666             666             666
                                            80,000  ICR.................             121             454             781             835             926
                                                    IBR.................              11             261             511             761              --
                                                    PAYE................               7             174             340             507             674
                                                    REPAYE..............               7             174             340             507             674
                                                    10-Year Standard....             888             888             888             888             888
                                           100,000  ICR.................             121             454             787           1,044           1,158
                                                    IBR.................              11             261             511             761           1,011
                                                    PAYE................               7             174             340             507             674
                                                    REPAYE..............               7             174             340             507             674
                                                    10-Year Standard....           1,110           1,110           1,110           1,110           1,110
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                 Sample First-Year Monthly Repayment Amounts for a Married or Head-of-Household Borrower
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                                                                     Family size = 3
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                                          AGI               Plan              $20,000         $40,000         $60,000         $80,000        $100,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Debt......................         $20,000  ICR.................              $0            $152            $195            $204            $224
                                                    IBR.................               0              93              --              --              --
                                                    PAYE................               0              62              --              --              --
                                                    REPAYE..............               0              62             229             395             562
                                                    10-Year Standard....             222             222             222             222             222
                                           $40,000  ICR.................               0             305             390             408             448
                                                    IBR.................               0              93             343              --              --
                                                    PAYE................               0              62             229             395              --
                                                    REPAYE..............               0              62             229             395             562
                                                    10-Year Standard....             444             444             444             444             444
                                           $60,000  ICR.................               0             305             586             611             672
                                                    IBR.................               0              93             343             593              --
                                                    PAYE................               0              62             229             395             562
                                                    REPAYE..............               0              62             229             395             562
                                                    10-Year Standard....             666             666             666             666             666
                                            80,000  ICR.................               0             305             638             815             896
                                                    IBR.................               0              93             343             593             843

[[Page 33643]]

 
                                                    PAYE................               0              62             229             395             562
                                                    REPAYE..............               0              62             229             395             562
                                                    10-Year Standard....             888             888             888             888             888
                                           100,000  ICR.................               0             305             638             971           1,120
                                                    IBR.................               0              93             343             593             843
                                                    PAYE................               0              62             229             395             562
                                                    REPAYE..............               0              62             229             395             562
                                                    10-Year Standard....           1,110           1,110           1,110           1,110           1,110
--------------------------------------------------------------------------------------------------------------------------------------------------------

[FR Doc. 2020-11818 Filed 6-1-20; 8:45 am]
 BILLING CODE 4000-01-P