[Federal Register Volume 88, Number 7 (Wednesday, January 11, 2023)]
[Proposed Rules]
[Pages 1894-1930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28605]



[[Page 1893]]

Vol. 88

Wednesday,

No. 7

January 11, 2023

Part V





Department of Education





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34 CFR Part 685





Improving Income-Driven Repayment for the William D. Ford Federal 
Direct Loan Program; Proposed Rule

  Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 / 
Proposed Rules  

[[Page 1894]]


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DEPARTMENT OF EDUCATION

34 CFR Part 685

[Docket ID ED-2023-OPE-0004]
RIN 1840-AD81


Improving Income-Driven Repayment for the 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 
income-contingent repayment plans by amending the Revised Pay as You 
Earn (REPAYE) repayment plan, and to restructure and rename the 
repayment plan regulations under the William D. Ford Federal Direct 
Loan (Direct Loan) Program, including combining the Income Contingent 
Repayment (ICR) and the Income-Based Repayment (IBR) plans under the 
umbrella term of ``Income-Driven Repayment (IDR) plans.''

DATES: We must receive your comments on or before February 10, 2023.

ADDRESSES: Comments must be submitted via the Federal eRulemaking 
Portal at regulations.gov. However, if you require an accommodation or 
cannot otherwise submit your comments via Regulations.gov, please 
contact the program contact person listed under FOR FURTHER INFORMATION 
CONTACT. The Department will not accept comments submitted by fax or by 
email or comments submitted after the comment period closes. To ensure 
that the Department does not receive duplicate copies, please submit 
your comment only once. Additionally, please include the Docket ID at 
the top of your comments.
    The Department strongly encourages you to submit any comments or 
attachments in Microsoft Word format. If you must submit a comment in 
Adobe Portable Document Format (PDF), the Department strongly 
encourages 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 
Department to electronically search and copy certain portions of your 
submissions to assist in the rulemaking process.
    Federal eRulemaking Portal: Please go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for finding a rule on the site 
and submitting comments, is available on the site under ``FAQ.''
    Privacy Note: The Department's policy is to generally make comments 
received from members of the public available for public viewing at 
www.regulations.gov. Therefore, commenters should include in their 
comments only information about themselves that they wish to make 
publicly available. Commenters should not include in their comment any 
information that identifies other individuals or that permits readers 
to identify other individuals. If, for example, your comment describes 
an experience of someone other than yourself, please do not identify 
that individual or include information that would allow readers to 
identify that individual. The Department will not make comments that 
contain personally identifiable information (PII) about someone other 
than the commenter publicly available on www.regulations.gov for 
privacy reasons. This may include comments where the commenter refers 
to a third-party individual without using their name if the Department 
determines that the comment provides enough detail that could allow one 
or more readers to link the information to the third party. If your 
comment refers to a third-party individual, to help ensure that your 
comment is posted, please consider submitting your comment anonymously 
to reduce the chance that information in your comment about a third 
party could be linked to the third party. The Department will also not 
make comments that contain threats of harm to another person or to 
oneself available on www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Richard Blasen, Office of 
Postsecondary Education, 400 Maryland Ave. SW, Washington, DC 20202. 
Telephone: (202) 987-0315. Email: [email protected].
    If you are deaf, hard of hearing, or have a speech disability and 
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose of This Regulatory Action

    College affordability and student loan debt are significant 
challenges for many Americans. Student loan debt has risen to $1.6 
trillion in aggregate over the past 10 years, and the inability to 
repay student loan debt has been cited as a major obstacle to middle 
class milestones such as homeownership.\1\ In this notice of proposed 
rulemaking (NPRM), the Department proposes several significant 
improvements to the repayment plans available to student loan borrowers 
to make it easier for borrowers to repay their loans.
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    \1\ R. Chakrabarti, N. Gorton, and W. van der Klaauw, ``Diplomas 
to Doorsteps: Education, Student Debt, and Homeownership,'' Federal 
Reserve Bank of New York Liberty Street Economics (blog), April 3, 
2017, https://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-and-homeownership/http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-andhomeownership.html.
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    The Department convened the Affordability and Student Loans 
negotiated rulemaking committee (Committee) between October 4, 2021, 
and December 10, 2021,\2\ to consider proposed regulations for the 
Federal student financial aid programs authorized under title IV of the 
Higher Education Act of 1965, as amended (title IV, HEA programs). The 
Committee operated by consensus, which means that there must be no 
dissent by any member for the Committee to be considered to have 
reached agreement. The Committee did not reach consensus on the topic 
of IDR plans.
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    \2\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn#loans?
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    On July 13, 2022, the Department published in the Federal Register 
(87 FR 41878) an NPRM related to other topics which were considered by 
the Affordability and Student Loans Committee. The Department published 
the final rule on November 1, 2022, 87 FR 65904, (Affordability and 
Student Loans Final Rule).
    This NPRM addresses IDR plans (repayment plans that base a 
borrower's monthly payment amount on the borrower's income and family 
size). These proposed changes to the rules governing IDR plans would 
help ensure that student loan borrowers have greater access to 
affordable repayment terms based upon their income, resulting in lower 
monthly payments and lower amounts repaid over the life of a loan.
    The Department proposes to amend Sec. Sec.  685.102, 685.208, 
685.209, 685.210, 685.211, and 685.221 to reflect the proposed changes 
to IDR plans. The proposed IDR regulations would expand the benefits of 
the REPAYE plan, including providing more affordable monthly payments, 
by increasing the amount of income protected from the calculation of 
the borrower's payments, lowering the share of unprotected income used 
to calculate payment amounts on undergraduate debt, reducing the amount 
of time before reaching forgiveness for borrowers with

[[Page 1895]]

low balances, and not charging any remaining accrued interest each 
month after applying a borrower's payment. The proposed regulations 
would also allow borrowers to receive credit toward forgiveness for 
certain periods of deferment or forbearance.
    The proposed regulations would streamline and standardize the 
Direct Loan Program repayment regulations by categorizing existing 
repayment plans into three types: fixed payment repayment plans, which 
are plans with monthly payments based on the scheduled repayment 
period, loan debt, and interest rate; IDR plans, which are plans with 
monthly payments based in whole or in part on the borrower's income and 
family size; and the alternative repayment plan, which is only used on 
a case-by-case basis when a borrower has exceptional circumstances.\3\ 
As part of the reorganization of the regulations, the Department seeks 
to standardize and clarify the regulations (including changes to the 
terms of the plans themselves), refine sections of the regulations that 
may be ambiguous to reflect the Department's long-standing 
interpretation of those regulations, and simplify the procedures and 
terms of the existing plans.
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    \3\ https://www.ecfr.gov/current/title-34/subtitle-B/chapter-VI/part-685/subpart-B/section-685.208.
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    The Affordability and Student Loans Committee discussed and reached 
consensus on proposed regulatory changes that would remove most events 
from the current rules that require interest capitalization. That 
Committee also discussed but did not reach consensus on IDR. This NPRM 
proposes changes to IDR. We addressed interest capitalization in the 
Affordability and Student Loans Final Rule. In this NPRM, we make 
technical and conforming changes to that language as part of the 
reorganization of regulatory language for IDR plans.

Summary of the Major Provisions of This Regulatory Action

    The proposed regulations would make the following changes to the 
IDR plans (Sec.  685.209):
     Expand access to affordable monthly payments on Direct 
Loans through changes to the REPAYE repayment plan.
     For borrowers on the REPAYE plan, increase the amount of 
income exempted from the calculation of the borrower's payment amount 
from 150 percent of the applicable poverty guideline to 225 percent of 
the applicable poverty guideline.
     Lower the share of discretionary income that the REPAYE 
formula would mandate be put toward monthly payments so that borrowers 
with only outstanding loans for an undergraduate program pay 5 percent 
of their discretionary income and those who have outstanding loans for 
undergraduate and graduate programs pay between 5 and 10 percent based 
upon the weighted average of their original principal balances 
attributable to those different program levels.
     Provide for a shorter repayment period and earlier 
forgiveness for borrowers with low original loan principal balances.
     Simplify the provision that a borrower who fails to 
recertify their income is placed on an alternative repayment plan.
     Under the modified REPAYE plan, cease charging any 
remaining accrued interest each month after applying a borrower's 
payment.
     Make additional improvements that help borrowers benefit 
from the IDR plans by allowing borrowers to receive credit toward 
forgiveness for certain periods of deferment or forbearance. For 
periods of deferment or forbearance for which borrowers do not 
automatically receive credit, borrowers could make additional payments 
through a new provision that would allow them to also get credit for 
those months. The proposed regulations would also allow borrowers to 
maintain credit toward forgiveness for payments made prior to 
consolidating their loans.
     Streamline and standardize the Direct Loan Program 
repayment regulations by locating all repayment plan provisions in 
sections of the regulations that are listed by repayment plan type: 
fixed payment, income-driven, and alternative repayment plans.
     Clarify the repayment plan options available to borrowers 
through streamlining of the regulations and reduce complexity in the 
student loan repayment system by phasing out enrollment in the existing 
IDR plans to the extent that current law allows, except that no 
borrower would be required to switch to a different repayment plan.
     Eliminate burdensome and confusing recertification 
regulations for borrowers using IDR plans.
     Make updates to appropriate cross-references.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis (RIA), the proposed regulations would have significant impacts 
on borrowers, taxpayers, and the Department. The effects related to the 
Department could also include some costs on the entities it contracts 
with to service student loans.
    Borrowers would benefit from more affordable IDR plans and 
streamlining of existing IDR plans. The proposed IDR changes would help 
borrowers to avoid delinquency and defaults, which are harmful for 
borrowers and create administrative complexities for collection. For 
borrowers who might otherwise be averse to taking on debt and who would 
be willing to borrow Federal student loans under this more affordable 
IDR plan, the additional borrowing may help them to enroll, stay in 
school, and complete their degrees.
    Additionally, the Department would benefit from streamlining 
existing IDR plans as administration of repayment plans would be 
easier.
    Costs associated with these proposed changes to IDR plans include 
implementation costs and increased costs of the student loan programs 
to the taxpayers in the form of transfers to borrowers who would pay 
less on their loans. The implementation costs include paying student 
loan servicers to adjust their systems. As detailed in the RIA, the 
proposed changes are estimated to have a net budget impact of $137.9 
billion across all loan cohorts through 2032.
    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 clearly 
identify the specific section or sections of the proposed regulations 
that each of your comments addresses and to arrange your comments in 
the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive 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. The Department also welcomes comments on any 
alternative approaches to the subject addressed in the proposed 
regulations.
    During and after the comment period, you may inspect public 
comments about these proposed regulations by accessing Regulations.gov.
    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

[[Page 1896]]

disability who needs assistance to review the comments or other 
documents in the public rulemaking record for these proposed 
regulations. If you want to schedule an appointment for this type of 
accommodation or auxiliary aid, please contact one of the persons 
listed under FOR FURTHER INFORMATION CONTACT.

Background

    The Department's regulations currently contain more than a half 
dozen repayment plans: standard, extended, graduated, alternative, IBR, 
ICR, Pay As You Earn (PAYE), and REPAYE. Of these, eligible borrowers 
may choose from up to four different repayment plans where monthly 
payment amounts are based in part on a borrower's income, referred to 
collectively as IDR plans: IBR, ICR, PAYE, and REPAYE.
    When the HEA was initially enacted, it contained only one repayment 
plan: the standard repayment plan. Under the standard repayment plan, 
borrowers are required to repay their loans in full within 10 years 
from the date the loan entered repayment by making fixed monthly 
payments, or between 10 and 30 years if the loan is a Direct or Federal 
Family Education Loan (FFEL) Program Consolidation Loan. Over the 
years, Congress has added other plans designed to keep amortized 
repayment amounts affordable. Those plans relied on traditional tools 
like extending the repayment period and allowing for lower initial 
payments that increase on a set schedule over time. More specifically, 
the extended repayment plan provides for fixed, but smaller, monthly 
payments over a 25-year period instead of a 10-year period. However, 
the extended repayment plan is only available if the borrower owes more 
than $30,000. The plan is also limited to those who borrowed after 
October 7, 1998. However, that date limitation alone is unlikely to 
affect significant numbers of borrowers at this time.
    The graduated repayment plan allows borrowers to repay their loans 
by making small payments at the beginning of their repayment period, 
and gradually increasing payments in later years. Under the graduated 
repayment plan, a borrower is required to repay the loan in full within 
10 years from the date the loan entered repayment, or between 10 and 30 
years if the loan is a Direct or FFEL Consolidation loan.
    When Congress passed legislation to create the Direct Loan Program, 
it included the original ICR plan as an option for borrowers in that 
program.\4\ ICR provides a flexible alternative to the traditional 
standard, extended, and graduated repayment plans also offered under 
the HEA.\5\ Under the ICR plan, a borrower's monthly payment amount is 
generally calculated based on the total amount of the borrower's Direct 
Loans, family size, and adjusted gross income (AGI). A borrower's 
required monthly payment amount is determined to be the lesser of (1) 
20 percent of their discretionary income (AGI less 100 percent of the 
applicable poverty guideline), divided by 12, or (2) the amount the 
borrower would repay annually over 12 years when using standard 
amortization multiplied by an income percentage factor corresponding to 
the borrower's AGI, divided by 12.
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    \4\ This NPRM uses the term income-driven repayment (IDR) to 
refer to all payment options that allow borrowers to make payments 
based upon their income. Income-contingent repayment plans refer to 
a subset of IDR options, whose terms are created through regulation. 
The plans created under the ICR authority are income-contingent 
repayment, Pay As You Earn, and Revised Pay As You Earn.
    \5\ https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm.
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    In 2007, Congress established the IBR plan and made it available to 
borrowers in both the Direct Loan and FFEL Programs. The IBR plan 
requires borrowers to make monthly payments of 15 percent of their 
discretionary income (AGI minus 150 percent of the poverty guideline 
based upon their family size, divided by 12) and provides forgiveness 
after the equivalent of 25 years' worth of monthly payments. Congress 
modified the IBR plan in 2010 to lower the percentage of income a 
borrower must pay monthly to 10 percent of their discretionary income 
and shortened the time to forgiveness to 20 years' worth of monthly 
payments. These revised IBR terms are only available to new borrowers 
as of 2014. This revised plan is sometimes referred to as the ``New 
IBR.'' Congress also required that, to qualify for either version of 
the IBR plan, a borrower must have a partial financial hardship (PFH). 
A PFH means that a borrower's calculated payment on IBR had to be at or 
below what the borrower would have paid on the 10-year standard plan.
    The next income-contingent repayment plan, the PAYE repayment plan, 
became available on July 1, 2013. In general, the PAYE plan was 
designed for certain borrowers to get repayment terms similar to IBR 
even if they borrowed before 2014. PAYE is available to borrowers who 
did not have an outstanding loan balance on or after October 1, 2007, 
but who received at least one loan disbursement on or after October 1, 
2011. The PAYE plan also includes a PFH requirement identical to IBR, 
sets payments at 10 percent of discretionary income, and a loan 
forgiveness time frame equivalent to 20 years of qualifying monthly 
payments.\6\
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    \6\ https://www.govinfo.gov/content/pkg/FR-2012-11-01/html/2012-26348.htm.
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    The latest income-contingent repayment plan became available on 
July 1, 2016, in accordance with President Obama's memorandum directing 
the Department to ensure more Direct Loan borrowers could limit their 
loan payments to 10 percent of their monthly incomes.\7\ To meet this 
goal, the Secretary issued final regulations that added a new income-
contingent repayment plan, the REPAYE plan. This plan was modeled on 
the PAYE plan and may be used to repay any outstanding loans made to a 
borrower under the Direct Loan Program, except for defaulted loans, 
Direct PLUS loans made to a parent borrower to pay the cost of 
attendance for a dependent student, or Direct Consolidation Loans that 
repaid Parent PLUS loans.\8\
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    \7\ https://obamawhitehouse.archives.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments.
    \8\ https://www.federalregister.gov/documents/2015/10/30/2015-27143/student-assistance-general-provisions-federal-family-education-loan-program-and-william-d-ford.
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    In recent years, the Department has become increasingly concerned 
that the current IDR plans do not adequately serve struggling 
borrowers.\9\ Borrowers face a maze of repayment options that may lead 
some borrowers to make suboptimal decisions, struggle with annual 
income re-certification requirements, or never enroll in an IDR plan at 
all and instead fall into delinquency and default. For some borrowers, 
particularly low-income borrowers, the payments on an IDR plan may 
still not be affordable. Borrowers who obtained even small loans, many 
of whom did not complete their credentials, may end up in repayment for 
decades. Borrowers who are making their monthly payments may also see 
their loan balances balloon over time as interest accrues.
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    \9\ See, for example, https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers; https://www.urban.org/research/publication/income-driven-repayment-student-loans-options-reform; and https://bfi.uchicago.edu/working-paper/2020-169/.
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    This proposed regulation is intended to address these challenges 
for borrowers by ensuring access to a more generous, streamlined IDR 
plan. The Department initially considered creating another new 
repayment plan; however, based on concerns about the complexity

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of the student loan repayment system and the challenges of navigating 
multiple IDR plans, we instead propose to reform the current REPAYE 
plan to provide greater benefits to borrowers.\10\
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    \10\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/nov4pm.pdf, p. 68.
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    Making the REPAYE plan more generous would help address concerns 
around borrower confusion, because the Department and those who provide 
repayment plan information to borrowers would be able to present the 
revised plan as the IDR option that would be most affordable for a 
large majority of student borrowers.

Public Participation

    The Department has significantly engaged the public in developing 
this NPRM, including through review of oral and written comments 
submitted by the public during four public hearings. During each 
negotiated rulemaking session, we provided opportunities for public 
comment at the end of each day. Additionally, during each negotiated 
rulemaking session, non-Federal negotiators obtained feedback from 
their stakeholders that they shared with the negotiating committee.
    On May 26, 2021, the Department published a notice in the Federal 
Register (86 FR 28299) announcing our intent to establish multiple 
negotiated rulemaking committees to prepare proposed regulations on the 
affordability of postsecondary education, institutional accountability, 
and Federal student loans.
    The Department developed a list of proposed regulatory provisions 
for the Affordability and Student Loans Committee based on advice and 
recommendations submitted by individuals and organizations in testimony 
at three virtual public hearings held by the Department on June 21 and 
June 23-24, 2021. Additionally, the Department accepted written 
comments on possible regulatory provisions that were submitted directly 
to the Department by interested parties and organizations. You may view 
the written comments submitted in response to the May 26, 2021, Federal 
Register notice on the Federal eRulemaking Portal at 
www.regulations.gov, within docket ID ED-2021-OPE-0077. Instructions 
for finding comments are also available on the site under ``FAQ.''
    Transcripts of the public hearings can be accessed at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn.

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 engage in the negotiated 
rulemaking process before publishing proposed regulations in the 
Federal Register. If negotiators reach consensus on the proposed 
regulations, the Department agrees to publish without substantive 
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: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    The Department held negotiated rulemaking related to this NPRM. The 
negotiated rulemaking session for the Committee consisted of three 
rounds of negotiations that lasted 5 days each.
    On August 10, 2021, the Department published a notice in the 
Federal Register (86 FR 43609) announcing its intention to establish 
the Committee to prepare proposed regulations for the title IV, HEA 
programs. The notice set forth a schedule for Committee meetings and 
requested nominations for individual negotiators to serve on the 
negotiating committee. In the notice, we announced the topics that the 
Committee would address.
    The Committee included the following members, representing their 
respective constituencies:
     Accrediting Agencies: Heather Perfetti, Middle States 
Commission on Higher Education, and Michale McComis (alternate), 
Accrediting Commission of Career Schools and Colleges.
     Dependent Students: Dixie Samaniego, California State 
University, and Greg Norwood (alternate), Young Invincibles.
     Departments of Corrections: Anne L. Precythe, Missouri 
Department of Corrections.
     Federal Family Education Loan Lenders and/or Guaranty 
Agencies: Jaye O'Connell, Vermont Student Assistance Corporation, and 
Will Shaffner (alternate), Higher Education Loan Authority of the State 
of Missouri.
     Financial Aid Administrators at Postsecondary 
Institutions: Daniel Barkowitz, Valencia College, and Alyssa A. Dobson 
(alternate), Slippery Rock University.
     4-Year Public Institutions: Marjorie Dorim[eacute]-
Williams, University of Missouri, and Rachelle Feldman (alternate), 
University of North Carolina at Chapel Hill.
     Independent Students: Michaela Martin, University of La 
Verne, and Stanley Andrisse (alternate), Howard University.
     Individuals With Disabilities or Groups Representing Them: 
Bethany Lilly, The Arc of the United States, and John Whitelaw 
(alternate), Community Legal Aid Society.
     Legal Assistance Organizations That Represent Students 
and/or Borrowers: Persis Yu, National Consumer Law Center, and Joshua 
Rovenger (alternate), Legal Aid Society of Cleveland.
     Minority-Serving Institutions: Noelia Gonzalez, California 
State University.
     Private Nonprofit Institutions: Misty Sabouneh, Southern 
New Hampshire University, and Terrence S. McTier, Jr. (alternate), 
Washington University.
     Proprietary Institutions: Jessica Barry, The Modern 
College of Design in Kettering, Ohio, and Carol Colvin (alternate), 
South College.
     State Attorneys General: Joseph Sanders, Illinois Board of 
Higher Education, and Eric Apar (alternate), New Jersey Department of 
Consumer Affairs.
     State Higher Education Executive Officers, State 
Authorizing Agencies, and/or State Regulators: David Tandberg, State 
Higher Education Executive Officers Association, and Suzanne Martindale 
(alternate), California Department of Financial Protection and 
Innovation.
     Student Loan Borrowers: Jeri O'Bryan-Losee, United 
University Professions, and Jennifer Cardenas (alternate), Young 
Invincibles.
     2-Year Public Institutions: Robert Ayala, Southwest Texas 
Junior College, and Christina Tangalakis (alternate), Glendale 
Community College.
     U.S. Military Service Members and Veterans or Groups 
Representing Them: Justin Hauschild, Student Veterans of America, and 
Emily DeVito (alternate), The Veterans of Foreign Wars.
     Federal Negotiator: Jennifer M. Hong, U.S. Department of 
Education.
    The Department also invited nominations for two advisors. These 
advisors were not voting members of the Committee and did not impact 
the consensus vote; however, they were

[[Page 1898]]

consulted and served as a resource. The advisors were:
     Rajeev Darolia, University of Kentucky, for issues related 
to economic and/or higher education policy analysis and data.
     Heather Jarvis, Fosterus, for issues related to qualifying 
employers on the topic of Public Service Loan Forgiveness.
    The Committee met to develop proposed regulations in October, 
November, and December 2021.
    At its first meeting, the Committee reached agreement on its 
protocols and proposed agenda. The protocols provided, among other 
things, that the Committee would operate by consensus. The protocols 
defined consensus as no dissent by any member of the Committee and 
noted that consensus votes would be taken issue by issue.
    The Committee reviewed and discussed the Department's drafts of 
regulatory language and alternative language and suggestions proposed 
by negotiators and Subcommittee members. The Committee reached 
consensus on interest capitalization. It also reached consensus on 
proposed regulations relating to prison education programs, Total and 
Permanent Disability, and False Certification Discharges that are not 
included in this publication. For more information on the negotiated 
rulemaking sessions, including the work of the Subcommittee, please 
visit: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.

Summary of Proposed Changes

    These proposed regulations would--
     Amend Sec.  685.208 to cover only fixed payment repayment 
plans, which are plans under which monthly payments are based on 
repayment period, loan debt, and interest rate.
     Amend Sec.  685.209 to include regulations for all IDR 
plans, which are plans with monthly payments based in whole or in part 
on income and family size.
     Modify the terms of the REPAYE plan in Sec.  685.209 to 
reduce monthly payment amounts for borrowers. A borrower who only has 
outstanding loans for an undergraduate program would pay 5 percent of 
their discretionary income, and a borrower who only has outstanding 
loans for a graduate program would pay 10 percent of their 
discretionary income. A borrower with outstanding loans from both an 
undergraduate and graduate program would pay an amount between 5 and 10 
percent based upon the weighted average of the original principal 
balances of the loans attributed to the undergraduate or graduate 
programs.
     Modify the REPAYE plan regulations in Sec.  685.209 to 
reduce monthly payments for borrowers by increasing the amount of 
discretionary income exempted from the calculation of payments to 225 
percent of the poverty guideline.
     Modify the REPAYE plan regulations in Sec.  685.209 by 
ceasing to charge any unpaid accrued interest each month after applying 
a borrower's payment.
     Simplify the alternative repayment plan that a borrower is 
placed on if they are removed from the REPAYE plan because they fail to 
recertify their income, and only allow up to 12 payments on this plan 
to count toward forgiveness in Sec.  685.221.
     Reduce the time to forgiveness under the REPAYE plan 
regulations in Sec.  685.209 for borrowers with low original principal 
loan balances.
     Adjust the REPAYE plan regulations in Sec.  685.209 to 
allow borrowers whose tax status is married filing separately to 
exclude their spouse from both the borrower's household income and 
family size.
     Modify the IBR plan regulations in Sec.  685.209 to 
clarify that borrowers in default are eligible to make payments under 
the plan.
     Modify the regulations for all IDR plans in Sec.  685.209 
to allow the following periods of deferment and forbearance to count 
toward forgiveness:
     Cancer treatment deferment under section 455(f)(3) of the 
HEA;
     Rehabilitation training program deferment under Sec.  
685.204(e);
     Unemployment deferment under Sec.  685.204(f);
     Economic hardship deferment under Sec.  685.204(g), which 
includes deferments for Peace Corps service;
     Military service deferment under Sec.  685.204(h);
     Post-active duty student deferment under Sec.  685.204(i);
     National service forbearance under Sec.  685.205(a)(4);
     National Guard Duty forbearance under Sec.  685.205(a)(7);
     U.S. Department of Defense Student Loan Repayment Program 
forbearance under Sec.  685.205(a)(9); and
     Administrative forbearance under Sec.  685.205(b)(8) and 
(9).
     Modify the regulations applicable to all IDR plans in 
Sec.  685.209 to allow borrowers an opportunity to make payments for 
all other periods in deferment or forbearance.
     Modify the regulations for all IDR plans in Sec.  685.209 
to clarify that a borrower's progress toward forgiveness does not fully 
reset when a borrower consolidates loans on which a borrower had 
previously made qualifying payments.
     Modify the regulations for all IDR plans in Sec.  685.209 
to automatically enroll any borrowers who are at least 75 days 
delinquent on their loan payments in the IDR plan for which the 
borrower is eligible and that produces the lowest monthly payments for 
them.
     Modify Sec.  685.209 to limit eligibility for the PAYE 
plan to borrowers who began repaying under the PAYE plan before the 
effective date of these regulations and who continue to repay on that 
plan, and to limit eligibility for the ICR plan to (1) borrowers who 
began repaying under the ICR plan before the effective date of these 
regulations and who continue to repay on that plan, and (2) borrowers 
whose loans include a Direct Consolidation Loan made on or after July 
1, 2006, that repaid a parent PLUS loan.
     Make conforming changes to Sec. Sec.  685.102, 685.210, 
685.211, and 685.221 based on revisions to the sections noted above.

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.
Income-Driven Repayment (Sec. Sec.  685.208 and 685.209)
    Statute: Section 455(d) of the HEA provides that the Secretary will 
offer a variety of plans for repayment of eligible Direct Loans, 
including principal and interest on the loans. Section 455(d)(1)(D) of 
the HEA requires 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. Section 455(e)(4) of the HEA 
authorizes the Secretary to establish income-contingent repayment plan 
procedures and repayment schedules through regulations. Section 
455(e)(2) provides that a repayment schedule for a Direct Loan that is 
repaid pursuant to income-contingent repayment is based on the AGI (as 
defined in section 62 of the Internal Revenue Code of 1986) of the 
borrower or, if the borrower is married and files a Federal income tax 
return jointly with the borrower's spouse, on the AGI of both the 
borrower and the borrower's spouse. Section 455(d)(7) of the HEA 
identifies the periods that the Secretary must include in the

[[Page 1899]]

calculation of the maximum repayment period under the ICR repayment 
plans. This section does not specifically limit the calculation to only 
those periods or specifically preclude the Secretary from using the 
regulatory authority to add additional periods. Additionally, Section 
410 of the General Education Provisions Act (20 U.S.C. 1221e-3) 
provides the Secretary with authority to make, promulgate, issue, 
rescind, and amend rules and regulations governing the manner of 
operations of, and governing the applicable programs administered by, 
the Department. Furthermore, under section 414 of the Department of 
Education Organization Act (20 U.S.C. 3474), the Secretary is 
authorized to prescribe such rules and regulations as the Secretary 
determines necessary or appropriate to administer and manage the 
functions of the Secretary or the Department.
    Current Regulations: Section 685.209 provides for three income-
contingent repayment plans in which a borrower's monthly payment amount 
is based on their AGI, loan debt, and family size. Those plans are the 
ICR, PAYE, and REPAYE plans. Additionally, Sec.  685.221 provides for 
the IBR plan.
    The current regulations in Sec.  685.208(k) provide for a 
discretionary income amount for the ICR plan of the borrower's AGI 
minus the amount for the Federal poverty guidelines for the borrower's 
family size. For the IBR, PAYE, and REPAYE plans, the current 
regulations provide for a discretionary income amount of the borrower's 
AGI minus 150 percent of the Federal poverty guidelines for the 
borrower's family size.
    The current regulations for PAYE, REPAYE, and IBR, at Sec. Sec.  
685.209(a)(1)(i), 685.209(c)(1)(i), and 685.221(a)(1), define 
``adjusted gross income'' as the AGI as reported to the Internal 
Revenue Service (IRS). For all three plans, the AGI of married 
borrowers filing jointly includes both the borrower's and the spouse's 
income. For PAYE and IBR, the AGI of married borrowers filing 
separately includes only the borrower's income; for REPAYE, it includes 
the AGI of the borrower and the spouse, unless the borrower certifies 
that they are separated from or unable to access the spouse's income. 
For the ICR plan, the current regulations at Sec.  
685.209(b)(1)(iii)(A) refer to income as the borrower's AGI. The 
current regulations also provide, at Sec. Sec.  685.209(a)(5)(i)(B), 
685,209(b)(3)(i), 685.209(c)(4)(i)(A), and 685.221(e)(1)(ii), that 
borrowers may submit alternative documentation if the AGI is not 
available or does not reasonably reflect the borrower's current income.
    The current regulations include the PAYE, REPAYE, and ICR plans 
within Sec.  685.209; and the IBR plan in Sec.  685.221. The term 
``income-driven repayment'' is not used in the current regulations.
    Under current regulations, monthly payment amount formulas are 
established for each of the IDR plans, but there is no definition of a 
monthly payment. Current regulations at Sec. Sec.  685.209(a)(1)(iv), 
685.209(c)(1)(iii), and 685.221(a)(3) provide that a borrower's 
``family size'' includes individuals other than a spouse or children if 
such individuals receive more than half of their support from the 
borrower. The IBR regulations in Sec.  685.221(a)(3) specify that 
support includes money, gifts, loans, housing, food, clothes, car, 
medical and dental care, and payment of college costs. Section 685.208 
provides general repayment plan information and specifies which types 
of Direct Loans may be repaid under the various Direct Loan repayment 
plans. This section of the current regulations also describes the terms 
and conditions of the standard, graduated, extended, and alternative 
repayment plans, and includes high-level summaries of the terms of the 
income-contingent repayment plans and the IBR plan.
    For the REPAYE plan, Sec.  685.209(c)(1)(ii) defines an ``eligible 
loan'' for the purposes of adjusting a borrower's monthly payment 
amount as any outstanding loan made to a borrower under the Direct Loan 
Program or the FFEL Program except for a defaulted loan or any Direct 
PLUS Loan or Federal PLUS Loan made to a parent borrower or any Direct 
Consolidation Loan or Federal Consolidation Loan that repaid a PLUS 
loan made to a parent borrower.
    Section 685.209(c)(2)(ii)(B) provides that if a married borrower 
and the borrower's spouse each have eligible loans, the Secretary 
adjusts the borrower's REPAYE plan monthly payment amount by 
determining each individual's percentage of the couple's total eligible 
loan debt and then multiplies the borrower's calculated monthly payment 
amount by this percentage.
    Section 685.209(c)(3)(iii) specifies when the annual notification 
for income recertification must be sent to a borrower, the date that 
documentation should be received by the Secretary, and the consequences 
if documentation is not received within 10 days of the annual deadline 
specified in the notice.
    Sections 685.210(a)(1) and 685.210(b) establish the requirements 
for borrowers when they choose a repayment plan, including the 
procedures for initial selection of a plan and for changing plans. 
Section 685.210(a)(2) authorizes the Secretary to designate the 
standard repayment plan for a borrower who does not select a plan 
before they enter repayment.
    In Sec.  685.211, which addresses miscellaneous repayment 
provisions, Sec.  685.211(a) describes how payments and prepayments are 
applied in the different repayment plans and Sec.  685.211(b) provides 
that, to encourage on-time repayment, the Secretary may reduce the 
interest rate for a borrower who repays a loan under a repayment plan 
or on a schedule that meets the requirements specified by the 
Secretary.
    Section 685.221 describes the IBR plan, which is available to 
borrowers who have a partial financial hardship. Pursuant to Sec.  
685.221(b)(1), the borrower's aggregate monthly loan payments are 
limited to no more than 15 percent or, for a new borrower as of 2014, 
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.
    Proposed Regulations: The proposed regulations would simplify, 
clarify, and standardize the Direct Loan Program repayment regulations, 
including organizing the regulations by repayment plan type. In 
particular, the regulations would significantly revise the terms of the 
REPAYE plan to address a range of identified shortcomings in the 
current IDR plans and limit future enrollment of student borrowers into 
other repayment plans created by regulation. This would simplify 
borrowers' repayment choices. In addition, the Department proposes to 
revise other provisions related to the IBR and ICR plans to make it 
easier for borrowers to make progress toward forgiveness.
    Proposed revised Sec.  685.208 would be retitled ``Fixed payment 
repayment plans'' and would cover the standard, graduated, and extended 
repayment plans, which are plans under which monthly payments are based 
on repayment period, loan debt, and interest rate.
    The Department proposes to remove provisions related to the ICR 
plan, the alternative repayment plan, and the IBR plan from Sec.  
685.208(k), (l), and (m), and to remove the regulations governing the 
IBR plan from Sec.  685.221. We propose to include the regulations 
governing all of the IDR plans in revised Sec.  685.209, which would be 
retitled ``Income-driven repayment plans.'' Proposed revised Sec.  
685.221 would contain the regulations governing the alternative 
repayment plan that are currently in Sec.  685.208(l). In

[[Page 1900]]

proposed Sec.  685.209(f)(1), (h)(i), and (k)(i)-(ix), the Department 
proposes to modify the REPAYE plan to increase the amount of 
discretionary income exempted from the calculation of payments to 225 
percent of the applicable poverty guideline, reduce monthly payment 
amounts as a percentage of discretionary income from 10 percent to 5 
percent for the share of a borrower's total original loan principal 
volume attributable to outstanding loans received by the borrower to 
pay for an undergraduate program, not charge any remaining accrued 
interest after applying a borrower's monthly payment, and reduce the 
time to forgiveness under the plan for borrowers to as short as the 
equivalent of 10 years of qualifying payments for those with original 
loan balances of $12,000 or less.
    The Department proposes a definition of ``discretionary income'' in 
Sec.  685.209(b) that would increase the discretionary income 
threshold, exempting a greater portion of borrowers' incomes from the 
determination of payment amount, for the REPAYE plan. Discretionary 
income would be defined as the borrower's AGI minus 225 percent of the 
Federal poverty guidelines for the borrower's family size.
    The Department proposes to clarify that, for all IDR plans, 
``income'' means the borrower's AGI and, if applicable, the spouse's 
income, as reported to the IRS. The definition of income would also 
provide that, instead of AGI, the Secretary may accept an amount 
calculated based on alternative documentation of all forms of taxable 
income received by the borrower.
    The proposed regulations would establish a new definition of 
``income-driven repayment plans.'' That proposed definition would 
specify that an IDR plan is one in which the monthly payment amount is 
primarily based on the borrower's income.
    The Department proposes to establish a new definition of ``monthly 
payment or the equivalent'' in Sec.  685.209(b) that would define a 
monthly payment as the required payment made under one of the IDR 
plans; a month in which a borrower receives certain deferments or 
forbearances under one of the conditions in proposed Sec.  
685.209(k)(4)(iv)(A) through (J); or a month in which a borrower makes 
a payment in accordance with the procedures in proposed Sec.  
685.209(k)(6). Under proposed Sec.  685.209(k)(6)(i), borrowers 
participating in any of the IDR plans would be able to apply toward the 
time required for forgiveness any period of deferment or forbearance 
that is not otherwise eligible to be counted toward forgiveness if the 
borrower makes a payment equal to or greater than the amount that would 
have been required during that period on any income-driven repayment 
plan, including, pursuant to Sec.  685.209(k)(4)(i), a payment of $0.
    The proposed regulations would establish a stand-alone definition 
of ``support'' in proposed Sec.  685.209(b) that mirrors the definition 
in the current IBR regulations at Sec.  685.221(a)(3).
    Under Sec.  685.209(k)(5), the Department proposes to amend the 
terms of the IBR plan to allow borrowers in default to make payments 
under the IBR plan that would count toward loan forgiveness.
    Proposed Sec.  685.209(k)(4)(v) would apply to all IDR plans and 
would provide that a borrower's progress toward forgiveness does not 
fully reset when a borrower consolidates one or more Direct or FFEL 
Program Loans into a Direct Consolidation Loan, as it does under 
current regulations. Instead, the Department would determine how many 
qualifying payments the borrower made on the loans consolidated, and 
then assign a qualifying payment count to the Direct Consolidation Loan 
that is based on the weighted average of the qualifying payments, using 
the loan balance as the weighting factor (as it is also used to prorate 
borrower-level IDR payments down to the loan level).
    Proposed Sec.  685.209(m)(3) would provide that any student 
borrower who is at least 75 days delinquent on their loan payments 
would be automatically enrolled in the IDR plan that results in the 
lowest monthly payment based on the borrower's income and family size, 
as long as the borrower has provided approval for the disclosure of tax 
information, the borrower otherwise qualifies for the plan, and that 
the IDR plan would lower the borrower's payment.
    Under Sec.  685.209(c)(2), the Department proposes to modify the 
eligibility requirements of the IBR plan to limit eligibility for this 
plan to borrowers who have a partial financial hardship and who have 
not made 120 qualifying payments on the REPAYE plan on or after the 
effective date of the regulation.
    Under Sec.  685.209(c)(3), the Department proposes to modify the 
eligibility requirements of the PAYE plan to limit eligibility for this 
plan to borrowers enrolled in the PAYE plan as of the effective date of 
the regulation.
    Under Sec.  685.209(c)(4), the Department also proposes to modify 
the eligibility requirements of the ICR plan to limit eligibility for 
this plan to borrowers currently enrolled in the ICR plan as of the 
effective date of the regulations, or to borrowers whose loans include 
a Direct Consolidation Loan that repaid a Parent PLUS loan.
    The Department proposes to amend Sec. Sec.  685.102, 685.210, 
685.211, and 685.221 to include conforming changes based on revisions 
to the sections noted above. We also propose to make technical 
corrections to Sec. Sec.  685.219, 685.220, 685.222, and 685.403 for 
consistency with the changes related to interest capitalization in the 
Affordability and Student Loans Final Rule.
Reasons
Definitions (Sec.  685.209(b))
    For ease of understanding, the Department has combined all of the 
IDR plans in proposed Sec.  685.209. This would ensure all the relevant 
information is available to borrowers and other stakeholders in a 
single location in the regulations.
    The Department has proposed to incorporate into the definition of 
``discretionary income'' an increase in the amount of the discretionary 
income level for the REPAYE plan, exempting more of borrowers' incomes 
from being used to calculate their monthly payment amounts on that 
plan. As discussed elsewhere in this NPRM, the Department is concerned 
that payments remain unaffordable on IDR plans for too many borrowers. 
By definition, borrowers in poverty have family financial resources 
insufficient to meet the costs of basic necessities and should not be 
expected to afford any amount of loan payments. The Department sought 
to define the level of necessary income protection by assessing the 
level where rates of financial hardship are significantly lower than 
the rate among those in poverty. Based upon an analysis discussed 
further in the Income Protection Threshold section of this document, 
the Department found that point to be 225 percent of the Federal 
poverty guidelines.
    To simplify the definition of ``income,'' the Secretary has 
proposed to clarify that the Secretary will rely on the borrower's AGI, 
the spouse's AGI, if applicable, or alternative documentation of the 
borrower's income. These changes are largely technical, designed to 
streamline the regulations and ensure consistency in the language.
    The Department has proposed to add a definition of ``IDR plans'' to 
ensure clarity in the new organization of the regulations, which places 
all IDR plans in Sec.  685.209.
    The Department is concerned that the current approach to defining a 
monthly payment is too narrow. Some borrowers are forced to choose 
between accessing

[[Page 1901]]

a deferment or forbearance for which they qualify or losing out on 
progress toward forgiveness. In some cases, borrowers have found it 
difficult to navigate those decisions. As described later in this NPRM, 
the Department has proposed to include certain deferments and 
forbearances as the equivalent of a qualifying payment, ensuring 
borrowers will continue to receive progress toward forgiveness. We also 
propose to establish procedures that would provide borrowers with some 
greater flexibility in such cases. This definition would incorporate 
both such circumstances into the definition of a ``monthly payment or 
equivalent.''
    The inclusion of a proposed definition of ``support'' would ensure 
greater consistency in the treatment of borrowers' family size across 
IDR plans, providing for a single and consistent defined term. The 
proposed language itself reflects existing language for the IBR plan.
Borrower Eligibility for IDR Plans (Sec.  685.209(c))
    The Department is not proposing to change which types of loans are 
eligible to be repaid under the different IDR plans. We propose to 
maintain the current practice in which all types of Direct Loans to 
students are eligible to be repaid on the REPAYE plan. With regard to 
parent PLUS loans, the HEA states that such loans may not be repaid 
under an ICR plan or the IBR plan, and Direct Consolidation Loans that 
repaid a parent PLUS loan may not be repaid under the IBR plan. 
However, a Direct Consolidation Loan disbursed after July 1, 2006, that 
repaid a parent PLUS loan may be repaid under an ICR plan (but not 
under any of the other IDR plans).
    The Department is proposing additional eligibility changes to 
streamline the repayment options available to borrowers. As part of the 
Department's goal of creating an IDR plan that is the best option for 
borrowers, we propose to limit future enrollment in the PAYE or ICR 
plans after the effective date of these regulations. The Department 
proposes limiting enrollment in PAYE to borrowers enrolled on that plan 
as of the effective date of these regulations so long as the borrowers 
stay enrolled on that plan. Borrowers who have not yet signed up for 
PAYE by the effective date of these regulations, or those who leave the 
plan, would not be eligible to sign up for it after the effective date 
of these regulations. The Department proposes the same change with 
respect to ICR with one exception. Borrowers with a Direct 
Consolidation loan made on or after July 1, 2006, who repaid a parent 
PLUS loan could continue to choose the ICR plan after the effective 
date of these regulations.
    The Department believes these changes would help accomplish its 
goal of simplifying repayment options for borrowers. With this change, 
all student borrowers in repayment would be able to access an IDR 
option through REPAYE, and many would be able to choose between two IDR 
options: IBR, for which the terms are specified in the statute, and 
REPAYE. The Department anticipates that REPAYE would provide the lowest 
monthly payments for essentially all low- or moderate-income student 
borrowers; this change would make it easier for borrowers to navigate 
repayment and enroll in the most affordable IDR plans.
    The Department also proposes to limit the ability of borrowers to 
switch into IBR once they have completed 120 payments on REPAYE. 
Because the Department is proposing that borrowers with loans 
attributed to a graduate program must make 300 qualifying payments to 
receive forgiveness, we are concerned that a borrower might choose to 
make the lower payments available on REPAYE and then switch to IBR to 
receive immediate forgiveness. Doing so would run counter to the goals 
for the REPAYE plan, which is to reduce payments for all borrowers but 
still require borrowers with graduate loans to pay longer before 
receiving forgiveness. As graduate borrowers generally have larger 
balances than undergraduate borrowers, this helps to ensure that both 
groups repay a similar share of their balances. In addition, by 
preventing borrowers from switching after 120 payments, we propose to 
give borrowers ample time to decide between making lower payments on 
REPAYE or the possibility of forgiveness after the equivalent of 20 
years on IBR.
Income Protection Threshold (Sec.  685.209(f))
    Several non-Federal negotiators argued that a larger amount of 
borrowers' income should be excluded from the formula for calculating 
monthly payments. They stated that the current protection level in the 
PAYE and REPAYE plans of 150 percent of the poverty guideline ($20,385 
for a single individual and $41,625 for a family of four in 2022) is 
not adequate to ensure low-income borrowers can afford their basic 
needs and that the amount of income protection should be increased.\11\ 
Some of the non-Federal negotiators argued that the threshold should be 
250 percent of the poverty guideline, while several others suggested 
that 400 percent of the poverty guideline would be more appropriate, 
especially in areas where the cost of living is substantially 
higher.\12\
---------------------------------------------------------------------------

    \11\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/107pm.pdf, p. 64.
    \12\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/108am.pdf, p. 28.
---------------------------------------------------------------------------

    The Department agrees with the non-Federal negotiators that the 
current amount of income protected is too low. Accordingly, in Sec.  
685.209(f)(1), the Department proposes to increase the amount of 
discretionary income exempted from the calculation of payments in the 
REPAYE plan to 225 percent of the Federal poverty guideline. The 
Department chose this threshold based on an analysis of data from the 
Survey of Income and Program Participation (SIPP) for individuals who 
are aged 18-65 who attended college and who have outstanding student 
loan debt. The Department looked for the point at which the share of 
those who report material hardship--either being food insecure or 
behind on their utility bills--is statistically different from those 
whose family incomes are at or below the Federal poverty 
guidelines.\13\ The results of this analysis are shown in Table 1 
below.
---------------------------------------------------------------------------

    \13\ Department analysis of data from the Survey of Income and 
Program Participation, Census Bureau. For more on the SIPP, please 
see: https://www.census.gov/programs-surveys/sipp.html. The data 
track a subset of proxies for material hardship. We focus on two 
measures commonly used in the literature on material hardship and 
poverty: food insecurity and being behind on utility bills. We focus 
on differences in these measures across income categories relative 
to rates of hardship for individuals living in poverty, rather than 
comparing the absolute levels to any particular reference standard. 
We avoid interpretation of the absolute level since the measures do 
not offer a comprehensive indication of hardship; it should not be 
inferred, for example, that individuals who do not report these two 
measures of hardship experience no material hardships.

[[Page 1902]]



 Table 1--Rates of Material Hardship by Family Income Groups Relative to
                            Poor Individuals
------------------------------------------------------------------------
                                                       Fraction who are
 Family income as a multiple of the Federal Poverty    food insecure or
                  Line  (FPL) \14\                      behind on bills
------------------------------------------------------------------------
Poor (family income < 100% FPL).....................    ** 0.279 (0.016)
------------------------------------------------------------------------
        Rate of material hardship relative to families in poverty
------------------------------------------------------------------------
100-125% FPL........................................       0.040 (0.039)
125-150% FPL........................................       0.000 (0.033)
150-175% FPL........................................      -0.037 (0.032)
175-200% FPL........................................      -0.046 (0.033)
200-225% FPL........................................      -0.060 (0.033)
225-250% FPL........................................    **-0.088 (0.033)
250-275% FPL........................................    **-0.151 (0.025)
275-300% FPL........................................    **-0.167 (0.028)
300-325% FPL........................................    **-0.148 (0.024)
325-350% FPL........................................    **-0.180 (0.025)
350-375% FPL........................................    **-0.189 (0.024)
375-400% FPL........................................    **-0.188 (0.025)
400-450% FPL........................................    **-0.219 (0.021)
450-500% FPL........................................    **-0.224 (0.018)
500-600% FPL........................................    **-0.230 (0.019)
600-700% FPL........................................    **-0.243 (0.017)
>700% FPL...........................................    **-0.247 (0.016)
N...................................................              13,513
------------------------------------------------------------------------
** p<0.01
Note: Analysis based on 2020 Survey of Income and Program Participation.
  In the analysis, an indicator for whether an individual experiences
  material hardship (i.e., reports either being food insecure or behind
  on bills) is regressed on a constant term and a series of indicators
  corresponding to categories of family income relative to the Federal
  poverty line. Both hardship and family income are measured during
  2019. The estimation sample includes individuals aged 18 to 65 who
  have outstanding education debt, are not enrolled as of December in
  the reference year (2019), and report at least some college
  experience. The first row of the table displays the estimated
  coefficient on the constant term, showing that about 27.9 percent of
  individuals in poverty experience material hardship. Subsequent rows
  show the estimated difference in the rate of material hardship for
  each income group relative to those in poverty. Standard errors shown
  in parentheses are estimated using replicate weights from the Census
  that account for the SIPP survey design, and 2 stars denote estimated
  coefficients that are statistically different from zero at the 0.01
  significance level.

    Based upon this analysis, individuals with family incomes up to and 
including 225 percent of the Federal poverty guidelines have rates of 
material hardship that are statistically indistinguishable from 
borrowers with income below 100 percent of the Federal poverty 
guidelines. Drawing on these results, we believe borrowers with income 
below 225 percent of the Federal poverty guidelines should not be 
expected to make loan payments.
---------------------------------------------------------------------------

    \14\ This table uses the phrase Federal Poverty Line in place of 
the term Federal Poverty Guidelines.
---------------------------------------------------------------------------

    Moreover, the 225 percent threshold would be better aligned with 
the minimum wage in many States. Assuming an average of 2,000 hours 
worked in a year, an individual who makes 150 percent of the poverty 
guideline for a single-person household is earning $10.19 an hour. That 
is below the minimum wage in 22 States plus the District of Columbia 
and less than $0.25 above the rate for three other States.\15\ 
Combined, those 25 States plus the District of Columbia are home to 56 
percent of Americans aged 25 or older with at least some college 
education.\16\ By contrast, a threshold of 225 percent of the poverty 
guideline represents an hourly wage of $15.28 in 2022 for a single-
person household. At this level, the REPAYE plan would continue to 
protect the amount a single minimum-wage worker with no dependents 
would earn in every State in 2023.\17\ The higher income protection 
amount would also address the Department's concern that a too-high 
payment amount is one reason that many borrowers fall behind on their 
payments or default on their loans, despite the availability of IDR 
plans. This concern is particularly germane to lower-income borrowers, 
who cannot afford to repay at all. The Department believes that 
protecting more of a borrower's income, coupled with other proposed 
regulatory changes related to auto-enrollment for delinquent borrowers, 
would result in more low-income borrowers enrolling in IDR and in fewer 
defaulting on their student loans. Increasing the income protection 
threshold would better achieve the goals of IDR, allow more low-income 
borrowers to qualify for $0 monthly payments, and allow more borrowers 
to cover the cost of necessities without becoming delinquent on their 
student loans.
---------------------------------------------------------------------------

    \15\ https://www.dol.gov/agencies/whd/mw-consolidated.
    \16\ U.S. Census Bureau, ``Table S1501: Educational 
Attainment,'' 2020 ACS 5-year estimates, https://data.census.gov/cedsci/table?q=education%20by%20state&tid=ACSST5Y2020.S1501&moe=false&tp=true.
    \17\ https://www.dol.gov/agencies/whd/minimum-wage/state.
---------------------------------------------------------------------------

Payment Amounts (Sec.  685.209(f))
    Many non-Federal negotiators also emphasized the need to reduce the 
required payments for borrowers on IDR plans. This included some 
suggestions that the Department should limit all payments to 5 percent 
of a borrower's discretionary income. Qualitative research shows that 
high numbers of borrowers on IDR plans still find their payments to be 
unaffordable,\18\ and the most common complaint received by the 
Department from borrowers on the structure of IDR plans is that their 
payments are still unaffordable on those plans.
---------------------------------------------------------------------------

    \18\ https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers.
---------------------------------------------------------------------------

    Borrowers who struggle to repay their student loans are likely to 
have a lower payment option on IDR than other repayment plans. If the 
payment amount under IDR is still not affordable, then a borrower may 
not be able to make any payments and, as a result, end up in

[[Page 1903]]

delinquency or default. When that occurs, the IDR plans do not achieve 
their goals of establishing affordable payments for borrowers. By 
contrast, requiring a lower monthly payment amount would increase the 
likelihood that a borrower can afford and will make their required 
payments. Research has shown that usage of existing IDR plans reduces 
delinquencies by 33 percentage points.\19\ Offering lower payment 
amounts under the REPAYE plan than those available on the other IDR 
plans would also contribute to the goals of being affordable based on 
income and family size, as well as providing the lowest payment option 
of any IDR plan for almost all borrowers.
---------------------------------------------------------------------------

    \19\ https://www.aeaweb.org/articles?id=10.1257/app.20200362.
---------------------------------------------------------------------------

    In proposed revisions to the REPAYE plan in Sec.  
685.209(f)(1)(ii), the Department proposes to reduce--to 5 percent of 
discretionary income--the payment on the share of a borrower's total 
original loan principal balance that is attributable to loans they 
received as a student in an undergraduate program. Under proposed Sec.  
685.209(f)(1)(iii), borrowers would continue to pay 10 percent of their 
discretionary income on the share of their total original principal 
loan balances attributable to loans they received as a student in a 
graduate program that are still outstanding when the borrower begins 
using the REPAYE plan. Borrowers who have outstanding loans for both 
undergraduate and graduate programs would pay an amount between 5 and 
10 percent based upon the weighted average of their original principal 
loan balances, regardless of whether the loans have been consolidated 
or not. For example, a borrower who has $20,000 in loans received as a 
student for undergraduate study and $60,000 in loans received as a 
student for graduate study would pay 8.75 percent of their 
discretionary income, while one who has $30,000 from their 
undergraduate education and $10,000 from their graduate education would 
pay 6.25 percent of their discretionary income. The Department proposes 
to use the original principal loan balance a borrower received for 
these calculations so that it would be easier for a borrower to 
understand how their payment rate is calculated and so that future 
borrowers can factor this information into decisions about how much to 
borrow. This calculation would only be based on loans that are still 
outstanding.
    The Department proposes to treat loans attributed to undergraduate 
programs differently than graduate programs for several reasons. First, 
there are lower annual and cumulative limits on loans for undergraduate 
borrowers than there are for loans for graduate borrowers. Graduate and 
professional students are eligible to receive Direct PLUS Loans in 
amounts up to the cost of attendance established by the school they are 
attending, less other financial aid received. The lack of specific 
dollar limits on the amount of PLUS loans for graduate students means 
borrowers can take on significantly more debt for those programs than 
they can for undergraduate programs. The Department is concerned that 
setting payments at 5 percent of discretionary income for graduate 
loans could result in borrowers taking on significant additional debt 
that they will not be able to repay. The Department is not concerned 
that keeping the rate at 10 percent for graduate loans would create a 
further incentive for additional borrowing because that is the same 
rate that is already available to graduate borrowers on several 
different IDR plans. We do not, however, propose to increase the 
payment rate for graduate borrowers above the current REPAYE threshold 
of 10 percent. The Department is concerned that setting a higher 
payment rate for graduate borrowers--beyond what is available on IBR 
for new borrowers, PAYE, and the existing REPAYE plan--would not result 
in a plan that is clearly the best IDR option for most student 
borrowers. That would result in the Department not achieving its 
desired goal of making it easier for borrowers to navigate repayment.
    Second, the Department is more concerned about the potential for 
undergraduate borrowers to struggle with delinquency and default than 
it is for graduate borrowers. Department data on borrowers in default 
as of December 31, 2021 show that 90 percent of borrowers who are in 
default on their Federal student loans had only borrowed for their 
undergraduate education. Just 1 percent of borrowers who are in default 
had loans only for graduate studies. Similarly, just 5 percent of 
borrowers who only have graduate debt are in default on their loans, 
compared with 19 percent of those who have debt from undergraduate 
programs.\20\
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    \20\ Department of Education analysis of loan data by academic 
level for total borrower population and defaulted borrower 
population, conducted in FSA's Enterprise Data Warehouse, with data 
as of December 31, 2021.
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    The Department proposes reducing the share of discretionary income 
a borrower would pay on their loans that are attributable to an 
undergraduate program to 5 percent as a way of addressing several 
concerns raised by negotiators and public commenters during the 
negotiated rulemaking process, as well as concerns identified through 
focus groups of borrowers and reviews of complaints received by the 
Ombudsman's office within the office of Federal Student Aid (FSA). In 
the former category, the Department heard repeatedly about concerns 
that the current amount of income required to be devoted to payments is 
too high and that it is a particular challenge for borrowers who are 
located in areas with higher costs of living, because current IDR 
formulas do not consider expenses. In the latter category, the 
Department has heard from borrowers who noted that they were willing to 
make payments on their loans but could not afford amounts as large as 
what current formulas calculate. A survey conducted by the Pew 
Charitable Trusts also found that almost half of borrowers surveyed who 
had been or were enrolled in an IDR plan at the time of the survey 
still found their monthly payments unaffordable.\21\
---------------------------------------------------------------------------

    \21\ Travis Plunkett, Regan Fitzgerald, Lexi West, Many Student 
Loan Borrowers Will Need Help When Federal Pause Ends, Survey Shows 
(July 15, 2021), https://www.pewtrusts.org/en/research-and-analysis/articles/2021/07/15/many-student-loan-borrowers-will-need-help-when-federal-pause-ends-survey-shows
---------------------------------------------------------------------------

    The Department proposes the reduction of payments to 5 percent to 
address these concerns through the REPAYE plan. The Department does not 
think it would be feasible to vary the amount of student loan payments 
by locality because it would introduce significant operational 
complexity and result in inconsistent borrower treatment across the 
country. Attempting to conduct individualized analyses of a borrower's 
expenses would create similarly significant challenges to the point of 
being impossible for the Department to administer. Reducing the share 
of discretionary income applied to the payment amount would, however, 
have a similar effect by providing borrowers with lower monthly loan 
payments.
    The Department proposes reducing the share of discretionary income 
for loans obtained for undergraduate programs to 5 percent to ensure 
better parity between the payment reductions undergraduate borrowers 
receive from IDR, relative to the standard plan, compared to graduate 
borrowers. Because graduate borrowers generally have higher loan 
balances than undergraduate borrowers, if an undergraduate borrower and 
graduate borrower have the same income level, it is highly likely that 
the latter will have significantly larger reductions in

[[Page 1904]]

monthly payments than they would have on the 10-year standard plan due 
to IDR than the former if undergraduate and graduate loans are treated 
the same.
    An example highlights how using the same share of income for 
payments by undergraduate and graduate borrowers creates inequities. 
All of these figures are based upon the 2015-16 National Postsecondary 
Student Aid Study and use the 2016 Federal poverty guideline of $11,880 
for a single individual. Consider two borrowers: Borrower A finished an 
undergraduate program with the median amount of Federal loan debt for 
an undergraduate borrower ($20,062), while Borrower B finished a 
graduate program with the median amount of debt for a graduate program 
($41,000). Borrower A's loans have a 4 percent interest rate, while 
Borrower B's are at 5.55 percent, the same difference in interest rates 
between undergraduate and graduate Direct Stafford loans that currently 
exists in statute. They both earn $50,000 and are the only members of 
their households. As a result, they would have equal payments of $162 
per month in an IDR plan that uses the proposed 225 percent of the 
Federal poverty level as the income protection threshold and charges 10 
percent of discretionary income. However, for Borrower A, this is just 
$41 less than the $203 they would pay on the 10-year standard plan. 
Borrower B, however, pays $284 less because their 10-year standard plan 
payment would have been $446. In fact, if both borrowers made $60,000, 
then Borrower A would pay $42 more per month under IDR than on the 10-
year standard plan, while Borrower B would still pay $200 less.
    The Department is concerned that using the same payment rate (as a 
share of discretionary income) to determine payment amounts for 
undergraduate and graduate borrowers would thus result in inequities 
between the two, whereby an undergraduate borrower would receive lower 
payment reductions relative to the 10-year standard repayment plan. It 
is not possible to fix this problem by equalizing the amount that 
monthly payments decrease, since the underlying payments on a 10-year 
standard plan for higher-balance loans will always be larger than those 
for lower-balance loans.
    Instead of trying to equalize decreases in monthly payments, the 
Department calculated how to construct a payment formula in which the 
income at which an undergraduate borrower who completes their program 
with median debt ceases to benefit from IDR is equal to the income at 
which the graduate borrower who completes their program with median 
debt also ceases to benefit. Put another way, the Department looked at 
what share of discretionary income would ensure that a borrower with 
only the typical level of graduate loan debt could not benefit more at 
higher incomes than a borrower with only undergraduate loan debt.
    To calculate that point, the Department first determined how much a 
graduate borrower in a single-person household with the median graduate 
loan balance could earn and still benefit from IDR. Another way to 
think of this is, ``What is the income level at which the payment 
calculated for IDR is equal to the payment on the 10-year standard 
plan?''. For graduate borrowers, we used $41,000, which is the median 
amount of Federal loans borrowed for graduate school among students who 
borrowed for graduate school and finished their program in 2015-16.\22\ 
While this includes any completer who has Federal loan debt for 
graduate school in this year, we intentionally did not include 
undergraduate debt held by these borrowers, in order to address 
potentially differential treatment between a borrower who only has 
undergraduate debt from one who only has graduate debt. Based on that 
$41,000 amount, the income level for a single individual where they 
cease seeing a payment reduction under IDR is approximately $80,000 in 
2016. Next, the Department performed the same calculation for a 
borrower with the median undergraduate debt amount of $20,062, varying 
the discretionary income amount in whole percentage points in 
descending order from 10 percent.\23\ The Department found that a 
payment rate equal to 5 percent of discretionary income would allow a 
single borrower with only undergraduate loans up to $75,500 in 2016 
income to receive benefits. That number is closer to the figure for a 
graduate borrower than 4 percent would be ($87,700). Accordingly, the 
Department believes charging borrowers 5 percent of discretionary 
income for the undergraduate portion of their debt provides the 
appropriate amount to ensure greater parity between graduate and 
undergraduate borrowers, in terms of their incentives to choose an IDR 
plan.
---------------------------------------------------------------------------

    \22\ Department analysis of data from the National Postsecondary 
Student Aid Study 2015-16 using the PowerStats web tool at https://nces.ed.gov/datalab/. Table ID: rlaubc.
    \23\ Department analysis of data from the National Postsecondary 
Student Aid Study 2015-16 using the PowerStats web tool using the 
PowerStats web tool at https://nces.ed.gov/datalab/. Table ID: 
zonpin.
---------------------------------------------------------------------------

    By providing reduced payments for loans that a borrower received as 
a student in an undergraduate program, the proposed regulations would 
better target the benefits of the changes to IDR toward those who are 
more likely to struggle with their debt. A borrower who has only 
obtained loans for their graduate studies would still benefit from 
several other provisions in the IDR payment plans. These benefits 
include the larger amount of income protected from payments, not 
charging borrowers any remaining accrued interest after applying their 
monthly payment, and counting time spent in several deferments and 
forbearances toward forgiveness. The Department believes the approach 
to lower payments for undergraduate loans is preferable to setting an 
even higher income exemption than the 225 percent of the Federal 
poverty guideline proposed in this regulation. As noted in the 
discussion on the rationale for the 225 percent threshold, that is the 
point at which the share of those who report material hardship--being 
either food insecure or behind on their utility bills--is statistically 
different from those whose family incomes are at or below the Federal 
poverty guidelines. The Department thus believes it is appropriate for 
borrowers to make payments once their incomes exceed that 225 percent 
threshold. However, we want to make sure the payment a borrower makes 
when their income exceeds that threshold is affordable. This change 
thus accomplishes that goal.
    In proposing reductions in the payment rate solely for 
undergraduate loans, the Department is consciously emphasizing greater 
benefits for borrowers who have undergraduate debt compared to those 
who only have debt for graduate school. As borrowers' monthly payments 
are based on the ratio of their undergraduate borrowing to their 
graduate borrowing, borrowers with the highest ratios of undergraduate 
to graduate borrowing would have the lowest monthly payments, even if 
they borrowed more overall. While graduate school can provide 
significant benefits, the Department is concerned that the majority of 
low-income students need to take out student loans in order to complete 
an undergraduate education--particularly if they want to obtain the 
bachelor's degree that is a necessary precursor to graduate school. For 
instance, data from the 2015-16 National Postsecondary Student Aid 
Study (NPSAS) show that 84 percent of Pell Grant recipients who 
completed a bachelor's degree that year also had

[[Page 1905]]

Federal loan debt compared to 51 percent of those who did not receive 
Pell.\24\ Not surprisingly then, approximately two-thirds of borrowers 
who obtained a bachelor's degree in 2015-16 also received a Pell 
Grant.\25\
---------------------------------------------------------------------------

    \24\ Department analysis of data from the National Postsecondary 
Student Aid Study 2015-16 using the PowerStats web tool at https://nces.ed.gov/datalab/. Table ID: dzzbcp.
    \25\ Department analysis of data from the National Postsecondary 
Student Aid Study 2015-16 using the PowerStats tool at https://nces.ed.gov/datalab/. Table ID: jbryls.
---------------------------------------------------------------------------

    Setting payments at 5 percent of discretionary income for the 
portion of loans attributed to undergraduate education means that a 
lower-income borrower who has to take on debt for their undergraduate 
and graduate education, and thus ends up with a larger debt balance 
than someone who only had to borrow for graduate school, is not 
penalized the way they would be if the share of income was calculated 
based upon the total debt held or some similar way of calculating 
payments. The Department does not believe that this possibility would 
encourage many borrowers to take on significantly more undergraduate 
debt to lower possible future graduate loan payments. For one, many 
undergraduate students do not plan to attend graduate school. Second, 
for those planning to attend graduate school, the strict loan limits 
for undergraduate student borrowers would limit how much more they 
could borrow.
Interest Benefits (Sec.  685.209(h))
    Proposed Sec.  685.209(h) would address how the Secretary charges 
the remaining accrued interest to a borrower if the borrower's 
calculated monthly payment under an IDR plan is insufficient to pay the 
accrued interest on the borrower's loans. For the REPAYE plan, the 
Department proposes to not charge any remaining accrued interest to a 
borrower's account each month after applying a borrower's payment.
    This would be an expansion of the current REPAYE plan interest 
benefit, which covers all of the remaining interest on subsidized loans 
only for the first 3 years of repayment in the plan, and then 50 
percent of the remaining interest on subsidized loans after the first 3 
years. For unsubsidized loans, the current REPAYE plan interest subsidy 
benefit covers 50 percent of the remaining interest during all years of 
repayment under the plan.
    The Department proposes to increase the interest benefit due to 
concerns that the current structure of IDR plans risks discouraging 
borrowers from selecting the plans in the first place or from 
continuing to pay on them due to loan balance growth. The current IDR 
plans allow borrowers to pay less each month than what they would under 
the 10-year standard plan and, in the case of IBR and PAYE, require 
borrowers to have monthly payments below what they would owe on the 10-
year standard plan. Unlike the standard, extended, or graduated plans, 
there is no requirement that monthly payments be sufficient to at least 
cover the amount of interest that accumulates each month. While most 
IDR plans do not charge some of the accumulating interest, the 
remaining portion of interest continues to accrue and over years that 
amount of interest accrual may be significant. As a result, many 
borrowers make their required payments each month but still see their 
balances continue to grow. In fact, the Department estimates that 70 
percent of borrowers on existing IDR plans have seen their balances 
grow after entering those plans.\26\
---------------------------------------------------------------------------

    \26\ Department of Education internal analysis of loan data for 
borrowers enrolled in IDR plans, conducted in FSA's Enterprise Data 
Warehouse, with data as of March 2020.
---------------------------------------------------------------------------

    The Department is concerned that growing balances due to unpaid 
interest may discourage borrowers from repaying their loans and, thus, 
result in lower amounts repaid to the government. Focus groups 
conducted by the Pew Research Center have found that interest accrual 
is a common source of borrower frustration and creates negative 
incentives for borrowers to stick with loan repayment.\27\ Those same 
focus groups found that interest accrual created ``psychological and 
financial barriers to repayment,'' as borrowers lost motivation to 
repay and felt that they were trapped in debt indefinitely. Focus 
groups conducted by New America in 2015 similarly found that while 
borrowers understood the concept of how interest works, the rate of 
accrual and seeing balances continuing to increase had negative 
effects, such as higher-than-anticipated loan balances due to interest 
that would accrue while they were enrolled in school, during a loan 
deferment, or during a forbearance.\28\ Those same focus groups found 
that while the borrowers who used IDR liked it, there were concerns 
about borrowers ending up paying far more than they would have repaid 
on the standard 10-year plan--an outcome that is a function of interest 
accumulation. Multiple annual reports from the FSA Ombudsman have also 
found that borrowers struggle to understand how the different repayment 
plans work and the interplay between lower monthly payments and higher 
interest accumulation.\29\ Because IDR plans are the only repayment 
options that have no long-term protections against negative 
amortization, the Department is concerned that continued balance growth 
on these plans could dissuade borrowers from enrolling or recertifying 
enrollment in these plans. The potential for these negative incentives 
could be even greater as a result of the increases in the amount of 
income protected from payments and the reduction in payments tied to 
undergraduate loan balances. Were the Department to leave the interest 
benefits unchanged, those payment reductions would result in even 
greater amounts of interest accumulation for borrowers. That would risk 
undermining the Department's overall goals of providing student 
borrowers with one clear IDR option. Not all of the interest that would 
no longer be charged under this proposal is a true new cost to the 
government. Borrowers whose incomes are particularly low relative to 
their debt balances would end up with significant interest accumulation 
that would be forgiven after the borrower makes the necessary number of 
qualifying payments. For those borrowers, not charging interest as it 
accumulates instead of forgiving it at the end of the IDR repayment 
term would have no additional cost to the government. And in doing so, 
it has the added benefit of encouraging increased repayment.
---------------------------------------------------------------------------

    \27\ https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf.
    \28\ https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf.
    \29\ https://studentaid.gov/sites/default/files/FY_2019_Federal_Student_Aid_Annual_Report_Final_V2.pdf; https://studentaid.gov/sites/default/files/FSA-FY-2018-Annual-Report-Final.pdf; https://studentaid.gov/sites/default/files/fy2020-fsa-annual-report.pdf.
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    Not charging any remaining accrued interest to the borrower's 
account after applying a borrower's payment would also help the 
Department accomplish its overall goals of simplifying repayment. 
Adding this benefit would further cement REPAYE as the best IDR option 
for most student borrowers.
    This change to the interest benefits would also remove a 
significant tradeoff for borrowers between choosing an IDR plan or one 
of the fixed repayment plans, none of which allow for monthly payments 
that are less than the amount of interest that accrues each month. 
Limiting interest accumulation would also increase the attractiveness 
of IDR relative to a discretionary forbearance. While borrowers on IDR 
would still have to make a payment, they would also not see the 
interest accumulation that happens to a borrower on a

[[Page 1906]]

discretionary forbearance. This may help more borrowers to enroll in 
this affordable repayment plan, and may then reduce student loan 
delinquencies and defaults, to the benefit of the Department and of 
taxpayers.
    For borrowers who may have already experienced interest 
accumulation from being on an IDR plan, the Department notes that 
changes to the treatment of interest capitalization in the final rule 
published on November 1, 2022, 87 FR 65904, (Affordability and Student 
Loans Final Rule) will provide some assistance. That rule eliminated 
instances of interest capitalization when a borrower leaves the ICR, 
PAYE, or REPAYE plans. That means if a borrower decides those plans are 
no longer for them or they fail to recertify on time, they will not see 
their principal balance grow. We incorporated conforming changes here 
as part of our proposed changes to the IDR regulations.
    That rule did not eliminate interest capitalization when a borrower 
leaves the IBR plan, including if they fail to recertify. However, the 
Department proposes to partly address this issue through the 
implementation of changes made in accordance with the FUTURE Act (Pub. 
L. 116-91), the Coronavirus Aid, Relief, and Economic Security (CARES) 
Act (Pub. L. 116-136), and the Consolidated Appropriations Act, 2021 
(Pub. L. 116-260), which direct the IRS, upon the written request of 
the Department, to disclose to any authorized person tax return 
information to determine eligibility for recertifications for IDR 
plans. This will make it easier to automatically recertify a borrower's 
participation in IDR plans.
Deferments and Forbearances (Sec.  685.209(k))
    The Department also proposes to provide credit toward IDR 
forgiveness for periods in which a borrower is in certain deferment and 
forbearance periods by treating those periods as a qualifying payment 
for the purposes of IDR. Overall, the Department's goal in providing 
credit toward forgiveness for some of these deferments and forbearances 
is to avoid situations in which a borrower is presented with 
conflicting benefits, in these cases an opportunity to pause payments 
or make progress toward ultimate loan forgiveness. There are many 
different benefits available to borrowers in navigating student loan 
repayment. This can create unintended consequences, such as confusing 
choices for borrowers by putting in conflict the benefits of pausing 
payments for specific activities or conditions, such as types of 
national service or receiving certain medical care and making progress 
toward forgiveness. As a result, there are too many instances in which 
borrowers may inadvertently sacrifice months of credit toward 
forgiveness.
    During the negotiated rulemaking sessions, the negotiators focused 
on proposals for providing credit toward forgiveness for each month 
when a borrower was in one of the identified types of deferment and 
forbearance. In addition, several of the negotiators felt it was 
important to retroactively apply the benefit for borrowers who received 
specific deferments and forbearances in the past.\30\ The Department 
agrees that it is appropriate to allow certain past periods of 
deferment and forbearance to count toward forgiveness because of 
concerns that the Department's loan servicers did not provide 
appropriate guidance and assistance to borrowers to ensure that they 
understood the full consequences of their decisions to take a deferment 
or forbearance. We believe that many borrowers did not understand that, 
by taking out a deferment or forbearance, they were delaying the time 
in which they could have the loan forgiven. To address this history, we 
are proposing to give a borrower credit for specific periods of 
deferment or forbearance because those deferments and forbearance 
periods are most likely to be periods in which a borrower would have 
benefitted from an IDR plan if they had received proper advice. This 
change does not affect the borrower's past usage of these deferments or 
forbearances. Rather, when a borrower requests an IDR repayment plan 
after the effective date of these regulations, the Department would 
award credit for those prior periods spent in a deferment or 
forbearance.
---------------------------------------------------------------------------

    \30\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7pm.pdf, p. 33.
---------------------------------------------------------------------------

    This proposal aligns with administrative actions already announced 
by the Department to address concerns about past handling of deferments 
and forbearances. In April 2022, the Department announced it would make 
an administrative account adjustment to award credit to borrowers with 
Direct or FFEL Loans that we manage.\31\ As part of that announcement, 
the Department announced that we would award credit toward forgiveness 
on IDR when a borrower spent more than 12 months consecutive or more 
than 36 months cumulative in forbearance. Similarly, the Department 
would award credit toward IDR forgiveness for all periods spent in a 
deferment prior to 2013, excluding time spent in an in-school 
deferment. This reflects concerns that borrowers may not have been 
getting proper credit for economic hardship deferments.
---------------------------------------------------------------------------

    \31\ https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=.
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    Under current Sec.  685.209, only time spent in an economic 
hardship deferment counts toward IDR forgiveness. However, borrowers 
who meet the eligibility criteria for certain other types of deferments 
might similarly be expected to have a $0 payment if they were making 
payments under an IDR plan. For example, the unemployment deferment is 
available to borrowers who do not have a job and are actively seeking 
employment and who, therefore, might qualify for a $0 IDR payment. 
Similarly, the rehabilitation training deferment requires a borrower to 
make a substantial commitment that could prevent them from working 
full-time, potentially resulting in a calculated IDR payment of $0. 
Accordingly, we are proposing to count periods of unemployment and 
rehabilitation training deferment as the equivalent of making 
qualifying payments toward IDR plan loan forgiveness. We also seek 
feedback on whether, if possible to operationalize, the Department 
should include comparable deferments that are available under 34 CFR 
685.204(j)(2) to Direct Loan borrowers who had an outstanding balance 
on a FFEL Program loan made before July 1, 1993, when they received 
their first Direct Loan.
    In other situations, the Department proposes to provide credit 
toward forgiveness by counting deferments and forbearances as 
qualifying payments out of concern that borrowers should not have to 
face the tradeoff of using an opportunity to pause their payments for a 
specific situation versus continuing to make progress toward 
forgiveness. Allowing these deferments and forbearances to count toward 
IDR forgiveness would avoid the risk that a borrower could miss the 
opportunity to gain months or years of progress toward forgiveness by 
making the wrong choice or because they received inaccurate advice. 
Specifically, in proposed Sec.  685.209(k)(4)(iv), the Department 
proposes to include deferments tied to military service, service in the 
Peace Corps, and post-active duty, and forbearances related to national 
service or National Guard Duty, because the Department is concerned 
that judging the relative tradeoffs between obtaining a deferment or 
forbearance and otherwise making progress toward forgiveness generates 
confusion for

[[Page 1907]]

borrowers and results in borrowers inadvertently losing months of 
progress toward forgiveness because of the complexity. The Department 
also proposes to provide credit toward forgiveness for time spent while 
the borrower is in a forbearance for loan repayment through the U.S. 
Department of Defense because of concerns about borrowers being 
confused about this benefit versus seeking forgiveness in IDR. 
Similarly, the Department is concerned about borrowers being able to 
successfully navigate between the cancer treatment deferment and IDR 
when they are ill and undergoing necessary medical care.
    The Department also proposes to give credit toward forgiveness for 
periods in which a borrower has their payments paused for reasons 
outside their control. This would include periods of mandatory 
administrative forbearance when a servicer, not at the request of the 
borrower and for administrative reasons, pauses a borrower's payments 
while the servicer reviews other information about the borrower's 
loans. We believe that it is reasonable to assign credit toward 
forgiveness for periods where the Department pauses payments while 
reviewing paperwork so that the borrower is not worse off due to any 
administrative challenges the Department faces. At the same time, the 
Department hopes that the simpler rules around tracking payments for 
IDR would reduce the time a borrower spends in one of these mandatory 
administrative forbearances.
    Several non-Federal negotiators also raised concerns that many 
borrowers may have paused their payments through deferments or 
forbearances because of misinformation or actions by their 
servicer.\32\ This may include situations where a borrower would have 
had a $0 payment on an IDR plan but was placed in a forbearance 
instead. While the Department is deeply concerned about ensuring that 
borrowers receive accurate counseling on the best repayment option for 
them, we believe the best solution to this problem is the process in 
proposed Sec.  685.209(k)(6) that gives borrowers a chance to gain 
credit toward forgiveness for any month spent in a deferment or 
forbearance. This option would not apply to months spent in a deferment 
or forbearance that the Department is already proposing should be 
treated as a qualifying month toward forgiveness. The proposed process 
would give the borrower the opportunity to submit an additional payment 
or payments for each month spent in deferment or forbearance at the 
lesser of what they would have paid on the 10-year standard plan or an 
IDR plan at that time. A borrower who ended up on a deferment or 
forbearance when they should have had a $0 IDR payment would thus be 
able to receive credit for all those months without making additional 
payments. If the Department cannot calculate the IDR payment for that 
period with existing data in its possession, then it would ask the 
borrower to furnish the information it needs to calculate what the 
payment on IDR should have been.
---------------------------------------------------------------------------

    \32\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/nov4pm.pdf.
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    Non-Federal negotiators suggested some alternative ideas for 
addressing concerns around usage of deferments or forbearances, which 
included counting all periods of forbearance or automatically counting 
certain periods of forbearance before a certain date. Under those 
proposals, a borrower would have a strong incentive to request a 
discretionary forbearance, which does not have the same explicit 
eligibility standards as many other deferments and forbearances. This 
would allow many borrowers who could make payments to receive credit 
toward IDR forgiveness for months, if not years, when they could have 
been making payments. Instead, we believe the inclusion of the specific 
deferment and forbearance categories identified in this proposed rule 
would strike an appropriate balance by removing the downside risk of 
deferments and forbearances by allowing them to count towards 
forgiveness, while ensuring that borrowers continue to make payments 
when they are able.
Treatment of Income and Loan Debt (Sec.  685.209(e))
    Some of the non-Federal negotiators argued that repayment should be 
calculated based solely on the borrower's income and should not 
consider the income of spouses who did not obtain student loans. 
Ultimately, they argued, repayment of student loans is the 
responsibility of the borrower.\33\ During the public comment period on 
December 9, 2021, one participant stated, ``Calculating repayment using 
the nonborrower's income, married filing jointly, dramatically 
increases the repayment amount beyond the borrower's affordability. It 
financially penalizes the nonborrowing spouse for being married to the 
student. It creates an undue financial hardship on the nonborrower and 
it disincentivizes some marriages in otherwise already stressed, 
economic circumstances.'' \34\
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    \33\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf, p. 104.
    \34\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf, p. 104.
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    The Department proposes in Sec.  685.209(e)(1) to make the 
requirements for including or excluding married borrowers' incomes more 
consistent across all IDR plans, and to avoid the complications that 
might be created by requesting spousal information when married 
borrowers have filed their taxes separately, such as in cases of 
domestic abuse, divorce, or separation. The Department notes, however, 
that section 455 of the HEA requires that the repayment schedule for an 
ICR plan be based upon the borrower and the spouse's AGI if they file a 
joint tax return.
    The Department agrees that there are benefits to allowing the 
treatment of spouses' income of married borrowers in all IDR plans to 
mirror the PAYE and IBR plans, which include only the borrower's income 
in the calculation of the monthly payment amount in the case of married 
borrowers who file separate Federal income tax returns. First, 
establishing the same procedures and requirements across each of the 
IDR plans with respect to spouses' income would alleviate any confusion 
a borrower may have when selecting a plan that meets their needs. 
Secondly, having different requirements for different plans would 
create operational difficulty for the Department in the processing of 
application requests. Finally, excluding spousal income under all IDR 
plans for borrowers who file separate tax returns would create a 
process that is more streamlined and simplified when it comes to 
borrowers enrolling in an IDR plan. For instance, if for all IDR plans 
married borrowers are required to supply their spouses' incomes only if 
they file a joint tax return, borrowers would be able to complete their 
IDR applications more easily, and data-sharing to automate the transfer 
of income information from tax records would be more straightforward. 
Accordingly, we propose to change the terms of the REPAYE plan to 
exclude spousal income for borrowers who are married and filing 
separately.
Forgiveness Timeline (Sec.  685.209(k))
    Forgiveness for borrowers after a set number of monthly payments is 
another key component of IDR plans. Many of the non-Federal negotiators 
took issue with the fact that loan forgiveness time periods are very 
long. They asserted that loan forgiveness should not take 20 to 25 
years for all borrowers. In fact, one non-Federal negotiator explained, 
``I

[[Page 1908]]

would love to see 10 years of forgiveness, or 10 years to forgiveness 
for those who have limited income because . . . carrying that burden 
for 20 or 25 years is more than life altering, it's trajectory-
altering.'' \35\ A 2016 information experiment showed that the long 
length of repayment in IDR discourages borrowers from signing up for an 
IDR plan, especially for students who would benefit the most from lower 
payments compared to payments under the 10-year standard repayment 
plan.\36\
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    \35\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7am.pdf, p. 17.
    \36\ https://www.sciencebdirect.com/science/article/pii/S0047272719301288.
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    The Department is not proposing to change the maximum forgiveness 
timelines in REPAYE, which provides forgiveness after 20 years for 
borrowers who only have undergraduate loans and 25 years for all 
others. The Department recognizes that this means some borrowers with 
loans for a graduate program could still have the option of choosing a 
plan that provides forgiveness after 20 years, such as the IBR plan for 
newer borrowers, which is shorter than what the Department is proposing 
for REPAYE. However, as discussed elsewhere in this notice of proposed 
rulemaking, a borrower would not be allowed to switch to the IBR plan 
after making 120 or more qualifying payments on REPAYE. Moreover, the 
Department is also proposing to restrict future enrollment in the PAYE 
and ICR plans only to student borrowers who were enrolled in that plan 
on the effective date of the regulations and who stay enrolled in that 
plan. The Department believes that the more generous repayment benefits 
proposed under this plan would outweigh the tradeoffs of a slightly 
longer time to forgiveness.
    While the Department is not proposing to change the maximum time to 
forgiveness, it proposes in Sec.  685.209(k)(3) to add a provision that 
grants forgiveness starting at 10 years for borrowers whose original 
total Direct Loan principal balance was less than or equal to $12,000, 
with the time to forgiveness increasing by 1 year for each additional 
$1,000 added to their original principal balance above $12,000. For 
example, a borrower whose original principal balance was $13,000 would 
receive forgiveness after the equivalent of 11 years of payments, while 
someone who originally borrowed $20,000 would receive forgiveness after 
the equivalent of 18 years of payments. The overall caps of 20 years 
(for those with only undergraduate loans) or 25 years (for those with 
graduate loans) would still apply. The result would be that a borrower 
with $22,000 in loans for an undergraduate program or $27,000 in loans 
for a graduate program would not benefit from the shortened time to 
forgiveness. The eligibility for the shortened forgiveness period would 
be based upon the original principal balance of all of a borrower's 
loans, such that if they later borrow additional funds their time to 
forgiveness would adjust to include those new balances. Borrowers in 
this situation would, however, maintain at least some of the credit 
toward forgiveness from prior payments.
    The Department proposes the $12,000 threshold for early forgiveness 
based upon considerations of how much income a borrower would have to 
make to be able to pay off a loan without benefiting from this 
shortened repayment period. The Department then tried to relate that 
amount in terms of the maximum amount of loans an undergraduate 
borrower could receive so the connection would be easier for a future 
student to understand when making borrowing decisions. That amount 
worked out to the maximum amount that a dependent undergraduate student 
can borrow in their first 2 years of postsecondary education ($5,500 
for a dependent first-year undergraduate and $6,500 for a dependent 
second-year undergraduate, for a total of $12,000).
    For the income analysis, we looked at what a one-, two-, and four-
person household would have needed to earn in 2020 to pay off a $12,000 
loan at a 5 percent interest rate in 10 years, assuming that all of 
their debt was for an undergraduate program, they maintained that 
household size, and their income rose exactly with the Federal poverty 
guidelines during this period. These calculations show that a borrower 
in a one-person household would not benefit from the early forgiveness 
if their starting income exceeded $59,257. The corresponding income 
levels for two- and four-person households are $69,337 and $89,497. 
These amounts can be compared to inflation-adjusted estimates of family 
income for adults early in their careers (aged 25 to 34) who have 
completed different levels of postsecondary attainment and are not 
currently enrolled.\37\ The Department chose 25 to 34 to better reflect 
the ages of individuals who are just starting to repay their student 
loans. These figures are calculated using the 2019 American Community 
Survey 5-year sample, inflation-adjusted to 2020 dollars. The overall 
median for those with at least some college education (including those 
with less than a bachelor's degree and those with a bachelor's degree 
or higher) is $74,740. Within that group the figures are $58,407 for 
those with less than a bachelor's degree and $89,372 for those with a 
bachelor's degree or higher. The starting income at which an individual 
would not benefit from early forgiveness is, thus, close to the median 
family income for a 25- to 34-year-old individual with less than a 
bachelor's degree, while the figure for a four-person household is 
close to that of the family income for a young adult with a bachelor's 
degree or higher. Hence, the benefits of early forgiveness are most 
likely to be felt by middle- or low-income borrowers.
---------------------------------------------------------------------------

    \37\ Family income differs slightly from household income in 
that it only captures the incomes of individuals related to the head 
of the household, while household income includes all individuals 
regardless of their relation to one another.
---------------------------------------------------------------------------

    The Department also compared the starting income at which a 
borrower would not benefit from a shorter forgiveness period to the 
2020 U.S. median household income at different levels of postsecondary 
attainment. Median U.S. household income across all households in which 
the highest attainment level is some college ($63,700) is similar to 
the income level at which a borrower in a one- or two-person household 
would not benefit from early forgiveness. The median household income 
where the highest attainment level is at least a bachelor's degree 
($107,000) is substantially higher than the income level at which a 
borrower in a four-person household would not benefit from early 
forgiveness.\38\ Thus, the Department believes that the threshold for 
early forgiveness would be well aligned with the distribution of income 
for households that have at least some postsecondary education.
---------------------------------------------------------------------------

    \38\ https://www.census.gov/content/dam/Census/library/visualizations/2021/demo/p60-273/figure1.pdf.
---------------------------------------------------------------------------

    The Department believes the $12,000 amount as a starting point for 
forgiveness is also an appropriate threshold based upon the income a 
borrower would have to earn to benefit from this assistance. Having the 
time to forgiveness increase by 1 year for each $1,000 borrowed would 
keep the income at which a borrower would benefit from this provision 
roughly constant, such that a borrower would not be able to benefit 
from forgiveness at years 11 through 19 at an income level far 
different from what a borrower could earn and still receive forgiveness 
at year 10. It would also ensure there is not a cliff at which 
borrowers would

[[Page 1909]]

otherwise have to wait another 10 years for forgiveness.
    In selecting the starting amount of $12,000 the Department also 
considered the lower amount of $10,000 as well as the higher amount of 
$19,000. The former is based upon the 1-year loan limit for an 
independent undergraduate borrower, rounded up to the nearest $1,000, 
while the latter is equal to the 2-year loan limit for an independent 
undergraduate borrower. The Department did not select the higher amount 
because that level of debt would not achieve the policy goal of 
targeting the early forgiveness benefit on borrowers who were most 
likely to struggle to repay their loans. While there are borrowers with 
debt levels that high who may struggle to repay, the degree of default 
and delinquency is not as high as it is for those with lower loan 
amounts. For instance, 63 percent of borrowers in default had an 
original loan balance of $12,000 or less, while just 15 percent of 
borrowers in default originally borrowed between $12,000 and 
$19,000.\39\ The Department also was concerned that starting with a 
higher original loan balance threshold for 10-year forgiveness and 
increasing the time to forgiveness by 12 monthly payments for each 
additional $1,000 would also mean that the benefits to borrowers 
receiving forgiveness in a period longer than 10 years but shorter than 
20 or 25 years would be less well targeted. For instance, for a 
borrower in a one-person household, raising the amount eligible for 
early forgiveness from $12,000 to $19,000 would increase the amount the 
borrower would need to earn to not receive early forgiveness from 
$59,300 to approximately $77,000. The Department also decided against 
proposing to start the shorter forgiveness period at original principal 
balances of $10,000 because the incomes where a borrower would stop 
benefiting from this option are too far below the national median 
income for households with at least some college. For example, the 
threshold for a one-person household would be $54,166, even further 
below the two different measures of median income discussed above.
---------------------------------------------------------------------------

    \39\ Department analysis of data from the Office of Federal 
Student Aid, FSA Data Center, Portfolio by Debt Size and IDR 
Portfolio by Debt Size, May 2022, https://studentaid.gov/data-center/student/portfolio.
---------------------------------------------------------------------------

    We also considered multiple options for how the time to forgiveness 
should change with the level of additional debt. We only considered 
adjusting the time to forgiveness in one-year increments. We are 
concerned that lesser increments (such as one month, three months, or 
six months) would be confusing to explain to borrowers and create a 
very wide range of repayment timeframes, making the policy harder to 
implement. We looked at the starting income at which borrowers would 
cease benefiting from the shortened repayment timeframe for different 
dollar increments per additional year of payments. We modeled this for 
undergraduate-only borrowers because we anticipate that they are the 
most likely to have debt balances eligible for the shortened time to 
forgiveness. The dollar increments we considered per additional year of 
required payments were $500, $1,000, $1,500, and $2,000, as these round 
dollar amounts would be easier to communicate to borrowers. Increments 
of $500 produced the counterintuitive effect of the maximum starting 
income for a borrower to benefit from the 10-year forgiveness on a 
$12,000 original balance exceeding the maximum starting income for a 
borrower who owed any of the higher amounts that would still be 
eligible for the shortened forgiveness timeframe (e.g., $12,500 over 11 
years, $13,000 at 12 years, etc.). By contrast, the difference in 
starting incomes that would benefit from the shortened time to 
forgiveness would be too large when using an increment of an extra year 
for every $1,500 or $2,000. In those situations, increasing the time to 
forgiveness by a year per additional $1,500 in a borrower's loan 
balance would result in a situation where a borrower who receives 
forgiveness after 19 years with a loan balance of $25,500 would be able 
to make approximately $11,000 more in starting income than a borrower 
with a loan balance of $12,000 and receives forgiveness after 10 years. 
The gap in break-even starting income for lower- and higher-balance 
borrowers when using a $2,000 increment is even larger, at more than 
$18,000. By contrast, the gap using $1,000 increments is less than 
$4,000. Selecting a slope in which every additional $1,000 adds 1 year 
of payments thus ensures relatively consistent break-even starting 
income thresholds for all borrowers who would benefit from the 
shortened time to forgiveness.
    The Department also recognizes that proposing to tie the starting 
point for the shortened repayment period to a set dollar amount linked 
to statutory loan limits means that any potential future changes to 
Federal loan limits could result in a situation where the shortened 
forgiveness period no longer matches what a dependent borrower could 
take out in 2 years of a program. Accordingly, the Department seeks 
comments as to whether it should define the starting point for the 
shortened forgiveness to the first two years of loan limits for a 
dependent undergraduate to allow for an automatic adjustment. 
Similarly, we seek comments on whether we should consider a slope for 
early forgiveness tied to a specific dollar amount or one that adjusts 
for inflation.
    The Department proposes starting the forgiveness period at 10 years 
to align with the standard repayment plan. This would ensure that 
lower-balance borrowers would not be worse off for having chosen IDR. 
Using the same repayment time frames would also make it easier for 
borrowers to choose among plans, which reduces complexity for them in 
navigating the repayment system.
    We believe it is reasonable to require borrowers who borrow smaller 
amounts to repay for shorter periods of time than borrowers who borrow 
larger amounts. This could encourage borrowers to be more sensitive to 
the amount they borrow, which could reduce the chances that they borrow 
more than they need. Conversely, it may encourage debt-averse borrowers 
to be willing to borrow small amounts, which could help these students 
persist and ultimately complete a credential.\40\
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    \40\ https://www.aeaweb.org/articles?id=10.1257/pol.20180279.
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    The Department is concerned that even though IDR plans have done a 
great deal to help avert delinquency and default for the borrowers who 
use them, levels of delinquency and default among the total population 
of borrowers still remain unacceptably high. For instance, prior to the 
COVID-19 national emergency and the pause on student loan interest, 
repayment, and collections, there were more than 1 million Direct Loan 
borrowers defaulting every year.\41\ Similarly, in the quarters prior 
to the student loan repayment pause there were 1.9 million borrowers 
whose loans were managed by the Department who were 90 or more days 
late on their loans.\42\ The Department believes that the early 
forgiveness option is one of several key changes that would help 
encourage more low-balance borrowers to use IDR and to avoid 
delinquency and default. A large majority of borrowers who defaulted on 
their loans took out small loans, at least initially. Based upon an 
analysis of borrower balances as of

[[Page 1910]]

December 2019, only 17 percent of borrowers in repayment who originally 
borrowed $12,000 or less were using IDR, compared to 52 percent of 
those who originally borrowed over $50,000.\43\ By contrast, 63 percent 
of the borrowers in default had an original loan balance of $12,000 or 
less.\44\ A shorter period to forgiveness would make this IDR plan more 
attractive for the most vulnerable borrowers and help them avoid 
defaulting on their loans.
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    \41\ Department analysis of data from the FSA Data Center, 
available at https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls.
    \42\ Department analysis of data from the FSA Data Center, 
available at https://studentaid.gov/sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls.
    \43\ Department of Education analysis of data for the defaulted 
borrower population, conducted in FSA's Enterprise Data Warehouse, 
with data as of December 31, 2019.
    \44\ Ibid.
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    Importantly, the Department proposes to base early forgiveness on 
what the borrower originally borrowed. The Department is concerned that 
many borrowers who originally had lower balances owe more today than 
what they originally borrowed due to accumulating interest, interest 
capitalization, and prior defaults. For instance, among borrowers who 
first entered college in the 2003-04 academic year, more than one-third 
(37 percent) had a higher balance in 2015 than what they originally 
borrowed.\45\ Of those who owed more than they originally borrowed, the 
median borrower owed 119 percent of their original balance.\46\ 
Connecting repayment to the amount originally borrowed would also 
ensure that future borrowers will be able to understand when they first 
borrow a loan what the implications are for their future repayment time 
frame. This early forgiveness provision would align with suggestions 
made by several non-Federal negotiators to shorten the forgiveness 
period but do so in a targeted manner that would provide benefits to 
those who are most likely to struggle to repay. Adding these benefits 
solely to the REPAYE plan would move in the direction of having one IDR 
plan that is the most beneficial for almost all borrowers, thereby 
simplifying loan counseling and servicing and making it easier for 
borrowers to understand which plan is best for them.
---------------------------------------------------------------------------

    \45\ Department analysis of data from the Beginning 
Postsecondary Students Longitudinal Study, 2003-04 using the 
Powerstats web tool at https://nces.ed.gov/datalab/. Table ID: 
iyaord.
    \46\ Department analysis of data from the Beginning 
Postsecondary Students Longitudinal Study, 2003-04 using the 
Powerstats web tool at https://nces.ed.gov/datalab/. Table ID: 
kxmelz.
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Automatic Enrollment in an IDR Plan (Sec.  685.209(m))
    The Department proposes in Sec.  685.209(m) to allow the Secretary 
to automatically enroll a borrower into the IDR plan that produces the 
lowest monthly payment for which the borrower is eligible if the 
borrower is 75 days or more past due on their loan payments. This would 
occur if the borrower has provided approval for the IRS to share their 
tax information with the Secretary, and if the Secretary determines 
that the borrower's payment would be lowered by enrolling in an IDR 
plan. This auto-enrollment provision would build on the Secretary's 
authority in section 455 of the HEA to place a borrower who is in 
default on an ICR plan.
    The Department is proposing this change because far too often 
borrowers end up in default on a student loan when they would have had 
a low or even a $0 payment on an IDR plan. The Department is concerned 
that these borrowers may not be aware of IDR plans, and automatically 
moving them on to one of the plans and presenting them with the likely 
lower payment would be a better way to raise awareness than additional 
marketing or outreach. Moreover, the fact that borrowers have gone 
delinquent on their payments suggests that payments on their current 
repayment plans may be unaffordable. Automatically enrolling these 
borrowers in an IDR plan would ensure that no borrower whom the 
Department can identify as having a $0 payment would end up in default.
    The Department proposes 75 days as the point for auto-enrollment to 
avoid the negative credit reporting that first occurs on Federal 
student loans when they are 90 days late. Negative credit reporting is 
a significant step on the road to default and can cause broader harm 
for the borrower. For instance, once a borrower's credit score drops, 
it may be harder for that individual to obtain housing or acquire 
different types of financial services. By implementing the 75-day rule 
to place delinquent borrowers in an IDR plan, the Department would be 
able to ensure more borrowers can avert default and help prevent those 
borrowers from receiving a negative credit history report.
Defaulted Loans (Sec.  685.209(d) and (k))
    The Department also proposes several additional changes that would 
help borrowers in default benefit from IDR. Several non-Federal 
negotiators agreed with the Department's proposal to allow a borrower 
in default to enter an IDR plan that allows them to make progress 
toward forgiveness.\47\
---------------------------------------------------------------------------

    \47\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf.
---------------------------------------------------------------------------

    The Department proposes in Sec.  685.209(d)(2)) to allow defaulted 
borrowers to enroll in IBR so that they may receive credit toward 
forgiveness. These borrowers would receive credit toward forgiveness 
both for payments made through the IBR plan and any amounts collected 
through administrative wage garnishment, the Treasury Offset Program, 
or any other means of forced collection that are equivalent to what the 
borrower would have owed on the 10-year standard plan.
    The Department proposes to grant borrowers access to IBR as 
permitted by section 493C of the HEA. While section 455 of the HEA 
provides that the Secretary may enroll a borrower in default in an ICR 
plan, that section also provides that periods while the borrower is in 
default do not count toward the maximum repayment time frame on an ICR 
plan. The Department believes borrowers in default would be better 
served by using an IDR plan in which they would be able to accumulate 
progress toward forgiveness.
    The Department proposes to make defaulted borrowers eligible for 
IBR because the Department believes that those who have defaulted on a 
loan should still have access to more affordable payments and a path to 
forgiveness. Moreover, given the limited number of pathways and 
opportunities for getting out of default, this change would ensure 
that, even if a borrower is unable to rehabilitate or consolidate their 
loans, they would still have a way to establish more manageable 
payments.
    The Department also recognizes that many borrowers in default may 
not make voluntary payments but could be subject to forced collections 
activity. Since amounts collected through tools such as administrative 
wage garnishment or the Treasury Offset Program are credited toward a 
borrower's balance, the Department proposes in Sec.  685.209(k)(5) that 
borrowers also receive credit toward IBR forgiveness for amounts 
collected through these means that are equal to what a borrower would 
have paid on the 10-year standard plan. In other words, if a borrower 
has a $600 tax refund credited against their loan debt through the 
Treasury Offset Program and their monthly payment on the 10-year 
standard plan would have been $50, then they would receive a year's 
worth of credit toward IBR forgiveness.
    The Department recognizes that allowing borrowers in default access 
to IBR provides them a path to forgiveness and also results in a higher 
payment amount than the borrower would owe under REPAYE. Therefore, the 
Department seeks comments on how to address the tradeoffs between lower 
monthly payments versus credit toward forgiveness for borrowers in 
default,

[[Page 1911]]

recognizing that the HEA explicitly states that time in default cannot 
count toward forgiveness under plans such as REPAYE that are created 
under the ICR authority.
Application and Annual Recertification Procedures (Sec.  685.209(l))
    As a result of changes made by Congress in 2019 that allow 
borrowers to grant multiyear approval for the sharing of their tax 
information to the Department, we propose to provide borrowers with an 
easier path to participating in IDR as well as to annually recertifying 
their income to recalculate their payments. Currently, borrowers who 
wish to participate in an IDR plan must complete an application and 
furnish their income information either through an online tool that 
allows them to transfer their data from the IRS or by providing an 
alternative form of income documentation, such as pay stubs. Borrowers 
also have to provide information on their family size. Borrowers must 
then recertify their income and family size annually through the same 
processes. The purpose of this recertification is to have the borrower 
self-certify their family size, as well as provide documentation that 
shows their annual AGI so that payments are based on more up-to-date 
financial and familial circumstances.
    The application and recertification processes create significant 
challenges for the Department and borrowers. A borrower must be aware 
of and complete paperwork for IDR to be told exactly what their payment 
would be, since online estimator tools cannot guarantee what a borrower 
would pay. The borrower must also repeat these steps every year, 
requiring the Department to send a recertification reminder to the 
borrower. The borrower has a limited period of time to return the 
annual certification back to the Department's loan servicer. Failure to 
meet the deadline can result in the borrower losing eligibility to 
continue in their repayment plan and, under current regulations, having 
their interest capitalized. Department data from 2019 show that 39 
percent of borrowers on an IDR plan recertified on time and that only 
57 percent had certified within 6 months after their recertification 
deadline.\48\
---------------------------------------------------------------------------

    \48\ Department of Education internal analysis of data for IDR 
borrowers who had a recertification date during the 2018 calendar 
year.
---------------------------------------------------------------------------

    Due to the concern that the process is confusing for borrowers, 
challenging for the Department to administer, and prone to potential 
errors that could cause a borrower's removal from IDR plans, the 
Department proposes to simplify the IDR application and annual 
recertification process. Due to recent statutory changes regarding 
disclosure of tax information, when the Department has the borrower's 
approval, it will rely on tax data to provide a borrower with a monthly 
payment amount and offer the borrower an opportunity to request a 
different payment amount if it is not reflective of the borrower's 
current income or family size.\49\
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    \49\ https://www.congress.gov/bill/116th-congress/house-bill/5363/text/pl.
---------------------------------------------------------------------------

Consequences of Failing To Recertify (Sec.  685.209(l))
    Current regulations specify that a borrower who fails to recertify 
their income and family size for the REPAYE plan is placed in an 
alternative plan in which the borrower's monthly payment is the amount 
to either repay the loan within 10 years of starting on the alternative 
repayment plan or within 20 or 25 years of starting on the REPAYE plan.
    The Department is concerned that the structure of the alternative 
repayment plan provision is overly complicated and creates confusion 
for borrowers as well as operational challenges. Accordingly, the 
Department proposes to simplify this alternative repayment plan 
provision. Borrowers who fail to recertify would initially be placed on 
an alternative payment plan with payments set to the amount the 
borrower would have paid on a 10-year standard repayment plan based on 
the current loan balances and interest rates on the loans at the time 
the borrower was removed from the REPAYE plan, except that no more than 
12 of these payments could count toward forgiveness. If the borrower 
wanted to change their repayment amount, the borrower could then submit 
evidence of exceptional circumstances to support changing the amount of 
the required payment under the alternative payment plan or change to a 
different repayment plan. Simplifying the terms of the alternative plan 
would assist in reducing complexity for borrowers.
Consolidation Loans (Sec.  685.209(k))
    In response to concerns raised by non-Federal negotiators, the 
Department proposes in Sec.  685.209(k)(4)(v) to provide that payments 
made on loans prior to consolidation would count toward IDR forgiveness 
without restarting the clock toward forgiveness. More specifically, the 
Department proposes to allow a borrower who consolidates one or more 
Direct Loan or FFEL program loans into a Direct Consolidation Loan to 
count the qualifying payments the borrower made on the Direct Loan or 
FFEL program loans prior to consolidating as qualifying payments on the 
Direct Consolidation Loan.
    The Department would effectuate this change by giving borrowers 
credit toward forgiveness by calculating the weighted average of 
qualifying payments made on the original principal balance of all loans 
repaid by the consolidation loan. For example, if a borrower has made 
30 qualifying payments on loans with an original principal balance of 
$30,000 and consolidates them with a loan that includes another $30,000 
of loans that have never had any qualifying payments, then the 
borrower's consolidation loan would be credited with 15 payments toward 
forgiveness.
    The Department believes that the current regulations too often 
force borrowers to choose between receiving more affordable loan 
payments and losing out on progress toward forgiveness. For example, 
consolidation is one of two pathways for borrowers to exit default and 
re-enter repayment. While consolidation is typically the fastest route 
out of default, borrowers who choose that option lose out on any 
progress they made toward forgiveness prior to defaulting. Beyond these 
specific circumstances, the Department is concerned more generally that 
borrowers often do not understand the effect of consolidation on their 
forgiveness progress and making this change would contribute to the 
Department's goal of removing complications to loan repayment, which 
can generate borrower frustration.
Conclusion
    Under the proposed regulations, student borrowers seeking an IDR 
plan would generally choose between the IBR plan under section 493C of 
the HEA and the REPAYE plan, as modified by these proposed regulations. 
(Borrowers with Direct Consolidation Loans that include a Parent PLUS 
loan would still have access to the ICR plan.) This would significantly 
simplify the landscape of available IDR plans that borrowers seeking to 
enter an IDR plan currently navigate.
    Borrowers who are currently enrolled in the ICR or PAYE plans could 
remain in those plans. However, should they seek to change plans, they 
would no longer have access to the original ICR plan and the PAYE plan 
and instead would choose from, with respect to IDR plans, the REPAYE 
plan or the IBR plan. The Department believes that most student 
borrowers who are currently on

[[Page 1912]]

the original ICR or the PAYE plan would see significant payment 
reductions by switching to the REPAYE plan, as modified by these 
proposed regulations. The Department believes that borrowers would 
benefit from a more affordable plan that provides more protected income 
for borrowers to meet their family's basic needs.
    The plan would also reduce the share of discretionary income that 
goes toward loan payments for borrowers with undergraduate debt, stop 
loan balances from growing due to unpaid interest, and reduce the 
amount of time for which borrowers with lower loan balances need to 
repay.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Office of Management and Budget 
(OMB) must determine whether this regulatory action is ``significant'' 
and, therefore, subject to the requirements of the Executive Order and 
subject to review by 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.
    The Department estimates the net budget impact to be $137.9 billion 
in increased transfers among borrowers, institutions, and the Federal 
Government, with annualized transfers of $14.8 billion at 3 percent 
discounting and $16.3 billion at 7 percent discounting, and annual 
quantified costs of $1.1 million related to administrative costs. 
Therefore, this proposed action is ``economically significant'' and 
subject to review by OMB under section 3(f) of Executive Order 12866. 
Notwithstanding this determination, based on our assessment of the 
potential costs and benefits (quantitative and qualitative), we have 
determined that the benefits of this proposed regulatory action 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 on 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 regulations are consistent 
with the principles in Executive Order 13563.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and Tribal governments in the 
exercise of their governmental functions.
    As required by OMB Circular A-4, we compare the proposed 
regulations to the current regulations. In this regulatory impact 
analysis, we discuss the need for regulatory action, potential costs 
and benefits, net budget impacts, and the regulatory alternatives we 
considered.

Need for Regulatory Action

    The Department has identified a significant need for regulatory 
action to promote access to more affordable repayment plans for student 
loan borrowers.
    IDR plans are created either through regulation or statute and base 
a borrower's monthly payment on their income and family size. Under 
these plans, loan forgiveness occurs after a set number of payments, 
depending on the repayment plan that is selected. Because payments are 
based on a borrower's income, they may be more affordable than other 
fixed repayment options, such as those in which a borrower makes 
payments over a period of between 10 and 30 years. There are four 
repayment plans that are collectively referred to as IDR plans: (1) the 
IBR plan; (2) the ICR plan; (3) the PAYE plan; and (4) the REPAYE plan. 
Within the IBR plan, there are two versions that are available to the 
borrower, depending on when they took out their loans. Specifically, 
for a new borrower with loans taken out on or after July 1, 2014, the 
borrower's payments are capped at 10 percent of discretionary income. 
For those who are not new borrowers on or after July 1, 2014, the 
borrower's payments are capped at 15 percent of their discretionary 
income. IDR plans simultaneously provide protection for the borrower 
against the consequences of ending up as a low earner and adjust 
repayments to fit the borrower's changing ability to pay.\50\ Because 
of these benefits, Federal student loan borrowers are increasingly 
choosing to repay their loans using one of the IDR plans.\51\ 
Enrollment in IDR plans increased by about 50 percent between the end 
of 2016 and the start of 2022, from approximately 6 million to more 
than 9 million borrowers and more than $500 billion in debt is 
currently being repaid through the IDR repayment plans.\52\ Similarly, 
the share of

[[Page 1913]]

borrowers with Federally managed loans enrolled in an IDR plan rose 
from just over one-quarter to one-third during this time.\53\
---------------------------------------------------------------------------

    \50\ Krueger, A.B., & Bowen, W.G. (1993). Policy Watch: Income-
Contingent College Loans. Journal of Economic Perspectives, 7(3), 
193-201. https://doi.org/10.1257/jep.7.3.193.
    \51\ Gary-Bobo, R.J., & Trannoy, A. (2015). Optimal student 
loans and graduate tax under moral hazard and adverse selection. The 
RAND Journal of Economics, 46(3), 546-576. https://doi.org/10.1111/1756-2171.12097.
    \52\ U.S. Dep't of Educ., Federal Student Aid Data Center, 
Repayment Plans, available https://studentaid.gov/manage-loans/repayment/plans. Includes all Federally managed loans across all IDR 
plans, measured in Q4 2016 through Q1 2022.
    \53\ Ibid.
---------------------------------------------------------------------------

    Section 455(d)(1)(D) of the HEA, as discussed elsewhere in this 
document, requires the Secretary to offer an income-contingent 
repayment plan with terms prescribed by the Secretary. The Department 
proposes to amend the regulations governing income-contingent repayment 
plans by amending the REPAYE repayment plan, as well as restructuring 
and renaming the repayment plans available in the Direct Loan Program, 
including by combining the ICR and the IBR plans under the umbrella 
terms of the ``IDR plans.''
    The Department has identified several areas that need improvement 
related to IDR plans. First, many struggling borrowers are not enrolled 
in IDR plans that would improve their chances of avoiding delinquency 
and default. Research shows that low-income borrowers and borrowers 
with high debt levels relative to their incomes enroll in IDR plans at 
lower rates.\54\ An analysis of IDR usage by the JPMorgan Chase 
Institute found that there are two borrowers who could potentially 
benefit from an IDR plan for each borrower who is using those 
plans.\55\ Moreover, the borrowers not using the IDR plans appear to 
have significantly lower incomes than those who are enrolled. An Urban 
Institute analysis using the 2016 Survey of Consumer Finances found 
that the share of Black borrowers using IDR was lower than the share of 
borrowers not making any payments.\56\ The gap between IDR usage and 
not making any payments was even larger for borrowers who were 
receiving Federal benefits, such as support from the Supplemental 
Nutrition Assistance Program.\57\ According to a 2012 U.S. Treasury 
study, 70 percent of defaulted borrowers have incomes that would have 
allowed them to reduce their payments compared to the standard 10-year 
repayment plan by going onto IDR; these payment reductions could have 
reduced the likelihood of default.\58\ Though IDR enrollment has 
increased since 2012, in 2019 alone, more than 1.2 million Federal 
student loan borrowers defaulted on their Direct Loans, and more were 
behind on their payments and at risk of defaulting.\59\
---------------------------------------------------------------------------

    \54\ Daniel Collier et al., Exploring the Relationship of 
Enrollment in IDR to Borrower Demographics and Financial Outcomes 
(Dec. 30, 2020); see also Seth Frotman and Christa Gibbs, Too many 
student loan borrowers struggling, not enough benefiting from 
affordable repayment options, Consumer Fin. Prot. Bureau (Aug. 16, 
2017).
    \55\ This analysis is restricted to borrowers with a Chase 
checking account who meet certain other criteria in terms of 
frequency of monthly transactions and amount of money deposited into 
the account each year. https://www.jpmorganchase.com/institute/research/household-debt/student-loan-income-driven-repayment.
    \56\ https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment.
    \57\ Ibid.
    \58\ U.S. Government Accountability Office, 2015. Federal 
Student Loans: Education Could Do More to Help Ensure Borrowers are 
Aware of Repayment and Forgiveness Options. GAO-15-663. U.S. 
Government Accountability Office, 2016. Education Needs to Improve 
its Income Driven Repayment Plan Budget Estimates. Technical Report 
GAO-17-22.
    \59\ U.S. Government Accountability Office, 2015. Federal 
Student Loans: Education Could Do More to Help Ensure Borrowers are 
Aware of Repayment and Forgiveness Options. GAO-15-663. U.S. 
Government Accountability Office, 2016. Education Needs to Improve 
its Income Driven Repayment Plan Budget Estimates. Technical Report 
GAO-17-22.
---------------------------------------------------------------------------

    While IDR options have helped to make loans more affordable for 
many, borrowers often still face challenges with IDR plans. Most 
borrowers enrolled in IDR plans experience increased loan balance 
growth when their payments are not large enough to cover the interest 
they accrue.\60\ Focus groups of borrowers also show that this 
possibility may also serve as a source of stress even for borrowers who 
do enroll in IDR plans and who are able to afford their payments.\61\ 
Additionally, some borrowers encounter barriers to accessing and 
maintaining affordable payments on IDR plans. One barrier, in 
particular, for some borrowers is in recertifying their incomes by the 
annual deadline due to the burden of the recertification process for 
the borrower, which may be one reason that some borrowers choose 
instead to enter deferment or forbearance, or fall out of or leave IDR 
plans.\62\ The Consumer Financial Protection Bureau found that 
delinquency rates significantly worsened for those who did not 
recertify their incomes on time after their first year in an IDR 
plan.\63\ In contrast, delinquency rates for those who did recertify 
their incomes slowly improved.
---------------------------------------------------------------------------

    \60\ Department of Education analysis of loan data for borrowers 
enrolled in IDR plans, conducted in FSA's Enterprise Data Warehouse, 
with data as of March 2020.
    \61\ Sattelmeyer, Sarah, Brian Denten, Spencer Orenstein, Jon 
Remedios, Rich Williams, Borrowers Discuss the Challenges of Student 
Loan Repayment (May 2020), https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf.
    \62\ Consumer Financial Protection Bureau. Borrower Experiences 
on Income-Driven Repayment. November 2019. https://files.consumerfinance.gov/f/documents/cfpb_data-point_borrower-experiences-on-IDR.pdf.
    \63\ Ibid.
---------------------------------------------------------------------------

    The Department is concerned that the current IDR plans may not 
adequately serve borrowers and proposes the changes described in this 
NPRM to improve access to effective and affordable loan repayment 
plans. In particular, the Department proposes to amend the REPAYE plan 
to reduce the required monthly payment amount to 5 percent of the 
borrower's discretionary income for the share of a borrower's total 
original principal loan volume attributable to loans received as a 
student in an undergraduate program, increase the amount of 
discretionary income exempted from the calculation of payment to 225 
percent of the Federal poverty guidelines, not charge any remaining 
monthly interest after applying a borrower's monthly payment, reduce 
the time to forgiveness under the plan for borrowers with lower 
original loan balances, and automate the application and 
recertification process wherever possible, including automatically 
enrolling delinquent borrowers. Additionally, the Department proposes 
to modify the IBR plan in Sec.  685.209 to clarify that borrowers in 
default are eligible to make payments under the plan. The Department 
also proposes to modify all the regulations for all of the income-
driven repayment plans in Sec.  685.209 to allow certain periods of 
deferment and forbearance to count toward forgiveness, including cancer 
treatment deferments, unemployment and economic hardship deferments 
(including Peace Corps service deferments), military service 
deferments, and administrative forbearances. The Department also 
proposes to stop resetting progress toward IDR loan forgiveness when a 
borrower consolidates their loans after making payments that qualify 
for forgiveness under an IDR plan.
    We also propose to modify all the regulations governing the income-
driven repayment plans in Sec.  685.209 to automatically enroll any 
borrowers who are at least 75 days delinquent on their loan payments, 
and who have previously provided approval for the IRS to share tax 
information on their incomes and family sizes with the Department, in 
the IDR plan that is most affordable for them in monthly payments, 
unless the borrower's current plan provides a lower monthly payment.
    Finally, the Department proposes to simplify the complex rules 
relating to the different IDR plans to the extent allowable by making 
the REPAYE plan the best choice for most borrowers and by limiting 
student borrowers already

[[Page 1914]]

enrolled in one of the existing ICR plans other than REPAYE from re-
enrolling in that plan after they leave it. This will result in phasing 
out the older repayment plans for student borrowers and will ensure 
that borrowers have access to the most generous IDR plan.

                                         Summary of Proposed Provisions
----------------------------------------------------------------------------------------------------------------
              Provision                   Regulatory section            Description of proposed provision
----------------------------------------------------------------------------------------------------------------
Streamline the regulations...........  Sec.   685.208.........  Would house all fixed amortization repayment
                                                                 plans under this section.
Streamline the regulations...........  Sec.   685.209.........  Would house all IDR plans under this section and
                                                                 establish new terms for the REPAYE plan.
Reduce monthly payment amounts,        Sec.   685.209.........  Would reduce monthly payment amounts to 5
 expand interest benefit for                                     percent of discretionary income for the share
 borrowers, and shorten the time to                              of a borrower's total original principal loan
 forgiveness.                                                    volume attributable to loans received as
                                                                 students for an undergraduate program (with a
                                                                 weighted average between 5 and 10 percent for
                                                                 borrowers with outstanding undergraduate and
                                                                 graduate loans, and a payment of 10 percent for
                                                                 borrowers with only outstanding graduate
                                                                 loans), increase the amount of discretionary
                                                                 income exempted from the calculation of
                                                                 payments to 225 percent of the Federal poverty
                                                                 guidelines, not charge any unpaid monthly
                                                                 interest after applying a borrower's payment,
                                                                 and reduce the time to forgiveness under the
                                                                 plan for borrowers with lower original
                                                                 balances.
Address defaulted borrowers..........  Sec.   685.209.........  Would clarify that borrowers in default are
                                                                 eligible to make payments under the IBR plan.
Address qualifying payments..........  Sec.   685.209.........  Would allow certain periods of deferment and
                                                                 forbearance to count toward IDR forgiveness.
Address qualifying payments..........  Sec.   685.209.........  Would allow borrowers an opportunity to make
                                                                 catch-up payments for all other periods in
                                                                 deferment or forbearance.
Address qualifying payments..........  Sec.   685.209.........  Would clarify that a borrower's progress toward
                                                                 forgiveness does not fully reset when a
                                                                 borrower consolidates loans on which a borrower
                                                                 had previously made qualifying payments.
Address delinquent borrowers.........  Sec.   685.209.........  Would modify all IDR plans to automatically
                                                                 enroll any borrowers who are at least 75 days
                                                                 delinquent on their loan payments and who have
                                                                 previously provided approval for the IRS to
                                                                 share their tax information with the Secretary
                                                                 in the IDR plan that is best for them.
Limiting new enrollments in older IDR  Sec.   685.209.........  Would limit new enrollments in PAYE after the
 plans.                                                          effective date of these regulations, limit
                                                                 enrollments in IBR to borrowers who have a
                                                                 partial financial hardship and have not made
                                                                 120 payments on REPAYE and would limit new
                                                                 enrollments in the ICR plan after the effective
                                                                 date of the regulations to borrowers whose
                                                                 loans include a Direct Consolidation loan that
                                                                 included a parent PLUS loan.
Consequences of not recertifying on    Sec.   685.209.........  Place borrowers who do not recertify on REPAYE
 REPAYE.                                                         into an alternative payment plan where monthly
                                                                 payments are equal to the amount a borrower
                                                                 would pay each month to repay their original
                                                                 balance in equal installments over 10 years and
                                                                 allow no more than 12 of these payments to
                                                                 count toward forgiveness.
Technical changes....................  Sec.  Sec.   685,210,    Would establish conforming changes based on
                                        685.211, and 685.221.    revisions to the sections noted above.
----------------------------------------------------------------------------------------------------------------

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a ``major rule,'' as defined by 5 U.S.C. 804(2).

Discussion of Costs and Benefits

    The proposed regulations would expand access to affordable monthly 
payments on the REPAYE plan by increasing the amount of income exempted 
from the calculation of payments from 150 percent of the Federal 
poverty guidelines to 225 percent of the Federal poverty guidelines, 
lowering the share of discretionary income put toward monthly payments 
to 5 percent for a borrower's total original loan principal volume 
attributable to loans received as students for an undergraduate 
program, not charging any monthly unpaid interest remaining after 
applying a borrower's payment, and providing for a shorter repayment 
period and earlier forgiveness for borrowers with smaller original 
principal balances (starting at 10 years for borrowers with original 
principal balances of $12,000 or less, and increasing by 1 year for 
each additional $1,000 up to 20 or 25 years).
    To better understand the impact of these proposed rules, the 
Department simulated how future cohorts of borrowers would benefit from 
enrolling in REPAYE under the proposed provisions. To do so, the 
Department used data from the College Scorecard and Integrated 
Postsecondary Education Data System (IPEDS) to create a synthetic 
cohort of borrowers that is representative of borrowers who entered 
repayment in 2017 in terms of institution attended, education 
attainment, race/ethnicity, and gender. Using Census data, the 
Department projected earnings and employment, marriage, spousal debt, 
spousal earnings, and childbearing for each borrower up to age 60. 
Using these projections, payments under a given loan repayment plan can 
be calculated for the full length of time between repayment entry and 
full repayment or forgiveness. To provide an estimate of how much 
borrowers in a given group (e.g., lifetime income, education level) 
would benefit from enrolling in REPAYE under the proposed provisions, 
total payments per $10,000 of debt at repayment entry were calculated 
for each borrower in the group and compared to total payments that the 
borrower would make if they were to enroll in the standard 10-year 
repayment plan and current REPAYE plan. Payments made after repayment 
entry are discounted using the Office of Management and Budget's 
Present

[[Page 1915]]

Value Factors for Official Yield Curve (Budget 2023) so that the 
resulting amounts are all provided in present discounted terms.
    These projections do not take into account borrowers' decisions of 
which plan to choose and, thus, should not be interpreted as reflecting 
estimates of the budgetary costs of the proposed changes to REPAYE. 
Rather, these estimates reflect changes in simulated payments that 
would occur if all borrowers enrolled and paid their full monthly 
obligation in different plans to highlight the types of borrowers who 
could benefit most under different repayment plans. They also do not 
account for the possibility of borrowers being delinquent or 
defaulting, which could affect assumptions of amounts repaid.
    On average, if all borrowers in future cohorts were to enroll in 
the 10-year standard repayment plan or the current REPAYE plan and make 
all of their required payments on time, we estimate that borrowers 
would repay approximately $11,800 per $10,000 of debt at repayment 
entry in both the standard 10-year plan and under the current 
provisions of REPAYE. The proposed changes to REPAYE would result in 
the amount repaid per $10,000 of debt at repayment entry falling to 
approximately $7,000. On average, borrowers with only undergraduate 
debt are projected to see expected payments per $10,000 borrowed drop 
from $11,844 under the standard 10-year plan and $10,956 under the 
current REPAYE plan to $6,121 under the proposed REPAYE plan. The 
average borrower with graduate debt, whose incomes and debt levels tend 
to be higher, is projected to have much smaller reductions in payments 
per $10,000 borrowed, from $11,995 under the 10-year standard plan and 
$12,506 under the current REPAYE plan to $11,645.

Table 2--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment Cohorts,
                                Assuming Full Take-Up of Various Repayment Plans
----------------------------------------------------------------------------------------------------------------
                                                                                 Borrowers with
                                                                                      only        Borrowers with
                                                                 All borrowers   undergraduate     any graduate
                                                                                      debt             debt
----------------------------------------------------------------------------------------------------------------
Standard 10-year plan.........................................         $11,880          $11,844          $11,995
Current REPAYE................................................          11,844           10,956           12,506
Proposed REPAYE...............................................           7,069            6,121           11,645
----------------------------------------------------------------------------------------------------------------

    The Department has also estimated how payments per $10,000 borrowed 
would change for borrowers in future repayment cohorts who are 
projected to have different levels of lifetime individual earnings. For 
this estimate borrowers are divided into quintiles based on projected 
earnings from repayment entry until age 60. Borrowers in the first 
quintile are projected to have lower lifetime earnings than at least 80 
percent of all borrowers in the cohort, while those in the top quintile 
are projected to have higher earnings than at least 80 percent of all 
borrowers.
    On average, borrowers in every quintile of the lifetime income 
distribution are projected to repay less (in present discounted terms) 
in the proposed REPAYE plan than in the existing REPAYE plan. However, 
differences in projected payments per $10,000 borrowed are largest for 
borrowers with only undergraduate debt in the bottom two quintiles 
(i.e., those with projected lifetime earnings less than at least 60 
percent of all borrowers in the cohort). Borrowers with only 
undergraduate debt who have lifetime income in the bottom quintile are 
projected to repay $873 per $10,000 in the proposed REPAYE plan 
compared to $8,724 per $10,000 in the current REPAYE plan, and 
borrowers in the second quintile of lifetime income with only 
undergraduate debt are projected to repay $4,129 per $10,000 compared 
to $11,813 per $10,000 in the current REPAYE plan. Borrowers in the top 
40 percent of the lifetime income distribution (quintiles 4 and 5) are 
projected to see only small reductions in payments per $10,000 
borrowed.

 Table 3--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment Cohorts
                     by Quintile of Lifetime Income, Assuming Full Take-Up of Specified Plan
----------------------------------------------------------------------------------------------------------------
                                                            Quintile of lifetime income
                                 -------------------------------------------------------------------------------
                                         1               2               3               4               5
----------------------------------------------------------------------------------------------------------------
                                     Borrowers with only undergraduate debt
----------------------------------------------------------------------------------------------------------------
Current REPAYE..................          $8,724         $11,813         $11,799         $11,654         $11,411
Proposed REPAYE.................             873           4,129           7,825          10,084          11,151
Average annual earnings in year           18,620          27,119          33,665          39,565          50,112
 of repayment entry.............
Average annual family earnings            40,600          42,469          49,312          53,524          67,748
 in year of repayment entry.....
----------------------------------------------------------------------------------------------------------------
                                        Borrowers with any graduate debt
----------------------------------------------------------------------------------------------------------------
Current REPAYE..................           7,002          10,259          11,849          12,592          12,901
Proposed REPAYE.................           6,267           8,689          10,476          11,344          12,248
Average annual earnings in year           19,145          28,099          35,316          42,226          54,039
 of repayment entry.............
Average annual family earnings            41,174          43,753          52,144          59,351          79,368
 in year of repayment entry.....
----------------------------------------------------------------------------------------------------------------

    To compare the potential benefits for future borrowers from the 
proposed REPAYE plan, these simulations abstract from repayment plan 
choice and instead assume that all future borrowers enroll in a given 
plan (i.e., the current or proposed REPAYE plan) and make their 
scheduled payments. Future borrowers' actual realized benefits will

[[Page 1916]]

depend on the extent to which enrollment in IDR increases, which 
borrowers choose to enroll in IDR, and whether borrowers make their 
required payments. In general, the proposed REPAYE plan should reduce 
rates of delinquency and default by providing more borrowers with a $0 
payment and automatically enrolling eligible borrowers once they are 75 
days late. That said, borrowers could still end up delinquent or in 
default if they either owe a non-$0 payment or the Department cannot 
access their income information and thus cannot automatically enroll 
them on IDR.
    The proposed regulations would make additional improvements to help 
borrowers navigate their repayment options by allowing more forms of 
deferments and forbearances to count toward IDR forgiveness. This 
ensures that borrowers are not required to choose between pausing 
payments and earning progress toward forgiveness by making IDR payments 
and allows borrowers to keep progress toward forgiveness when 
consolidating.
    The proposed regulations streamline and standardize the Direct Loan 
Program repayment regulations by housing all repayment plan provisions 
within sections that are listed by repayment plan type: fixed payment, 
income-driven, and alternative repayment plans. The proposed 
regulations would also provide clarity for borrowers about their 
repayment plan options and reduce complexity in the student loan 
repayment system, including by phasing out the existing IDR plans to 
the extent the current law allows.

Costs of the Regulatory Changes

    The proposed increased benefits on the REPAYE plan, including 
reduced monthly payments, a shorter repayment period for some 
borrowers, and not charging unpaid monthly interest, all represent 
costs in the form of transfers to borrowers. This will result in 
transfers to borrowers currently enrolled on an IDR plan, as well as 
those who choose to sign up for one in the future.
    This plan may also result in changes in students' decisions to 
borrow and how much to borrow, which could have additional future 
effects on the size of transfers to borrowers. This could result in 
increased costs to taxpayers in the form of transfers to borrowers if 
more students choose to borrow than before and/or if borrowers take out 
greater amounts of loans than before, but then do not fully repay their 
loans. Some of these transfers to borrowers may be offset if the 
increased borrowing results in higher rates of postsecondary program 
completion and higher subsequent earnings, which generates additional 
federal income tax revenue.\64\
---------------------------------------------------------------------------

    \64\ Some research has found evidence that reduced borrowing 
results in worse academic outcomes and lower levels of retention and 
completion, and that increased borrowing led to better performance 
and higher rates of credit completion. See, for example, Barr, 
Andrew, Kelli Bird, and Benjamin L. Castleman, The Effect of Reduced 
Student Loan Borrowing on Academic Performance and Default: Evidence 
from a Loan Counseling Experiment, EdWorkingPaper No. 19-89 (June 
2019), https://www.edworkingpapers.com/sites/default/files/ai19-89.pdf; and Marx, Benjamin M. and Turner, Lesley, Student Loan 
Nudges: Experimental Evidence on Borrowing and Educational 
Attainment (May 2019). American Economic Journal: Economic Policy, 
Volume 11, Issue 2, https://www.aeaweb.org/articles?id=10.1257/pol.20180279. Black et al 2020 https://www.nber.org/papers/w27658.
---------------------------------------------------------------------------

    The proposed regulations may also result in costs resulting from 
reduced accountability for student loan outcomes at institutions of 
higher education, which would show up as increased transfers to some 
poor-performing schools. In particular, the provisions that result in 
more borrowers having a $0 monthly payment and automatically enrolling 
borrowers who are delinquent onto an IDR plan could significantly 
reduce the rate at which students default. This could in turn lead to 
fewer institutions losing access to Federal financial aid due to having 
high cohort default rates. However, the existing cohort default rate 
already was causing very few institutions to lose access to Federal 
aid. In the years before the national pause on repayment, only about a 
dozen institutions a year faced sanctions due to high cohort default 
rates. Most of these institutions had small enrollment, and many still 
maintained access to aid thanks to various appeal options. The most 
recent rates released in fall 2022 showed just eight institutions 
subject to potential loss of eligibility.\65\ The effect of the cohort 
default rate will also remain small for several years into the future 
because no Direct Loan borrowers have been able to default since the 
pause on repayment began in March 2020.
---------------------------------------------------------------------------

    \65\ https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html.
---------------------------------------------------------------------------

    Whether this effect on accountability results in an increased 
transfer to borrowers would depend on the likelihood that an aid 
recipient would have enrolled elsewhere and whether their alternative 
options would have resulted in higher or lower earnings that affected 
what they would pay on an IDR plan. Of greater concern would be the 
possibility that providing assistance for borrowers through the updated 
REPAYE plan would result in more aggressive recruiting by institutions 
that do not provide valuable returns on the premise that borrowers who 
do not find a job do not have to pay. This is a concern that already 
exists in current IDR plans but could increase with the more generous 
proposed benefits. Relatedly, institutions may be more inclined to 
raise tuition in order to shift costs to students when loans are more 
affordable. This effect may be more pronounced at graduate-level 
programs than at the undergraduate level because of differences in loan 
limits. Increases in tuition would not solely affect borrowers and, 
indirectly, taxpayers; students who do not borrow would face higher 
education costs as well.
    The proposed regulations would also result in modest administrative 
costs to the Department to implement the changes to the plan, which 
would require modifications to contracts with servicers. We estimate 
that, based on comparable changes made in the past, those 
administrative costs would total approximately $10 million in systems 
and other changes. These are costs associated with activities, such as 
change requests to servicers to make alterations to their systems and 
servicing platforms. The Department is already in the process of 
developing data-sharing agreements to support the provision of tax 
information, pursuant to the FUTURE Act, and would seek to include the 
IDR provisions in these proposed regulations in those agreements.
    It is currently unclear whether the proposed regulations would 
represent a net cost or benefit to servicers. On the one hand, the 
provisions that keep more borrowers current and prevent borrowers from 
defaulting would increase servicer compensation because they are 
currently paid more each month when a borrower is current. Similarly, 
any effect of this regulation to increase borrowing would raise 
compensation for servicers. On the other hand, if the regulations 
resulted in a decrease in student loan borrowers due to forgiveness 
then servicers would receive less compensation. It is likely that the 
factors that would increase compensation are greater than those that 
decrease it, but determining the exact amounts is not currently 
possible.

Benefits of the Regulatory Changes

    The proposed IDR plan regulations would benefit multiple groups of 
stakeholders, especially Federal student loan borrowers. The proposed 
regulations would allow borrowers in default to make payments under the 
current IBR plan. The Department believes that this would make it 
easier for defaulted borrowers to access affordable payments by 
enrolling in an

[[Page 1917]]

IDR plan, make progress toward forgiveness of their loans, and avoid 
further consequences of default if they are not otherwise able to exit 
default through rehabilitation or consolidation.
    The proposed regulations would also automatically allow the 
Department to enroll any borrowers who are at least 75 days delinquent 
on their loan payments and who have previously provided approval for 
the IRS to share their income information into the IDR plan that is 
most affordable for them. The Department believes that this would 
increase the likelihood that struggling borrowers will be enrolled in 
an IDR plan and will be able to avoid late-stage delinquency or default 
and the associated consequences. To ensure borrowers are enrolled in 
the most affordable plan, the Department would not auto-enroll a 
borrower whose current monthly payment would be less than their payment 
on the IDR plan that has the lowest payment for them. For instance, it 
is less likely that a very high-income borrower who is delinquent would 
be automatically enrolled in IDR because the payment based upon their 
earnings would be more than what they would pay on the standard 10-year 
plan.
    For many borrowers, enrolling in an IDR plan reduces monthly 
payments and allows them to use such savings to address current needs. 
A study found that borrowers who enrolled in an existing IDR plan saw 
their monthly payments decrease by $355 compared with a standard non-
IDR plan.\66\ That study also found that those borrowers saw an 
identical increase in consumer spending that was roughly equal to the 
decrease in monthly student loan payments.\67\ Another study estimated 
that the benefits--the ``welfare gains''--of moving from a loan system 
without IDR plans to a system with IDR plans, if ideally implemented, 
are ``significant,'' ranging from about 0.2 percent to 0.6 percent of 
lifetime consumption.\68\
---------------------------------------------------------------------------

    \66\ Mueller, H., & Yannelis, C. (2022). Increasing Enrollment 
in Income-Driven Student Loan Repayment Plans: Evidence from the 
Navient Field Experiment. The Journal of Finance, 77(1), 367-402. 
https://doi.org/10.1111/jofi.13088.
    \67\ Ibid.
    \68\ Findeisen, S., & Sachs, D. (2016). Education and optimal 
dynamic taxation: The role of income-contingent student loans. 
Journal of Public Economics, 138, 1-21. https://doi.org/10.1016/j.jpubeco.2016.03.009.
---------------------------------------------------------------------------

    The proposed regulations would increase the affordability of 
monthly payments on the REPAYE plan by increasing the amount of income 
exempt from payments, lowering the share of discretionary income put 
toward monthly payments for borrowers, providing for a shorter 
repayment period and earlier forgiveness for some borrowers, and 
forgiving all monthly unpaid interest to ensure borrowers pay less over 
their repayment terms. Each of these items provide benefits in 
different ways. Increasing the amount of income protected to 225 
percent of the Federal poverty guidelines would provide two major 
benefits to borrowers. First, it would result in a larger share of 
borrowers having a $0 monthly payment instead of owing relatively small 
payments. For instance, using the 2022 Federal poverty guidelines, an 
individual borrower with no dependents who makes $30,577 a year would 
no longer make a payment, with the same true of a family of four that 
earns $62,437 or less. Single individuals without dependents at 225 
percent of the poverty line make around $15 an hour, assuming they work 
full-time all year. By contrast, under the current REPAYE threshold of 
150 percent of the Federal poverty guidelines, borrowers would have to 
make a payment once their income exceeds $20,385 for a single 
individual and $41,625 for a family of four. Those amounts correspond 
to a wage of roughly $10 an hour for the single individual. This change 
thus protects relatively low-wage borrowers from having to make a 
monthly loan payment.
    For borrowers who have incomes above 225 percent of the 2022 
Federal poverty guidelines and pay 10 percent of their discretionary 
incomes, the higher poverty threshold would provide a maximum 
additional savings of $85 a month for a single individual and $173 a 
month for a family of four compared to the existing REPAYE plan, by 
providing for their payments to be calculated based on a smaller 
portion of their incomes. By exempting a larger amount of discretionary 
income from loan payments, more IDR borrowers on this plan would be 
able to better afford their costs of living. All borrowers with income 
above the proposed minimum threshold would receive the same benefit 
from this aspect of the policy change. These payment reductions will 
provide critical benefits for borrowers who do make enough money to 
afford some degree of loan payment each month, but who cannot afford 
the payment they would be required to make under other existing IDR 
plans.

     Table 4--Maximum Monthly Payment Savings at Different Levels of Income Protection, 2022 Federal Poverty
                                                Guidelines (FPL)
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Household size                                                               Single
                                                                              Four
----------------------------------------------------------------------------------------------------------------
Payment as percent of discretionary income..........................          5         10          5         10
150% FPL (Current REPAYE regulations)...............................        $85       $170       $173       $347
225% FPL (Proposed REPAYE regulations)..............................        127        255        260        520
Proposed REPAYE minus Current REPAYE................................         42         85         87        173
----------------------------------------------------------------------------------------------------------------
Note: The 2022 Federal Poverty Guideline is $13,590 for a single household and $27,750 for a house of four.

    The Department's proposal would also reduce the percent of 
discretionary income that borrowers owe on the REPAYE plan from 10 
percent to 5 percent on the share of a borrower's total original loan 
principal volume attributable to loans received as a student for an 
undergraduate program. A borrower who only borrowed for a graduate 
program would pay 10 percent of their discretionary income. So too 
would a borrower who had undergraduate loans, fully paid them off, and 
then took out graduate loans because they no longer have other 
outstanding loans when entering the IDR plan. A borrower with any 
outstanding undergraduate loans at the time of entering an IDR plan 
with a graduate loan would pay an amount between 5 and 10 percent based 
upon the weighted average of the original principal balances of the 
loans attributed to the undergraduate and graduate programs. Reducing 
the discretionary income share on undergraduate debt would particularly 
benefit borrowers who only have outstanding loans from their 
undergraduate education, as these

[[Page 1918]]

borrowers are far more likely to struggle with loan repayment than 
those who also have graduate loans. As noted in the preamble to these 
proposed regulations, Department data show that 90 percent of borrowers 
who are in default on their Federal student loans had only borrowed for 
their undergraduate education. By contrast, just 1 percent of borrowers 
who are in default had loans only for graduate studies. Similarly, 5 
percent of borrowers who only have graduate debt are in default on 
their loans, compared with 19 percent of those who have debt from 
undergraduate programs.\69\ By ensuring the reduction in borrowers' 
payment rate is proportional to a borrowers' undergraduate borrowing, 
the Department would target assistance to borrowers who are the most 
likely to struggle with repayment, ensuring undergraduate borrowers are 
able to afford their monthly loan payments while minimizing the 
additional costs to taxpayers. The fact that undergraduate loans also 
have lower loan limits than graduate loans helps to balance the goal of 
providing assistance with ensuring taxpayers do not bear unwarranted 
costs.
---------------------------------------------------------------------------

    \69\ Department of Education analysis of loan data by academic 
level for total borrower population and defaulted borrower 
population, conducted in FSA's Enterprise Data Warehouse, with data 
as of December 31, 2021.
---------------------------------------------------------------------------

    Not charging unpaid monthly interest after applying a borrower's 
payment would provide both financial and non-financial benefits for 
borrowers. For some borrowers, particularly those who have low income 
for the duration of their time in repayment, this interest benefit 
results in not charging interest that would otherwise be forgiven after 
20 or 25 years of qualifying monthly payments. While these borrowers do 
not receive a direct financial benefit in this situation, this policy 
provides a non-financial benefit because borrowers will not see their 
balances otherwise grow.\70\ Qualitative research and borrower 
complaints received by the Department have shown that interest growth 
on IDR plans is a significant concern for borrowers.\71\ Research has 
similarly shown that interest accumulation may discourage 
repayment.\72\ The Department, thus, expects that this benefit may 
encourage borrowers to keep repaying.
---------------------------------------------------------------------------

    \70\ The Pew Charitable Trusts. Borrowers Discuss the Challenges 
of Student Loan Repayment. (2020). https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment.
    \71\ Ibid.; FDR Group. Taking Out and Repaying Student Loans: A 
Report on Focus Groups with Struggling Student Loan Borrowers. 
(2015). https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf. The 
Department has also received many comments regarding IDR or student 
loan interest during the rulemaking process and through the FSA 
Ombudsman's office.https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf; https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf. The 
Department has also received many comments regarding IDR or student 
loan interest during the rulemaking process and through the FSA 
Ombudsman's office.
    \72\ Ibid.
---------------------------------------------------------------------------

    A recent study found that, among borrowers who were at least 15 
days late on their payments, switching to an IDR plan reduced the 
likelihood of delinquency by 22 percentage points and decreased 
borrowers' outstanding balances over the following 8 months.\73\ It is 
reasonable to expect that more generous IDR plans would decrease the 
delinquency rate more. Other elements of the proposed regulations would 
provide benefits to borrowers by giving them more opportunities to earn 
credit toward forgiveness and by providing for a shorter repayment 
period before forgiveness for borrowers with smaller original loan 
principal balances. By counting certain deferments and forbearances 
toward forgiveness and allowing borrowers to maintain their progress 
toward forgiveness after they consolidate, borrowers will face fewer 
instances in which they inadvertently make choices that either give 
them no credit toward forgiveness or reset all progress made to date. 
Borrowers who benefit from these changes will receive forgiveness 
faster than they would have without these regulations. These changes 
would also reduce complexity in seeking IDR forgiveness, which could 
help more borrowers successfully navigate repayment and reduce the 
likelihood that a borrower is so overwhelmed by the process that they 
choose not to pursue IDR. The shorter time to forgiveness would provide 
small-dollar borrowers--often the borrowers who did not complete 
college and who struggle most to afford their loans and avoid default--
with a greater incentive to enroll in the IDR plan, increasing the 
likelihood they avoid delinquency and default.
---------------------------------------------------------------------------

    \73\ Herbst, D. The Impact of Income-Driven Repayment on Student 
Borrower Outcomes. American Economic Journal: Applied Economics. 
https://www.aeaweb.org/articles?id=10.1257/app.20200362.
---------------------------------------------------------------------------

    The proposed regulations would clarify borrowers' repayment plan 
options and eliminate complexity in the student loan repayment system, 
including by phasing out the existing IDR plans to the extent the 
current law allows. Student borrowers seeking an IDR plan would only be 
able to choose between the IBR Plan established by section 493C of the 
HEA and the REPAYE plan. Borrowers already enrolled on the PAYE or ICR 
plan would maintain their access to those plans. It is estimated that, 
because of the significantly larger benefits available through the 
REPAYE plan, most student borrowers would not be worse off by losing 
access to PAYE or ICR, especially since these would be borrowers not 
currently enrolled in one of those plans and not all borrowers are 
eligible for PAYE. The possible exceptions would generally be 
circumstances either involving graduate borrowers who would prefer 
higher payments in exchange for forgiveness after 20 years or borrowers 
who anticipate having payments based upon their income that would be 
above what they would pay on the 10-year standard plan. Overall, the 
Department thinks the benefits from simplification exceed the potential 
higher costs for these borrowers. For the first group, they would still 
have access to lower monthly payments than they would under either the 
standard 10-year plan or other IDR plans. For the second group, they 
would still have lower monthly payments until they reached an amount 
equal to what they would owe on the 10-year standard plan. These 
efforts to simplify the available IDR plans thus would help ensure 
borrowers can easily identify plans that are affordable and appropriate 
for their circumstances.
    The Department believes that, despite the additional costs to 
taxpayers of the proposed REPAYE plan, both borrowers and the 
Department would greatly benefit from a plan that helps borrowers avoid 
delinquency and default, which are loan statuses that create additional 
challenges, costs, and administrative complexities for collection, as 
well as carry additional consequences for borrowers. This includes the 
possibility of having their wages garnished, their tax refunds or 
Social Security seized, and declines in their credit scores.
    In sum, borrowers would benefit from a more affordable plan that 
limits their loan payments, reduces the amount of time over which they 
need to repay, provides more protected income for borrowers to meet 
their family's basic needs, and reduces the chances of default. The 
Department would benefit from streamlining administration, and 
taxpayers would benefit from the lower rates of delinquent/defaulted 
loans.

Net Budget Impacts

    These proposed regulations are estimated to have a net Federal 
budget

[[Page 1919]]

impact in costs over the affected loan cohorts of $137.9 billion, 
consisting of a modification of $76.8 billion for loan cohorts through 
2022 and estimated costs of $61.1 billion for loan cohorts 2023 to 
2032. A cohort reflects all loans originated in a given fiscal year. 
Consistent with the requirements of the Credit Reform Act of 1990, 
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.

IDR Plan Changes

    The changes to the REPAYE plan would offer borrowers a more 
generous IDR plan that would have a net budget impact of approximately 
$137.9 billion, consisting of a modification of $76.8 billion for 
cohorts through 2022 and $61.1 for cohorts 2023-2032. This estimate is 
based on the President's Budget for 2023 baseline as modified to 
account for the PSLF waiver, the IDR waiver, the payment pause 
extension to December 2022, and the August 2022 announcement that the 
Department will discharge up to $20,000 in Federal student loans for 
borrowers who make under $125,000 as an individual or $250,000 as a 
family.
    The net budget estimate in this RIA was produced prior to the 
announcement of a subsequent extension of the payment pause beyond 
December 31, 2022. The effect of this payment pause extension on the 
net budget impact will be reflected in the final rule. The net budget 
impact also takes into account the regulatory changes in the Notices of 
Final Rule for Affordability and Students that published on November 1, 
2022, 87 FR 65904 and Final Regulations: Pell Grants for Prison 
Education Programs; Determining the Amount of Federal Education 
Assistance Funds Received by Institutions of Higher Education (90/10); 
Change in Ownership and Change in Control that published on October 28, 
2022, 87 FR 65426, that would make changes to several other areas 
relating to Federal student loans including interest capitalization, 
loan forgiveness programs, loan discharges, and the 90/10 rule.
    The proposed regulations would result in costs for taxpayers in the 
form of transfers to borrowers, as borrowers enrolled in the REPAYE 
plan would generally make lower payments on the new plan as compared to 
current IDR plans. Not charging remaining monthly interest after 
applying a borrower's payment also increases costs for taxpayers in the 
form of transfers, as borrowers may otherwise eventually repay some of 
the accumulating interest prior to forgiveness on current IDR plans. 
Costs to taxpayers would also increase if the availability of improved 
repayment options increases the volume and quantity of loans for future 
cohorts of students. The budget estimates assume that there will be no 
change in volume or quantity of loans issued due to the improved terms. 
Additional borrowing would likely increase costs of the regulations, 
but the magnitude of the impact would depend on the characteristics of 
those borrowing more and data limitations make it challenging to 
anticipate who such borrowers would be. To estimate the effect of the 
proposed changes, the Department revised the payment calculations in 
the IDR sub-model used for cost estimates for the IDR plans. Changing 
the percentage of income applied to a payment is a straightforward 
change with a significant effect on the cashflows when compared to the 
baseline. The element that is less clear is what decision about plan 
choice existing borrowers will make when the revised REPAYE plan is 
available in 2023 and beyond. As in the case of the current REPAYE 
plan, the new REPAYE plan does not include a standard repayment cap 
that limits borrowers' maximum monthly payment. In this case, the 
Department has run the payment calculations twice for each borrower--
once under the revised REPAYE option and again under the borrower's 
baseline plan--and assumed each borrower chooses the option with the 
lowest net present value (NPV) of costs. Table 5 shows the result of 
this plan assignment.

                      Table 5--Plan Assignment for Borrowers Entering Repayment in FY 2024
----------------------------------------------------------------------------------------------------------------
               Percent Distribution of Borrowers in Baseline Plan When Revised REPAYE is Available
-----------------------------------------------------------------------------------------------------------------
                                                                      IBR--15         IBR--10
                  Baseline plan                         ICR           percent         percent     Revised REPAYE
----------------------------------------------------------------------------------------------------------------
ICR.............................................               0  ..............  ..............             100
IBR--15 percent.................................  ..............           20.94  ..............           79.06
IBR--10 percent.................................  ..............  ..............            8.41           91.59
REPAYE..........................................  ..............  ..............  ..............             100
                                                 ---------------------------------------------------------------
    Total.......................................               0            1.12             5.3           93.59
----------------------------------------------------------------------------------------------------------------

    In categorizing plans, we include the 10-percent and 15-percent IBR 
plans with PAYE borrowers included in the IBR-10 percent row, as 
borrowers cannot choose PAYE in 2024 or later. Those remaining in 15-
percent IBR represent approximately 5 percent of borrowers who first 
borrowed prior to 2008 and entered repayment for the last time in 2024.
    This approach assumes borrowers know their income and family 
profile trajectories over the life of their loans and choose the plan 
that offers the lowest lifetime, present-discounted payments. The 
payment comparison for plan assignment assumes borrowers do not 
experience any events that disrupt their time to forgiveness or payoff, 
such as prepayment, discharge, or default, under either the baseline or 
proposed plan revisions. It does take into account the effect of broad-
based forgiveness when doing the comparison. Possible alternatives 
include choosing the plan that has the most favorable monthly payments 
in 2023 or another near-term year, assuming that a graduate borrower 
whose estimated income in a given year or averaged across their 
repayment period would result in payment at the standard repayment cap 
would remain in their existing plan and setting a minimum amount of 
payment reduction that would trigger borrowers to change plans. The 
Department recognizes that borrowers may use different logic when 
choosing a repayment plan, such as comparing near-term monthly 
payments, and will not have information about their future incomes and 
family patterns to match this type of analysis, but we believe any 
decision logic would result in a high percentage of borrowers in the 
new REPAYE plan. By assuming IDR borrowers take the plan with the 
lowest long-run cost, this generates a higher-end estimate of the

[[Page 1920]]

net budget impact of the proposed changes for borrowers currently 
enrolled in IDR plans, though the IDR overall estimate is potentially 
understating total costs. While it is possible that more people may be 
willing to take on student loan debt with the safety net of the more 
generous IDR plan, we have not estimated the extent to which there 
could be increases in loan volumes or Pell Grants from potential new 
students. Absent evidence of the magnitude of increase, loan type 
distribution, risk group profiles, and future income profiles of these 
potential borrowers, whose postsecondary educational decisions likely 
involve more than just concern about repayment of debt, the net budget 
impact of this potential volume increase is unknown. The impact of 
borrowers switching into IDR plans from non-IDR plans is also a 
potential factor that we do not estimate here. We have limited 
information on these borrowers' income and family profiles in repayment 
and already have high rates of IDR participation in our model. 
Administrative issues, lack of information, or simply sticking with the 
default option may be the reason many of these borrowers are not in an 
IDR plan already, but others may have made the choice that a non-IDR 
plan is preferable for them. Depending on their anticipated income 
profiles or comfort with their existing plan, the potential shift of 
these borrowers is very uncertain and, without information on the 
income profiles of potential shifters, we are not able to estimate the 
potential budget impact of this change. As a result, we are concerned 
that building in a sensitivity analysis that includes adjustments for 
increased take up could present inaccurate estimates. We will, however, 
continue to review this issue during the public comment period to see 
if there are any possible additional refinements. Regardless, to the 
extent such increases in volume and increases in IDR participation are 
observed, they will be reflected in future loan program re-estimates.
    With the significant budget impact from these proposed revisions, 
the Department seeks to show the effects of the various changes 
individually. Table 6 details the scores for the modification cohorts 
through 2022 and the outyears through 2032 when the proposed changes 
are run with one or more elements kept as in the baseline. This 
provides an indication of the impact of the specific proposed changes. 
The scores for each component will not sum to the total because of the 
significant interaction between elements of the proposed changes. For 
example, when the change to 5 percent of income and to 225 percent of 
the Federal poverty level are combined, the estimated impact is $127.4 
billion compared to $132.3 billion when adding the individual savings 
together. These estimates are removing the proposed change from the 
estimate of the total package, so a negative value represents a savings 
from the total policy estimate. This negative value indicates that the 
element has a cost when included, by reducing transfers from borrowers 
to the government and taxpayers.

                                        Table 6--IDR Component Estimates
                                                 [$ in billions]
----------------------------------------------------------------------------------------------------------------
                                      Income
                                    protection       No 5% of     No elimination    No balance-        Other
                                   kept at 150%   income payment    of interest     based early     provisions
                                      of FPL                          accrual       forgiveness
----------------------------------------------------------------------------------------------------------------
Modification through cohort 2022          -$37.3          -$29.6           -$5.4           -$1.2           -$3.4
Outlays for cohorts 2023-2032...           -36.4           -29.0            -9.6            -2.5            -4.5
                                 -------------------------------------------------------------------------------
    Total.......................           -73.7           -58.6           -14.9            -3.7            -7.9
----------------------------------------------------------------------------------------------------------------
Note: Savings are relative to the scenario in which the proposed rule is implemented in full, so a negative
  number reflects a smaller increase in costs.

    As can be seen in Table 6, the increase in the income protection to 
225 percent of the Federal poverty guidelines and the percentage of 
income on which payments are based are the most significant factors in 
the estimated impact of the proposed changes. Borrowers' projected 
incomes are another important element for cost estimates for IDR plans, 
so we have run two sensitivity analyses that shift borrower incomes. 
The Department uses NSLDS income data to adjust the projected incomes 
used in its IDR model for accuracy. For the alternate scenarios, we 
increase the income adjustment factor by 5 percentage points and 
decrease it by 10 percentage points to examine the impact of changes in 
income. For example, the income adjustment factor used in the baseline 
was .65, so the adjustment factor for the sensitivities are .70 and 
.55, respectively. From past sensitivity runs, we know that increasing 
and decreasing the incomes by the same factor results in similar 
changes in costs, so the different variations here provide a sense of 
two different shifts in incomes. When compared to the same baseline, we 
estimate that regulations with a 5-point increase in incomes would cost 
a total of $97.0 billion and the 10-point decrease would cost $209.4 
billion. Recall that our central estimate of the proposed rule's net 
budget impact is $137.9 billion above baseline. Incomes are likely the 
factor in the IDR model with the greatest effect, but other aspects, 
such as projected family size, events such as defaults, or discharges, 
also affect the estimates.
    We also wanted to consider the distributional effects of the 
proposed changes to the extent we have information. One benefit we hope 
to see from the regulations is reduced delinquency and default which 
should particularly benefit lower-income borrowers, but these potential 
benefits are not currently included in the model. The sample of 
borrowers used to estimate costs in IDR plans have projected income 
profiles of 31 years of AGIs for the borrower or household, depending 
on tax filing status. Table 7 summarizes the change in payments between 
the President's budget baseline for FY 2023 as modified for waivers, 
broad-based debt relief, and recent regulatory packages and the 
proposed regulation for a representative cohort of borrowers, those 
entering repayment in FY 2024.

[[Page 1921]]



 Table 7--Estimated Effects of IDR Proposals by Income Range and Graduate Student Status for Borrowers Entering
                                              Repayment in FY 2024
----------------------------------------------------------------------------------------------------------------
                                                                                    $65,000 to
                                                                     <$65,000        $100,000     Above $100,000
----------------------------------------------------------------------------------------------------------------
Only Undergraduate Borrowing:
    % of Pop....................................................           25.8%           24.1%           13.2%
    % of Debt...................................................            9.9%           12.1%            7.6%
    Mean Debt...................................................         $27,452         $35,843         $40,722
    Mean Payment Reduction......................................         $12,329         $19,807         $16,702
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                                    $65,000 to
                                                                     <$65,000        $100,000     Above $100,000
----------------------------------------------------------------------------------------------------------------
Borrowed as Graduate Student:
    % of Pop....................................................            6.6%           12.2%           18.2%
    % of Debt...................................................           10.7%           20.4%           39.3%
    Mean Debt...................................................        $128,467        $124,361        $145,093
    Mean Payment Reduction......................................         $16,876         $17,277        $(2,803)
----------------------------------------------------------------------------------------------------------------
Note: Debt is measured as the outstanding balance when the borrower enters repayment, reductions in payments are
  measured over the life of the loan, and income is the average income over the potential repayment period for
  borrowers entering repayment in FY 2024.

    As can be seen, all groups would see significant reductions in 
average payments, except those who borrowed as graduate students and 
have over $100,000 in average income. There are some limitations to the 
savings for the borrowers with earnings at or below $65,000, because a 
portion of these borrowers already have a $0 payment under the current 
REPAYE plan. Once their payment hits $0 they cannot receive any greater 
savings under the new plan. Moreover, borrowers in this category 
generally have lower loan balances; thus, the amount of potential 
savings is also smaller. Finally, the marginal benefit of a dollar 
saved is greater for lower-income borrowers than higher-income 
borrowers, suggesting that similar or lower savings in absolute dollar 
terms could generate greater value for lower-income groups relative to 
high-income groups.
    Since graduate student borrowers have higher debt, on average, they 
are less likely to benefit from the reduced time to forgiveness based 
on a low balance, as shown in Table 8. The high-income, high-debt 
graduate students may not benefit from the rate reduction and the 
continued absence of the standard payment cap on REPAYE will likely 
affect them more. Some may still choose revised REPAYE if their 
payments are lower in the beginning and then get higher at the end of 
the repayment period. Table 7 does not account for any timing effects, 
as such effects are likely to be idiosyncratic and challenging to model 
in a systemic manner. Payments on loans attributed to graduate programs 
would remain at a 10 percent discretionary income level and these 
borrowers have high balances so would not benefit from reduced time to 
forgiveness. That means two of the major drivers of reductions in 
borrower payments from the proposed regulations--early forgiveness and 
the reduction to 5 percent for payments attributed to undergraduate 
loans--are less likely to apply to that population. The number of 
expected years to forgiveness in Table 8 is based on the borrower's 
balance and does not take into account any deferments, forbearances, or 
early payoffs.

  Table 8--Years to Forgiveness and Distribution of Balances for Borrowers Entering Repayment in FY 2024 Under
                                                  Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                                                  Undergraduate-   Any graduate
                  Expected years to forgiveness                   only borrowers     borrowing        Overall
----------------------------------------------------------------------------------------------------------------
10..............................................................           12.89            0.31            8.05
11..............................................................            1.35            0.04            0.85
12..............................................................            1.53            0.05            0.96
13..............................................................            1.67            0.07            1.05
14..............................................................             1.9            0.11            1.21
15..............................................................             2.0             0.1            1.27
16..............................................................            2.29            0.08            1.44
17..............................................................            2.21            0.08            1.39
18..............................................................            2.44             0.1            1.54
19..............................................................            2.41            0.09            1.52
20..............................................................           69.32            0.13            42.7
21..............................................................  ..............            0.21            0.08
22..............................................................  ..............             0.1            0.04
23..............................................................  ..............            0.19            0.07
24..............................................................  ..............            0.21            0.08
25..............................................................  ..............           98.13           37.75
----------------------------------------------------------------------------------------------------------------


[[Page 1922]]

Accounting Statement

    As required by OMB Circular A-4, 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 9--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
               Category                             Benefits
------------------------------------------------------------------------
Improved options for affordable loan   Not quantified.
 repayment.
Increased college enrollment,          Not quantified.
 attainment, and degree completion.
Reduced risk of delinquency and        Not quantified.
 default for borrowers.
Reduced administrative burden for      Not quantified.
 Department due to reduced default
 and collection actions.
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                       Costs
                Category                 -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Costs of compliance with paperwork                   TBD             TBD
 requirements...........................
Increased administrative costs to                   $1.1            $1.3
 Federal government to updates systems
 and contracts to implement the proposed
 regulations............................
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                     Transfers
                Category                 -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Reduced transfers from IDR borrowers due          16,285          14,832
 to increased income protection, lower
 income percentage for payment,
 potential early forgiveness based on
 balance, and other IDR program changes.
------------------------------------------------------------------------

Alternatives Considered

    As part of the development of these proposed regulations, the 
Department engaged in a negotiated rulemaking process in which we 
received comments and proposals from non-Federal negotiators 
representing numerous impacted constituencies. These included higher 
education institutions, consumer advocates, students, borrowers, 
financial aid administrators, accrediting agencies, and State attorneys 
general. Non-Federal negotiators submitted a variety of proposals 
relating to the issues under discussion. Information about these 
proposals is available on our negotiated rulemaking website at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    The Department considered creating a new repayment plan. However, 
we determined that modifying the existing REPAYE plan, rather than 
creating a new repayment plan, could reduce concerns of introducing new 
complexity, a goal the negotiators primarily shared.
    The Department also considered keeping payments set at 10 percent 
of discretionary income for 20 years for all undergraduate borrowers 
and 25 years for all graduate borrowers, the cost of which is shown in 
Table 6 as -$58.6 billion less than the full package that includes the 
reduction in payments. However, negotiators largely opposed that 
proposal as insufficient to address the needs of some borrowers. The 
Department has evaluated the needs of borrowers and determined that the 
benefits of providing a more generous repayment plan, which will help 
to encourage borrowers to enroll in a single plan and ultimately 
contribute to a more streamlined set of repayment options, outweighed 
the benefits of retaining the current plan. The Department also 
believes that, for many borrowers, 10 percent of discretionary income 
may be too high and 20 years may be too long, especially for borrowers 
who accrued only small amounts of debt over a short period of time in 
postsecondary education. We are concerned these factors may lead 
borrowers not to enroll in IDR plans, even when it would make their 
payments more affordable and help them to avoid delinquency and 
default.
    The Department also considered annual cancellation of some debt for 
borrowers, a suggestion proposed by several negotiators, but determined 
that doing so is not within our statutory authority under the HEA. The 
Department felt that its proposal not to charge accrued-but-unpaid 
interest, preventing negative amortization, effectively addressed the 
substance of the problem while ensuring that borrowers who earn more 
after leaving school repay more of their loans.

Regulatory Flexibility Act

    The Secretary certifies, under the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), that this proposed regulatory action would not 
have a significant economic impact on a substantial number of ``small 
entities.'' The Small Business Administration (SBA) defines ``small 
institution'' using data on revenue, market dominance, tax filing 
status, governing body, and population. The majority of entities to 
which the Office of Postsecondary Education's (OPE) regulations apply 
are postsecondary institutions, however, which do not report such data 
to the Department. As a result, for purposes of this NPRM, the 
Department proposes to continue defining ``small entities'' by 
reference to enrollment, to allow meaningful comparison of regulatory 
impact across all types of higher education institutions. The 
enrollment standard for a small two-year institution is less than 500 
full-time-equivalent (FTE) students and for a small four-year 
institution, less than 1,000 FTE students.\74\
---------------------------------------------------------------------------

    \74\ In previous regulations, the Department categorized small 
businesses based on tax status. Those regulations defined ``non-
profit organizations'' as ``small organizations'' if they were 
independently owned and operated and not dominant in their field of 
operation, or as ``small entities'' if they were institutions 
controlled by governmental entities with populations below 50,000. 
Those definitions resulted in the categorization of all private 
nonprofit organizations as small and no public institutions as 
small. Under the previous definition, proprietary institutions were 
considered small if they are independently owned and operated and 
not dominant in their field of operation with total annual revenue 
below $7,000,000. Using FY 2017 IPEDs finance data for proprietary 
institutions, 50 percent of 4-year and 90 percent of 2-year or less 
proprietary institutions would be considered small. By contrast, an 
enrollment-based definition applies the same metric to all types of 
institutions, allowing consistent comparison across all types.

[[Page 1923]]



                         Table 10--Small Institutions Under Enrollment-Based Definition
----------------------------------------------------------------------------------------------------------------
             Level                            Type                     Small           Total          Percent
----------------------------------------------------------------------------------------------------------------
2-year........................  Public..........................             328           1,182           27.75
2-year........................  Private.........................             182             199           91.46
2-year........................  Proprietary.....................           1,777           1,952           91.03
4-year........................  Public..........................              56             747            7.50
4-year........................  Private.........................             789           1,602           49.25
4-year........................  Proprietary.....................             249             331           75.23
                                                                 -----------------------------------------------
    Total.....................                                             3,381           6,013           56.23
----------------------------------------------------------------------------------------------------------------
Source: 2018-19 data reported to the Department.

    Table 11 summarizes the number of institutions affected by these 
proposed regulations. The Department has determined that there would be 
no economic impact on small entities affected by the regulations 
because IDR plans are between borrowers and the Department. As seen in 
Table 11, the average total revenue at small institutions ranges from 
$2.3 million for proprietary institutions to $21.3 million at private 
institutions.

             Table 11--Total Revenues at Small Institutions
------------------------------------------------------------------------
                                      Average total
                                       revenues for      Total revenues
              Control                     small          for all small
                                       institutions       institutions
------------------------------------------------------------------------
Private...........................         21,288,171     20,670,814,269
Proprietary.......................          2,343,565      4,748,063,617
Public............................         15,398,329      5,912,958,512
------------------------------------------------------------------------
Note: Based on analysis of IPEDS enrollment and revenue data for 2018-
  19.

    The IDR proposed regulations will not have a significant impact to 
a substantial number of small entities because IDR plans are between 
the borrower and the Department. As noted in the Paperwork Reduction 
Act section, burden related to the proposed regulations will be 
assessed in a separate information collection process and that burden 
is expected to involve individuals more than institutions of any size.

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.
    Proposed Sec.  685.209 contains information collection 
requirements. Under the PRA, the Department would, at the required 
time, submit a copy of these sections and an Information Collections 
Request to OMB for its review. PRA approval would be sought via a 
separate information collection process. The Department would publish 
these information collections in the Federal Register and seek public 
comment on those documents. 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 would display 
the control numbers assigned by OMB to any information collection 
requirements proposed in this NPRM and adopted in the final 
regulations.

Section 685.209--Income-Driven Repayment Plans

    Requirements: The Department proposes to amend Sec.  685.209 to 
include regulations for all of the IDR plans, which are plans with 
monthly payments based in whole or in part on income and family size. 
These amendments include changes to the PAYE, REPAYE, IBR and ICR 
plans. Specifically, Sec.  685.209 would be amended to modify the terms 
of the REPAYE plan to reduce monthly payment amounts to 5 percent of 
discretionary income for the percent of a borrower's total original 
loan volume attributable to loans received as students for an 
undergraduate program; under the modified REPAYE plan, increase the 
amount of discretionary income exempted from the calculation of 
payments to 225 percent; under the modified REPAYE plan, discontinue 
the practice of charging unpaid accrued interest each month after 
applying a borrower's payment; simplify the alternative repayment plan 
that a borrower is placed on if they fail to recertify their income and 
allow up to 12 payments on this plan to count toward forgiveness; 
reduce the time to forgiveness under the REPAYE plan for borrowers with 
low original loan balances; modify the IBR plan regulations to clarify 
that borrowers in default are eligible to make payments under the plan; 
modify the regulations for all IDR plans to allow for periods under 
certain deferments and forbearances to count toward

[[Page 1924]]

forgiveness; modify the regulations applicable to all IDR plans to 
allow borrowers an opportunity to make catch-up payments for all other 
periods in deferment or forbearance; modify the regulations for all IDR 
plans to clarify that a borrower's progress toward forgiveness does not 
fully reset when a borrower consolidates loans on which a borrower had 
previously made qualifying payments; modify the regulations for all IDR 
plans to provide that any borrowers who are at least 75 days delinquent 
on their loan payments will be automatically enrolled in the IDR plan 
for which the borrower is eligible and that produces the lowest monthly 
payments for them; and limit eligibility for the ICR plan to (1) 
borrowers who began repaying under the ICR plan before the effective 
date of the regulations, and (2) borrowers whose loans include a Direct 
Consolidation Loan made on or after July 1, 2006, that repaid a parent 
PLUS loan.
    Burden Calculation: These changes would require an update to the 
current IDR plan request form used by borrowers to sign up for IDR, 
complete annual recertification, or have their payment amount 
recalculated. The form update would be completed and made available for 
comment through a full public clearance package before being made 
available for use by the effective date of the regulations. The burden 
changes would be assessed to OMB Control Number 1845-0102, Income 
Driven Repayment Plan Request for the William D. Ford Federal Direct 
Loans and Federal Family Education Loan Programs. Consistent with the 
discussions above, Table 12 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.

                  Table 12--PRA Information Collection
------------------------------------------------------------------------
                                          OMB control     Estimated cost
Regulatory  section     Information       number and          unless
                        collection     estimated burden  otherwise noted
------------------------------------------------------------------------
Sec.   685.209 IDR   The proposed      1845-0102 Burden  Costs will be
 Plans.               regulations at    will be cleared   cleared
                      Sec.   685.209    at a later date   through
                      would be          through a         separate
                      amended to        separate          information
                      include           information       collection for
                      regulations for   collection for    the form.
                      all of the IDR    the form..
                      plans. These
                      amendments
                      include changes
                      to the PAYE,
                      IBR, and ICR
                      plans, and
                      primarily to
                      the REPAYE
                      plan..
------------------------------------------------------------------------

    We will prepare an Information Collection Request for the 
information collection requirements following the finalization of this 
NPRM. A notice will be published in the Federal Register at that time 
providing a draft version of the form for public review and inviting 
public comment. The proposed collection associated with this NPRM is 
1845-0102.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
Order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Assessment of Education 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.

Federalism

    Executive Order 13132 requires us to ensure meaningful and timely 
input by State and local elected officials in the development of 
regulatory policies that have federalism implications. ``Federalism 
implications'' means substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. The proposed regulations do not have federalism 
implications.
    Accessible Format: On request to the program contact person(s) 
listed under FOR FURTHER INFORMATION CONTACT, individuals with 
disabilities can obtain this document in an accessible format. The 
Department will provide the requestor with an accessible format that 
may include Rich Text Format (RTF) or text format (txt), a thumb drive, 
an MP3 file, braille, large print, audiotape, or compact disc, or other 
accessible format.
    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 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. List of Subjects in 34 CFR Part 685.
    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs-education, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

Miguel A. Cardona,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend part 685 of title 34 of the Code of Federal Regulations as 
follows:

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

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

0
2. In Sec.  685.102, in paragraph (b) amend the definition of 
``satisfactory repayment arrangement'' by revising paragraph (2)(ii) to 
read as follows:


Sec.  685.102   Definitions.

* * * * *
    (b) * * *

[[Page 1925]]

    Satisfactory repayment arrangement:
    (2) * * *
    (ii) Agreeing to repay the Direct Consolidation Loan under one of 
the income-driven repayment plans described in Sec.  685.209.
* * * * *
0
3. Section 685.208 is amended by:
0
a. Revising the section heading.
0
b. Revising paragraphs (a) and (k).
0
c. Removing paragraphs (l) and (m).
    The revisions read as follows:


Sec.  685.208  Fixed payment repayment plans.

    (a) General. Under a fixed payment repayment plan, the borrower's 
required monthly payment amount is determined based on the amount of 
the borrower's Direct Loans, the interest rates on the loans, and the 
repayment plan's maximum repayment period.
* * * * *
    (k) The repayment period for any of the repayment plans described 
in this section does not include periods of authorized deferment or 
forbearance.
0
4. Section 685.209 is revised to read as follows:


Sec.  685.209  Income-driven repayment plans.

    (a) General. Income-driven repayment (IDR) plans are repayment 
plans that base the borrower's monthly payment amount on the borrower's 
income and family size. The four IDR plans are--
    (1) The Revised Pay As You Earn (REPAYE) plan;
    (2) The Income-Based Repayment (IBR) plan;
    (3) The Pay As You Earn (PAYE) Repayment plan; and
    (4) The Income-Contingent Repayment (ICR) plan;
    (b) Definitions. The following definitions apply to this section:
    Discretionary income means the greater of $0 or the difference 
between the borrower's income as determined under paragraph (e)(1) 
and--
    (i) For the REPAYE plan, 225 percent of the applicable Federal 
poverty guideline;
    (ii) For the IBR and PAYE plans, 150 percent of the applicable 
Federal poverty guideline; and
    (iii) For the ICR plan, 100 percent of the applicable Federal 
poverty guideline.
    Eligible loan, for purposes of determining partial financial 
hardship status and for adjusting the monthly payment amount in 
accordance with paragraph (g) of this section means--
    (i) Any outstanding loan made to a borrower under the Direct Loan 
Program, except for a Direct PLUS Loan made to a parent borrower, or a 
Direct Consolidation Loan that repaid a Direct PLUS Loan or a Federal 
PLUS Loan made to a parent borrower; and
    (ii) Any outstanding loan made to a borrower under the FFEL 
Program, except for a Federal PLUS Loan made to a parent borrower, or a 
Federal Consolidation Loan that repaid a Federal PLUS Loan or a Direct 
PLUS Loan made to a parent borrower.
    Family size means, for all IDR plans, the number of individuals 
that is determined by adding together--
    (i) The borrower;
    (ii) The borrower's spouse, for a married borrower filing jointly;
    (iii) 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; and
    (iv) Other individuals if, at the time the borrower certifies 
family size, the other individuals live with the borrower and receive 
more than half their support from the borrower and will continue to 
receive this support from the borrower for the year for which the 
borrower certifies family size.
    Income means either--
    (i) The borrower's and, if applicable, the spouse's, Adjusted Gross 
Income (AGI) as reported to the Internal Revenue Service; or
    (ii) The amount calculated based on alternative documentation of 
all forms of taxable income received by the borrower and provided to 
the Secretary.
    Income-driven repayment plan means a repayment plan in which the 
monthly payment amount is primarily determined by the borrower's 
income.
    Monthly payment or the equivalent means--
    (i) A required monthly payment as determined in accordance with 
paragraphs (k)(4)(i) through (iii) of this section;
    (ii) A month in which a borrower receives a deferment or 
forbearance of repayment under one of the deferment or forbearance 
conditions listed in paragraphs (k)(4)(iv) of this section; or
    (iii) A month in which a borrower makes a payment in accordance 
with procedures in paragraph (k)(6) of this section.
    New borrower means--
    (i) For the purpose of the PAYE plan, an individual who--
    (A) Has no outstanding balance on a Direct Loan Program loan or a 
FFEL Program loan as of October 1, 2007, or who has no outstanding 
balance on such a loan on the date the borrower receives a new loan 
after October 1, 2007; and
    (B) Receives a disbursement of a Direct Subsidized Loan, Direct 
Unsubsidized Loan, a Direct PLUS Loan made to a graduate or 
professional student, or a Direct Consolidation Loan on or after 
October 1, 2011, except that a borrower is not considered a new 
borrower if the Direct Consolidation Loan repaid a loan that would 
otherwise make the borrower ineligible under paragraph (1) of this 
definition.
    (ii) For the purposes of the IBR plan, an individual who has no 
outstanding balance on a Direct Loan or Federal Family Education Loan 
(FFEL) loan on July 1, 2014, or who has no outstanding balance on such 
a loan on the date the borrower obtains a loan after July 1, 2014.
    Partial financial hardship means--
    (i) For an unmarried borrower or for a married borrower whose 
spouse's income and eligible loan debt are excluded for purposes of 
determining a payment amount under the IBR or PAYE plans in accordance 
with paragraph (e) of this section, a circumstance in which the 
Secretary determines that the annual amount the borrower would be 
required to pay on the borrower's eligible loans under the 10-year 
standard repayment plan is more than what the borrower would pay under 
the IBR or PAYE plan as determined in accordance with paragraph (f) of 
this section. The Secretary determines the annual amount that would be 
due under the 10-year Standard Repayment plan based on the greater of 
the balances of the borrower's eligible loans that were outstanding at 
the time the borrower entered repayment on the loans or the balances on 
those loans that were outstanding at the time the borrower selected the 
IBR or PAYE plan.
    (ii) For a married borrower whose spouse's income and eligible loan 
debt are included for purposes of determining a payment amount under 
the IBR or PAYE plan in accordance with paragraph (e) of this section, 
the Secretary's determination of partial financial hardship as 
described in paragraph (1) of this definition is based on the income 
and eligible loan debt of the borrower and the borrower's spouse.
    Poverty guideline refers to the income categorized by State and 
family size in the Federal 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 Federal poverty guidelines, the Federal poverty guideline to be 
used for the borrower is the Federal poverty guideline (for the 
relevant family size) used for the 48 contiguous States.
    Support includes money, gifts, loans, housing, food, clothes, car, 
medical and dental care, and payment of college costs.

[[Page 1926]]

    (c) Borrower eligibility for IDR plans. (1) Except as provided in 
paragraphs (d)(2) of this section, defaulted loans may not be repaid 
under an IDR plan.
    (2) Any Direct Loan borrower may repay under the REPAYE plan if the 
borrower has loans eligible for repayment under the plan;
    (3)(i) Except as provided in paragraph (c)(3)(ii) of this section, 
any Direct Loan borrower may repay under the IBR plan if the borrower 
has loans eligible for repayment under the plan, and has a partial 
financial hardship when the borrower initially enters the plan.
    (ii) A borrower who has made 120 or more qualifying repayments 
under the REPAYE plan on or after July 1, 2023, may not enroll in the 
IBR plan.
    (4) A borrower may repay under the PAYE plan only if the borrower--
    (i) Has loans eligible for repayment under the plan;
    (ii) Is a new borrower;
    (iii) Has a partial financial hardship when the borrower initially 
enters the plan; and
    (iv) Began repaying under the PAYE plan before the effective date 
of these regulations and wishes to continue repaying under the PAYE 
plan. A borrower who is repaying under the PAYE plan and changes to a 
different repayment plan in accordance with Sec.  685.210(b) may not 
re-enroll in the PAYE plan.
    (5)(i) Except as provided in paragraph (c)(4)(ii) of this section, 
a borrower may repay under the ICR plan only if the borrower--
    (A) Has loans eligible for repayment under the plan; and
    (B) Began repaying under the ICR plan before the effective date of 
these regulations and wishes to continue repaying under the ICR plan. A 
borrower who is repaying under the ICR plan and changes to a different 
repayment plan in accordance with Sec.  685.210(b) may not re-enroll in 
the ICR plan unless they meet the criteria in paragraph (c)(4)(ii) of 
this section.
    (ii) Any borrower may choose the ICR plan to repay a Direct 
Consolidation Loan made on or after July 1, 2006, that repaid a parent 
Direct PLUS Loan or a parent Federal PLUS Loan.
    (d) Loans eligible to be repaid under an IDR plan. (1) The 
following loans are eligible to be repaid under the REPAYE and PAYE 
plans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS 
Loans made to graduate or professional students, and Direct 
Consolidation Loans that did not repay a Direct parent PLUS Loan or a 
Federal parent PLUS Loan;
    (2) The following loans, including defaulted loans, are eligible to 
be repaid under the IBR plan: Direct Subsidized Loans, Direct 
Unsubsidized Loans, Direct PLUS Loans made to graduate or professional 
students, and Direct Consolidation Loans that did not repay a Direct 
parent PLUS Loan or a Federal parent PLUS Loan.
    (3) The following loans are eligible to be repaid under the ICR 
plan: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS 
Loans made to graduate or professional students, and all Direct 
Consolidation Loans (including Direct Consolidation Loans that repaid 
Direct parent PLUS Loans or Federal parent PLUS Loans), except for 
Direct PLUS Consolidation Loans made before July 1, 2006.
    (e) Treatment of income and loan debt. (1) Income.
    (i) For purposes of calculating the borrower's monthly payment 
amount under the REPAYE, IBR, and PAYE plans--
    (A) For an unmarried borrower, a married borrower filing a separate 
Federal income tax return, or a married borrower filing a joint Federal 
tax return who certifies that the borrower is currently separated from 
the borrower's spouse or is currently unable to reasonably access the 
spouse's income, only the borrower's income is used in the calculation.
    (B) For a married borrower filing a joint Federal income tax 
return, except as provided in paragraph (e)(1)(i)(A) of this section, 
the combined income of the borrower and spouse is used in the 
calculation.
    (ii) For purposes of calculating the monthly payment amount under 
the ICR plan--
    (A) For an unmarried borrower, a married borrower filing a separate 
Federal income tax return, or a married borrower filing a joint Federal 
tax return who certifies that the borrower is currently separated from 
the borrower's spouse or is currently unable to reasonably access the 
spouse's income, only the borrower's income is used in the calculation.
    (B) For married borrowers (regardless of tax filing status) who 
elect to repay their Direct Loans jointly under the ICR Plan or (except 
as provided in paragraph (e)(1)(ii)(A) of this section) for a married 
borrower filing a joint Federal income tax return, the combined income 
of the borrower and spouse is used in the calculation.
    (2) Loan debt. (i) For the REPAYE, IBR, and PAYE plans, the 
spouse's eligible loan debt is included for the purposes of adjusting 
the borrower's monthly payment amount as described in paragraph (g) of 
this section if the spouse's income is included in the calculation of 
the borrower's monthly payment amount in accordance with paragraph 
(e)(1) of this section.
    (ii) For the ICR plan, the spouse's loans that are eligible for 
repayment under the ICR plan in accordance with paragraph (d)(3) of 
this section are included in the calculation of the borrower's monthly 
payment amount only if the borrower and the borrower's spouse elect to 
repay their eligible Direct Loans jointly under the ICR plan.
    (f) Monthly payment amounts. (1) For the REPAYE plan, the 
borrower's monthly payments are--
    (i) $0 for the portion of the borrower's income, as determined 
under paragraph (e)(1) of this section, that is less than or equal to 
225 percent of the applicable Federal poverty guideline; plus
    (ii) 5 percent of the portion of income as determined under 
paragraph (e)(1) of this section that is greater than 225 percent of 
the applicable poverty guideline, prorated by the percentage that is 
the result of dividing the borrower's original total loan balance 
attributable to eligible loans received for undergraduate study by the 
borrower's original total loan balance attributable to all eligible 
loans, divided by 12; plus
    (iii) 10 percent of the portion of income as determined under 
paragraph (e)(1) of this section that is greater than 225 percent of 
the applicable Federal poverty guidelines, prorated by the percentage 
that is the result of dividing the borrower's original total loan 
balance attributable to eligible loans received for graduate or 
professional study by the borrower's original total loan balance 
attributable to all eligible loans, divided by 12.
    (2) For new borrowers under the IBR plan and for all borrowers on 
the PAYE plan, the borrower's monthly payments are the lesser of:
    (i) 10 percent of the borrower's discretionary income, divided by 
12; or
    (ii) What the borrower would have paid on a 10-year standard 
repayment plan based on the eligible loan balances and interest rates 
on the loans at the time the borrower entered the IBR or PAYE plans.
    (3) For those who are not new borrowers under the IBR plan, the 
borrower's monthly payments are the lesser of:
    (i) 15 percent of the borrower's discretionary income, divided by 
12; or
    (ii) What the borrower would have paid on a 10-year standard 
repayment plan based on the eligible loan balances and interest rates 
on the loans at the time the borrower entered the IBR plan.
    (4)(i) For the ICR plan, the borrower's monthly payments are the 
lesser of:

[[Page 1927]]

    (A) What the borrower would have paid under a repayment plan with 
fixed monthly payments over a 12-year repayment period, based on the 
amount that the borrower owed when the borrower entered the ICR plan, 
multiplied by a percentage based on the borrower's income as 
established by the Secretary in a Federal Register notice published 
annually to account for inflation; or
    (B) 20 percent of the borrower's discretionary income, divided by 
12.
    (ii)(A) Married borrowers may repay their loans jointly under the 
ICR plan. The outstanding balances on the loans of each borrower are 
added together to determine the borrowers' combined monthly payment 
amount under paragraph (f)(4)(i) of this section;
    (B) The amount of the payment applied to each borrower's debt is 
the proportion of the payments that equals the same proportion as that 
borrower's debt to the total outstanding balance, except that the 
payment is credited toward outstanding interest on any loan before any 
payment is credited toward principal.
    (g) Adjustments to monthly payment amounts. Monthly payment amounts 
calculated under paragraphs (f)(1) through (3) of this section will be 
adjusted in the following circumstances:
    (1) In cases where the spouse's loan debt is included in accordance 
with paragraph (e)(2)(i) of this section, the borrower's payment is 
adjusted by--
    (i) Dividing the outstanding principal and interest balance of the 
borrower's eligible loans by the couple's combined outstanding 
principal and interest balance on eligible loans; and
    (ii) Multiplying the borrower's payment amount as calculated in 
accordance with paragraphs (f)(1) through (3) of this section by the 
percentage determined under paragraph (g)(1)(i) of this section.
    (2) In cases where the borrower has outstanding eligible loans made 
under the FFEL Program, the borrower's calculated monthly payment 
amount, as determined in accordance with paragraphs (f)(1) through (3) 
of this section or, if applicable, the borrower's adjusted payment as 
determined in accordance with paragraph (g)(1) of this section is 
adjusted by--
    (i) Dividing the outstanding principal and interest balance of the 
borrower's eligible loans that are Direct Loans by the borrower's total 
outstanding principal and interest balance on eligible loans; and
    (ii) Multiplying the borrower's payment amount as calculated in 
accordance with paragraphs (f)(1) through (3) of this section or the 
borrower's adjusted payment amount as determined in accordance with 
paragraph (g)(1) of this section by the percentage determined under 
paragraph (g)(2)(i) of this section.
    (h) Interest. If a borrower's calculated monthly payment under an 
IDR plan is insufficient to pay the accrued interest on the borrower's 
loans, the Secretary charges the remaining accrued interest to the 
borrower in accordance with paragraphs (h)(1) through (3) of this 
section.
    (1) Under the REPAYE plan, during all periods of repayment on all 
loans being repaid under the REPAYE plan, the Secretary does not charge 
the borrower's account any accrued interest that is not covered by the 
borrower's payment;
    (2)(i) Under the IBR and PAYE plans, the Secretary does not charge 
the borrower's account with an amount equal to the amount of accrued 
interest on the borrower's Direct Subsidized Loans and Direct 
Subsidized Consolidation Loans that is not covered by the borrower's 
payment for the first three consecutive years of repayment under the 
plan, except as provided for the IBR and PAYE plans in paragraph 
(h)(2)(ii) of this section;
    (ii) Under the IBR and PAYE plans, the 3-year period described in 
paragraph (h)(2)(i) of this section excludes any period during which 
the borrower receives an economic hardship deferment under Sec.  
685.204(g); and
    (3) Under the ICR plan, the Secretary charges all accrued interest 
to the borrower.
    (i) Changing repayment plans. A borrower who is repaying under an 
IDR plan may change at any time to any other repayment plan for which 
the borrower is eligible, except as otherwise provided in Sec.  
685.210(b).
    (j) Interest capitalization. (1) Under the REPAYE, PAYE, and ICR 
plans, the Secretary capitalizes unpaid accrued interest in accordance 
with Sec.  685.202(b).
    (2) Under the IBR plan, the Secretary capitalizes unpaid accrued 
interest--
    (i) In accordance with Sec.  685.202(b);
    (ii) When a borrower's payment is the amount described in 
paragraphs (f)(2)(ii) and (f)(3)(ii) of this section; and
    (iii) When a borrower leaves the IBR plan.
    (k) Forgiveness timeline. (1) In the case of a borrower repaying 
under the REPAYE plan who is repaying at least one loan received for 
graduate or professional study, or a Direct Consolidation Loan that 
repaid one or more loans received for graduate or professional study, a 
borrower repaying under the IBR plan who is not a new borrower, or a 
borrower repaying under the ICR plan, the borrower receives forgiveness 
of the remaining balance of the borrower's loan after the borrower has 
satisfied 300 monthly payments or the equivalent in accordance with 
paragraph (k)(4) of this section over a period of at least 25 years;
    (2) In the case of a borrower repaying under the REPAYE Plan who is 
repaying only loans received for undergraduate study, or a Direct 
Consolidation Loan that repaid only loans received for undergraduate 
study, a borrower repaying under the IBR plan who is a new borrower, or 
a borrower repaying under the PAYE plan, the borrower receives 
forgiveness of the remaining balance of the borrower's loans after the 
borrower has satisfied 240 monthly payments or the equivalent in 
accordance with paragraph (k)(4) of this section over a period of at 
least 20 years;
    (3) Notwithstanding paragraphs (k)(1) and (k)(2) of this section, a 
borrower receives forgiveness if the borrower's total original 
principal balance on all loans that are being paid under the REPAYE 
plan was less than or equal to $12,000, after the borrower has 
satisfied 120 monthly payments, plus an additional 12 monthly payments 
or the equivalent over a period of at least 1 year for every $1,000 if 
the total original principal balance is above $12,000.
    (4) For all IDR plans, a borrower receives a month of credit toward 
forgiveness by--
    (i) Making a payment under an IDR plan, including a payment of $0, 
except that those periods of deferment or forbearance treated as a 
payment under (k)(4)(iv) of this section do not apply for forgiveness 
under paragraph (k)(3) of this section;
    (ii) Making a payment under the 10-year standard repayment plan 
under Sec.  685.208(b);
    (iii) Making a payment under a repayment plan with payments that 
are as least as much as they would have been under the 10-year standard 
repayment plan under Sec.  685.208(b), except that no more than 12 
payments made under paragraph (l)(10)(iii) of this section may count 
toward forgiveness under the REPAYE plan;
    (iv) Deferring or forbearing monthly payments under the following 
provisions:
    (A) A cancer treatment deferment under section 455(f)(3) of the 
Act;
    (B) A rehabilitation training program deferment under Sec.  
685.204(e);
    (C) An unemployment deferment under Sec.  685.204(f);
    (D) An economic hardship deferment under Sec.  685.204(g), which 
includes volunteer service in the Peace Corps as an economic hardship 
condition;

[[Page 1928]]

    (E) A military service deferment under Sec.  685.204(h);
    (F) A post active-duty student deferment under Sec.  685.204(i);
    (G) A national service forbearance under Sec.  685.205(a)(4);
    (H) A national guard duty forbearance under Sec.  685.205(a)(7);
    (I) A Department of Defense Student Loan Repayment forbearance 
under Sec.  685.205(a)(9); or
    (J) An administrative forbearance under Sec.  685.205(b)(8) or (9).
    (v) (A) If a borrower consolidates one or more Direct Loans or FFEL 
program loans into a Direct Consolidation Loan, the payments the 
borrower made on the Direct Loans or FFEL program loans prior to 
consolidating and that met the criteria in paragraph (4) of this 
section, or in 34 CFR 682.209(a)(6)(vi) and which were based on a 10-
year repayment period, or 34 CFR 682.215 will count as qualifying 
payments on the Direct Consolidation Loan.
    (B) For borrowers whose Direct Consolidation Loan repaid loans with 
more than one period of qualifying payments, the borrower will receive 
credit for the number of months equal to the weighted average of 
qualifying payments made rounded up to the nearest whole month.
    (vi) Making payments under paragraph (k)(6) of this section.
    (5) For the IBR plan only, a payment made pursuant to paragraph 
(k)(4)(i) or (k)(4)(ii) of this section on a loan in default or amounts 
collected through Administrative Wage Garnishment or Federal Offset 
that are equivalent to the amount a borrower would owe under paragraph 
(k)(4)(ii) of this section also satisfy a monthly repayment obligation 
for the purposes of forgiveness under paragraph (k) of this section.
    (6)(i) For any period in which a borrower was in a deferment or 
forbearance not listed in paragraph (k)(4)(iv) of this section, the 
borrower may obtain credit toward forgiveness as defined in paragraph 
(k) of this section for any months in which the borrower makes a 
payment equal to or greater than the amount the borrower would have 
been required to pay during that period on any IDR plan under this 
section, including a payment of $0.
    (ii) Upon request, the Secretary informs the borrower of the months 
for which the borrower can make payments if the borrower provides any 
additional information the Secretary requests to calculate a payment 
under an IDR plan under this section.
    (l) Application and annual recertification procedures. (1) Unless a 
borrower has provided approval for the disclosure of applicable tax 
information to enter an IDR plan, a borrower must complete an 
application for IDR on a form approved by the Secretary;
    (2) As part of the process of completing a Direct Loan Master 
Promissory Note or a Direct Consolidation Loan Application and 
Promissory Note, the borrower may approve the disclosure of applicable 
tax information in accordance with sections 455(e)(8) and 493C(c)(2) of 
the Act;
    (3) If a borrower does not provide approval for the disclosure of 
applicable tax information under sections 455(e)(8) and 493C(c)(2) of 
the Act when completing the application for an IDR plan, the borrower 
must provide documentation of the borrower's income and family size to 
the Secretary;
    (4) If the Secretary has received approval for disclosure of 
applicable tax information, but cannot obtain the borrower's AGI and 
family size from the Internal Revenue Service, the borrower and, if 
applicable, the borrower's spouse, must provide documentation of income 
and family size to the Secretary;
    (5) After the Secretary obtains sufficient information to calculate 
the borrower's monthly payment amount, the Secretary calculates the 
borrower's payment and establishes the 12-month period during which the 
borrower will be obligated to make a payment in that amount;
    (6) The Secretary then sends to the borrower a repayment disclosure 
that--
    (i) Specifies the borrower's calculated monthly payment amount;
    (ii) Explains how the payment was calculated;
    (iii) Informs the borrower of the terms and conditions of the 
borrower's selected repayment plan; and
    (iv) Tells the borrower how to contact the Secretary if the 
calculated payment amount is not reflective of the borrower's current 
income or family size;
    (7) If the borrower believes that the payment amount is not 
reflective of the borrower's current income or family size, the 
borrower may request that the Secretary recalculate the payment amount. 
The borrower must also submit alternative documentation of income or 
family size not based on tax information to account for circumstances 
such as a decrease in income since the borrower last filed a tax 
return, the borrower's separation from a spouse with whom the borrower 
had previously filed a joint tax return, the birth or impending birth 
of a child, or other comparable circumstances;
    (8) If the borrower provides alternative documentation under 
paragraph (l)(7) of this section or if the Secretary obtains 
documentation from the borrower or spouse under paragraph (l)(4) of 
this section, the Secretary grants forbearance under Sec.  
685.205(b)(9) to provide time for the Secretary to recalculate the 
borrower's monthly payment amount based on the documentation obtained 
from the borrower or spouse;
    (9) Once the borrower has only three monthly payments remaining 
under the 12-month period specified in paragraph (l)(5) of this 
section, the Secretary follows the procedures in paragraphs (l)(4) 
through (l)(8) of this section.
    (10) If the Secretary requires information from the borrower under 
paragraph (l)(4) of this section to recalculate the borrower's monthly 
repayment amount under paragraph (l)(9) of this section, and the 
borrower does not provide the necessary documentation to the Secretary 
by the time the last payment is due under the 12-month period specified 
under paragraph (l)(5) of this section--
    (i) For the IBR and PAYE plans, the borrower's monthly payment 
amount is the amount determined under paragraph (f)(2)(ii) or 
(f)(3)(ii) of this section;
    (ii) For the ICR plan, the borrower's monthly payment amount is the 
amount the borrower would have paid under a 10-year standard repayment 
plan based on the balances and interest on the loans being repaid under 
the ICR Plan when the borrower initially entered the ICR Plan; and
    (iii) For the REPAYE plan, 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 
the borrower would have paid on a 10-year standard repayment plan based 
on the current loan balances and interest rates on the loans at the 
time the borrower was removed from the REPAYE plan.
    (11) At any point during the 12-month period specified under 
paragraph (l)(5) of this section, the borrower may request that the 
Secretary recalculate the borrower's payment earlier than would have 
otherwise been the case to account for a change in the borrower's 
circumstances, such as loss of income or employment or divorce. In such 
cases, the 12-month period specified under paragraph (l)(5) of this 
section is reset based on the borrower's new information.
    (12) The Secretary tracks a borrower's progress toward eligibility 
for forgiveness under paragraph (k) of this section and forgives loans 
that meet the criteria under paragraph (k) of this section without the 
need for an

[[Page 1929]]

application or documentation from the borrower.
    (m) Automatic enrollment in an IDR plan. The Secretary places a 
borrower on the IDR plan under this section that results in the lowest 
monthly payment based on the borrower's income and family size if--
    (1) The borrower is otherwise eligible for the plan;
    (2) The borrower has approved the disclosure of tax information 
under paragraph (l)(2) or (l)(3) of this section;
    (3) The borrower is in repayment and has not made a scheduled 
payment on the loan for at least 75 days; and
    (4) The Secretary determines that the borrower's payment under the 
IDR plan would be lower than the payment on the plan in which the 
borrower is enrolled.
0
5. Section 685.210 is revised to read as follows:


Sec.  685.210  Choice of repayment plan.

    (a) Initial selection of a repayment plan. (1) Before a Direct Loan 
enters into repayment, the Secretary provides the borrower with a 
description of the available repayment plans and requests that the 
borrower select one. A borrower may select a repayment plan before the 
loan enters repayment by notifying the Secretary of the borrower's 
selection in writing.
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec.  685.208(b) or 
(c) for the borrower, as applicable.
    (3) All Direct Loans obtained by one borrower must be repaid 
together under the same repayment plan, except that--
    (i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan 
that is not eligible for repayment under an income-driven repayment 
plan may repay the Direct PLUS Loan or Direct Consolidation Loan 
separately from other Direct Loans obtained by the borrower; and
    (ii) A borrower of a Direct PLUS Consolidation Loan that entered 
repayment before July 1, 2006, may repay the Direct PLUS Consolidation 
Loan separately from other Direct Loans obtained by that borrower.
    (b) Changing repayment plans. (1) A borrower who has entered 
repayment may change to any other repayment plan for which the borrower 
is eligible at any time by notifying the Secretary. However, a borrower 
who is repaying a defaulted loan under the income-based repayment plan 
or who is repaying a Direct Consolidation Loan under an income-driven 
repayment plan in accordance with Sec.  685.220(d)(1)(i)(A)(3) may not 
change to another repayment plan unless--
    (i) The borrower was required to and did make a payment under the 
IBR plan or other income-driven repayment plan in each of the prior 
three months; or
    (ii) The borrower was not required to make payments but made three 
reasonable and affordable payments in each of the prior three months; 
and
    (iii) The borrower makes and the Secretary approves a request to 
change plans.
    (2)(i) A borrower may not change to a repayment plan that would 
cause the borrower to have a remaining repayment period that is less 
than zero months, except that an eligible borrower may change to an 
income-driven repayment plan under Sec.  685.209 at any time.
    (ii) For the purposes of paragraph (b)(2)(i) of this section, the 
remaining repayment period is--
    (A) For a fixed repayment plan under Sec.  685.208 or an 
alternative repayment plan under Sec.  685.221, the maximum repayment 
period for the repayment plan the borrower is seeking to enter, less 
the period of time since the loan has entered repayment, plus any 
periods of deferment and forbearance; and
    (B) For an income-driven repayment plan under Sec.  685.209, as 
determined under Sec.  685.209(k).
0
6. Section 685.211 is amended by:
0
a. Revising the heading of paragraph (a).
0
b. Revising paragraph (a)(1).
0
c. Revising paragraph (f)(3)(ii).
    The revisions read as follows:


Sec.  685.211   Miscellaneous repayment provisions.

    (a) Payment application and prepayment. (1)(i) Except as provided 
for the Income-Based Repayment plan in paragraph (a)(1)(ii) of this 
section, the Secretary applies any payment in the following order:
    (A) Accrued charges and collection costs.
    (B) Outstanding interest.
    (C) Outstanding principal.
    (ii) The Secretary applies any payment made under the Income-Based 
Repayment plan in the following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
* * * * *
    (f) * * *
    (3) * * *
    (ii) Family size as defined in Sec.  685.209; and
* * * * *
0
7. Section 685.219, as proposed to be amended November 1, 2022 at 87 FR 
66063, and effective July 1, 2023, is further amended by:
0
a. Revising paragraph (b)(i) of the definition of ``Qualifying 
repayment plan''.
0
b. Revising paragraph (c)(2)(iii).
0
c. Revising paragraph (g)(6)(ii).
    The revisions read as follows:


Sec.  685.219  Public Service Loan Forgiveness Program (PSLF).

* * * * *
    (b) * * *
    (Qualifying repayment plan) * * *
    (i) An income-driven repayment plan under Sec.  685.209;
* * * * *
    (c) * * *
    (2) * * *
    (iii) For a borrower on an income-driven repayment plan under Sec.  
685.209, paying a lump sum or monthly payment amount that is equal to 
or greater than the full scheduled amount in advance of the borrower's 
scheduled payment due date for a period of months not to exceed the 
period from the Secretary's receipt of the payment until the borrower's 
next annual repayment plan recertification date under the qualifying 
repayment plan in which the borrower is enrolled;
* * * * *
* * * * *
    (g) * * *
    (6) * * *
    (ii) Otherwise qualified for a $0 payment on an income-driven 
repayment plans under Sec.  685.209.


Sec.  685.220  [Amended]

0
8. Section 685.220, in paragraph (h), is amended by adding ``Sec.  
685.209, and Sec.  685.221,'' after ``Sec.  685.208,''.
0
9. Section 685.221 is revised to read as follows:


Sec.  685.221  Alternative repayment plan.

    (a) The Secretary may provide an alternative repayment plan for a 
borrower who demonstrates to the Secretary's satisfaction that the 
terms and conditions of the repayment plans specified in Sec. Sec.  
605.208 and 685.209 are not adequate to accommodate the borrower's 
exceptional circumstances.
    (b) The Secretary may require a borrower to provide evidence of the 
borrower's exceptional circumstances before permitting the borrower to 
repay a loan under an alternative repayment plan.
    (c) If the Secretary agrees to permit a borrower to repay a loan 
under an alternative repayment plan, the Secretary notifies the 
borrower in writing of the terms of the plan. After the borrower 
receives notification of the terms of the plan, the borrower may accept 
the plan or choose another repayment plan.

[[Page 1930]]

    (d) A borrower must repay a loan under an alternative repayment 
plan within 30 years of the date the loan entered repayment, not 
including periods of deferment and forbearance.
0
10. Section 685.222 is amended by revising paragraph (e)(2)(ii) to read 
as follows:


Sec.  685.222  Borrower defenses and procedures for loans first 
disbursed on or after July 1, 2017, and before July 1, 2020, and 
procedures for loans first disbursed prior to July 1, 2017.

* * * * *
    (e) * * *
    (2) * * *
    (ii) Provides the borrower with information about the availability 
of the income-driven repayment plans under Sec.  685.209;
* * * * *
0
11. Section 685.403, as proposed to be amended November 1, 2022 at 87 
FR 66063, and effective July 1, 2023, is further amended by revising 
(d)(1) to read as follows:


Sec.  685.403  Individual process for borrower defense.

* * * * *
    (d) * * *
    (1) Provides the borrower with information about the availability 
of the income-driven repayment plans under Sec.  685.209;
* * * * *
[FR Doc. 2022-28605 Filed 1-10-23; 8:45 am]
BILLING CODE 4000-01-P