[Federal Register Volume 88, Number 130 (Monday, July 10, 2023)]
[Rules and Regulations]
[Pages 43820-43905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-13112]



[[Page 43819]]

Vol. 88

Monday,

No. 130

July 10, 2023

Part III





Department of Education





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34 CFR Parts 682 and 685





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Improving Income Driven Repayment for the William D. Ford Federal 
Direct Loan Program and the Federal Family Education Loan (FFEL) 
Program; Final Rule

  Federal Register / Vol. 88, No. 130 / Monday, July 10, 2023 / Rules 
and Regulations  

[[Page 43820]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1840-AD81


Improving Income Driven Repayment for the William D. Ford Federal 
Direct Loan Program and the Federal Family Education Loan (FFEL) 
Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The U.S. Department of Education issues final regulations 
governing income-contingent repayment plans by amending the Revised Pay 
as You Earn (REPAYE) repayment plan and restructuring and renaming 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, and providing 
conforming edits to the FFEL Program.

DATES: These regulations are effective July 1, 2024. For the 
implementation dates of the regulatory provisions, see the 
Implementation Date of These Regulations in SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Bruce Honer, U.S. Department of 
Education, 400 Maryland Avenue SW, 5th Floor, Washington, DC 20202. 
Telephone: (202) 987-0750. 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

    The Secretary amends the regulations governing the income 
contingent repayment (ICR) and income-based repayment (IBR) plans and 
renames the categories of repayment plans available in the Department's 
Direct Loan Program. These regulations streamline and standardize the 
Direct Loan Program repayment regulations by categorizing existing 
repayment plans into three types: (1) fixed payment repayment plans, 
which establish monthly payment amounts based on the scheduled 
repayment period, loan debt, and interest rate; (2) income-driven 
repayment (IDR) plans, which establish monthly payment amounts based in 
whole or in part on the borrower's income and family size; and (3) the 
alternative repayment plan, which we use on a case-by-case basis when a 
borrower has exceptional circumstances or has failed to recertify the 
information needed to calculate an IDR payment as outlined in Sec.  
685.221. We also make conforming edits to the FFEL program in Sec.  
682.215.

Purpose of This Regulatory Action

    These regulations create a stronger safety net for Federal student 
loan borrowers, helping more borrowers avert delinquency and default 
and the significant negative consequences associated with those events. 
They will also help low- and middle-income borrowers better afford 
their Federal loan payments, while also increasing homeownership, 
retirement savings, and small business formulation. Additionally, they 
simplify the process of selecting a repayment plan.

Summary of the Major Provisions of This Regulatory Action

    The final regulations--
     Expand access to affordable monthly Direct Loan payments 
through changes to the Revised Pay-As-You-Earn (REPAYE) repayment plan, 
which may also be referred to as the Saving on a Valuable Education 
(SAVE) plan;
     Align the definition of ``family size'' in the FFEL 
Program with the definition of ``family size'' in the Direct Loan 
Program;
     Increase the amount of income exempted from the 
calculation of the borrower's payment amount from 150 percent of the 
Federal poverty guideline or level (FPL) to 225 percent of FPL for 
borrowers on the REPAYE plan;
     Lower the share of discretionary income used to calculate 
the borrower's monthly payment for outstanding loans under REPAYE to 5 
percent of discretionary income for loans for the borrower's 
undergraduate study and 10 percent of discretionary income for other 
outstanding loans; and an amount between 5 and 10 percent of 
discretionary income based upon the weighted average of the original 
principal balances for those with outstanding loans in both categories;
     Provide a shorter maximum repayment period for borrowers 
with low original loan principal balances;
     Eliminate burdensome and confusing regulations for 
borrowers using IDR plans;
     Provide that the borrower will not be charged any 
remaining accrued interest each month after the borrower's payment is 
applied under the REPAYE plan;
     Credit certain periods of deferment or forbearance toward 
time needed to receive loan forgiveness;
     Permit borrowers to receive credit toward forgiveness for 
payments made prior to consolidating their loans; and
     Reduce complexity by prohibiting or restricting new 
enrollment in certain existing IDR plans starting on July 1, 2024, to 
the extent that the law allows.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis (RIA), these final regulations will significantly impact 
borrowers, taxpayers, and the Department.
    Benefits for borrowers include more affordable and streamlined IDR 
plans, as well as a path to avoid delinquency and default. The 
streamlined repayment plans also benefit the Department due to 
simplified administration of the repayment plans and decreases in rates 
of delinquency and default.
    This rule will reduce negative amortization, which will be a 
benefit to student loan borrowers, making it easier for individuals to 
successfully manage their debt. As a result, borrowers will be able to 
devote more resources to cover necessary expenses such as food and 
housing, provide for their families, invest in a home, or save for 
retirement.
    Costs associated with the changes to the IDR plans include paying 
contracted student loan servicers to update their computer systems and 
their borrower communications. Taxpayers will incur additional costs in 
the form of transfers from borrowers who will pay less on their loans 
than under currently available repayment plans. As detailed in the RIA, 
the changes are estimated to have a net budget impact of $156.0 billion 
over 10 years across all loan cohorts through 2033.

Implementation Date of These Regulations

    Section 482(c)(1) \1\ of the Higher Education Act of 1965, as 
amended (HEA), requires that regulations affecting programs under title 
IV of the HEA be published in final form by November 1 prior to the 
start of the award year (July 1) to which they apply. HEA section 
482(c)(2) \2\ also permits the Secretary to designate any regulation as 
one that an entity subject to the regulations may choose to implement 
earlier and outline the conditions for early implementation.
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    \1\ 20 U.S.C. 1089(c)(1).
    \2\ 20 U.S.C. 1089(c)(2).
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    The Secretary is exercising his authority under HEA section 482(c) 
to designate certain regulatory changes to part 685 in this document 
for early implementation beginning on July 30, 2023. The Secretary has 
designated the following provisions under REPAYE for early 
implementation:

[[Page 43821]]

     Adjusting the treatment of spousal income in the REPAYE 
plan for married borrowers who file separately as described in Sec.  
685.209(e)(1)(i)(A) and (B);
     Increasing the income exemption to 225 percent of the 
applicable poverty guideline in the REPAYE plan as described in Sec.  
685.209(f);
     Not charging accrued interest to the borrower after the 
borrower's payment on REPAYE is applied as described in Sec.  
685.209(h); and
     Designating in Sec.  685.209(a)(1) that REPAYE may also be 
referred to as the Saving on a Valuable Education (SAVE) plan.
    The Secretary also designates the changes to the definition of 
family size for Direct Loan borrowers in IBR, ICR, PAYE, and REPAYE in 
Sec.  685.209(a) to exclude the spouse when a borrower is married and 
files a separate tax return for early implementation on July 30, 2023.
    The Secretary also designates the provision awarding credit toward 
forgiveness for certain periods of loan deferment prior to the 
effective date of July 1, 2024, as described in Sec.  685.209(k)(4) for 
early implementation. The Department will implement this regulation as 
soon as possible after the publication date and will publish a separate 
notice announcing the timing of the implementation.
    With the exception noted below and except for those regulations 
designated as available for early implementation, the final regulations 
in this notice are effective July 1, 2024.
    Section 685.209(c)(5)(iii), which relates to eligibility for IDR 
plans by borrowers with Consolidation loans, will be effective for 
Direct Consolidation loans disbursed on or after July 1, 2025.
    Public Comment: In response to our invitation in the Notice of 
Proposed Rulemaking on Improving IDR for the Direct Loan Program, 
published on January 11, 2023 (IDR NPRM), the Department received 
13,621 comments on the proposed regulations. In this preamble, we 
respond to those comments.

Analysis of Comments and Changes

    We developed these regulations through negotiated rulemaking. 
Section 492 of the HEA \3\ requires that, before publishing any 
proposed regulations to implement programs under title IV of the HEA, 
the Secretary must obtain public involvement in the development of the 
proposed regulations. After obtaining advice and recommendations, the 
Secretary must conduct a negotiated rulemaking process to develop the 
proposed regulations. The Department negotiated in good faith with all 
parties with the goal of reaching consensus. The Committee did not 
reach consensus on the issue of IDR.
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    \3\ 20 U.S.C. 1098a.
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    We group issues according to subject, with appropriate sections of 
the regulations referenced in parentheses. We discuss other substantive 
issues under the sections of the regulations to which they pertain. 
Generally, we do not address minor, non-substantive changes (such as 
renumbering paragraphs, adding a word, or typographical errors). 
Additionally, we generally do not address changes recommended by 
commenters that the statute does not authorize the Secretary to make or 
comments pertaining to operational processes. We generally do not 
address comments pertaining to issues that were not within the scope of 
the IDR NPRM. In particular, we note that we received many comments 
supporting or opposing one-time debt relief. As this topic is outside 
the scope of this rule, we do not discuss those comments further in 
this document.
    An analysis of the public comments received and the changes to the 
regulations since publication of the IDR NPRM follows.

Public Comment Period

    Comment: Several commenters requested that we extend the comment 
period on the IDR NPRM. Some of these commenters asserted that under 
the principles of Executive Orders 12866 and 13563, the Department must 
adhere to at least a 60-day comment period.
    Discussion: The Department believes the comment period provided 
sufficient time for the public to submit feedback. As noted above, we 
received over 13,600 written comments and considered each one that 
addressed the issues in the IDR NPRM. Moreover, the negotiated 
rulemaking process provided significantly more opportunity for public 
engagement and feedback than notice-and-comment rulemaking without 
multiple negotiation sessions. The Department began the rulemaking 
process by inviting public input through a series of public hearings in 
June 2021. We received more than 5,300 public comments as part of the 
public hearing process. After the hearings, the Department sought non-
Federal negotiators for the negotiated rulemaking committee who 
represented constituencies that would be affected by our rules.\4\ As 
part of these non-Federal negotiators' work on the rulemaking 
committee, the Department asked that they reach out to the broader 
constituencies for feedback during the negotiation process. During each 
of the three negotiated rulemaking sessions, we provided opportunities 
for the public to comment, including after seeing draft regulatory 
text, which was available prior to the second and third sessions. The 
Department and the non-Federal negotiators considered those comments to 
inform further discussion at the negotiating sessions, and we used the 
information to create our proposed rule. The Department also first 
announced elements of the proposed plan in August 2022, giving 
stakeholders additional time to consider the merits of major elements 
of the regulation. Given these efforts, the Department believes that 
the 30-day public comment period provided sufficient time for 
interested parties to submit comments. The 30-day comment period on the 
IDR NPRM is not unique; we have used this amount of time for numerous 
other rules. The Department has fully complied with the appropriate 
Executive Orders regarding public comments. While the Executive Orders 
cited by the commenters direct each agency to afford the public a 
meaningful opportunity to comment, those Executive Orders do not 
require a 60-day comment period.
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    \4\ See 86 FR 43609.
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    Changes: None.

General Support for Regulations

    Comments: Many commenters supported the Department's proposed rule 
to modify the IDR plans. These commenters supported the proposed 
revisions to Sec.  685.209(f), which would result in lower monthly 
payments for borrowers on the REPAYE plan. One commenter noted that 
lower monthly payments are often a primary factor when borrowers select 
a repayment plan. Another commenter mentioned that while current IDR 
plans offer lower payments than the standard 10-year plan, payments 
under an IDR plan may still be unaffordable for some borrowers. They 
expressed strong support for this updated plan in hopes that it will 
provide much needed relief to many borrowers and would allow borrowers 
the flexibility to buy homes or start families. Several commenters 
pointed out that the new IDR plans would allow borrowers to pay down 
their student loans without being trapped under exorbitant monthly 
payments. Several commenters felt it was important that the Department 
commit to fully implementing this process as soon as possible to allow 
borrowers to benefit from the proposed regulations.

[[Page 43822]]

    One commenter stated that efforts to model the effects of 
increasing the discretionary income threshold have demonstrated that 
changing the threshold of protected income had the most pronounced 
effect on the monthly payment amounts of low- and moderate-income 
borrowers over the course of their repayment term. This commenter 
believed that making all monthly payments under REPAYE more affordable 
will enable more low-income borrowers to qualify for $0 payments, help 
prevent defaults, protect vulnerable borrowers from the severe economic 
consequences of default, and alleviate the stress that student loans 
place on fragile budgets.
    Discussion: We agree with the commenters' assertions that this rule 
will allow borrowers to pay down their student loans without being 
trapped under exorbitant monthly payments and that it will help many 
borrowers avoid delinquency, default, and their associated 
consequences. We understand the urgency expressed by commenters related 
to our implementation plans. The Department has outlined the 
implementation schedule in the Implementation Date of These Regulations 
section of this document.
    Changes: None.
    Comments: Many commenters thanked the Department for proposing to 
modify the REPAYE plan rather than creating another IDR plan. 
Commenters cited borrower confusion about the features of the different 
repayment plans. Commenters urged us to revise the terms and conditions 
of REPAYE to make them easier to understand.
    Discussion: The Department initially contemplated creating another 
repayment plan. After considering concerns about the complexity of the 
student loan repayment system and the challenges of navigating multiple 
IDR plans, we instead decided to reform the current REPAYE plan to 
provide greater benefits to borrowers. However, given the extensive 
improvements being made to REPAYE, we have decided to rename REPAYE as 
the Saving on a Valuable Education (SAVE) plan. This new name will 
reduce confusion for borrowers as we transition from the existing terms 
of the REPAYE plan. Borrowers currently enrolled on the REPAYE plan 
will not have to do anything to receive the benefits of the SAVE plan, 
and the new name will be reflected on written and electronic forms and 
records over time.
    The Department will work to implement this naming update and 
borrowers may see the plan still referred to as REPAYE until the 
updates are complete. To reduce confusion for readers and to recognize 
that all the public comments would have been discussing the REPAYE 
plan, the Department will refer to the SAVE plan as REPAYE throughout 
this final rule.
    These regulations are intended to address the challenges borrowers 
have in navigating the complexity of the student loan repayment system 
by ensuring access to a more generous, streamlined IDR plan, as well as 
to revise the terms and conditions of the REPAYE plan to make it easier 
to understand.
    Changes: We have updated Sec.  685.209(a)(1) to note that the 
REPAYE plan will also now be known as the Saving on a Valuable 
Education (SAVE) plan.

General Opposition to Regulations

    Comments: Several commenters suggested that the Department delay 
implementation of the rule and work with Congress to develop a final 
rule that would be cost neutral. Relatedly, other commenters requested 
that we delay implementation and wait for Congress to review our 
proposals as part of a broader reform or reauthorization of the HEA. 
Several commenters asserted that the Administration has not discussed 
these repayment plan proposals with Congress.
    Discussion: We disagree with the commenters and choose not to delay 
the implementation of this rule. The Department is promulgating this 
rule under the legal authority granted to it by the HEA, and we believe 
these steps are necessary to achieve the goals of making the student 
loan repayment system work better for borrowers, including by helping 
to prevent borrowers from falling into delinquency or default. 
Furthermore, the Department took the proper steps to develop these 
rules to help make the repayment plans more affordable. As prescribed 
in section 492 of the HEA, the Department requested public involvement 
in the development of the proposed regulations. We followed the 
appropriate process and obtained and considered extensive input and 
recommendations from those representing affected groups. The Department 
also participated in three negotiated rulemaking sessions with 
committee members that consisted of a variety of stakeholders 
representing public and private institutions, financial aid 
administrators, veterans, borrowers, students, and other affected 
constituencies. Following careful consideration of the feedback 
received during three week-long negotiation sessions, we published 
proposed regulations in the Federal Register. We explain the rulemaking 
process in more detail at www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    Regarding the suggestion that the rule be cost neutral, we believe 
the overall benefits outweigh the costs as discussed in the Costs and 
Benefits section within the RIA section of this document. There is no 
requirement that regulations such as this one be cost neutral.
    The Department respects its relationship with Congress and has 
worked and will continue to work with the legislative branch on 
improvements to the Federal student aid programs, including making 
improvements to repayment plans.
    Changes: None.
    Comments: Many commenters disagreed with the Department's proposed 
modifications to the IDR plans, particularly the amendments to REPAYE. 
These commenters believed that borrowers knowingly entered into an 
agreement to fully repay their loans and should pay the full amount 
due. One commenter suggested that advising borrowers that they need 
only repay a fraction of what they borrowed undercuts the purpose of 
the signed promissory note. Many of these commenters expressed concern 
that the REPAYE changes were unfair to those who opted not to obtain a 
postsecondary education due to the cost, as well as to those who 
obtained a postsecondary education and repaid their loans in full.
    Discussion: The IDR plans assist borrowers who are in situations in 
which their post-school earnings do not put them in a situation to 
afford their monthly student loan payments. In some cases, this might 
mean helping borrowers manage their loans while entering the workforce 
at their initial salary. It could also mean helping borrowers through 
periods of unanticipated financial struggle. And in some cases, there 
are borrowers who experience prolonged periods of low earnings. We 
reference the IDR plans on the master promissory note (MPN) that 
borrowers sign to obtain a student loan and describe them in detail on 
the Borrower's Rights and Responsibilities Statement that accompanies 
the MPN. The changes in this final rule do not remove the obligation to 
make required payments. They simply set those required payments at a 
level the Department believes is reasonable to avoid large numbers of 
delinquencies and defaults, as well as to help low- and middle-income 
borrowers manage their payments.
    We disagree with the claim that the IDR plan changes do not benefit 
individuals who have not attended a postsecondary institution. The new 
REPAYE plan will be available to both

[[Page 43823]]

current and future borrowers. That means an individual who has not 
attended a postsecondary institution in the past but now chooses to do 
so, could avail themselves of the benefits of this plan. Moreover, 
allowing borrowers to choose a repayment plan based on their income and 
family size will result in more affordable payments and allow those 
individuals to avoid default which imposes additional costs on 
taxpayers as well as borrowers.
    Changes: None.
    Comments: A few commenters argued that REPAYE is intended to be a 
plan for borrowers who have trouble repaying the full amount of their 
debt; and that REPAYE should not be what a majority of borrowers 
choose, but rather, an alternate plan that borrowers may choose. These 
commenters further argued that Congress designed the IDR plans to be 
for exceptional circumstances where borrowers have a partial financial 
hardship \5\ and that it is clear that a very large proportion of 
borrowers who could otherwise afford their full payments would instead 
choose REPAYE to reduce their payments.
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    \5\ See 88 FR 1896 and 20 U.S.C. 1098e.
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    Discussion: We believe that the new REPAYE plan will provide an 
affordable path to repayment for most borrowers. There is nothing in 
the HEA that specifies or limits how many borrowers should be using a 
given type of student loan repayment plan. And in fact, as discussed in 
the RIA, a majority of recent graduate borrowers are already using IDR 
plans. The Department is concerned that far too many student loan 
borrowers are at risk of delinquency and default because they cannot 
afford their payments on non-IDR plans. We are concerned that returning 
to a situation in which more than 1 million borrowers default on loans 
each year is not in the best interests of borrowers or taxpayers.
    Defaults have negative consequences for borrowers, including 
reductions in their credit scores and resulting negative effects on 
access to housing and employment.\6\ They may also lose significant 
portions of key anti-poverty benefits, such as the Earned Income Tax 
Credit (EITC), to annual offsets. Additionally, many of these borrowers 
never finished postsecondary education and are unlikely to re-enroll 
while in default. As a result, they likely will not receive the earning 
gains one would expect from completing a postsecondary credential.
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    \6\ Kiviat, B. (2019). The art of deciding with data: evidence 
from how employers translate credit reports into hiring decisions. 
Socio-Economic Review, 17(2), 283-309. So, W. (2022). Which 
Information Matters? Measuring Landlord Assessment of Tenant 
Screening Reports. Housing Policy Debate, 1-27.
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    We believe the changes in this final rule will create a strong 
safety net for student borrowers and help more borrowers successfully 
manage their loans. At the same time, the taxpayers and Federal 
Government will also receive significant benefits. For example, 
avoiding default could spur some borrowers to continue their 
postsecondary journeys and complete their programs, which will help 
boost wages, tax receipts, and lower dependency on the broader safety 
net. Overall, we think these benefits of the final rule far outweigh 
the costs to taxpayers.
    We also do not share the commenters' concerns about borrowers who 
could otherwise repay their loans on an existing plan, such as the 
standard 10-year plan, choosing to use this plan instead. If a 
borrower's income is particularly high compared to their debt, their 
payments under REPAYE will be higher than their payments on the 
standard 10-year plan, which would result in them paying their loan off 
faster. This has an effect similar to what occurs when borrowers 
voluntarily choose to prepay their loans--the government receives 
payments sooner than expected. Prepayments without penalty have been a 
longstanding feature of the Federal student loan programs. On the other 
hand, many high-income, high-balance borrowers may not want to choose 
an IDR plan because it could result in a longer period of repayment. 
While the monthly payment amount may be lower than the standard 
repayment plan for some high-income, high-balance borrowers, the term 
for an IDR plan spans 20 to 25 years as opposed to the standard 10-year 
term that is the default option for borrowers. Using this plan could 
result in high-income, high-balance borrowers paying back for a longer 
period and paying back a larger total amount, given that the borrower 
may be making interest-only payments for some time.
    Changes: None.
    Comments: A few commenters raised concerns that the proposed rules 
would recklessly expand the qualifications for IDR plans without 
providing sufficient accountability measures. These commenters argued 
that the regulations would undermine accountability in higher 
education. More specifically, these commenters believed that the IDR 
proposals must be coupled with an aggressive accountability measure 
that roots out programs where borrowers do not earn an adequate return 
on investment. Until such accountability measure is in effect, these 
commenters called on the Department to delay the IDR proposals.
    Discussion: We discuss considerations regarding accountability in 
greater detail in the RIA section of this regulation. This rule is part 
of a larger Department effort that focuses on improving the student 
loan system and includes creating a robust accountability 
infrastructure through regulation and enforcement. Those enforcement 
efforts are ongoing; the regulations on borrower defense to repayment, 
closed school loan discharges, false certification loan discharges, and 
others will go into effect on July 1, 2023; and the Department has 
other regulatory efforts in progress. The new IDR regulations benefit 
borrowers and do not interfere with those accountability measures. 
Therefore, a delay in the implementation date is unnecessary.
    Changes: None.
    Comment: One commenter suggested that borrowers have difficulty 
repaying their debts because underprepared students enter schools with 
poor graduation rates.
    Discussion: The Department works together with States and 
accrediting agencies as part of the regulatory triad to provide for 
student success upon entry into postsecondary education. The issue 
raised by the commenter is best addressed through the combined efforts 
of the triad to improve educational results for students, as well as 
overall improvements to the K-12 education system before entry into a 
postsecondary institution.
    Changes: None.
    Comment: One commenter argued that the Department created an overly 
complex ICR plan that is not contingent on income; but instead focuses 
on factors such as educational attainment, marital status, and tax 
filing method, as well as past delinquency or default.
    Discussion: We disagree with the commenter's claim that the REPAYE 
plan is overly complex and not contingent on income. As with the ICR or 
PAYE repayment plans, repayment is based on income and family size, 
which affects how much discretionary income a person has available. 
Other changes will streamline processes for easier access, 
recertification, and a path to forgiveness. Because of these benefits, 
REPAYE will be the best plan for most borrowers. Having one plan that 
is clearly the best option for most borrowers will address the most 
concerning sources of complexity during repayment, which is that 
borrowers are unsure whether to use an IDR plan or which one to choose. 
The most complicated elements of the

[[Page 43824]]

REPAYE plan will be carried out by the Department, including provisions 
to calculate the share of discretionary income a borrower must pay on 
their loans based upon the relative balances of loans they took out for 
their undergraduate education versus other loans. We believe this plan 
adequately and appropriately addresses borrowers' individual and unique 
circumstances.
    Changes: None.
    Comments: Several commenters argued that the proposed regulations 
could challenge the primacy of the Federal Pell Grant as the Federal 
government's primary strategy for college affordability and lead to the 
increased federalization of our higher education system. They further 
suggested that a heavily subsidized loan repayment plan could 
incentivize increased borrowing, which would increase the Federal role 
in the governance of higher education, particularly on issues of 
institutional accountability, which are historically and currently a 
matter of State policy. Commenters asserted that the proposed rule 
could correspondingly discourage State spending on higher education.
    Discussion: The Department does not agree that the new IDR rules 
will challenge the Federal Pell Grant as the primary Federal student 
aid program for college affordability. The Pell Grant continues to 
serve its critical purpose of reducing the cost of, and expanding 
access to, higher education for students from low- and moderate-income 
backgrounds. The Department's long-standing guidance has been that Pell 
Grants are the first source of aid to students and packaging Title IV 
funds begins with Pell Grant eligibility.\7\ However, many students 
still rely upon student loans and so we seek to make them more 
affordable for borrowers to repay.
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    \7\ See Federal Student Aid Handbook, Volume 3, Chapter 7: 
Packaging Aid.
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    We also disagree that these regulations will incentivize increased 
borrowing or discourage State spending on higher education. One central 
goal of the final rule is to make student loans more affordable for 
undergraduates. However, as discussed in the RIA, the rule does not 
change the total amount of Federal aid available to undergraduate 
students. Undergraduate borrowers, who receive the greatest benefit 
from the rule, have strict loan limits as laid out in Section 455 of 
the HEA. This rule does not and cannot amend those limits. Currently, 
undergraduate programs are subsidized most heavily by States, and 
States will continue to be incentivized to support public higher 
education to meet unmet need.
    The rule also does not amend the underlying structure of loans for 
graduate students. As set by Congress in the HEA, graduate borrowers 
have higher loan limits than undergraduate borrowers, including the 
ability to take on Grad PLUS loans up to the cost of attendance. As 
discussed in the RIA of this final rule, about half of recent graduate 
borrowers are already using IDR plans. The increased amount of income 
protected from payments will provide a benefit to someone who borrowed 
only for graduate school, however borrowers with only graduate debt 
will not see a reduction in their payment rate as a percentage of 
discretionary income relative to existing plans. Someone with 
undergraduate and graduate debt will receive a lower payment rate only 
in proportion to the share of their loans that were borrowed to attend 
an undergraduate program. We note the existing structure of the IDR 
plans and the terms of the graduate loan programs set by Congress 
already provide incentives for graduate borrowers to repay using an IDR 
plan, as evidenced by existing data on IDR plan usage. We think the 
added incentive effects provided by this rule for graduate borrowers 
are incremental and smaller than the current policies established by 
statute.
    Finally, we note that the Department is engaged in separate efforts 
aimed at addressing debt at programs that do not provide sufficient 
financial value. In particular, an NPRM issued in May 2023 (88 FR 
32300) proposes to terminate aid eligibility for career training 
programs whose debt outcomes show they do not prepare students for 
gainful employment in a recognized occupation. That same regulation 
also proposes to enhance the transparency of debt outcomes across all 
programs and to require students to acknowledge key program-level 
information, including debt outcomes, before receiving Federal student 
aid for programs with high ratios of annual debt payments to earnings. 
Separately, the Department is also working to produce a list of the 
least financially valuable programs nationwide and to ask the 
institutions that operate those programs to generate a proposal for 
improving their debt outcomes.
    Overall, we believe these regulations will improve the 
affordability of monthly payments by increasing the amount of income 
exempt from payments, lowering the share of discretionary income 
factored into the monthly payment amount for most borrowers, providing 
for a shorter maximum repayment period and earlier forgiveness for some 
borrowers, and eliminating the imposition of unpaid monthly interest, 
allowing borrowers to pay less over their repayment terms.
    We also disagree with the commenters that the rule increases the 
Federal role in the governance of higher education. We believe that we 
found the right balance of improving affordability and holding 
institutions accountable as part of our role in the triad.
    Changes: None.
    Comments: Several commenters suggested that the overall generosity 
of the program is likely to drive many non-borrowers to take out 
student debt, as well as encourage current borrowers to increase their 
marginal borrowing and elicit unscrupulous institutions to raise their 
tuition.
    One commenter believed that our proposal to forgive loan debt 
creates a moral hazard for borrowers, institutions of higher learning, 
and taxpayers. Another commenter suggested that since IDR is paid on a 
debt-to-income ratio, schools that generate the worst outcomes are the 
most rewarded in this system. The commenter believed this was 
problematic even for the borrowers who ultimately receive generous 
forgiveness, since it will lead many to use their limited Federal Pell 
Grant and Direct Loan dollars to attend a school that does little to 
improve their earning potential.
    Discussion: The Department believes that borrowers are seeking 
relief from unaffordable payments, not to increase their debt-load. As 
with any new regulations, we employed a cost-benefit analysis and 
determined that the benefits greatly outweigh the costs. Borrowers will 
benefit from a more affordable REPAYE plan, and the changes we are 
making will help borrowers avoid delinquency and default.
    The Department disagrees that this plan is likely to result in 
significant increases in borrowing among non-borrowers or additional 
borrowing by those already taking on debt. For one, this plan 
emphasizes the benefits for undergraduate borrowers and those 
individuals will still be subject to the strict loan limits that are 
established in Sec. 455 of the HEA \8\ and have not been changed since 
2008. For instance, a first-year dependent student cannot borrow more 
than $5,500, while a first-year independent student's loan is capped at 
$9,500. Especially for dependent students, these amounts are far below 
the listed tuition price for most institutions of higher education

[[Page 43825]]

outside of community colleges. Data from the 2017-18 National 
Postsecondary Student Aid Study (NPSAS) show that a majority of 
dependent undergraduate borrowers already borrow at the maximum.\9\ So, 
too, do most student loan borrowers at public and private nonprofit 
four-year institutions. Community college borrowers are the least 
likely to take out the maximum amount of loan debt, which likely 
reflects the lower prices charged. Community colleges generally offer 
tuition and fee prices that can be covered entirely by the maximum Pell 
Grant and enroll many students that exhibit signs of being averse to 
debt.\10\
---------------------------------------------------------------------------

    \8\ 20 U.S.C. 1087e.
    \9\ Analysis from NPSAS 2017-18 via PowerStats, table reference 
wrfzjv.
    \10\ Boatman, A., Evans, B.J., & Soliz, A. (2017). Understanding 
Loan Aversion in Education: Evidence from High School Seniors, 
Community College Students, and Adults. AERA Open, 3(1). https://doi.org/10.1177/2332858416683649.
---------------------------------------------------------------------------

    We note that the shortened repayment period before forgiveness for 
borrowers with lower balances will also provide incentives for 
borrowers to keep their debt levels lower to qualify for earlier 
forgiveness. This may be particularly important at community colleges, 
where lower prices make it more feasible to complete a credential with 
lesser amounts of debt. We also disagree with the commenters' 
suggestion that this rule rewards institutions with the worst outcomes 
and encourages institutions to raise their prices. There is no 
indication that institutions increased tuition prices as a direct 
result of the creation of the original REPAYE plan, and we do not have 
evidence that institutions will increase prices as a result of the 
changes in this rule. However, the revised REPAYE plan will allow 
students who need to borrow to enroll in postsecondary education, earn 
a degree or credential, and increase their lifetime earnings while 
repaying their loan without being burdened by unaffordable payments.
    Another reason to doubt these commenters' assertions that this rule 
will result in additional borrowing is that evidence shows that 
borrowers generally have low knowledge or awareness of the IDR plans, 
suggesting that borrowers are not considering these options when making 
decisions about whether to borrow and how much.\11\ For example, an 
analysis of the 2015-16 NPSAS data showed that only 32 percent of 
students reported having heard on any income-driven repayment 
plans.\12\ Additionally, many students are debt averse and may still 
not wish to borrow even under more generous IDR terms established by 
this rule.\13\
---------------------------------------------------------------------------

    \11\ For example, some estimates suggest that more than 40 
percent of low-income borrowers did not know about IDR, and other 
research demonstrates confusion or lack of awareness about borrowing 
more generally (e.g., Akers & Chingos (2014). Are College Students 
Borrowing Blindly? Washington, DC: Brookings Institution; Darolia & 
Harper (2018). Information Use and Attention Deferment in College 
Student Loan Decisions: Evidence From a Debt Letter Experiment. 
Educational Evaluation and Policy Analysis, 40(1); Sattelmeyer, 
Caldwell & Nguyen (2023). Best Laid (Repayment) Plans. Washington, 
DC: New America).
    \12\ Anderson, Drew M., Johnathan G. Conzelmann, and T. Austin 
Lacy, The state of financial knowledge in college: New evidence from 
a national survey. Santa Monica, CA: RAND Corporation, 2018. https://www.rand.org/pubs/working_papers/WR1256.html.
    \13\ Boatman, A., Evans, B.J., & Soliz, A. (2017). Understanding 
Loan Aversion in Education: Evidence from High School Seniors, 
Community College Students, and Adults.
---------------------------------------------------------------------------

    Though we believe it is unlikely, in the RIA of this final rule we 
discuss alternative budget scenarios as well as the costs and benefits 
associated with additional borrowing were it to occur. This analysis 
shows that increases in borrowing will increase costs but additional 
borrowing and those associated costs are not always inherently 
problematic. While scholarships would be even more helpful to students, 
some evidence suggests that loans can help more borrowers pay for their 
tuition and living expenses, reduce their hours at work, and complete 
their college programs. Additional borrowing is problematic when it 
does not provide a return on investment, for example, when it does not 
help borrowers complete a high-quality program, but our goal with this 
regulation is to make certain that borrowers have affordable debts that 
they are able to successfully repay, not to minimize borrowing at all 
costs.
    We also note that the Department is engaged in separate efforts 
related to accountability, which are already described above. This 
includes the gainful employment rule NPRM released on May 19, 2023.\14\
---------------------------------------------------------------------------

    \14\ 88 FR 32300.
---------------------------------------------------------------------------

    Changes: None.
    Comment: One commenter observed that our proposals lacked a 
discussion of monthly payments versus total payments. The commenter 
believed that, while there is the potential for borrowers to make lower 
monthly payments, the extended period of payments could result in 
higher total payments. In contrast, the commenter noted that a higher 
monthly payment in a shorter time frame could result in lower total 
payments. This commenter believed that we must consider the impact on 
both monthly and total payments--and that any meaningful discussion 
must include this analysis.
    Discussion: Varied amounts of payments due and time to satisfy the 
loan obligation have been part of the Direct Loan program since its 
inception. The possibility of a higher total amount repaid over the 
life of the loan may be a reasonable trade-off for borrowers who 
struggle to repay their loans. In developing this rule, we conducted 
analyses both in terms of monthly and total payments. Discussions of 
monthly payments help the public understand the most immediate effects 
on what a borrower will owe in a given period. The total payments were 
thoroughly assessed in the RIA of the IDR NPRM and that discussion 
considered broad questions about which types of borrowers were most 
likely to receive the greatest benefits. The Department modeled the 
change in lifetime payments under the new plan relative to the current 
REPAYE plan for future cohorts of borrowers, assuming full 
participation and considering projected earnings, nonemployment, 
marriage, and childbearing. These analyses suggest that on average, 
borrowers' lifetime total payments would fall under the new REPAYE 
plan. The RIA presents this analysis. It shows projected total payments 
for future repayment cohorts, discounted back to their present value if 
future borrowers were to choose the new REPAYE plan. These are broken 
down by quintile of lifetime income and include separate breakdowns of 
estimates for whether a borrower has graduate loans. Reductions in 
lifetime payments are largest for low- and middle-lifetime income 
borrowers but, on average, all quintiles see reductions in lifetime 
payments.
    We continue to enhance the tools on the StudentAid.gov website that 
allow borrowers to compare the different repayment plans available to 
them. These tools show the monthly and total payment amounts over the 
life of the loan as this commenter requested, as well as the date on 
which the borrower would satisfy their loan obligation under each 
different plan and any amount of the borrower's loan balance that may 
be forgiven at the end of the repayment period. As an example, 
borrowers can use the ``Loan Simulator'' on the site to assist them in 
selecting a repayment plan tailored to their needs. To use the 
simulator, borrowers enter their anticipated or actual salary, the 
amount of their estimated or actual loan debt, and other data to 
perform the calculation needed to achieve goals listed. These goals 
include paying off their loans as quickly as possible, having a low 
monthly payment, paying the lowest amount over time, and

[[Page 43826]]

paying off their loans by a certain date. We believe that the tools on 
the StudentAid.gov website are user-friendly and readily available to 
borrowers for customized calculations that we could not provide in this 
rule.
    Changes: None.
    Comments: Several commenters raised concerns about the interaction 
between REPAYE payments and the SECURE 2.0 Act of 2022.\15\ According 
to one commenter, the SECURE 2.0 Act incentivizes retirement 
contributions related to student loan payments. This provision allows 
companies to provide employees with a match on their retirement 
contributions for making student loan payments. This commenter was 
concerned that borrowers may make costly mistakes by not taking 
advantage of matching funds.
---------------------------------------------------------------------------

    \15\ Public Law 117-328, Division T of the Consolidated 
Appropriations Act of 2023.
---------------------------------------------------------------------------

    Discussion: Under section 110 of the SECURE 2.0 Act, Congress 
permits--but does not require--employers to treat a borrower's student 
loan payments as elective deferrals for purposes of matching 
contributions toward that borrower's retirement plan. Although 
commenters hypothesize that borrowers could potentially miss out on 
retirement matching if a borrower is on a $0 IDR monthly payment, this 
specific provision of the SECURE 2.0 Act will take effect for 
contributions for plan years beginning on or after December 31, 
2023.\16\ We see no basis for holding our regulations for a provision 
that employers have not yet--and may not--use. Even if an employer were 
to adopt the Sec. 110(h) provision of the SECURE 2.0 Act to treat a 
borrower's student loan payments as elective deferrals for purposes of 
retirement matching contributions, borrowers always have the 
opportunity to prepay or make additional payments on their loans 
without penalty. Such additional payments could receive the matched 
contribution from their employer. Finally, as we stated in the IDR 
NPRM, student loan debt has become a major obstacle to meeting 
financial goals, and we believe saving for retirement is one of those 
goals for many. Contrary to the commenters' belief that these 
regulations could result in borrowers potentially missing out on 
matching funds, or make other costly mistakes, we believe that these 
repayment plans will facilitate and result in more borrowers achieving 
broad financial goals such as saving for a home or, in this case, 
retirement.
---------------------------------------------------------------------------

    \16\ See section 110(h) of Public Law 117-328, Division T of the 
Consolidated Appropriations Act of 2023.
---------------------------------------------------------------------------

    Changes: None.
    Comment: One commenter believed that our proposed changes to the 
IDR plan give undergraduate borrowers a grant instead of a loan. This 
commenter asserted that it would be better to provide the funds upfront 
as grants, which may positively impact access, affordability, and 
success. This commenter further believed that providing grants upfront 
could reduce the amount of overall loan debt. The commenter further 
cites researchers who had similar conclusions.
    Discussion: For almost 30 years, the Department has allowed 
borrowers to repay their loans as a share of their earnings under IDR 
plans, but it has never considered these programs to be grant or 
scholarship programs. These student loan repayment plans are different 
in important respects from grants or scholarships. Many borrowers will 
repay their debt in full under the new plan. Only borrowers who 
experience persistently low incomes, relative to their debt burdens, 
over years will not repay their debt. Moreover, because borrowers 
cannot predict their future earnings, they will face significant 
uncertainty over what their payments will be over the full length of 
the repayment period. While some borrowers will receive forgiveness, 
many borrowers will repay their balances with interest. The IDR plans 
are repayment plans for Federal student loans that will provide student 
loan borrowers greater access to affordable repayment terms based upon 
their income, reduce negative amortization, and result in lower monthly 
payments, as well as help borrowers to avoid delinquency and defaults.
    Changes: None.
    Comments: Many commenters expressed the view that it is 
unacceptable that people who never attended a postsecondary institution 
or who paid their own way to attend should be expected to pay for 
others who took out loans to attend a postsecondary institution.
    Discussion: We disagree with the commenters' position that the IDR 
plan changes do not benefit individuals who have not attended a 
postsecondary institution. This plan will be available to current and 
future borrowers, including individuals who have not yet attended a 
postsecondary institution but may in the future.
    As outlined in the RIA, just because someone has not yet pursued 
postsecondary education also does not mean they never will. There are 
many students who first borrow for postsecondary education as older 
adults well past the age of those who go to college straight from high 
school. Similarly, there are many borrowers who re-enroll in 
postsecondary education after having already repaid their past loans. 
In both cases these borrowers may take on this debt because they are 
looking to make a career switch, gain new skills to compete in the 
labor force, or for other reasons. This plan would be available for 
both these current and future borrowers.
    We also note that investments in postsecondary education provide 
broader societal benefits. Increases in postsecondary attainment have 
spillover benefits to a broader population, including individuals who 
have not attended college. For instance, there is evidence that 
increases in college attainment increases productivity for both 
college-educated and non-college educated workers.\17\ Increases in 
education levels have also been shown to increase civic participation 
and improve health and well-being for the next generation.\18\
---------------------------------------------------------------------------

    \17\ Public Law 117-328, Division T of the Consolidated 
Appropriations Act of 2023.
    \18\ See section 110(h) of Public Law 117-328, Division T of the 
Consolidation Appropriations Act of 2023.
---------------------------------------------------------------------------

    Changes: None.

Legal Authority

General

    Comment: A group of commenters argued that the proposed rule would 
violate statute and exceed the Department's authority which could 
result in additional confusion to borrowers, increase delinquencies, or 
increase defaults.
    Discussion: Congress has granted the Department clear authority to 
create income-contingent repayment plans under the HEA. Specifically, 
Sec. 455(e)(4) \19\ of the HEA provides that the Secretary shall issue 
regulations to establish income-contingent repayment schedules that 
require payments that vary in relation to the borrowers' annual income. 
The statute further states that loans on an ICR plan shall be ``paid 
over an extended period of time prescribed by the Secretary,'' and that 
``[t]he Secretary shall establish procedures for determining the 
borrower's repayment obligation on that loan for such year, and such 
other procedures as are necessary to effectively implement income 
contingent repayment.'' These provisions intentionally grant discretion 
to the Secretary around how to construct the specific parameters of ICR 
plans. This includes discretion as to how long a borrower must pay 
(except that it cannot exceed 25 years). In other words, the statute 
sets an explicit upper

[[Page 43827]]

limit, but no lower limit for the ``extended period'' time that a 
borrower must spend in repayment. The statute also gives the Secretary 
discretion as to how much a borrower must pay, specifying only that 
payments must be set based upon the borrower's annual adjusted gross 
income and that the payment calculation must account for the spouse's 
income if the borrower is married and files a joint tax return.
---------------------------------------------------------------------------

    \19\ 20 U.S.C. 1087e(e)(4).
---------------------------------------------------------------------------

    This statutory language clearly grants the Secretary authority to 
make the changes in this rule related to the amount of income protected 
from payments, the amount of income above the income protection 
threshold that goes toward loan payments, and the amount of time 
borrowers must pay before repayment ends. Each of those parameters has 
been determined independently through the rulemaking process and 
related analyses and will be established in regulation through this 
final rule, as authorized by the HEA.
    The same authority governs many of the more technical elements of 
this rule as well. For instance, the treatment of awarding a weighted 
average of pre-consolidation payments and the catch-up period are the 
Department's implementation of requirements in Sec. 455(e)(7) of the 
HEA, which lays out the periods that may count toward the maximum 
repayment period established by the Secretary. We have crafted the 
regulatory language to comply with the statutory requirements while 
recognizing the myriad ways a borrower progresses through the range of 
repayment options available to them.
    ED has used its authority under Sec. 455 of the HEA three times in 
the past: to create the first ICR plan in 1995 (59 FR 61664) (FR Doc 
No: 94-29260), to create PAYE in 2012 (77 FR 66087), and to create 
REPAYE in 2015 (80 FR 67203).\20\ In each instance, the Department 
provided a reasoned basis for the parameters it chose, just as we have 
in this final rule. Congress has made minimal changes to the 
Department's authority relating to ICR in the intervening years, even 
as it has acted to create and then amend the IBR plan, first in 2007 in 
the College Cost Reduction and Access Act (CCRAA) (Pub. L. 110-84) and 
then in 2010 in the Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152). The 2007 CCRAA that created IBR also expanded 
the types of time periods that can count toward the maximum repayment 
period on ICR. Congress also left the underlying terms of ICR plans in 
place when it improved access to automatic sharing of Federal tax 
information for the purposes of calculating payments on IDR in 2019.
---------------------------------------------------------------------------

    \20\ https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm
---------------------------------------------------------------------------

    Sec. 455(d)(1) through (4) of the HEA also provide authority for 
other elements of this rule. These provisions grant the Secretary the 
authority to choose which plans are offered to borrowers, which we are 
leveraging to sunset future enrollments in the PAYE and ICR plan for 
student borrowers. Similarly, Sec. 455(d)(4) of the HEA provides the 
Secretary with discretion to craft ``an alternative repayment plan,'' 
under certain circumstances. Through this rule, the Secretary is using 
that discretion to establish a structure for a repayment option for 
borrowers who fail to recertify their income information on REPAYE. For 
most borrowers, the alternative plan payments will be based upon how 
much that borrower would have to pay each month to pay off the debt 
with 10 years of equally sized monthly payments. This amount will be 
specific to each borrower, as balances and interest rates vary for each 
individual. This approach is necessary to design a functioning 
alternative repayment plan for borrowers.
    The treatment of interest in this plan is authorized by a 
combination of authorities. Congress has granted the Secretary broad 
authority to promulgate regulations to administer the Direct Loan 
Program and to carry out his duties under Title IV. See, e.g., 
including 20 U.S.C. 1221e-3, 1082, 3441, 3474, 3471. See, e.g., 20 
U.S.C. 1221e-3 (``The Secretary . . . is authorized to make, 
promulgate, issue, rescind, and amend rules and regulations governing 
the manner of operation of, and governing the applicable programs 
administered by, the Department''). The Secretary has determined that 
the regulations addressing interest will improve the Direct Loan 
Program and make it more equitable for borrowers. More specifically, 
Sec. 455(e)(5) of the HEA specifies how to calculate the amounts due on 
monthly payments; but allows the Secretary discretion in calculating 
the borrower's balance, which is exercised here to manage the accrual 
of interest above and beyond the interest that the borrower pays each 
month.
    The interest benefit in this final rule is a modification of the 
existing interest benefit provided on the REPAYE plan. That provision 
has been in place since the plan's creation in 2015. It includes the 
statutory requirement that the Department does not charge any interest 
that is not covered by a borrower's monthly payment during the first 
three years of repayment on a subsidized loan and the Department does 
not charge half of all remaining interest that is not covered by the 
borrower's monthly payment for all other periods in REPAYE. For 
unsubsidized loans, the Department does not charge half of all 
remaining interest that is not covered by the borrower's monthly 
payment as long as the loan is in REPAYE. That benefit has been part of 
the program for more than 7 years and the Department's authority for 
providing that protection has not been challenged, nor has Congress 
passed any legislation to change or eliminate that benefit. Though the 
size of the benefit in this final rule is different, the underlying 
rationale and authority are the same. The REPAYE plan was originally 
created in response to a June 2014 Presidential Memorandum directing 
the Department to take steps to give more borrowers access to 
affordable loan payments, with a focus on borrowers who would otherwise 
struggle to repay their loans. At that time, the Department thought the 
changes in REPAYE would be sufficient to accomplish this goal. However, 
the concerns described in that memorandum persist today, as the number 
of borrowers who default on their Federal loans has not appreciably 
declined since the REPAYE plan was created in 2015. In fact, the number 
of defaults in the 2019 Federal fiscal year were higher than in 2015, 
even as the number of annual borrowers declined over that period.\21\
---------------------------------------------------------------------------

    \21\ https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls
---------------------------------------------------------------------------

    Part of the Department's responsibilities in operating the Federal 
financial aid programs is to make certain that borrowers have available 
clear information on how to navigate repayment. In some cases, that 
means addressing tensions and ambiguity that exist in the law. For 
instance, under Sec. 428(c)(3) of the HEA (20 U.S.C. 1078(c)(3)) we 
exercised our authority to promulgate regulations to allow borrowers 
participating in AmeriCorps to receive a forbearance on repayment of 
their loans during the period they are serving in those positions.\22\ 
At the same time, Congress has established that borrowers may pursue 
Public Service Loan Forgiveness if they meet certain requirements 
related to employment and their loan repayment plan. That confuses 
borrowers who must choose between pausing their payments entirely 
versus making progress toward forgiveness with a monthly payment that 
could be far less than what they owe on the standard 10-year plan, 
potentially as low as $0. Similarly, a borrower who is unemployed may 
have

[[Page 43828]]

a $0 payment on their IDR plan but may also be able to obtain an 
unemployment deferment. The Department is using its broad authority 
under section 410 of the General Education Provisions Act (GEPA), (20 
U.S.C 1221e-3), HEA section 432,\23\ and sections 301, 411, and 414 of 
the Department of Education Authorization Act \24\ to promulgate 
regulations to govern the student loan programs and address such areas 
of inconsistency and to award credit in situations where a borrower 
uses certain types of deferments and forbearances that indicate a high 
risk of confusion or tension when choosing from among the potential for 
a $0 payment on an IDR plan, repayment statuses that provide credit for 
PSLF, and the ability to pause payments.
---------------------------------------------------------------------------

    \22\ See 34 CFR 685.205(a)(4).
    \23\ 20 U.S.C. 1082.
    \24\ 20 U.S.C. 3441, 3471, and 3474.
---------------------------------------------------------------------------

    Some provisions in this rule derive from changes made by the 2019 
Fostering Undergraduate Talent by Unlocking Resources for Education 
(FUTURE) Act (Pub. L. 116-91). That legislation amended Sec. 6103 of 
the Internal Revenue Code (IRC) \25\ to allow the Department to obtain 
Federal tax information from the Internal Revenue Service (IRS) if the 
borrower provided approval for the disclosure of such information. That 
authority is being used to automatically calculate a borrower's IDR 
payment if they have gone 75 days without making a payment or are in 
default and they have provided the necessary approvals to us.
---------------------------------------------------------------------------

    \25\ 26 U.S.C. 6103, et. seq.
---------------------------------------------------------------------------

    Within all these authorities are implicit and explicit limiting 
principles. The Secretary must issue regulations that follow the 
requirements in the HEA. When the language grants specific discretion 
to the Secretary or is otherwise allows for more than one 
interpretation, the Department must provide a reasoned basis for the 
choices it makes, as we have done in this rule. For instance, the 
amount of income protected from payments is the greatest amount that we 
believe can be justified on a reasoned basis at this time. Similarly, 
the amount of discretionary income paid on loans for a borrower's 
undergraduate study reflects our analysis of the comparative benefits 
accrued by undergraduate and graduate borrowers under different payment 
calculations. We have developed this rule with the goal of getting more 
undergraduate borrowers, particularly those at risk of delinquency and 
default, to enroll in IDR plans at rates closer to the higher levels of 
existing graduate borrower enrollment.
    As explained, the Department has the authority to promulgate this 
final rule. The changes made in this rule will ultimately reduce 
confusion and make it easier for borrowers to navigate repayment, 
choose whether to use an IDR plan, and avoid delinquency and default.
    Changes: None.
    Comments: Commenters raised a series of individual concerns about 
the legality of every significant proposed change in the IDR NPRM, 
especially increasing the income protection threshold to 225 percent of 
FPL, reducing payments to 5 percent of discretionary income on 
undergraduate loans, the treatment of unpaid monthly interest, counting 
periods of deferment and forbearance toward forgiveness, and providing 
a faster path to forgiveness for borrowers with lower original 
principal balances.
    Discussion: The response to the prior comment summary discusses the 
overarching legal authority for the final rule. We also discuss the 
legality of specific provisions for individual components throughout 
this section. However, the Department highlights the independent nature 
of each of these components. This regulation is composed of a series of 
distinct and significant improvements to the REPAYE plan that 
individually provide borrowers with critical benefits. Here we identify 
the ones that received the greatest public attention through comments; 
but the same would be true for items that did not generate the highest 
amount of public interest, such as the treatment of pre-consolidation 
payments, access to IBR in default, automatic enrollment, and other 
parameters. Increasing the amount of income protected from 150 percent 
to 225 percent of the FPL will help more low-income borrowers receive a 
$0 payment and reduced payment amounts for borrowers above that income 
level that will also help middle-income borrowers. Those steps will 
help reduce rates of default and delinquency and help make loans more 
manageable for borrowers. Reducing to 5 percent the share of 
discretionary income put toward payments on undergraduate loans will 
also target reductions for borrowers with a non-zero-dollar payment. As 
noted in the IDR NPRM and again in this final rule, undergraduate 
borrowers represent the overwhelming majority of borrowers in default. 
These changes target the reduction in payments to undergraduate 
borrowers to make their payments more affordable and help them avoid 
delinquency and default. Ceasing the charging of interest that is not 
covered by a borrower's monthly payment addresses concerns commonly 
raised by borrowers that quickly accruing interest can leave borrowers 
feeling like IDR is not working for them as their loan balances grow 
and they become discouraged about the possibility of repaying their 
loan. Providing borrowers with lower loan balances a path to 
forgiveness after as few as 120 monthly payments will help make IDR a 
more attractive option for borrowers who traditionally are at a high 
risk of delinquency and default. It will also provide incentives to 
keep borrowing low.
    Each of these new provisions standing independently is clearly 
superior to the current terms of REPAYE or any other IDR plan. That is 
critical because one of the Department's goals in issuing this final 
rule is to create a plan that is clearly the best option for the vast 
majority of borrowers, which will help simplify and streamline the 
process for borrowers to choose whether to go onto an IDR plan as well 
as which plan to pick. That simplicity will help all borrowers but can 
particularly matter for at-risk borrowers trying to navigate the 
system. Each of these provisions, standing on its own, contributes 
significantly to that goal.
    The result is that each of the components of this final rule can 
operate in a manner that is independent and severable of each other. 
The analyses used to justify their inclusion are all different. And 
while they help accomplish similar goals, they can contribute to those 
goals on their own.
    Examples highlight how this is the case. Were the Department to 
only maintain the interest benefit in the existing REPAYE plan while 
still increasing the income protection, borrowers would still see 
significant benefits by more borrowers having a $0 payment and those 
above that 225 percent of FPL threshold seeing payment reductions. 
Their total payments over the life of the loan would change, but the 
most immediate concern about borrowers being unable to afford monthly 
obligations and slipping into default and delinquency would be 
preserved. Or consider the reduction in payments without the increased 
income protection. That would still assist borrowers with undergraduate 
loans and incomes between 150 and 225 percent of FPL to drive their 
payments down, which could help them avoid default. Similarly, the 
increased income protection by itself would help keep many borrowers 
out of default by giving more low-income borrowers a $0 payment, even 
if there was not additional help for borrowers above that

[[Page 43829]]

225 percent FPL threshold through a reduction in the share of 
discretionary income that goes toward payments.
    Providing forgiveness after as few as 120 payments for the lowest 
balance borrowers can also operate independently of other provisions. 
As discussed, both in the IDR NPRM and this final rule, although 
borrowers with lower balances have among the highest default rates, 
they are generally not enrolling in IDR in large numbers. A shortened 
period until forgiveness, even without other reductions in payments, 
would still make this plan more attractive for these borrowers, as a 
repayment term of up to 20 years provides a disincentive to enrolling 
in REPAYE even if that plan otherwise provides significant benefits to 
the borrower.
    The same type of separate analysis applies to the awarding of 
credit toward forgiveness for periods spent in different types of 
deferments and forbearances. The Department considered each of the 
deferments and forbearances separately. For each one, we considered 
whether a borrower was likely to have a $0 payment, whether the 
borrower would be put in a situation where there would be a conflict 
that would be hard to understand for the borrower (such as engaging in 
military service and choosing between time in IDR and pausing 
payments), and whether that pause on payments was under the borrower's 
control or not (such as when they are placed in certain mandatory 
administrative forbearances). Moreover, a loan cannot be in two 
different statuses in any given month. That means it is impossible for 
a borrower to have two different deferments or forbearances on the same 
loan. Therefore, the awarding of credit toward forgiveness for any 
given deferment or forbearance is separate and independent of the 
awarding for any other. These deferments and forbearances also operate 
separately from the other payment benefits. A month in a deferment or 
forbearance is not affected by a month at any of the other provisions 
that affect payment amounts, including the higher FPL, reduction in 
discretionary income, or treatment of interest.
    Changes: None.
    Comments: Several commenters asserted that through this regulation 
the Department is advising student loan borrowers that they can expect 
to repay only a fraction of what they owe, which, they argue, undercuts 
the legislative intent of the Direct Loan program as well as the basic 
social contract of borrowing. Additionally, these commenters alleged 
that having current borrowers fail to repay their student loans 
jeopardizes the entire Federal loan program.
    Discussion: The Department has not and will not advise borrowers 
that they can expect to repay a fraction of what they owe. The purpose 
of these regulations, which implement a statutory directive to provide 
for repayment based on income, is to make it easier for borrowers to 
repay their loans while ensuring that borrowers who do not have the 
financial resources to repay do not suffer the lasting and harmful 
consequences of delinquency and default. We also note that forgiveness 
of remaining loan balances has long been a possibility for borrowers 
under different circumstances (such as Public Service Loan Forgiveness 
and disability discharges) \26\ and under other IDR repayment 
plans.\27\
---------------------------------------------------------------------------

    \26\ See www.studentaid.gov/manage-loans/forgiveness-cancellation.
    \27\ Secs. 455(d)(1)(D) and (E) and 493C of the HEA.
---------------------------------------------------------------------------

    Changes: None.

Historical Authority

    Comments: Several commenters argued that the underlying statutory 
authority in sections 455(d) and (e) of the HEA cited by the Department 
did not establish the authority for the Department to make the proposed 
changes to the REPAYE plan.
    Commenters argued this position in several ways. Commenters cited 
comments by a former Deputy Secretary of Education during debates over 
the passage of the 1993 HEA amendments that there would not be a long-
term cost of these plans because of the interest borrowers would pay. 
Commenters cited that same former official as noting that any 
forgiveness at the end would be for some limited amounts remaining 
after a long period. As further support for this argument, the 
commenters argued that Congress did not explicitly authorize the 
forgiveness of loans in the statute, nor did it appropriate any funds 
for loan forgiveness when it created this authority.
    Using this historical analysis, commenters argued that Congress 
never intended for the Department to create changes to REPAYE that 
would result in at least partial forgiveness for most student loan 
borrowers. Many commenters referred to this situation as turning the 
loan into a grant. Several commenters argued that Congress established 
the ICR program as revenue-neutral without authorizing cancellation of 
borrowers' debt.
    Discussion: Nothing in the HEA requires ICR plans or Department 
regulations to be cost neutral. Congress included the authority for ICR 
plans when it enacted the Direct Loan Program and left it to the 
Department to establish the specific provisions of the plans through 
regulations. Forgiveness of the remaining loan balance after an 
established time has been a part of the IDR plans since the creation of 
the Direct Loan Program in 1993-1994.\28\ Over the past 30 years, 
Congress has not reduced opportunities for loan forgiveness, but 
instead has expanded them, including through IBR and Public Service 
Loan Forgiveness. We also note that in 1993, Congress appropriated 
funds to cover all cost elements of the Direct Loan Program, including 
the ICR authority. Therefore, there was no need to have a separate 
appropriation.\29\ However, the Department has always thoughtfully 
considered the costs and benefits of our rules as reflected in the RIA.
---------------------------------------------------------------------------

    \28\ See HEA section 455(e).
    \29\ Hearing of the Committee on Labor and Human Resources to 
Amend the Higher Education Act of 1965, 103rd Cong. (1993), 48, 
available at: www.files.eric.ed.gov/fulltext/ED363187.pdf.
---------------------------------------------------------------------------

    Changes: None.

History of Subsequent Congressional Action

    Comments: Several commenters argued that the history of 
Congressional action with respect to IDR plans in the years since the 
ICR authority was created show that the proposed changes are contrary 
to Congressional intent. Commenters noted that since the 1993 HEA 
reauthorization, Congress has only made three amendments to the ICR 
language: (1) to allow Graduate PLUS borrowers to participate and 
prevent parent PLUS borrowers from doing so; (2) to allow more loan 
statuses to count toward the maximum repayment period; and (3) to give 
the Department the ability to obtain approval from a borrower to assist 
in the sharing of Federal tax information from the IRS. These 
commenters argued that if Congress had wanted the Department to make 
changes of the sort proposed in the IDR NPRM it would have done so 
during those reauthorizations.
    Other commenters argued along similar lines by pointing to other 
statutory changes to student loan repayment options since 1993. They 
cited the creation of the IBR plan and Public Service Loan Forgiveness 
in the 2007 CCRAA, as well as subsequent amendments to the IBR plan in 
2010, as proof that Congress had considered the parameters of Federal 
student loan repayment and forgiveness programs and created a strong 
presumption that Congress did not delegate that authority to the 
Department. In recounting this

[[Page 43830]]

history, commenters also argued that changes made in 2012 to create 
PAYE and in 2014 to create REPAYE were unlawful.
    Other commenters cited unsuccessful attempts by Congress to pass 
legislation to change the repayment plans as further proof that the 
Department does not have the legal authority to take these actions. 
They mentioned attempts to pass legislation that would adjust the terms 
of IDR plans, forgive a set amount of outstanding debt right away, and 
other similar legislative efforts that did not become law as proof that 
had Congress wanted to act in this space it would have done so.
    Discussion: The commenters have mischaracterized the legislative 
and regulatory history of the Direct Loan Program. As previously 
discussed, the Secretary has broad authority to develop and promulgate 
regulations for programs he administers, including the Direct Loan 
Program under section 410 of GEPA.\30\ Section 455(d)(1)(D) of the HEA 
gives the Secretary the authority to determine the repayment period 
under an ICR plan with a maximum of 25 years. Congress did not specify 
a minimum repayment period and did not limit the Secretary's authority 
to do so. We also note that, over the past decades in which these plans 
have been available, Congress has not taken any action to eliminate the 
PAYE and REPAYE plans or to change their terms. ED has used this 
authority three times in the past: to create the first ICR plan in 
1995, to create PAYE in 2012, and to create REPAYE in 2015. The only 
time Congress acted to constrain or adjust the Department's authority 
relating to ICR was in 2007 legislation when it provided more 
specificity over the periods that can be counted toward the maximum 
repayment period. Even then, it did not adjust language related to how 
much borrowers would pay each month. Congress also did not address 
these provisions when it improved access to automatic sharing of 
Federal tax information for the purposes of calculating payments on ICR 
in 2019.
---------------------------------------------------------------------------

    \30\ 20 U.S.C. 1221e-3.
---------------------------------------------------------------------------

    Congress has also not included any language related to these plans 
in annual appropriations bills even as it has opined extensively on a 
number of other issues related to student loan servicing. For instance, 
appropriations bills for multiple years in a row have consistently laid 
out expectations for the construction of new contracts for the 
companies hired by the Department to service student loans. 
Appropriations language also created the Temporary Expanded Public 
Service Loan Forgiveness Program.
    Changes: None.

Major Questions and Separation of Powers

    Comments: Several commenters argued that the changes to REPAYE 
violate the major questions doctrine and would violate the 
constitutional principal of separation of powers. They pointed to the 
ruling in West Virginia v. EPA to argue that courts need not defer to 
agency interpretations of vague statutory language and there must be 
``clear Congressional authorization'' for the contemplated action. They 
argued that the cost of the proposed rule showed that the regulation 
was a matter of economic significance without Congressional 
authorization. They also noted that the higher education economy 
affects a significant share of the U.S. economy.
    Commenters also argued that the changes had political significance 
since they were mentioned during the Presidential campaign and as part 
of a larger plan laid out in August 2022 that included the announcement 
of one-time student debt relief. To further that argument, they pointed 
to additional legislative efforts by Congress to make a range of 
changes to the loan programs over the last several years. These include 
changes to make IDR more generous, cancel loan debt, create new 
accountability systems, make programs more targeted, make programs more 
flexible for workforce education, and others. Some commenters took 
arguments related to one-time debt relief even further, saying that 
because some parameters of the proposed changes to REPAYE and one-time 
debt relief were announced at the same time that they are inextricably 
linked.
    The commenters then argued that neither of the two cited sources of 
general statutory authority--Sections 410 and 414 of GEPA--provides 
sufficient statutory basis for the proposed changes.
    A different set of commenters said the ``colorable textual basis'' 
in the vague statutory language was not enough to authorize changes of 
the magnitude proposed in the IDR NPRM.
    Given these considerations, commenters said that the Department 
must explain how the underlying statute could possibly allow changes of 
the magnitude contemplated in the proposed rule.
    Discussion: The rule falls comfortably within Congress's clear and 
explicit statutory grant of authority to the Department to design a 
repayment plan based on income. See HEA section 455(d)-(e).\31\ This is 
discussed in greater detail in response to the first comment summary in 
this subsection of the preamble.
---------------------------------------------------------------------------

    \31\ 20 U.S.C. 1087e(d)-(e).
---------------------------------------------------------------------------

    The Department disagrees that the Supreme Court's West Virginia 
decision undermines the Department's authority to promulgate the 
improvements to IDR. That decision described ``extraordinary cases'' in 
which an agency asserts authority of an ``unprecedented nature'' to 
take ``remarkable measures'' for which it ``had never relied on its 
authority to take,'' with only a ``vague'' statutory basis that goes 
``beyond what Congress could reasonably be understood to have 
granted.'' \32\ The rule here does not resemble the rare circumstances 
described in West Virginia. There is nothing unprecedented or novel 
about the Department relying on section 455 of the HEA as statutory 
authority for designing and administering repayment plans based on 
income. In addition, under Section 493C(b) of the HEA,\33\ the 
Secretary is authorized to carry out the income-based repayment program 
plan. Indeed, as previously discussed, the Code of Federal Regulations 
has included multiple versions of regulations governing income-driven 
repayment for decades.\34\ Yet Congress has taken no action to limit 
the Secretary's discretion to develop ICR plans that protect taxpayers 
and best serve borrowers and their families.
---------------------------------------------------------------------------

    \32\ 142 S. Ct. at 2609.
    \33\ 20 U.S.C. 1098e(b).
    \34\ See, e.g., 60 FR 61820 (Dec. 1, 1995); 73 FR 63258 (Oct. 
23, 2008).
---------------------------------------------------------------------------

    As such, the rule is consistent with the Secretary's clear 
statutory authority to design and administer repayment plans based on 
income.
    Changes: None.

Administrative Procedure Act

    Comments: Commenters argued that the extent of the changes proposed 
in the IDR NPRM exceed the Department's statutory authority and violate 
the Administrative Procedure Act (APA). They argued that converting 
loans into grants was not statutorily authorized and this proposal is 
instead providing what they considered to be ``free college.''
    Discussion: The Department does not agree with the claim that the 
REPAYE plan turns a loan into a grant. Borrowers who have incomes that 
are above 225 percent of FPL and are high relative to their debt will 
repay their debt in full under the new plan. Borrowers with incomes 
consistently below 225 percent of FPL or with incomes that are low

[[Page 43831]]

relative to their debt will receive some loan cancellation. In many 
cases, loan cancellation will come after borrowers have made interest 
and principal payments on the loan and, as a result, the amount 
cancelled will be smaller than the original loan. Many borrowers 
default under the current system because they cannot afford to repay 
their loans, and even the more aggressive collection efforts available 
to the Department once a borrower defaults frequently do not result in 
full repayment. The IDR plans are repayment plans for Federal student 
loans that will provide student loan borrowers greater access to 
affordable repayment terms based upon their income, reduce negative 
amortization, and result in lower monthly payments, as well help 
borrowers to avoid delinquency and default.
    Changes: None.
    Comments: Commenters argued that the rule violates the APA, because 
it was promulgated on a contrived reason. In making this argument, they 
cited Department of Commerce v. New York, in which the Supreme Court 
overruled attempts to add a question related to citizenship on the 2020 
census because the actual reason for the change did not match the goals 
stated in the administrative record. The commenters argued that if the 
Department's goals for this rule were truly to address delinquency and 
default, or to make effective and affordable loan plans, we would have 
tailored the parameters more clearly. The commenters pointed to the 
fact that borrowers with incomes at what they calculated to be the 98th 
percentile would be the point at which it does not make sense to choose 
this plan, as well as protecting an amount of income at the 78th 
percentile for a single person between the ages of 22 to 25 as proof 
that it is not targeted.
    The commenters argued that this lack of targeting shows that the 
actual goal of the plan is unstated. The commenters theorized that an 
unstated goal must be to create a ``free college'' plan by another 
name. They argued that the Department must more explicitly state that 
its goal is to replace some loans with grants or explain why it is 
providing such extensive untargeted subsidies.
    Discussion: In the IDR NPRM and in this preamble, the Department 
provides a full explanation of the rationale for and purpose of these 
final rules. These final rules are consistent with, and, in fact, 
effectuate, Congress' intent to provide income-driven repayment plans 
that provide borrowers with terms that put them in a position to repay 
their loans without undue burden. Contrary to the claims made by these 
commenters, these rules do not turn loans into grants and have no 
connection to legislative proposals made for free community college.
    Changes: None.

Vesting Clause

    Comments: Commenters argued that the changes to REPAYE would 
violate the vesting clause by creating an unconstitutional delegation 
of legislative power to the Department. They claimed that the 
Department's reading of the authority granted by the 1993 HEA provision 
is overly broad and lacks any sort of limiting principle to what the 
commenters described as unfettered and unilateral discretion of the 
Secretary. They argued that such an expansive view of this authority 
was untenable.
    Discussion: In this rule, the Department is exercising the 
authority given to it by Congress in Section 455(d) and (e) of the HEA 
(20 U.S.C. 1087e(d) and (e)) to establish regulations for income 
contingent repayment plans, as it has done several times previously. 
The Department is further exercising its rulemaking authority under 
Sec. 414 of the Department of Education Organization Act (20 U.S.C. 
3474) to prescribe rules and regulations as the Secretary determines 
necessary or appropriate to administer and manage the functions of the 
Department. Finally, under Sec. 410 of GEPA (20 U.S.C. 1221e-3), the 
Secretary is authorized to make, promulgate, issue, rescind, and amend 
rules and regulations governing the manner of operation of, and 
governing the applicable programs administered by, the Department. 
These rules further improve the IDR plans and are consistent with the 
Secretary's authority to administer the Direct Loan program.
    Contrary to the claims by the commenters, these regulations reflect 
and are consistent with statutory limits on the Secretary's authority 
to establish rules for ICR plans under Sec. 455 of the HEA. For 
instance, the HEA provides that a borrower's payments must be based 
upon their adjusted gross income, that it must include the spouse's 
income if the borrower is married and files a joint tax return, and 
that repayment cannot last beyond 25 years. Similarly, the statutory 
language does not provide for partial forgiveness over a period of 
years as it does in other parts of the HEA. For example, under the 
Teacher Loan Forgiveness Program, borrowers may be eligible for 
forgiveness of up to $17,500 on their Federal student loans if they 
teach full time for 5 complete and consecutive academic years in a low-
income school or educational service agency, and meet other 
qualifications. See, HEA section 460 (20 U.S.C. 1087j).
    Other limitations arise from the interaction between the HEA and 
the Administrative Procedure Act. When crafting a regulation, the 
Department must have a reasoned basis for the changes it pursues and 
they must be allowable under the statute. For instance, we do not 
believe there is a reasonable basis at this time for a regulation that 
protects 400 percent of FPL. We have reviewed available research, 
looked into signs of material distress from borrowers, and see nothing 
that gives us a reasoned basis to protect that level of income.
    The final rule is therefore operating within the Secretary's 
statutory authority. We developed these regulations based upon a 
reasoned basis for action.
    Changes: None.

Appropriations Clause

    Comments: Commenters argued that because Congress did not 
specifically authorize the spending of funds for the proposed changes 
to REPAYE, the proposed rules would violate the appropriations clause. 
They argued, in particular, that cancellation of debt requires specific 
Congressional appropriation, and that the Department has not identified 
such a Congressional authorization. They argued that the treatment of 
unpaid monthly interest, the protection of more income, the reductions 
of the share of discretionary income put toward payments, and 
forgiveness sooner on small balances are all forms of cancellation that 
are not paid for. Along similar lines, other commenters argued that the 
proposed changes would turn the loan program into a grant and such a 
grant is not paid for under the HEA. These commenters pointed to 
language used by the Department about creating a safety net for 
borrowers as proof that these changes would make loans into grants. 
They argued that such grants would result in spending that is neither 
reasonable nor accountable since there is no clear expectation that 
amounts would be repaid.
    Discussion: These commenters mischaracterize the Department's 
rules. These rules modify the REPAYE payment plan to better serve 
borrowers and make it easier for them to satisfy their repayment 
obligation. They do not change the loan to a grant. In section 455 of 
the HEA, Congress provided that borrowers who could not repay their 
loans over a period of time established by the Secretary would have the

[[Page 43832]]

remaining balance on the loans forgiven. That has been a part of the 
Direct Loan Program since its original implementation in 1994. The new 
rules are a modification of the prior rules to reflect changing 
economic conditions regarding the cost of higher education and the 
burden of student loan repayment on lower income borrowers. Over the 
years, Congress has provided for loan forgiveness or discharge in 
several different circumstances and, in the great majority of 
situations, including loan forgiveness resulting from an IDR repayment 
plan, the costs are paid through mandatory expenditures. The new rules 
simply modify the terms of an existing loan repayment plan, established 
under Congressional authority, and will be paid for through the same 
process.
    The commenters similarly misunderstand the goal in highlighting 
this plan as a safety net for borrowers. The idea of a safety net is 
not to provide an upfront grant, it is to provide a protection for 
borrowers who are unable to repay their debt because they do not make 
enough money.
    Changes: None.

225 Percent Income Protection Threshold

    Comments: Commenters argued that nothing in the 1993 HEA amendments 
authorized the Department to protect as much as 225 percent of FPL. 
Along those lines, other commenters argued that Congress took action to 
set the income protection threshold at 100 percent of FPL in 1993, then 
raised it to 150 percent in 2007, and Congress did not intend to raise 
it higher.
    Discussion: Section 455(e)(4) of the HEA authorizes the Secretary 
to establish ICR plan procedures and repayment schedules through 
regulations based on the appropriate portion of annual income of the 
borrower and the borrower's spouse, if applicable. Contrary to the 
assertion of the commenter, the HEA did not establish the threshold of 
100 percent of FPL for ICR.
    The Student Loan Reform Act of 1993 provided that loans paid under 
an income contingent repayment plan would have required payments 
measured as a percentage of the appropriate portion of the annual 
income of the borrower as determined by the Secretary. The decision to 
set that portion of income at a borrower's income minus the FPL was a 
choice made by the Department when it promulgated regulations for the 
Direct Loan Program in 1994.
    In 2007, Congress passed the CCRAA, which created the IBR plan and 
set the income protection threshold at 150 percent of the FPL for 
purposes of IBR. However, Congress did not apply the same threshold to 
ICR. The HEA prescribes no income protection threshold for ICR. 
Instead, Congress retained the language in Sec. 455(e)(4) of the HEA 
(20 U.S.C. 1087e(e)(4)) that gives the Secretary the discretion to 
establish the rules for ICR repayment schedules. The Secretary is 
exercising that discretion here. In 2012, when we created PAYE, we 
raised the income protection threshold, among other provisions, to 150 
percent to align with IBR.
    For this rule, the Department has recognized that the economy, as 
well as student borrowers' debt loads and the extent to which they are 
able to repay have changed substantially and the Department has 
conducted a new analysis to establish the appropriate amount of 
protected income. This analysis is based upon more recent data and 
reflects the current situation of the student loan portfolio and the 
circumstances for individual student borrowers, which is unquestionably 
different than it was three decades ago and has even shifted in the 11 
years since the Department increased the income protection threshold 
for an ICR plan when we created PAYE. Since 2012, the total amount of 
outstanding Federal student loan debt and the number of borrowers has 
grown by over 70 percent and 14 percent, respectively.\35\ This 
increase in outstanding loan debt has left borrowers with fewer 
resources for their other expenses and impacts their ability to buy a 
house, save for retirement, and more. We reconsidered the threshold to 
provide more affordable loan payments to student borrowers. The 
Department chose the 225 percent threshold based on an analysis of data 
from the U.S. Census Bureau's Survey of Income and Program 
Participation (SIPP) for individuals aged 18-65 who attended 
postsecondary institutions 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 FPL.
---------------------------------------------------------------------------

    \35\ Federal Student Aid Portfolio Summary, available at: 
studentaid.gov/data-center/student/portfolio.
---------------------------------------------------------------------------

    Changes: None.

Interest Benefits

    Comments: Commenters argued that the underlying statutory authority 
does not allow for the Department's proposal to not charge unpaid 
monthly interest to borrowers. They argued that the ICR statutory 
language requires the Secretary to charge the borrower the balance due, 
which includes accrued interest. Similarly, they argue that the statute 
requires the Secretary to establish plans for repaying principal and 
interest of Federal loans. They also noted that the statutory text 
discusses how the Department may choose when to not capitalize 
interest, which shows that Congress considered what flexibilities to 
provide to the Secretary and that does not include the treatment of 
interest accrual. They also pointed to changes made to the HEA in the 
CCRAA that changed the treatment of interest accrual on subsidized 
loans as proof that Congress considered whether to give the Secretary 
more flexibility on the treatment of interest and chose not to do so. 
Some commenters also pointed to the fact that the previous most 
generous interpretation of this authority for interest benefits--the 
current REPAYE plan--did not go as far on not charging unpaid monthly 
interest as the proposed rule.
    Discussion: Sec. 455(e)(5) of the HEA (20 U.S.C. 1087e(e)(5)) 
defines how to calculate the balance due on a loan repaid under an ICR 
plan. However, it does not restrict the Secretary's discretion to 
define or limit the amounts used in calculating that balance. Beyond 
that, section 410 of GEPA,\36\ provides that ``The Secretary . . . is 
authorized to make, promulgate, issue, rescind, and amend rules and 
regulations governing the manner of operation of, and governing the 
applicable programs administered by, the Department,'' which includes 
the Direct Loan program. Similarly, section 414 of the Department of 
Education Organization Act \37\ authorizes the Secretary to ``prescribe 
such rules and regulations as the Secretary determines are necessary or 
appropriate to administer and manage the functions of the Secretary or 
the Department.'' We also note that while section 455(e)(5) of the HEA 
defines how to calculate the balance due on a loan repaid under an ICR 
plan, it does not restrict the Secretary's discretion to define or 
limit the amounts used in calculating that balance. These regulations 
reflect the Secretary's judgment as to how that balance should be 
calculated.
---------------------------------------------------------------------------

    \36\ 20 U.S.C. 1221e-3.
    \37\ 20 U.S.C. 3474.
---------------------------------------------------------------------------

    The interest benefit provided in these regulations is one aspect of 
the many distinct, independent, and severable changes to the REPAYE 
plan included

[[Page 43833]]

in these rules that will allow borrowers to be in a better position to 
repay more of their loan debt, which is in the best interests of the 
taxpayers. Defaults do not benefit taxpayers or borrowers.
    Changes: None.
    Comment: Commenters argued that since Congress has passed laws 
setting the interest rate on student loans that the Department lacks 
the authority to not charge unpaid monthly interest because doing so is 
akin to setting a zero percent interest rate for some borrowers.
    Discussion: The HEA has numerous provisions establishing different 
interest rates and different interest rate formulas on Federal student 
loans during different periods as well as limiting the amount of unpaid 
monthly interest that may be capitalized. See, for example, HEA 
sections 427A \38\ and 455(e)(5).\39\ Those provisions do not require 
that the maximum interest rate be charged to borrowers at all times 
during the life of the loan. The HEA and the Department's regulations 
\40\ have long included different provisions providing that interest 
will not be charged in a variety of circumstances, including under 
income-driven repayment plans. See, for example, Sec. 428(b)(1)(M) of 
the HEA \41\ and 34 CFR 685.204(a) (interest not charged during periods 
of deferment on subsidized loans); 34 CFR 685.209(a)(2)(iii) (unpaid 
interest not charged for first three years under PAYE); Sec. 455(a)(8) 
of the HEA \42\ and 34 CFR 685.211(b) (interest rate can be reduced as 
repayment incentive); and 34 CFR 685.213(b)(7)(ii)(C) (if borrower's 
loan is reinstated after initial disability discharge, interest not 
charged during period in which payments not required). Congress has 
never taken action to reverse those provisions. Therefore, there is no 
support for the commenters' suggestion that the statutory provisions 
regarding the maximum interest rate are determinative of when that rate 
must be charged.
---------------------------------------------------------------------------

    \38\ 20 U.S.C. 1077a.
    \39\ 20 U.S.C. 1087(e)(5).
    \40\ See, for example, Sec. Sec.  685.202(a), 
685.209(a)(2)(iii), 685.209(c)(2)(iii)(A) and 685.221(b)(3).
    \41\ 20 U.S.C. 1078(b)(1)(M).
    \42\ 20 U.S.C. 1087e(a)(8).
---------------------------------------------------------------------------

    Changes: None.
    Comments: Commenters argued that the Department did not specify 
whether interest that is not charged will be treated as a canceled debt 
or as revenue that the Secretary decided to forego. In the latter 
situation, the commenters argued that the Department has not 
established how unilaterally forgoing interest is not an abrogation of 
amounts owed to the U.S. Treasury, as established in the Master 
Promissory Note.
    Discussion: The determination of the accounting treatment of 
interest that is not charged as cancelled debt or foregone interest is 
not determinative of the Secretary's authority to set the terms of IDR 
plans.
    Changes: None.

Deferment and Forbearance

    Comments: Commenters argued that the Department lacked the 
statutory authority to award credit toward forgiveness for a month 
spent in a deferment or forbearance beyond the economic hardship 
deferment already identified in section 455(e)(7) of the HEA. They 
argued that the 2007 changes to include economic hardship deferments in 
ICR showed that Congress did not intend to include other statuses. They 
also pointed to the underlying statutory language that provides that 
the only periods that can count toward forgiveness are times when a 
borrower is not in default, is in an economic hardship deferment 
period, or made payments under certain repayment plans. They asserted 
that the Department cannot otherwise count a month toward forgiveness 
when a monetary payment is not made. Commenters also noted that this 
approach toward deferments and forbearances is inconsistent with how 
the Department has viewed similar language under sections 428(b)(1)(M) 
\43\ and 493C(b)(7) \44\ of the HEA.
---------------------------------------------------------------------------

    \43\ 20 U.S.C. 1078(b)(1)(M).
    \44\ 20 U.S.C. 1098e(b)(7).
---------------------------------------------------------------------------

    Discussion: The provisions in Sec. 455(e)(7) of the HEA are not 
exclusive and do not restrict the Secretary's authority to establish 
the terms of ICR plans. That section of the HEA prescribes the rules 
for calculating the maximum repayment period for which an ICR plan may 
be in effect for the borrower and the time periods and circumstances 
that are used to calculate that maximum repayment period. It is not 
intended to define the periods under which a borrower may receive 
credit toward forgiveness. The commenters did not specify what they 
meant in terms of inconsistent treatment, but the Department is not 
proposing to make underlying changes to the terms and conditions 
related to borrower eligibility for a given deferment or forbearance or 
how the borrower's loans are treated during those periods in terms of 
the amount of interest that accumulates. Rather, we are concerned that, 
despite the existence of the IDR plans, borrowers are ending up in 
deferments or forbearances when they would have had a $0 payment on IDR 
and would be gaining credit toward ultimate loan forgiveness. This 
concern has become more pronounced over time as the Department has 
taken a closer look at how payment counts toward IDR are being tracked 
and how successful borrowers are at navigating forgiveness programs as 
the first cohorts of borrowers are reaching the point when they would 
be eligible for relief. These problems would not have been as 
immediately pressing in past instances of rulemaking since borrowers 
would not yet have been eligible for forgiveness so the effect on 
borrowers getting relief would not have been readily observable. This 
change reflects updated information available to the Department about 
how to make repayment work better. Finally, we note that these changes 
would not be applied to FFEL loans held by lenders.
    Changes: None.

10-Year Cancellation

    Comments: Commenters argued that the creation of PSLF in 2007 
showed that Congress did not intend for the Department to authorize 
forgiveness as soon as 10 years for borrowers not eligible for that 
benefit.
    Other commenters argued that HEA section 455(e)(5), which states 
that payments must be made for ``an extended period of time'' implies 
that the time to forgiveness must be longer than 10 years' worth of 
monthly payments but less than 25 years.
    Discussion: HEA section 455(d)(1)(D) requires the Secretary to 
offer borrowers an ICR plan that varies annual repayment amounts based 
upon the borrower's income and that is paid over an extended period of 
time, not to exceed 25 years.
    For the lowest balance borrowers, we believe that 10 years of 
monthly payments represents an extended period of time. Borrowers with 
low balances are most commonly those who enrolled in postsecondary 
education for one academic year or less. This provision, therefore, 
requires that a borrower repay their loan for a period that can be 10 
times longer than the duration of their enrollment in postsecondary 
education. The Department agrees that as balances increase, the amount 
of time to repay should be extended. We, therefore, used a slope that 
increases the amount of time to repay as balances grow, up to the 
maximum of 25 years' worth of monthly payments as provided in the HEA.
    In response to the commenters who asserted that the proposed rule 
violated Congressional intent because of the varying payment caps for 
PSLF and

[[Page 43834]]

non-PSLF borrowers, we disagree. PSLF is a separate program created by 
Congress. For most borrowers, PSLF will offer them forgiveness over a 
much shorter period than what they would otherwise have, even under the 
more generous terms created by this rule.
    Changes: None.

Federal Claims Collections Standards

    Comments: A few commenters argued that the proposed rule violated 
the Federal Claims Collection Standards (FCCS). They pointed to 31 
U.S.C. 3711(a), which requires the heads of Federal agencies to try to 
collect debts owed to the United States and cited regulations stemming 
from that provision that also require agencies to ``aggressively'' 
collect debts owed to agencies. They argued that since the statute does 
not grant the Department the authority to waive, modify, or cancel 
these debts, that it must abide by these financial management duties. 
In particular, they argued that choosing not to charge unpaid monthly 
interest would violate those obligations.
    Several commenters also argued that granting forgiveness after as 
few as 10 years' worth of payments violated the FCCS because those 
borrowers would be the ones most likely able to repay their debts due 
to their small loan balances. Shortened time to forgiveness would mean 
the Department is failing to aggressively collect debt due.
    Discussion: The Department disagrees with these commenters. The 
FCCS requires agencies to try to collect money owed to them and 
provides guidance to agencies that functions alongside the agencies' 
own regulations addressing when an agency should compromise claims. The 
Department has broad authority to settle and compromise claims under 
the FCCS and as reflected in 34 CFR 30.70. The HEA also grants the 
Secretary authority to settle and compromise claims in Section 
432(a)(6) \45\ of the HEA. This IDR plan, however, is not the 
implementation of the Department's authority to compromise claims, it 
is an implementation of the Department's authority to prescribe income-
contingent repayment plans under Sec. 455 of the HEA.
---------------------------------------------------------------------------

    \45\ 20 U.S.C. 1082(a)(6).
---------------------------------------------------------------------------

    The Department also disagrees that low-balance borrowers are most 
likely to be able to repay their debts. In fact, multiple studies as 
well as Department administrative data establish that lower balance 
borrowers are at a far greater likelihood of defaulting on their loan 
than those with larger balances. As noted in the IDR NPRM, 63 percent 
of borrowers in default had original loan balances of $12,000 or below. 
While it is true that lower balances equate to lower loan payments, the 
commenter fails to consider that many borrowers with lower balances 
either did not complete a postsecondary program or obtained only a 
certificate. They likely received lower financial returns and 
demonstrably are more likely to struggle with repaying their loans. For 
borrowers with persistently low income, requiring payments for 20 years 
would not result in substantial increases in payments. In other words, 
reducing the time to forgiveness for such borrowers would not lead to 
large amounts of forgone payments.
    Changes: None.

Definitions (Sec.  685.209(b))

    Comments: Several commenters suggested modifying the definition of 
``family size'' to simplify and clarify language in the proposed 
regulations. One commenter suggested that we revise the definition of 
``family size'' to better align it with the definition of a dependent 
or exemption on Federal income tax returns, similar to changes made to 
simplify the Free Application for Federal Student Aid (FAFSA) that 
begin in the 2024-2025 cycle. Another commenter stated that changing 
the definition of ``family size'' in this manner will streamline the 
IDR process and make it easier to automatically recertify a borrower's 
participation without needing supplemental information from the 
borrower.
    Discussion: We appreciate the commenters' suggestions to change the 
definition of ``family size'' to simplify the recertification process 
and make the definition for FAFSA and IDR consistent. We agree that it 
is important that borrowers be able to use data from their Federal tax 
returns to establish their household size for IDR. Doing so will make 
it easier for borrowers to enroll and stay enrolled in IDR. For that 
reason, we have added additional clarifying language noting that 
information from Federal tax returns can be used to establish household 
size.
    The Department notes that in the IDR NPRM we did adopt one key 
change in the definition of ``family size'' that is closer to IRS 
treatment and is being kept in this final rule. That change is to 
exclude the spouse from the household size if the borrower is married 
filing separately. Prior to this change it was possible for a borrower 
on the IBR, ICR, or PAYE plans to file separately and still include the 
spouse in their household. (This was not possible in the REPAYE plan 
because it always required the inclusion of the spouse's income 
regardless of whether the borrower was married filing jointly or 
separately.) The Department believes that if the spouse's income is not 
being counted for the purpose of establishing payment amounts then the 
spouse should not be included in the household size, which has the 
effect of protecting more income from payments.
    As noted in the Implementation Date of These Regulations section, 
the Department will be early implementing this change on July 30, 2023. 
Between that date and July 1, 2024, borrowers completing the electronic 
application will have their spouse automatically excluded from their 
household size if they are married and file a separate tax return. 
Those who file separately and wish to include their spouse in their 
household size will have to complete the separate alternative 
documentation of income process to include the spouse's income. This 
change will affect any IDR plan chosen by Direct Loan borrowers. It 
will not be early implemented for FFEL borrowers.
    Beyond that change that was also in the IDR NPRM, the Department 
chose not to adjust the definition of ``family size'' to match the IRS 
definition because we are concerned about making the process of 
determining one's household size through a manual process too onerous 
or confusing. The family size definition we proposed in the IDR NPRM 
captures many of the same concepts the IRS uses in its definition of 
dependents. This includes considering that the individual receives more 
than half their support from the borrower, as well as that dependents 
other than children must live with the borrower. The full IRS 
definition includes other considerations appropriate for tax filing but 
that could confuse borrowers when they determine who to include in 
their household size for IDR. These considerations include a cap on the 
amount of income an individual could have to be considered a dependent 
and provisions for how to address which household a child of a divorced 
couple should be included within. By using a simplified, easy to 
understand definition of family size, borrowers will have the ability 
to accurately modify the family size data retrieved from the IRS. 
Additionally, the definition explains when the borrower is permitted to 
include the spouse in the family size for all IDR plans.
    Changes: We added subparagraph (ii) to the definition of ``family 
size'' in Sec.  685.209(b).
    Comments: One commenter urged the Department to create consistent 
treatment for all student loan borrowers (including borrowers with 
Direct Loans,

[[Page 43835]]

FFELs and graduate and Parent PLUS borrowers in both programs) under 
our regulations. This commenter argued that the divisions between FFEL 
and Direct Loans frustrate borrowers and generate resentment. The 
commenter also believes these changes would reduce complexity in the 
student loan system and particularly help Black and Hispanic borrowers 
who need to borrow loans to pay for their education.
    Discussion: The Department supports aligning program regulations 
for Direct Loan and FFEL borrowers where appropriate and permitted by 
statute and has determined it is appropriate to align the definition of 
``family size'' in Sec.  682.215(a)(3) of the FFEL program regulations 
with the definition in Sec.  685.209(b), with the exception of Sec.  
685.209(b)(ii), which must be excluded because the FUTURE Act only 
permits the sharing of tax information from the IRS to the Department 
and not to private parties who hold FFEL loans. The alignment of the 
definition in Sec.  682.215(a)(3) provides for the exclusion of the 
borrower's spouse from the family size calculation except for borrowers 
who file their Federal tax return as married filing jointly.
    The Department will work with FFEL partners, including lenders and 
guaranty agencies, to make sure that borrowers repaying their FFEL 
loans under the IBR plan are treated consistently with Direct Loan 
borrowers with respect to borrowers' family size. Unlike the comparable 
changes to the Direct Loan program, this change will not be early 
implemented and will instead go into effect on July 1, 2024. We are 
treating FFEL loans differently in this case to make certain there is 
sufficient time to adjust systems and avoid a situation where some 
lenders voluntarily choose to implement this change and others do not.
    Changes: We have revised the definition of ``family size'' in Sec.  
682.215(a)(3) to align with the definition of ``family size'' in Sec.  
685.209(b).
    Comment: One commenter suggested that we include definitions and 
payment terms related to all of the IDR plans, not just REPAYE, because 
borrowers may be confused about which terms apply to which plans. This 
commenter recommended adding additional subsections in the regulations 
to eliminate confusion.
    Discussion: Effective July 1, 2024, we will limit student borrowers 
to new enrollment in REPAYE and IBR. We do not believe that any 
additional changes to the other plans are necessary. Overall, we think 
the reorganization of the regulatory text to put all IDR plans in one 
place will make it easier to understand the terms of the various plans.
    Changes: None.

Borrower Eligibility for IDR Plans (Sec.  685.209(c))

    Comments: Many commenters supported our proposed changes to the 
borrower eligibility requirements for the IDR plans. However, many 
commenters expressed concern that we continued the existing exclusion 
of parent PLUS borrowers from the REPAYE plan. These commenters argued 
that parent PLUS borrowers struggle with repayment just as student 
borrowers do, and that including parents in these regulations would be 
a welcome relief.
    Commenters also expressed concern that our proposed regulations 
excluded Direct Consolidation Loans that repaid a parent PLUS loan from 
the benefits that student borrowers would receive. These commenters 
noted that parents may have borrowed student loans to finance their own 
education in addition to taking out a parent PLUS loan to pay for their 
child's education.
    One commenter alleged that the Direct Consolidation Loan repayment 
plan for parent PLUS borrowers is not as helpful compared to the other 
repayment plans. This commenter noted that the only IDR plan available 
to parent PLUS borrowers when they consolidate is the ICR plan, which 
uses an income protection calculation based on 100 percent of the 
applicable poverty guideline compared to 150 percent of the applicable 
poverty guideline for the other existing IDR plans. The commenter also 
noted that the only IDR plan available to borrowers with a Direct 
Consolidation Loan that repaid a parent PLUS loan requires parents to 
pay 20 percent of their discretionary income compared to 10 percent for 
the other existing IDR plans available to students. Together, these 
conditions make monthly payments unmanageable for parent PLUS borrowers 
according to this commenter.
    One commenter noted that while society encourages students to 
obtain a college degree due to the long-term benefits of higher 
education, tuition is so expensive that oftentimes students are unable 
to attend a university or college without assistance from parents. In 
this commenter's view, the Department has structured an IDR plan for 
parent PLUS borrowers that is unfair and punitive to parents. The 
commenter also noted that parent PLUS borrowers who work an additional 
job to help with expenses will have an increase in AGI, which leads to 
higher monthly loan payments the following year.
    One commenter said that excluding parent PLUS borrowers from most 
IDR plans, especially parents of students who also qualify for Pell 
Grants, suggested that the Department is not concerned that parents are 
extremely burdened by parent PLUS loan payments. Several commenters 
stated that if parents are still unable to access the REPAYE plan 
benefits, some or all of those repayment improvements should be 
implemented into the ICR plan available to parent PLUS borrowers.
    One commenter asserted that students attending Historically Black 
Colleges and Universities (HBCUs) are more likely to rely on parent 
PLUS loans than students attending other institutions. The commenter 
further stated that given racial disparities in college affordability, 
the proposed REPAYE plan should be amended to include Direct 
Consolidation loans that repaid Direct or FFEL parent PLUS Loans.
    Discussion: While we understand that some parent PLUS borrowers may 
struggle to repay their debts, parent PLUS loans and Direct 
Consolidation loans that repaid a parent PLUS loan will not be eligible 
for REPAYE under these final regulations. The HEA has long 
distinguished between parent PLUS loans and loans made to students. In 
fact, section 455(d)(1)(D) and (E) of the HEA prohibit the repayment of 
parent PLUS loans through either ICR or IBR plans.
    Following changes made to the HEA by the Higher Education 
Reconciliation Act of 2005, the Department determined that a Direct 
Consolidation Loan that repaid a parent PLUS loan first disbursed on or 
after July 1, 2006, could be eligible for ICR.\46\ The determination 
was partly due to data limitations that made it difficult to track the 
loans underlying a consolidation loan, as well as recognition of the 
fact that a Direct Consolidation Loan is a new loan. In granting access 
to ICR, the Department balanced our goal of allowing the lowest-income 
borrowers who took out loans for their dependents to have a path to low 
or $0 payments without making benefits so generous that the program 
would fail to acknowledge the foundational differences established by 
Congress between a parent who borrows for a student's education and a 
student who borrows for their own education. The income-driven 
repayment plans provide a safety net for student borrowers by allowing 
them to repay their loans as a share of their earnings over a number of 
years. Many Parent

[[Page 43836]]

PLUS borrowers are more likely to have a clear picture of whether their 
loan is affordable when they borrow because they are older than student 
borrowers, on average, and their long-term earnings trajectory is both 
more known due to increased time in the labor force and more likely to 
be stable compared to a recent graduate starting their career. Further, 
because parent PLUS borrowers do not directly benefit from the 
educational attainment of the degree or credential achieved, the parent 
PLUS loan will not facilitate investments that increase the parent's 
own earnings. The parent's payment amounts are not likely to change 
significantly over the repayment period for the IDR plan. Moreover, 
parents can take out loans at any age, and some parent PLUS borrowers 
may be more likely to retire during the repayment period. Based on 
Department administrative data, the estimated median age of a parent 
PLUS borrower is 56, and the estimated 75th percentile age is 62. As 
such, the link to a 12-year amortization calculation in ICR reflects a 
time period during which these borrowers are more likely to still be 
working.
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    \46\ fsapartners.ed.gov/sites/default/files/attachments/dpcletters/GEN0602.pdf.
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    We appreciate and agree with the commenter's concern about racial 
disparities in college affordability, and we recognize that students 
attending HBCUs often rely on parent PLUS loans. However, we do not 
agree that making Direct Consolidation Loans that repaid a parent PLUS 
loan eligible for REPAYE is the appropriate way to address that issue. 
The Department supports numerous ways to improve affordability for all 
borrowers, including parent PLUS borrowers, and address resource 
inequities faced by HBCUs and the students they serve. Parent PLUS 
loans have benefited from the pause on payments and interest, and they 
are eligible for President Biden's plan to cancel to up to $20,000 in 
student debt. The Department delivered approximately $3 billion of 
additional American Rescue Plan funding to HBCUs, Tribally Controlled 
Colleges and Universities (TCCUs), Minority Serving Institutions 
(MSIs), and Strengthening Institutions Program (SIP) institutions. 
Additionally, the Department's proposed budget for Fiscal Year 2024 
would increase investments in capacity building and student success 
efforts at these institutions and provide up to $4,500 in tuition 
assistance to students at HBCUs, TCCUs, and MSIs. The Department will 
continue to explore ways to make college affordable for all students 
and address racial disparities. We will also continue to explore all 
available options, including legislative recommendations, regulatory 
amendments, and other means to identify ways to make certain that 
parent PLUS borrowers are able to successfully manage and repay their 
loans.
    Changes: None.
    Comment: One commenter emphatically stated that the Department 
should not under any circumstances expand this proposed rule to make 
parent PLUS loans eligible for REPAYE. The commenter further stated 
that while earnings are uncertain but likely to grow for most 
borrowers, parent PLUS borrowers' earnings are more established and 
consistent. Allowing these loans to be eligible for REPAYE would make 
the proposed rule far more expensive and regressive.
    Discussion: We agree with the commenter that parents borrowing for 
their children are different than student borrowers and have more 
established and consistent earnings. As discussed previously, we know 
that many parent PLUS borrowers do struggle to repay their loans, but 
we do not believe that including consolidation loans that repaid a 
parent PLUS loan in REPAYE is the appropriate way to address that 
problem given the difference between students and parents borrowing for 
their child's education.
    The Department is taking some additional steps in this final rule 
to affirm our position about the treatment of parent PLUS loans or 
Direct consolidation loans that repaid a parent PLUS loan being only 
eligible for the ICR plan In the past, limitations in Department data 
may have enabled a parent PLUS loan that was consolidated and then re-
consolidated to enroll in any IDR plan, despite the Department's 
position that such loans are only eligible for the ICR plan. The 
Department will not adopt this clarification for borrowers in this 
situation currently on an IDR plan because we do not think it would be 
appropriate to take such a benefit away. At the same time, the 
Department is aware that a number of borrowers have consolidated or are 
in the process of consolidating in response to recent administrative 
actions, including the limited PSLF waiver and the one-time payment 
count adjustment. Because some of these borrowers may be including 
parent PLUS loans in those consolidations without understanding that 
they would need to exclude that loan type to avoid complicating their 
future IDR eligibility, we will be applying this clarification for any 
Direct Consolidation loan made on or after July 1, 2025.
    Changes: We added Sec.  685.209(c)(5)(iii) to provide that a Direct 
Consolidation loan made on or after July 1, 2025, that repaid a parent 
PLUS loan or repaid a consolidation loan that at any point paid off a 
parent PLUS loan is not eligible for any IDR plan except ICR.

Limitation on New Enrollments in Certain IDR Plans (Sec.  
685.209(c)(2), (3), and (4))

    Comments: Several commenters raised concerns about the Department's 
proposal in the IDR NPRM to prevent new enrollments in PAYE and ICR for 
student borrowers after the effective date of the regulations. They 
noted that these plans are included in the MPN that borrowers signed. 
Several commenters pointed out that the Department has not previously 
eliminated access to a repayment plan for borrowers even if they are 
not currently enrolled on such plan. These commenters also argued that 
some of the plans being limited might provide lower total payments for 
borrowers than REPAYE, especially for graduate borrowers who could 
receive forgiveness after 20 years on PAYE.
    One commenter suggested that we consider ceasing enrollment in IBR 
for new borrowers--other than borrowers in default--to simplify 
repayment options and possibly reduce the cost of the plan if high-
income graduate borrowers use REPAYE before switching back into IBR to 
receive forgiveness.
    Discussion: The MPN specifically provides that the terms and 
conditions of the loan are subject to change based on any changes in 
the Act or regulations. This provides us with the legal authority to 
prohibit new enrollment in PAYE and ICR. However, we do not believe it 
is appropriate to end a repayment plan option for borrowers currently 
using that plan who wish to continue to use it. Therefore, no borrower 
will be forced to switch from a plan they are currently using. For 
example, a borrower already enrolled in PAYE will be able to continue 
repaying under that plan after July 1, 2024.
    The Department also does not think limiting new enrollment in PAYE 
or ICR creates an unfair limitation for student borrowers not currently 
enrolled in those plans. Borrowers in repayment will have a year to 
decide whether to enroll in PAYE. This provides them with time to 
decide how they want to navigate repayment. The overwhelming majority 
of borrowers not currently in repayment have loans that should be 
eligible for the version of IBR that is available to new borrowers on 
or after July 1, 2014. That plan has terms that are essentially 
identical to PAYE. Given that borrowers will have time to choose

[[Page 43837]]

their plan, have access to REPAYE, and most likely have access to IBR 
if they are not currently in repayment, the simplification benefits far 
exceed the size of this population.
    Accordingly, the Department has retained the structure in the IDR 
NPRM. Student borrowers will not be eligible to access PAYE or ICR 
after July 1, 2024, although consolidation loans that repaid a parent 
PLUS loan will maintain access to ICR. Any borrower on PAYE or ICR as 
of July 1, 2024 will maintain access to those plans so long as they do 
not switch off those plans, and the limitation only applies to those 
not enrolled in those plans on that date.
    In response to the commenter's suggestion to consider sunsetting 
new enrollment in IBR, we do not believe that sunsetting the IBR plan 
is permitted by section 493C(b) of the HEA which authorized the IBR 
plan. For the PAYE and ICR plans, both of which are authorized by the 
same statutory provisions that are distinct from those that establish 
IBR, we believe it is appropriate to limit new enrollment and to 
prevent re-enrollment in those plans for borrowers who choose to leave 
REPAYE.
    In the IDR NPRM, we proposed limitations on switching plans out of 
concern that a borrower with graduate loans may pay for 20 years on 
REPAYE to receive lower payments, then switch to IBR and receive 
forgiveness immediately. We proposed limiting such a switch after the 
equivalent of 10 years of monthly payments (120 payments) so that 
borrowers would have adequate time to choose and not feel suddenly 
stuck in one plan.
    However, we are changing the way the limitation on switching from 
REPAYE to IBR will work in this final rule. Instead of applying a 
cumulative payment limit, which could include time prior to July 1, 
2024, we are prohibiting borrowers from switching to IBR after making 
the equivalent of 5 years of payments (60 months) on REPAYE starting 
after July 1, 2024. Applying this requirement prospectively makes 
certain that no borrower is inadvertently excluded from the plan and 
that we can properly enforce this requirement. This is especially 
important as the Department works to award IDR credit through the one-
time payment count adjustment. However, because we are restricting this 
prospectively, we agree with the commenter that a shorter amount of 
allowable time on REPAYE is appropriate. Accordingly, we reduced the 
amount of time a borrower can spend on REPAYE and still change plans to 
half of the time we proposed in the IDR NPRM.
    Changes: We have clarified that only borrowers who are repaying a 
loan on the PAYE or ICR plan as of July 1, 2024, may continue to use 
those plans and that if such a borrower switches from those plans they 
would not be able to return to them. We maintain the exception for 
borrowers with a Direct Consolidation Loan that repaid a Parent PLUS 
loan. These borrowers will still be able to access ICR after July 1, 
2024. We have amended Sec.  685.209(c)(3)(ii) to stipulate that a 
borrower who makes 60 monthly payments on REPAYE after July 1, 2024, 
may no longer switch from REPAYE to IBR.

Income Protection Threshold (Sec.  685.209(f))

General Support for Income Protection Threshold

    Comments: Many commenters supported the Department's proposal to 
set the income protection threshold at 225 percent of the FPL. As one 
commenter noted, the economic hardship caused by a global pandemic and 
the steady rise in the cost of living over the last 40 years have left 
many borrowers struggling to make ends meet resulting in less money to 
put toward student loans. The commenter noted that the proposed change 
would allow borrowers to protect a larger share of their income so that 
they do not have to choose between feeding their families and making 
student loan payments.
    A few commenters agreed that providing more pathways to affordable 
monthly payments would reduce the overall negative impact of student 
debt on economic mobility. They further suggested that it would 
increase a borrower's ability to achieve other financial goals, such as 
purchasing a home or saving for emergencies. Another commenter noted 
that the proposed change will provide greater economic security for 
many borrowers and families, particularly those whose rent represents 
too large a share of their income,\47\ and will help borrowers impacted 
by rising housing costs, inflation, and other living expenses.
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    \47\ https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html.
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    One commenter noted that requiring payments only for those who earn 
more than 225 percent of FPL, as opposed to 150 percent of the FPL, 
will positively impact people of color attempting to thrive in the work 
world after completing their degree.
    Another commenter considered the increased income protection a 
major step forward. This commenter noted that early childhood 
educators, paraprofessionals, and other low- to moderate-wage workers 
often find the current income-driven repayment system unaffordable, 
causing these individuals to often go in and out of deferment or 
forbearance.
    Discussion: We thank the many commenters who supported our proposed 
changes. We understand that many borrowers have been struggling to make 
ends meet and have less money to put toward student loans. We believe 
these final regulations will result in more affordable monthly payments 
for many borrowers, particularly the borrowers who struggle the most. 
Providing more affordable monthly payments will in turn help reduce 
rates of delinquency and default among borrowers.
    Changes: None.

General Opposition to Income Protection Threshold

    Comments: According to one commenter, an increase in the threshold 
provides extensive benefits even to high-income borrowers. Notably, 
however, the commenter remarked that it also makes payments 
substantially more affordable for low-income borrowers.
    Another commenter noted that changing the income protection 
threshold from 150 percent to 225 percent of the FPL was the single 
costliest provision of the proposed regulations and noted that the 
reason for the high cost was because both undergraduate and graduate 
loans would be eligible for the higher income protection threshold. 
This commenter recommended that we maintain the income protection 
threshold at 150 percent for graduate loans to strike a balance of 
targeting benefits to the neediest borrowers while also protecting 
taxpayers' investment.
    Several commenters opposed the proposed revisions to the income 
protection threshold, saying that it would be wrong to force taxpayers 
to effectively cover the full cost of a postsecondary education. One 
commenter felt that the proposed changes were morally corrupt, noting 
that many borrowers would pay nothing under this plan, forcing 
taxpayers to cover the full amount. Others argued that it was unfair to 
set the amount of income protected at 225 percent of FPL because that 
amount would be substantially above the national median income for 
younger adults, including those who did not attend college.
    Discussion: While it is true that the increase in the income 
protection threshold protects more income from

[[Page 43838]]

being included in payment calculations, the Department believes this 
change is necessary to provide that borrowers have sufficient income 
protected to afford basic necessities. Moreover, as noted in the IDR 
NPRM, this threshold captures the point at which reports of financial 
struggles are otherwise statistically indistinguishable from borrowers 
with incomes at or below the FPL. Additionally, this protection amount 
provides a fixed level of savings for borrowers that does not increase 
once a borrower earns more than 225 percent of FPL. For the highest 
income borrowers, the payment reductions from this increase could 
eventually be erased due to the lack of a payment cap equal to the 
amount the borrower would pay under the standard 10-year plan. This 
achieves the Department's goal of targeting this repayment plan to 
borrowers needing the most assistance. As the commenter remarked, and 
with which we concur, our increase of the income protection threshold 
to 225 percent of FPL would result in substantially more affordable 
payments for low-income borrowers.
    In response to the commenter who opined that the shift from 150 
percent of the FPL to 225 percent was the single costliest provision in 
these regulations, we discuss in greater detail the cost of this 
regulation in the RIA section of this document. We decline to adopt the 
commenter's recommendation of using a threshold of 150 percent of FPL 
for graduate borrowers because we believe this income protection 
threshold provides an important safety net for borrowers to make 
certain that they have a baseline level of resources. In choosing this 
threshold, we conducted an analysis of student loan borrowers and 
looked at the point at which the share of borrowers reporting a 
material hardship, either being food insecure or behind on their 
utility bills, was statistically different from those whose family 
incomes are at or below the FPL and found that those at 225 percent of 
the FPL were statistically indistinguishable from those with incomes 
below 100 percent of the FPL. Moreover, we are concerned about the 
complexity of varying both the amount of income protected and the 
amount of unprotected income used to calculate payments based upon loan 
types.
    We disagree with the commenter's concerns that the income 
protection threshold is too high because it is higher than the median 
income for young adults. Borrowers who fail to complete a degree or 
certificate will likely have similar earnings compared to borrowers who 
do not go to college but will have student loan debt they need to 
repay, even if they did not receive a financial benefit from their 
additional education. In 2020, median full-time full-year income for 
high school graduates aged 25 to 34 was $36,600 while the discretionary 
income threshold at 225 FPL would have been $28,710 for a single 
individual.\48\ Therefore, even a borrower who worked full time but did 
not receive any financial benefit from the education for which they 
borrowed would still make loan payments under the new REPAYE plan.
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    \48\ nces.ed.gov/fastfacts/display.asp?id=77.
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    In response to the commenters who opposed our income protection 
threshold provisions on the grounds that it would be wrong to force 
taxpayers to pay for the borrower's education and be morally corrupt, 
we note that the costs associated with delinquency and default would be 
detrimental to both the taxpayers and the individual borrower. 
Moreover, we provided further discussion elsewhere in this section, 
Income Protection Threshold, as to why we remain convinced that it is 
appropriate set the threshold at 225 percent of the FPL.
    Changes: None.

Higher Income Protection Amounts

    Comment: Commenters argued that the proposed protection threshold 
of 225 percent was too low and was beneath what most non-Federal 
negotiators had suggested during the negotiated rulemaking sessions.
    Discussion: As discussed during the negotiated rulemaking sessions, 
the Department agreed with the non-Federal negotiators that the amount 
of income protected under the current regulations is too low. 
Accordingly, in Sec.  685.209(f)(1), the Department increased the 
amount of discretionary income exempted from the calculation of 
payments in the REPAYE plan to 225 percent of the FPL. We chose this 
threshold based on an analysis of data from the 2020 SIPP \49\ for 
individuals aged 18 to 65, who attended postsecondary institutions, and 
had 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--was statistically 
different from those whose family incomes are at or below their 
respective FPL. The Department never proposed protecting an amount of 
income above 225 percent of the FPL during the negotiations, and 
consensus was not reached during the negotiations.
---------------------------------------------------------------------------

    \49\ www.census.gov/programs-surveys/sipp/data/datasets/2020-data/2020.html.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Many commenters argued for protecting a larger amount of 
the FPL than the Department proposed. One commenter suggested that the 
income protection threshold be increased to 300 to 350 percent of FPL 
to meet basic needs, specifically for families with young children, and 
increased to 400 percent for those with high medical expenses. Other 
commenters recommended using a threshold above 400 percent. They said 
this amount would better reflect borrowers' true discretionary income 
after they pay for housing, food, child care, elder care, health 
insurance premiums, utilities, and transportation bills.
    Other commenters argued for increasing the amount of income 
protected on the grounds that the borrowers most likely to benefit from 
the increase disproportionately include first-generation college 
students, as well as those who are immigrants, Black, and Latino.
    Discussion: The Department disagrees with the suggestions to 
increase the amount of income protected. We base payments on the 
marginal amount of income above that threshold. As a result, we 
determine the payment on the amount of a borrower's income above the 
225 percent FPL threshold, rather than on all of their income. For 
someone who earns just above 225 percent of FPL, their payments will 
still be minimal.
    Here, we illustrate the payment amount for a single borrower 
earning income that is $1,500 above the 225 percent FPL threshold and 
who holds only undergraduate loans. The borrower's payment will be 
approximately $10 per month (due to the rounding of minimum payment 
amounts), which is only 0.2 percent of their annual income. We believe 
that increasing the income protection threshold and reducing the 
payment amount for undergraduate loans, coupled with our other 
regulatory efforts such as auto-enrollment into IDR for delinquent 
borrowers will protect low-income borrowers and reduce defaults.
    Changes: None.
    Comments: Some commenters suggested that we apply various 
incremental increases--from 250 percent to over 400 percent--so that 
struggling borrowers can afford the most basic and fundamental living 
expenses like food, housing, child care, and health care, in line with 
the threshold used for Affordable Care Act subsidies.

[[Page 43839]]

    Discussion: The Department sought to define the level of necessary 
income protection by assessing where rates of financial hardship are 
significantly lower than the rate for those in poverty. Based upon an 
analysis discussed in the Income Protection Threshold section of the 
IDR NPRM, the Department found that point to be 225 percent of FPL.
    We believe the new REPAYE plan provides an important safety net for 
borrowers whose income falls at a point at which repaying their student 
loans would become difficult. Our analysis found that borrowers between 
225 percent and 250 percent of the FPL have statistically different 
rates of material hardship compared to those below the poverty line. As 
such 250 percent of FPL would not be an appropriate threshold.
    The comparison to the parameters of the Affordable Care Act's 
Premium Tax Credits is not appropriate. Under that structure, 400 
percent of FPL is the level at which eligibility for any subsidy 
ceases. An individual up to that point can receive a tax credit such 
that they will not pay more than 8.5 percent of their total income. 
Individuals above that point receive no additional assistance. In 
contrast, all borrowers--including those who have incomes above 225 
percent or even 400 percent of FPL--will have income equal to 225 
percent FPL protected when calculating their payment. The eligibility 
threshold for receiving the minimum ACA premium tax credit is, 
therefore, not a suitable gauge of the point below which it is 
unreasonable to expect a borrower to make payments on their student 
loans.
    Changes: None.
    Comment: A commenter discussed the relationship of borrowers' debt-
to-income ratios to the percentage of defaulted borrowers. This 
commenter cited their own research, which found that default rates 
generally level off at a discretionary income of $35,000 and above and 
could reasonably justify income protection of 400 percent FPL if the 
goal is to reduce default rates.
    Discussion: Reducing default rates is a concern for the Department. 
We believe that the changes made to the REPAYE plan will reduce default 
rates. However, we do not believe that raising the income protection 
from 225 percent to 400 percent would sufficiently reduce defaults in a 
way that would justify the added costs. Changing the income protection 
to 400 percent would protect up to $58,320 for a single individual and 
$120,000 for a four-person household. Existing evidence on default 
indicates that borrowers with much lower incomes are the ones most 
likely to struggle with loan repayment. For example, data from the 
2012/17 Beginning Postsecondary Students Longitudinal Study show that 
around 1.4 percent of individuals who had incomes below the equivalent 
of $58,320 in 2017 dollars (about $47,700) defaulted in the previous 
year, and 5.7 percent ever defaulted by that point, compared to less 
than 1 percent (both in the previous year and ever defaulted) for those 
above $58,320.\50\
---------------------------------------------------------------------------

    \50\ Analysis using Beginning Postsecondary Students (BPS) 2012/
2017, PowerStats reference zqelzd.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter noted that while material hardship is a 
valid determination for an income threshold, there are significantly 
more families experiencing financial hardship beyond the definition in 
the IDR NPRM. The commenter said that our estimation of a material 
hardship was inequitable by only looking at food insecurity and being 
behind on utility bills and suggested that we raise the threshold to 
incorporate other areas such as housing and health care.
    Discussion: Our examination of the incidence of material hardship 
used two measures that are commonly considered in the literature on 
material hardship and poverty as proxies for family well-being.\51\ We 
agree that there are other expenses that can create a financial 
hardship. We believe that the 225 percent threshold provides that those 
experiencing the greatest rates of hardship will have a $0 payment, 
while borrowers above that threshold will have more affordable 
payments.
---------------------------------------------------------------------------

    \51\ See, for instance: Mayer, S.E., & Jencks, C. (1989). 
Poverty and the distribution of material hardship. The Journal of 
Human Resources, 24, 88-114 Ouellette, T., Burstein, N., Long, D., & 
Beecroft, E. (2004). Measures of material hardship final report. 
Prepared for U.S. Department of Health and Human Services, ASPE. 
Short, K.S. (2005). Material and financial hardship and income-based 
poverty measures in the USA. Journal of Social Policy, 34, 21-38.
---------------------------------------------------------------------------

    Changes: None.

Lower Income Protection Amounts

    Comments: The Department received a range of comments arguing for 
not increasing the amount of income protected to 225 percent of FPL. 
Some of these commenters argued that the threshold should remain at 150 
percent of FPL. Others argued that the amount should be set at 175 to 
200 percent of FPL because of concerns that 225 percent was higher than 
necessary and untargeted.
    One commenter stated that leaving the income exemption at 150 
percent of the FPL would still cut monthly payments in half for low-
income undergraduate borrowers, would avoid other potential problems, 
and would make programs without any labor market value free or nearly 
free for many students, but the Federal Government and taxpayers would 
foot the bill.
    Another commenter advised that the income limit for student loan 
forgiveness should be set to benefit only those who are either below 
the poverty level or who are making less than the poverty level for a 
set number of working years and only if there is evidence that they are 
putting in effort to improve their situations.
    Discussion: According to the Department's analysis, keeping the 
monthly income exemption at 150 percent of the FPL or lowering it would 
exclude a substantial share of borrowers who are experiencing economic 
hardship from the benefits of a $0 or reduced payment. The Department 
analyzed the share of borrowers reporting a material hardship (i.e., 
experiencing food insecurity or behind on utility bills) and found that 
those at 225 percent of the FPL were statistically indistinguishable 
from those with incomes below 100 percent of the FPL. Requiring any 
monthly payment from those experiencing these hardships, even if 
payments are small, could put these borrowers at higher risk of 
delinquency or default.
    The Department also disagrees with suggestions from commenters to 
require evidence that of borrowers are trying to financially better 
themselves. Such an approach would be administratively burdensome with 
no clear benefit.
    Changes: None.
    Comments: A few commenters argued for phasing out the income 
protection threshold altogether at a level at which a household's 
experience of hardship diverges markedly from households living in 
poverty. Other commenters argued for phasing down the amount of income 
protected as a borrower's earnings increased. For instance, one 
commenter suggested phasing down the protection first to 150 percent 
and then phasing it out entirely for borrowers who earn more than 
$100,000.
    Discussion: One of the Department's goals in constructing this plan 
is to create a repayment system that is easier for borrowers to 
navigate, both in terms of choosing whether to enroll in IDR or not, as 
well as which IDR plan to choose. This simplified decision-making 
process is especially important to help the borrowers at the greatest 
risk of delinquency or default make choices that will help them avoid 
those outcomes. No other IDR plan has such a phase out and to adopt one 
here

[[Page 43840]]

would risk undermining the simplification goals and the benefits that 
come from it. While we understand the goals of the commenters, the 
importance of the income protection also diminishes as borrowers' 
income grows. All borrowers above the income protection threshold save 
the same amount of money as any other borrower with the same household 
size. But as income grows, the percentage of their total payment 
reduced by this change diminishes. Because there is no payment cap 
under this plan, high-income borrowers can have larger payments that 
exceed the standard 10-year repayment plan. This could include 
situations where the payment amount above the standard 10-year 
repayment plan is greater than the savings the borrower would receive 
from the higher income protection amount.
    A phased reduction would also make the plan harder to explain to 
borrowers. This approach, alongside the use of a weighted average to 
calculate loan payments, would make it significantly harder to explain 
likely payment amounts to borrowers and increase confusion.
    Changes: None.
    Comments: One commenter asserted that the 225 percent poverty line 
threshold is not well justified and questioned why other means-tested 
Federal benefit thresholds are not sufficient. The commenter further 
pointed out that the Supplemental Nutrition Assistance Program (SNAP) 
has a maximum threshold of 200 percent of the FPL, and the Free and 
Reduced-Price School Lunch program, also targeted at food insecurity, 
has a maximum threshold of 185 percent of the poverty line.
    Along similar lines, a commenter noted that the taxation threshold 
for Social Security benefits is $25,000 and did not see the sense in 
protecting a higher amount of income for purposes of REPAYE payments.
    Discussion: We disagree with the commenter's assertion that the 
income protection threshold is not well justified and reiterate that 
the data and analysis we provided in the IDR NPRM is grounded with 
sufficient data and sound reasoning. With respect to means-tested 
benefits that use a lower poverty threshold, we note fundamental 
differences between Federal student loan repayment plans and other 
Federal assistance in the form of SNAP or free-reduced lunch. First, 
some of these means-tested benefits have an indirect way to shelter 
income. SNAP, for example, uses a maximum 200 percent threshold for 
broad-based categorical eligibility criteria that allows certain 
deductions from inclusion in income including: a 20 percent deduction 
from earned income, a standard deduction based on household size, 
dependent care deductions, and in some States, certain other 
deductions,\52\ among others. Even though the Department of 
Agriculture's use of the maximum threshold is 200 percent of the FPL, 
the deductions from inclusion in income could result in a higher 
protection of income and assets than our use of an across-the-board 225 
percent of the FPL. The Department does not allow other deductions from 
income or sheltering certain assets.
---------------------------------------------------------------------------

    \52\ www.fns.usda.gov/snap/recipient/eligibility.
---------------------------------------------------------------------------

    Second, it is inappropriate to compare the poverty thresholds used 
for means-tested benefits to the thresholds used for income protection 
under the REPAYE plan. Other agencies use the FPL as a baseline to 
determine eligibility for their benefits whereas we are using the 225 
percent to calculate a monthly payment. A key consideration in our 
analysis and justification for using 225 percent of the FPL for the 
income protection threshold was identifying the point at which the 
share of those who reported material hardship was statistically 
different from those at or below the FPL.
    Finally, with respect to the commenter who noted that the taxation 
threshold for Social Security benefits is $25,000, this provision is 
from the Social Security Amendments of 1983 under which 50 percent of 
an individual's Social Security benefits would be subject to the 
Federal income tax if that individual's income is above a specified 
threshold--$25,000 for individual filers and $32,000 for married 
couples filing jointly.\53\ FPL thresholds simply do not apply to 
Social Security benefits and the comparison to REPAYE is therefore 
inappropriate.
---------------------------------------------------------------------------

    \53\ The 2022 Annual Report of the Board of Trustees of the 
Federal Old-Age and Survivors Insurance and Federal Disability 
Insurance Trust Funds, June 2, 2022, at www.ssa.gov/OACT/TR/2022/tr2022.pdf.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Another commenter encouraged the Department to limit the 
income protection threshold and all other elements of the rule, to 
undergraduate loans. They further asserted that, by allowing the higher 
disposable income exemption to apply to graduate debt, the rule is 
likely to eliminate or substantially reduce payments for many doctors, 
lawyers, individuals with MBAs, and other recent graduate students with 
very high earning potential who are in the first few years of working. 
Other commenters similarly recommended that the Department maintain the 
income protection threshold for graduate loans at 150 percent of FPL.
    Discussion: We decline to limit the income protection to only 
undergraduate borrowers or to adopt a 150 percent income protection 
threshold for graduate borrowers. The across-the-board 225 percent of 
the FPL income protection threshold provides an important safety net 
for borrowers to make certain they have a baseline of resources. We 
provide our justification in detail in the IDR NPRM.\54\ In addition, a 
differential income protection threshold in REPAYE between 
undergraduate and graduate borrowers would be operationally complicated 
and would add confusion given the other parameters of this plan. For 
one, it is unclear how this suggestion would work for a borrower who is 
making a payment on both undergraduate and graduate loans at the same 
time. The Department does not think a weighted average approach would 
work either because it would be confusing to be protecting different 
amounts of income and then charging varying shares of that 
discretionary income for payments. And we are concerned that applying 
the lower threshold if the borrower has any graduate debt could put the 
lowest-income graduate borrowers at risk of default. Moreover, it would 
create challenges in simplifying repayment options because other plans 
also protect 150 percent of FPL and might offer other benefits that 
would cause graduate borrowers to choose them, such as forgiveness 
after 20 years instead of 25 years.
---------------------------------------------------------------------------

    \54\ See 88 FR 1901-1902.
---------------------------------------------------------------------------

    Changes: None.

Cost-of-Living Adjustments

    Comments: Many commenters argued for adopting regional cost-of-
living adjustments to the determination of the amount of income 
protected. Commenters said this was necessary to address disparities in 
cost of living across the country. Several commenters pointed to high-
cost urban areas, particularly in New York City and elsewhere, as 
evidence that even 225 percent of FPL was insufficient for individuals 
to still afford basic necessities, such as rent and groceries. 
Commenters also pointed to differences in local tax burdens, which also 
affect the availability of income for loan payments and necessities. 
Commenters noted that this adjustment is particularly important because 
so many individuals who attend college tend to live in higher-cost 
areas.

[[Page 43841]]

    Another commenter who argued in favor of regional cost-of-living 
adjustments suggested using Regional Price Parities available at both 
the State and metropolitan area levels. This commenter stated that 
failure to consider this alternative would be arbitrary and capricious.
    Discussion: The Department declines to adjust the income protection 
amount based upon relative differences in the cost of living in 
different areas outside of the existing higher thresholds used for 
Alaska and Hawaii.
    The FPL is a widely accepted way of assessing a family's income. 
Many State programs use it without regional cost of living adjustments, 
making it difficult to choose a regional adjustment factor that would 
not be arbitrary. First, we have not identified a well-established and 
reliable method to adjust for regional differences. Examples of State 
agencies that use the FPL for their benefits or programs include New 
York's Office of Temporary and Disability Assistance, Wisconsin's 
health care plans, as well many other State health agencies across the 
country. At the Federal level, the U.S. Citizenship and Immigration 
Services (USCIS) allows non-citizens to request a fee reduction \55\ 
when filing Form N-400, an Application for Naturalization if that 
individual's household income is greater than 150 percent but not more 
than 200 percent of the FPL. This fee reduction does not account for 
regional cost differentials where the individual resides; rather, USCIS 
uses an across-the-board factor to better target that benefit to those 
needing the most assistance to become naturalized U.S. citizens. 
Moreover, Federal courts in Chapter 7 bankruptcy proceedings may waive 
certain administrative fees if a debtor's income is less than 150 
percent of the FPL.\56\ Across the various cases of these State and 
Federal benefits, the use of the FPL is consistent after accounting 
that there is no reliable method to adjust for regional differences.
---------------------------------------------------------------------------

    \55\ See Form I-942, OMB Form No. 1615-0133, www.uscis.gov/i-942.
    \56\ 28 U.S.C. 1930(f).
---------------------------------------------------------------------------

    Second, we think it is valuable to provide a straightforward way 
for borrowers to understand how much income will be protected from 
payments. We would lose the simplicity of such an approach if we 
adjusted based upon the cost of living. Relatedly, it would be 
operationally difficult to apply a borrower's regional cost of living 
adjustment such as if we used the Bureau of Economic Analysis' (BEA) 
Regional Price Parities by State and Metropolitan area, as the 
commenters suggest. It is unclear how we would determine the 
appropriate cost of living factor to use for income protection--whether 
we would use the address on file on the IDR application, where the 
borrower files taxes, or the State of domicile. Furthermore, use of BEA 
data could obligate the Department to collect data elements that would 
be onerous to compile and could result in borrowers failing to enroll 
or recertify in an IDR plan. Instead, as we have done since the 
inception of the ICR plans, we will use a percentage of the FPL as the 
baseline for income protection.
    Changes: None.
    Comments: Commenters suggested alternative measures that are more 
localized than FPL, such as State median income (SMI). They maintained 
that SMI better accounts for differences in cost of living and provides 
a more accurate reflection of an individual or family's economic 
condition. Commenters noted that some Federal social service programs, 
including the Low-Income Home Energy Assistance Program (LIHEAP) and 
housing programs such as Section 8 Housing Choice Vouchers, use the SMI 
rather than the FPL for this reason.
    Discussion: It is important to calculate payments consistently and 
in a way that is easy to explain and understand. Using SMI to determine 
income protection would introduce confusion and variability that would 
be hard to explain to borrowers. Additionally, it would create 
operational challenges when borrowers move and lessen our ability to 
simplify payment calculations when we obtain approval to use a 
borrower's Federal tax information.
    Changes: None.

Periodic Reassessment

    Comments: Many commenters suggested that the Department reassess 
the income protection threshold annually or at other regular intervals. 
One of these commenters commended the Department for proposing these 
regulatory changes and asked that we periodically reassess whether the 
225 percent threshold protects enough income for basic living expenses 
and other inflation-related expenses such as elder care.
    Discussion: The Department declines to make any changes. The 
Department believes concerns about periodic reassessment are best 
addressed through subsequent negotiated rulemaking processes. 
Calculating the amount of income protected off the FPL means that the 
exact dollar amount protected from payment calculations will 
dynamically adjust each year to reflect inflation changes. However, if 
there are broader societal changes that suggest the overall level of 
income protected based on the percentage of the FPL is too low, it 
would be appropriate to conduct further rulemaking to consider input 
from stakeholders and the public before making any changes.
    Changes: None.

Income Protection Threshold Methodological Justification

    Comments: One commenter stated that the Department acknowledged 
that 225 percent is insufficient because we said that the payment 
amount for low-income borrowers on an IDR plan using that percentage 
may still not be affordable. The commenter also believed that our 
rationale for arriving at this percentage was flawed, as it used a 
regression analysis with a 1 percent level of significance to show that 
borrowers with discretionary incomes at the 225 percent threshold 
exhibit an amount of material hardship that is statistically 
distinguishable from borrowers at or below the poverty line. These 
commenters stated that we did not comment on the magnitude of this 
difference and any difference is merely fractional.
    Another commenter opined that the derivation from the 225 percent 
FPL threshold is not well justified. This commenter questioned the 
confidence level and sample size used in our calculations. The 
commenter believed that the choice of a confidence interval is more 
definitional than supported by a firm analytical basis.
    Discussion: We disagree with the commenters' methodological 
critiques. Our rationale for arriving at the discretionary income 
percentages was based on our statistical analysis of the differences in 
rates of material hardship by distance to the Federal poverty threshold 
using data from the SIPP. We note that our figures were published in 
the IDR NPRM as well as our policy rationale for arriving at 225 
percent of the FPL.
    As we stated in the analysis, an indicator for whether an 
individual experienced material hardship was regressed on a constant 
term and a series of indicators corresponding to mutually exclusive 
categories of family income relative to the poverty level. The analysis 
sample includes individuals aged 18 to 65 who had outstanding education 
debt, had previously enrolled in a postsecondary institution, and who 
were not currently enrolled. The SIPP is a nationally representative 
sample and we reported standard errors using replicate weights from the 
Census Bureau that takes into account sample size. The Department used 
these data

[[Page 43842]]

because they are commonly used and well-established as the best source 
to understand the economic well-being of individuals and households. 
The table notes show that two stars indicate estimated coefficients 
which are statistically distinguishable from zero at the 1 percent 
level. Using a 1 percent significance level is appropriate based on 
current Office of Management and Budget (OMB) guidance under the Data 
Quality Act (also known as the Information Quality Act).\57\ The point 
of this analysis was to start at the premise that the commenter did not 
challenge, which is that someone who is at or below 100 percent of FPL 
should not be required to make a payment. We then looked for the point 
above which those rates of the individuals who reported financial 
hardship is statistically different from those individuals in poverty. 
As shown in our analysis, families with incomes above 225 percent FPL 
have rates of material hardship that are clearly both statistically and 
meaningfully different than families with incomes less than 100 percent 
FPL. Above the 225 percent FPL, coefficients are all statistically 
significantly different at the 1 percent level and range from 8.8 to 
24.7 percentage points depending on the group, with the size of the 
coefficient generally getting larger as income increases.
---------------------------------------------------------------------------

    \57\ See Section 515 of the Consolidated Appropriations Act, 
2001 (Pub. L. 106-554).
---------------------------------------------------------------------------

    We also note that the IDR NPRM included a discussion of why the 225 
percent threshold is meaningful in its alignment to the minimum wage in 
many states. This consideration is discussed further in response to 
another comment in this Income Protection Threshold section.
    Changes: None.
    Comments: One commenter noted that our income protection threshold 
proposal of 225 percent of the FPL--$30,600 using the 2022 FPL--when 
compared to non-Federal data would encompass about the 65th percentile 
of earnings for individuals aged 22-31. Other commenters made similar 
claims but concluded this represented different percentiles in the 
income distribution. The commenter believes the Department undercounted 
the number of borrowers who would choose REPAYE as a result of this FPL 
threshold. The commenter claimed that the Department underestimated the 
proportion of borrowers up to age 31 who would have $0 or very low 
payments within this time frame, which the commenter claimed was a 
significant number of borrowers. The commenter said the data needed to 
estimate that number are readily available from other Federal agencies, 
including the Census Bureau, the Bureau of Labor Statistics (BLS), and 
the Federal Reserve.
    Discussion: We disagree with the commenter and affirm that our use 
of data from the SIPP for individuals aged 18-65 who attended college 
and who have outstanding student loan debt was appropriate. The 
commenter's analysis is incorrect in several ways: first, it presumes 
that the analysis should be relegated only to borrowers aged 22-31. The 
Department's own data \58\ indicate that student loan borrowers' range 
in age, and we believe our use of SIPP is an appropriate data set for 
our analysis. Second, the reference point that the commenter proposes 
uses data from a non-Federal source and we cannot ascertain the 
validity of the survey design. In accordance with the Data Quality Act, 
we believe using our 225 percent income protection threshold to the 
data set that we used in the IDR NPRM was appropriate for the questions 
specific to this rule: ``at which point would the share of those who 
reported material hardship be statistically different from those whose 
family incomes are at or below the FPL?'' As a reminder, SIPP is a 
nationally representative longitudinal survey administered by the 
Census Bureau that provides comprehensive information on the dynamics 
of income, employment, household composition, and government program 
participation \59\ and we do not believe we undercounted borrowers who 
would choose REPAYE.
---------------------------------------------------------------------------

    \58\ studentaid.gov/data-center/student/portfolio.
    \59\ www.census.gov/programs-surveys/sipp.html.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter argued we should have used more objective 
data from the IRS instead of the SIPP. The commenter questioned why the 
Department chose to base its comparison on those with an income below 
100 percent FPL, when it could have chosen to use 150 percent of the 
FPL established by Congress.
    This same commenter believed the Department arrived at a 
statistical justification for a predetermined threshold by arbitrarily 
choosing the comparison group and arbitrarily choosing what to look at 
(e.g., rates of food insecurity rather than something related to 
student loans like repayment rates).
    Discussion: We reviewed various sources of data. SIPP is a 
longitudinal dataset administered by the Census Bureau. Information 
about the methodology and design are available on the Census 
website.\60\ We believe that the SIPP data is sound and the most 
appropriate dataset to use for our purposes because it contains 
information on student loan debt, income, and measures of material 
hardship. Because IRS data does not have information on material 
hardships, it would not be possible to conduct the analysis of the 
point at which the likelihood of a borrower reporting material hardship 
is statistically different from the likelihood for someone at or below 
the FPL reporting material hardship.
---------------------------------------------------------------------------

    \60\ www.census.gov/programs-surveys/sipp/methodology.html.
---------------------------------------------------------------------------

    In response to the commenter's question why we chose the reference 
point to be 100 percent of the FPL rather than 150 percent, our 
intention was to find the point under which individuals with family 
incomes up to a certain percentage of the FPL would have rates of 
material hardship statistically indistinguishable from rates for 
borrowers with income at or below the FPL. Using 100 percent of the FPL 
is demonstrably appropriate as the Census considers someone at or below 
the FPL to be living in poverty.
    We disagree with the commenter's suggestion that our statistical 
analysis was done in an arbitrary manner. As we stated in the IDR NPRM, 
we focused on two measures as proxies for material hardship: food 
insecurity and being behind on utility bills.\61\ These two measures 
are commonly used in social science to represent material hardship. As 
we stated in the IDR NPRM, we regressed these measures of material 
hardship on a constant term and a series of indicators corresponding to 
categories of family income relative to the FPL.
---------------------------------------------------------------------------

    \61\ This is not intended to suggest that individuals who do not 
report these two measures are not experiencing material hardship.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter noted that the annual update of the HHS 
Poverty Guidelines was released after the IDR NPRM was published and 
suggested that the Department rely on the most recent data available 
because the change in the HHS Poverty Guidelines is significant enough 
to potentially alter some of the conclusions in the IDR NPRM.
    Discussion: We do not believe the inflation-based updates to the 
FPL since the IDR NPRM was published materially change our analyses. 
For one, some of the analyses conducted were already using earlier 
years of data to reflect the best available sample data present. For 
instance, the analyses for the 225 percent threshold used data from the

[[Page 43843]]

2020 SIPP. The analysis used to determinate the reduction of payment 
amounts on undergraduate loans to 5 percent of discretionary income was 
based upon figures from the 2015-16 National Postsecondary Student Aid 
Study. The analysis of the threshold for when low-balance borrowers 
should receive earlier forgiveness was based upon 5-year estimates from 
the 2019 American Community Survey. As discussed in the NPRM, we 
proposed that borrowers should repay for an additional 12 months for 
every $1,000 in principal balance above $12,000 because such a 
structure means the income above which a borrower would cease 
benefiting from the shortened forgiveness option is roughly consistent 
across all shortened repayment lengths. This goal of a consistent 
maximum earnings threshold for shortened forgiveness would not be 
affected by changes in the FPL.
    The biggest effect of the change in the FPL would be to alter what 
was Table 4 in the IDR NPRM that showed the effect of the FPL increase. 
That table is recreated here using updated numbers. For a single-person 
household, the change in FPL from 2022 to 2023 results in additional 
savings of $9 a month if payments are assessed at 5 percent of 
discretionary income and $19 if payments are assessed at 10 percent of 
discretionary income. For a four-person household, those numbers are 
$21 and $42 a month, respectively.

     Table 1--Maximum Monthly Payment Savings at Different Levels of Income Protection, 2023 Federal Poverty
                                                Guidelines (FPL)
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Household Size                                                                 One
                                                                              Four
----------------------------------------------------------------------------------------------------------------
Payment as Percent of Discretionary Income..........................          5         10          5         10
150% FPL (Current REPAYE regulations)...............................        $91       $182       $188       $375
225% FPL (Final REPAYE regulations).................................       $137       $273       $281       $563
Final REPAYE minus Current REPAYE...................................        $46        $91        $94       $188
----------------------------------------------------------------------------------------------------------------
Note: The 2023 Federal Poverty Guideline is $14,580 for a single household and $30,000 for a house of four.

    The IDR NPRM also included some discussion of the implied hourly 
wage for someone who earns 150 percent or 225 percent of FPL on an 
annual basis. Under the 2023 FPL baseline for the 48 contiguous states 
and the District of Columbia, that amount is $10.94 an hour instead of 
$10.19 an hour using the 2022 guidelines for someone whose earnings are 
equivalent to 150 percent of FPL for a single household and $16.40 an 
hour instead of $15.29 an hour at 225 percent of FPL.\62\ These figures 
assume working 2,000 hours a year.
---------------------------------------------------------------------------

    \62\ For Alaska, the implied hourly wage for someone who earns 
150 percent of FPL in 2022 and 2023 is $12.74 and $13.66, 
respectively. For Hawaii, the implied hourly wage for someone who 
earns 150 percent of FPL in 2022 and 2023 is $11.73 and $12.58, 
respectively.
---------------------------------------------------------------------------

    The change in FPL also does not materially affect the Department's 
analysis of how 150 percent of FPL compares to State minimum wages. In 
the IDR NPRM we noted that a threshold of 150 percent of FPL for a 
single individual is an implied annual wage that is below the minimum 
wage in 22 States plus the District of Columbia.\63\ Those 22 States 
plus DC represent 50 percent of individuals nationally with at least 
some college.\64\
---------------------------------------------------------------------------

    \63\ The analysis uses the federal minimum wage in states where 
minimum wages are lower than the federal minimum wage or with no 
minimum wage law. For Nevada, the analysis uses the minimum wage if 
qualifying health insurance is not offered by the employer. Based on 
minimum wages as of January 1, 2023 https://www.dol.gov/agencies/whd/state/minimum-wage/history.
    \64\ Based on the American Community Survey 2021 5-year 
estimates https://data.census.gov/
table?q=education&g=010XX00US$0400000&tid=ACSST5Y2021.S1501&tp=true.
---------------------------------------------------------------------------

    While the FPL has increased, so have several State minimum wages in 
the interim, though not always at the same magnitude as the FPL 
increase. Using 2023 FPL and minimum wage laws, 20 States, plus the 
District of Columbia, still have minimum wages that are above the 
implied hourly wage at 150 percent of FPL.\65\ The change in the data 
is the inclusion of Florida as a state whose 2023 minimum wage exceeds 
the implied hourly rate at 150 percent of FPL, whereas Hawaii, 
Minnesota, and Nevada no longer have minimum wages that exceed the 
implied hourly rate at 150 percent of FPL. Because of differences in 
the number of individuals with at least some college across States, the 
net result is that using the 2023 FPL and minimum wages shows that 
about 53 percent of adults with some colleges are in States where the 
minimum wage is at or just above the implied hourly wage at 150 percent 
of FPL. As noted above, the equivalent figure for 2022 is 50 percent. 
The update therefore does not materially change any of the analyses 
provided in the IDR NPRM.
---------------------------------------------------------------------------

    \65\ www.dol.gov/agencies/whd/minimum-wage/state.
---------------------------------------------------------------------------

    Changes: None.

Other Issues Pertaining to Income Protection Threshold

    Comments: Some commenters suggested calculating discretionary 
income based on the borrower's net income rather than pre-tax gross 
income. The commenter further stated that payment amounts should be 
capped at no more than 10 percent of net discretionary income instead 
of a borrower's gross pay. This approach would base the payment 
percentage on the borrower's net take-home pay available for their 
expenses.
    Discussion: We disagree with the commenters' suggestion to 
calculate the discretionary income based on the borrower's net income. 
Net income varies based on a variety of withholdings and deductions, 
some of which are elective. The definition of ``income'' in Sec.  
685.209(e)(1) provides a standardized definition that we use for IDR 
plans. The borrower's income less any income protection threshold 
amount is the most uniform and operationally viable method the 
Department could craft to consider a borrower's discretionary income 
for calculating a payment amount. The FPL is a widely accepted method 
to assess a family's income, and we believe that using 225 percent of 
the FPL to allocate for basic needs when determining an affordable 
payment amount for borrowers in an IDR plan is a reasonable approach. 
Our regulations still provide that a borrower may submit alternative 
documentation of income or family size if they otherwise meet the 
requirements in Sec.  685.209(l).
    Changes: None.
    Comments: Several commenters recommended that we extend the 
increase in the percentage of discretionary income protected to all IDR 
plans, not just REPAYE.
    Discussion: Under this final rule, student borrowers not already on 
an IDR plan will have two IDR plans from which to choose in the 
future--REPAYE and IBR. The HEA outlines the terms for the IBR plan 
that the commenters are

[[Page 43844]]

asking to alter. Specifically, section 493C(a)(3)(B) of the HEA sets 
the amount of income protected under IBR at 150 percent of the poverty 
line applicable to the borrower's family size. We cannot make the 
suggested changes to IBR via regulatory action. Accordingly, we do not 
think it would be appropriate to modify the percentage on PAYE. As 
explained in the section on borrower eligibility for IDR plans, we do 
not think it would be appropriate to change the threshold for ICR.
    Changes: None.
    Comment: One commenter argued that the proposal to use FPL violated 
the requirements outlined in Section 654 of the Treasury and Government 
Appropriations Act of 1999 that requires Federal agencies to conduct a 
family policymaking assessment before implementing policies that may 
affect family well-being and to assess such actions related to 
specified criteria.
    With respect to our IDR proposals, a few commenters said that using 
FPL disadvantages married couples relative to single individuals 
because the amount of income protected for a two-person household is 
not double what it is for a single person household. They suggested 
instead setting the threshold at 152 percent of FPL for a single 
individual.
    Discussion: The Department disagrees with the commenter's 
assessment of the applicability of section 654 of the Treasury and 
Government Appropriations Act of 1999 to this regulation. This 
regulation does not impose requirements on States or families, nor will 
it adversely affect family well-being as defined in the cited statutory 
provision. A Federal student loan borrower signed an MPN indicating 
their promise to repay. The Department does not require student loan 
borrowers to use the REPAYE plan. Instead, borrowers choose the plan 
under which they will repay their student loan.
    Using FPL to establish eligibility or out-of-pocket payment amounts 
for Federal benefit programs is a commonly used practice. Moreover, the 
Department's use of the FPL focuses on the number of individuals in the 
household, not the composition of it.
    In response to the comment regarding the alleged disadvantage for 
married borrowers, the Department notes that the one possible element 
that might have discouraged married borrowers from participating in the 
REPAYE plan was the requirement that married borrowers filing their tax 
returns separately include their spousal income. We have removed that 
provision by amending the REPAYE plan definition of ``adjusted gross 
income'' and aligning it with the definition of ``income'' for the 
PAYE, IBR, and ICR plans. This change required us to redefine ``family 
size'' for all plans in a way that would no longer include the spouse 
unless the borrower filed their Federal tax returns under the married 
filing jointly category. We no longer allow a borrower to include the 
spouse in the family size when the borrower knowingly excludes the 
spouse's income. Otherwise, we do not agree that further changes are 
needed to equalize the treatment of single and married borrowers.
    Changes: None.
    Comments: Some commenters argued that the FPL that is used to set 
the income protection threshold is flawed because the FPL is based 
exclusively on food costs and therefore excludes important costs that 
families face, such as childcare and medical expenses. As a result, the 
resulting FPLs are far too low and the threshold we use in our 
regulation would need to increase to meet basic needs.
    Discussion: We discuss our justification for setting the income 
protection threshold at 225 percent of the FPL elsewhere in this rule. 
We disagree that our use of the FPL is a flawed approach. The FPL is a 
widely accepted method used to assess a family's income. Moreover, 
setting FPL at a threshold higher than 100 percent allows us to capture 
other costs. We believe that using 225 percent of the FPL to allocate 
for basic needs when determining an affordable payment amount for 
borrowers in an IDR plan is a reasonable approach. While borrowers may 
have various financial obligations, such as childcare and medical 
expenses, the FPL is a consistent measure to protect income and treat 
similarly situated borrowers fairly in repayment. Excluding income from 
the IDR payment calculation in a standard way will equalize treatment 
of borrowers. Furthermore, the Department has consistently used the FPL 
as a component in determining a borrower's income under an IDR plan 
since the introduction of the first IDR plan.\66\
---------------------------------------------------------------------------

    \66\ See 59 FR 61664. In the initial ICR plan (see 59 FR 34279), 
the family size adjustment was a mere $7 per dependent for up to 
five dependents.
---------------------------------------------------------------------------

    Changes: None.

Payment Amounts (Sec.  685.209(f)(1)(ii) and (iii))

General Support

    Comments: Many commenters strongly supported the proposed REPAYE 
provision that would decrease the amount of discretionary income paid 
toward student loans to 5 percent for a borrower's outstanding loans 
taken out for undergraduate study. Several commenters supported our 
proposal to limit the discretionary income percentage of 5 percent to 
only undergraduate loans to avoid expensive windfalls to those with 
high-income potential, namely graduate borrowers.
    Discussion: We thank the commenters for their support.
    Changes: None.

General Opposition

    Comment: Several commenters stated that setting payments at 5 
percent of discretionary income is far lower than rates in the United 
Kingdom and New Zealand, which are 9 and 12 percent, respectively.
    Discussion: The Department thinks that considering the share of 
income that goes toward student loan payments is an insufficient way to 
consider cross-country comparisons. Different countries provide 
differing levels of support for meeting basic expenses related to food 
and housing. They also have different cost bases. Housing in one 
country might be more or less affordable than another. Relative incomes 
and national wealth might vary as well. As such, comparing the relative 
merits of the different student loan repayment structures is not as 
straightforward as simply comparing the share of income devoted to 
payments.
    International comparisons would also require reckoning with 
differences in the prices charged for postsecondary education, which 
types of educations or institutions a borrower is able to obtain a loan 
for, and other similar considerations that are more complicated than 
solely looking at the back-end repayment terms. The commenters, 
however, did not provide any such analysis with their statements.
    In the IDR NPRM and in this final rule we looked to data and 
information about the situation for student loan borrowers in the 
United States and we believe that is the proper source for making the 
most relevant and best-informed determinations about how to structure 
the changes to REPAYE in this rule.
    Changes: None.
    Comments: One commenter noted that they believe statutory 
provisions set the share of income owed on loans under the IDR plans as 
follows: 20 percent for ICR, 15 percent for IBR, and 10 percent for New 
IBR. The commenter points out that when the Department regulated on 
PAYE and REPAYE, we used the Congressionally-approved 10 percent 
threshold. The commenter argues that Congress has clearly established 
various thresholds and our previous regulatory provisions have 
respected that. The commenter states

[[Page 43845]]

that there should be a good reason for choosing the 5 percent 
threshold.
    Discussion: Contrary to what the commenter asserted, Section 
455(d)(1)(D) of the HEA does not prescribe a minimum threshold of what 
share of a borrower's income must be devoted toward payments under an 
ICR plan. Congress left that choice to the Secretary. And, in the past 
the Department has chosen to set that threshold at 20 percent of 
discretionary income and then 10 percent of discretionary income. We 
note that the Department promulgated the original REPAYE regulations in 
response to a June 9, 2014, Presidential Memorandum \67\ to the 
Secretaries of Education and the Treasury that specifically noted that 
Direct Loan borrowers' Federal student loan payment should be set at 10 
percent of income and to target struggling borrowers.\68\ As we 
explained in the IDR NPRM, and further explain below, we decided to set 
payments at 5 percent of discretionary income for loans obtained by the 
borrower for their undergraduate study as a way to better equalize the 
benefits of IDR plans between undergraduate and graduate borrowers. In 
general, the Department is concerned that there are large numbers of 
undergraduate borrowers who would benefit from IDR plans but are not 
using these plans. Instead, they are facing unacceptably high rates of 
delinquency and default. By contrast, data show that graduate borrowers 
are currently using IDR plans at significantly higher rates. While the 
Department cannot know the specific reason why graduate borrowers are 
selecting IDR plans at greater rates than undergraduate borrowers, 
graduate borrowers' relatively higher loan balances mean that these 
individuals derive greater monthly savings from choosing an existing 
IDR plan than an otherwise identical undergraduate borrower with the 
same household size and income. As such, the Department seeks to better 
equalize the savings between undergraduate and graduate loans, with the 
goal that such increased savings for undergraduates will encourage more 
borrowers to use these plans and, consequently, avoid delinquency and 
default. As discussed in the IDR NPRM, setting payments at 5 percent of 
discretionary income for a borrower's undergraduate loans is the lowest 
integer percent where a typical undergraduate-only borrower and a 
typical graduate-only borrower with the same household size and income 
would have similar monthly payment savings.\69\
---------------------------------------------------------------------------

    \67\ See 79 FR 33843.
    \68\ See 80 FR 67225.
    \69\ 88 FR 1902-1905.
---------------------------------------------------------------------------

    Changes: None.

Treatment of Loans for Graduate Education

    Comments: Many commenters suggested that borrowers should also pay 
5 percent, rather than 10 percent, of their discretionary income on 
loans obtained for graduate study. They said requiring borrowers to pay 
10 percent of their discretionary income on those loans runs contrary 
to the goals of the REPAYE plan and may place a substantial financial 
burden on these borrowers. Many commenters further suggested that we 
consider that many graduate borrowers are often older than their 
undergraduate counterparts, are heads-of-households with dependent 
children, have caregiving responsibilities, and are closer to 
retirement. Moreover, many commenters expressed their concern that this 
disparate treatment of graduate borrowers from undergraduate borrowers 
could have financial consequences on borrowers' ability to purchase 
homes, start businesses, care for their families, and save for 
retirement. One commenter stated that treating graduate borrowers 
differently could make them more likely to take out private loans.
    Discussion: We acknowledge the demographics among graduate student 
borrowers. However, we do not agree that a payment of 5 percent of 
discretionary income should apply to all borrowers.
    As we discussed in the IDR NPRM, we are concerned that the lack of 
strict loan limits for graduate student loans and the resulting higher 
loan balances means that there is a significant imbalance between 
otherwise similarly situated borrowers who only have debt for 
undergraduate studies versus only having debt for graduate studies. 
Moreover, in this final rule we are working to improve the REPAYE plan 
to significantly reduce the number of borrowers who face delinquency 
and default. As we noted in the IDR NPRM, 90 percent of borrowers in 
default exclusively borrowed for undergraduate study compared to just 1 
percent who exclusively borrowed for graduate study.
    The Department believes that allowing loans obtained for graduate 
study to be repaid at 5 percent of discretionary income would come at a 
significant additional cost while failing to advance our efforts to 
meet the goals of this rulemaking, including reducing delinquency and 
default. We believe that the solution included in the IDR NPRM and 
adopted in this final rule for graduate loans is a more effective 
manner of achieving the Department's goal of providing borrowers access 
to affordable loan payments. A borrower who has both undergraduate and 
graduate loans will still see a reduction in the share of their 
discretionary income that goes toward loan payments and the treatment 
of loans for undergraduate study will be consistent across borrowers. 
Moreover, all student borrowers will also receive other benefits from 
the changes to REPAYE, including the protection of more income and the 
interest benefit. We do not believe the difference in the treatment of 
loans obtained for undergraduate and graduate study will make graduate 
borrowers more likely to take out private loans because the benefits 
offered by our new plan are more generous than the current IDR options, 
and likely more generous than the terms of private student loans.
    Changes: None.
    Comments: Several commenters claimed that not providing graduate 
borrowers the same discretionary income benefit as undergraduate 
borrowers disproportionately places an undue burden on Black students 
and other students of color. Another commenter argued that having 
different payment percentages for undergraduate and graduate students 
is unjustifiable and is likely to disproportionately harm Black and 
Latino borrowers, as well as women of color. Several commenters stated 
that requiring graduate borrowers to pay more creates an equity issue. 
They further cited data showing that of Black students rely on 
financial aid for graduate school at a higher rate than White students. 
Moreover, the commenters explain that Black students must also earn a 
credential beyond a bachelor's degree to receive pay similar to their 
White peers who only hold a bachelor's degree. Lastly, several 
commenters stated that the Department's choice to exclude graduate 
borrowers from the 5 percent discretionary income threshold is flawed 
and disregards the issue of repayment through racial and economic 
justice lenses.
    Discussion: Research has consistently showed that graduate 
borrowers with advanced degrees earn more than borrowers with just an 
undergraduate degree.\70\ Both graduate and undergraduate borrowers are 
subject to the same discretionary income

[[Page 43846]]

threshold of 225 percent FPL. However, borrowers with graduate debt 
will pay 10 percent of their income above this threshold if they only 
hold graduate debt and a percentage between 5 and 10 if they have both 
graduate and undergraduate debt (weighted by the relative proportion of 
their original principal balance on outstanding debt from undergraduate 
and graduate studies). As a result, graduate borrowers will still 
benefit from the new REPAYE plan by having a larger share of their 
income protected from payment calculations than they would under the 
current REPAYE plan. We therefore disagree with some of the commenters 
that graduate borrowers would face undue burdens under this final rule. 
We also reiterate that while the benefits of this rule are focused on 
undergraduate borrowers, there will still be some benefits for graduate 
borrowers as a result of the changes.
---------------------------------------------------------------------------

    \70\ nces.ed.gov/programs/coe/indicator/cba/annual-earnings.
---------------------------------------------------------------------------

    The Department projected total payments per dollar of student loan 
payments for future cohorts of borrowers using a model that includes 
relevant lifecycle factors that determine IDR payments (e.g., household 
size, the borrower's income, and spousal income when relevant) under 
the assumption of full participation in current REPAYE and the new 
REPAYE plan. The RIA discussion of the costs and benefits of the rule 
provides additional details on this model. The present discounted value 
of total payments per dollar borrowed was projected under current 
REPAYE and the new REPAYE plan for borrowers in different racial/ethnic 
groups and according to whether the borrower had completed a graduate 
degree or certificate. Table 2 contains these estimates, which 
illustrate how Black, Hispanic, and American Indian and Alaskan Native 
(AIAN) borrowers with a graduate degree are projected to see the 
largest decreases among borrowers with graduate degrees in payments per 
dollar borrowed under the new plan compared to all other categories of 
graduate completers. In conducting this analysis, the Department did 
not make any policy design choices specifically based upon an analysis 
of outcomes for different racial or ethnic groups.

   Table 2--Projected Present Discounted Value of Payments per Dollar Borrowed for Future Repayment Cohorts of Graduate Completers by Race/Ethnicity,
                                                             Assuming Full Take-Up of REPAYE
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               AIAN             API            Black         Hispanic          White        Other/Multi
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current REPAYE..........................................            1.24            1.28            1.24            1.26            1.27            1.25
Final rule REPAYE.......................................            1.07            1.15            1.02            1.13            1.16            1.15
Reduction...............................................            0.17            0.12            0.22            0.13            0.11            0.10
Percent reduction.......................................             14%             10%             18%             11%              8%              8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: AIAN = American Indian or Alaskan Native, API = Asian or Pacific Islander.

    The higher payment rate for borrowers with graduate debt is also 
justified based on differences in the borrowing limits for 
undergraduate and graduate borrowers. Graduate borrowers have higher 
loan limits through the Grad PLUS Loan Program and correspondingly, 
higher levels of student loan debt. We continue to believe it is 
important that borrowers with higher loan balances pay higher amounts 
over a longer period before receiving forgiveness. Finally, we disagree 
with the commenters that excluding graduate borrowers from the 5 
percent discretionary income amount is flawed, as we explained our 
rationale for the higher discretionary income amount for graduate 
borrowers in the IDR NPRM. We believe that the analysis shown above, as 
well as what was included in the IDR NPRM and the RIA of this final 
rule show that the Department carefully considered the economic effects 
of the rule as appropriate.
    Changes: None.
    Comments: Many commenters emphasized that most States require a 
graduate or professional degree to obtain certification or licensure as 
a social worker, clinical psychologist, or school counselor. These 
commenters believed that, given such a requirement, borrowers working 
in these professions should be eligible to receive the same REPAYE plan 
benefits as undergraduate borrowers.
    One commenter stated that, while some borrowers with graduate 
degrees will eventually become wealthy, many graduate-level borrowers 
will be in a low- to middle-income bracket, such as those seeking 
employment or who are employed in the field of social work. The 
commenter went on to explain that, even though teachers and social 
workers earn approximately the same salary, social workers will be 
penalized because they will have to pay a higher share of their income 
for a longer period of time due to their need to borrow more in 
graduate loans.
    Discussion: We decline to make the changes requested by the 
commenters. It is true that many teachers and social workers attain 
graduate degrees as part of their education; according to data from the 
National Center for Educational Statistics, over 50 percent of public 
school teachers from 2017-2018 held a graduate degree.\71\ And as of 
2015, 45 percent of social workers held a graduate degree.\72\ But 
teachers and social workers are also often eligible for other student 
loan forgiveness programs, such as PSLF, which shortens the repayment 
window to ten years for those who work consistently in the public or 
non-profit sector. Other programs include Teacher Loan Forgiveness for 
those who serve at least five years as a full-time teacher in an 
eligible low-income school. As the commenter acknowledges in the first 
part of their comment, many borrowers with graduate degrees will earn 
high incomes. For that reason, setting payments at 5 percent of 
discretionary income for graduate loans would raise concerns about 
targeting these repayment benefits to the borrowers needing the most 
assistance.
---------------------------------------------------------------------------

    \71\ nces.ed.gov/surveys/ntps/tables/ntps1718_fltable04_t1s.asp.
    \72\ Salsberg, Edward, Leo Quigley, Nicholas Mehford, Kimberly 
Acquaviva, Karen Wyche, and Shari Sliwa. 2017. Profile of the Social 
Work workforce. George Washington University Health Workforce 
Institute and School of Nursing. www.socialworkers.org/LinkClick.aspx?fileticket=wCttjrHq0gE%3D&portalid=0.
---------------------------------------------------------------------------

    Changes: None.
    Comment: One commenter stated that the Department's decision to 
calculate payments based on a weighted average between 5 percent and 10 
percent of discretionary income for borrowers with graduate and 
undergraduate loans introduces complexity that will be difficult for 
borrowers to understand and make it complicated for servicers to 
administer.
    Discussion: The weighted average for the share of discretionary 
income a borrower will pay on their loans will be automatically 
calculated by the Department and will be a seamless process for 
borrowers and servicers. The

[[Page 43847]]

Department will provide a plain language explanation of the way of 
calculating payments on StudentAid.gov. Borrowers may visit 
StudentAid.gov or contact their loan servicer for additional details of 
their loan payments. Moreover, we believe that this added work to 
explain the provision to borrowers is more cost effective than the 
alternative proposal to simply provide significant payment reductions 
on graduate loans.
    Changes: None.
    Comments: One commenter asserted that if we intended to discourage 
future borrowers from taking out graduate loans if they cannot afford 
them, we should simply state that. This commenter urged us to 
prospectively apply the provision of 10 percent of discretionary income 
only to new graduate borrowers as of 2023.
    Discussion: The Department does not agree with the commenter's 
characterization of our discretionary income provision. Our rule is not 
intended to encourage or discourage borrowing or to alter the 
borrower's choice to attend graduate school or take out a loan. We 
believe the discretionary income percentage for IDR plans will target 
borrowers who need the assistance the most. As we stated in the IDR 
NPRM, the Department is not concerned that keeping the rate at 10 
percent for graduate loans would incentivize graduate students to 
overborrow as the current 10 percent repayment rate is already in 
current IDR plans.
    We also disagree that we should provide existing graduate borrowers 
with payments at 5 percent of income and only apply the weighted 
average approach to new graduate borrowers as of 2023. We do not think 
that the cost of providing the lower payments for graduate loans taken 
out before 2023 would justify the significant added costs that would 
come from such a change and we do not think there is a reasoned basis 
to provide payments of different levels solely based upon when a 
borrower obtained a loan.
    Changes: None.

Treatment of Parent PLUS Borrowers

    Comments: Many commenters expressed concern for parent PLUS 
borrowers. Many commenters argued that if the requirement to make 
payments of 5 percent discretionary income is designed to apply to 
undergraduate study, then parent PLUS loans--which are used only for 
undergraduate studies--should receive the same benefits and treatment 
as undergraduate borrowers. A few other commenters further suggested 
that the Department did not offer parent PLUS loan borrowers a safety 
net to protect them when they could not afford repayment because these 
borrowers do not have the opportunity to benefit from the new REPAYE 
plan.
    Several commenters, however, expressed strong support for excluding 
parent PLUS loans for dependent undergraduates from the 5 percent of 
discretionary income standard.
    Discussion: The Department disagrees with the suggestion that 
Parent PLUS loans should be eligible for this plan on the basis that 
the student for whom the loan was obtained was an undergraduate 
student. As discussed elsewhere in this preamble, the HEA prohibits 
parent PLUS loans from being repaid under any IDR plan. We decline to 
allow a Direct Consolidation Loan that repaid a parent PLUS loan to 
access REPAYE for reasons also discussed earlier in this preamble. The 
Department understands that the phrasing of Sec.  685.209(f)(1)(ii) in 
the IDR NPRM may have created confusion that generated comments like 
the one discussed here because it only discussed payments on loans 
obtained for undergraduate study. We have clarified the regulation to 
make it clear that the 5 percent of discretionary income standard will 
be available only on loans obtained for the borrower's own 
undergraduate study.
    Changes: We have revised Sec.  685.209(f)(1)(ii) to clarify that we 
refer to loans obtained for the borrower's undergraduate study.
    Comments: None.
    Discussion: In modeling the treatment of the reduction in payments 
on undergraduate loans, the Department noted that some loans in our 
data systems do not have an assigned academic level. These are commonly 
consolidation loans and may include ones where a borrower has 
consolidated multiple times. The Department is concerned that the 
language in the NPRM did not provide sufficient clarity about how loans 
in such a situation would be treated. Accordingly, we are revising 
Sec.  685.209(f)(1)(iii) to indicate that any loan not taken out for a 
borrower's undergraduate education will be assigned payments equal to 
10 percent of discretionary income. This broader framing will clarify 
how either a loan for a borrower's graduate study or one with an 
unknown academic level will be treated. A borrower who believes their 
loan was in fact obtained for their undergraduate education and should 
not be treated as subject to the 10 percent calculation will be able to 
file a complaint with the Department's Student Loan Ombudsman. The 
Ombudsman's office will review the complaint and work with the borrower 
on next steps.
    Changes: We have revised Sec.  685.209(f)(1)(iii) to note that 
repayment on all loans not captured in Sec.  685.209(f)(1)(ii) is 
calculated at 10 percent of discretionary income.

Alternative Payment Structures

    Comments: Several commenters argued that the Department should 
adopt a progressive formula to determine the percentage of 
discretionary income required to go toward payments instead of a single 
flat one. These proposals included ideas like offering a bracket of 5 
percent payments for low-income borrowers, a bracket of 10 percent 
payments on moderate incomes, and a bracket at 15 percent for borrowers 
with higher incomes. As income rises, the commenter explained, the 
borrower would pay a higher marginal payment rate.
    These commenters wrote that the graduated rates would benefit all 
borrowers, including higher-income borrowers, by targeting these 
repayment rate structures to the borrowers needing the most assistance 
which could be counteracted with a higher marginal payment rate for 
those most able to pay.
    Alternatively, one commenter specifically suggested that we could 
apply the payment rate of 5 percent of discretionary income to those 
with a discretionary income of 150 to 225 percent of the FPL and 10 
percent for those whose discretionary income is above 225 percent of 
the FPL. The commenter compared this marginal rate structure proposal 
to the progressive income tax.
    Discussion: The Department declines to adopt the more complicated 
bracket structures suggested by the commenters. We are concerned that 
doing so would undercut several of the goals of this final rule. This 
approach could not be combined with our intent to maintain that 
undergraduate loans get a greater focus than graduate loans so that we 
can address concerns about default and delinquency. Varying the share 
of discretionary income that goes toward payments by both income and 
undergraduate loan status would be complicated and challenging to 
explain. We think the weighted average structure better addresses our 
goals and is simpler to convey to borrowers.
    Changes: None.
    Comments: Some commenters argued that the Department should 
increase the amount of income protected and then set payments at 10 
percent of discretionary income for all borrowers.

[[Page 43848]]

They said such a rule would be more targeted and simpler.
    Discussion: We discuss income protection, including the appropriate 
threshold using the FPL as a unit, under the ``Income Protection 
Threshold'' section in this document. As discussed, we do not think 
there is a compelling rationale for providing a higher amount of income 
protection. As discussed earlier and in the IDR NPRM, we think that 
loans taken out for a borrower's undergraduate study should be repaid 
at 5 percent of discretionary income. We believe this change will help 
prevent default and target the benefit at the group that includes the 
overwhelming majority of defaulters. Moreover, we reiterate our 
rationale for the differential payment amount thresholds for 
undergraduate and graduate loans and how the 225 percent FPL income 
protection threshold interacts with a borrower's payment in the IDR 
NPRM.
    Changes: None.
    Comments: Some commenters argued that borrowers who have 
undergraduate and graduate loans should pay 7.5 percent of their 
discretionary income as that would be simpler to establish and 
communicate. They also argued that otherwise, borrowers have an 
incentive to not pay off their undergraduate loans so they can use them 
to reduce their payment amount.
    Discussion: We are concerned that setting payments at 7.5 percent 
of discretionary income for graduate loans would result in additional 
spending on benefits that are not aligned with our goals of preventing 
default and delinquency. A 7.5 percent payment amount also implies that 
borrowers have equal splits of undergraduate and graduate debt, which 
is not as likely to occur and might result in lower payments for 
graduate borrowers than would occur under our final rule. We do not 
believe the added cost that would come from such a change is necessary 
to achieve the Department's goals of averting default and making it 
easier to navigate repayment.
    We disagree with the concerns raised by the commenter about whether 
borrowers would have an incentive to not pay off their undergraduate 
loans. Whether a borrower chooses to prepay their loan or not is always 
up to them. For scheduled payments, the borrower must pay the amount 
that is required by their repayment plan. If they pay less than that 
amount in order to avoid paying off their balance, they would become 
delinquent and possibly default. If they pause their payments, they 
would see interest accumulate (except for subsidized loans on a 
deferment), which could result in them paying more over time.
    Changes: None.
    Comments: One commenter suggested that instead of using a 
percentage of discretionary income, we should revise our IDR formulas 
to express the payment as a percentage of total income, with no payment 
due for borrowers who earn less than $30,000 a year. In the commenter's 
example, a borrower who earns $30,000 or more per year would have a 
monthly payment of 5 percent of their total income.
    Discussion: This proposed change would introduce significant 
operational complexity and challenges. We expect that our approach for 
determining the amount of discretionary income to go to loan payments 
based on the type of loan that the borrower has, will achieve our 
intended purpose: to allow borrowers to make an affordable loan payment 
based on their income that we can easily administer. A borrower with 
only undergraduate loans would already have a 5 percent loan payment as 
the commenter suggests and we believe that a monthly payment amount of 
5 percent of the discretionary income best assures that REPAYE assists 
the neediest borrowers.
    Changes: None.

Methodological Concerns

    Comments: One commenter argued that the Department's reasoning for 
proposing that undergraduate loans be repaid at 5 percent of 
discretionary income was arbitrary and could be used to justify any 
threshold. The commenter said none of the reasons articulated pointed 
to 5 percent as an appropriate number. The commenter provided no detail 
as to why they reached those conclusions.
    Discussion: The Department disagrees with the commenter. We have 
explained our rationale for setting payments at 5 percent of 
discretionary income on undergraduate loans as providing better parity 
between undergraduate and graduate borrowers based upon typical debt 
levels between the two, with considerations added for rounding results 
to whole integers that are easier to understand. The commenter offered 
no substantive critiques of this approach.
    Changes: None.
    Comments: One commenter raised concerns that the Department's 
justification for choosing to set undergraduate loan payments at 5 
percent of discretionary income is based upon looking at equivalent 
benefits for undergraduate versus graduate borrowers. They said the 
Department never explained or justified why the Department's goal 
should be to maintain parity in benefits between the two populations, 
noting their differences in income and debt.
    Relatedly, the commenter said the Department did not explain why 
the goal should be for undergraduate borrowers to have equivalence with 
graduate borrowers rather than the other way around. They argued that 
since there are more undergraduate borrowers than graduate borrowers, 
the Department should try to seek parity with undergraduate borrowers 
if they could provide rational explanations that justify the approach.
    The commenter also said that the Department's analysis included an 
assumption to choose different payment levels which relied on the same 
income levels for undergraduate and graduate borrowers. The commenter 
argued that a more likely scenario was that an undergraduate borrower 
would have lower earnings than a graduate borrower.
    A different commenter made similar arguments, asking why the 
Department chose to conduct its analysis by using the debt for a 
graduate borrower as the baseline instead of the debt of an 
undergraduate borrower. The commenter noted that we could have changed 
the parameters of graduate debt to match that of undergraduates.
    Discussion: The commenters seem to have misunderstood the 
Department's analysis and goals. One of the Department's major concerns 
in developing this rule is that despite the presence of IDR plans, more 
than 1 million borrowers defaulted on their loans each year prior to 
the pause on loan repayment due to the COVID-19 pandemic. And almost 
all of these borrowers are individuals who only borrowed for their 
undergraduate education. As further noted in the IDR NPRM, 90 percent 
of the borrowers in default only borrowed for undergraduate education.
    Additionally, the Department's administrative data shows that only 
28 percent of recent cohorts of undergraduate borrowers were using an 
IDR plan before the payment pause, despite earlier findings from 
Treasury that 70 percent of borrowers in default would have benefited 
from a reduced payment in IDR.\73\ The Department is concerned that the 
rate at which undergraduate borrowers use IDR is far below the optimal 
levels necessary to achieve the goals of reducing

[[Page 43849]]

delinquency and default. While the Department lacks income and 
household size data on all borrowers to know the correct share of 
undergraduate borrowers that would benefit from being on IDR, that 
number is unquestionably higher than the share of borrowers in IDR 
today.
---------------------------------------------------------------------------

    \73\ 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.
---------------------------------------------------------------------------

    Because delinquent and defaulted borrowers were not enrolling in 
the IDR plans at the rate we expected, the Department considered 
changes to REPAYE that would make the borrowers at greatest risk of 
default more likely to enroll in and stay enrolled in these plans. 
Given that we have been relatively successful at enrolling graduate 
borrowers into these plans, we considered how to best achieve something 
approaching parity in the benefits accrued through IDR between 
borrowers with undergraduate debt as compared to borrowers with 
graduate debt at the same salary. This analysis highlights an inequity 
in the current IDR plans--if you take two borrowers with identical 
income and family size, the one who borrowed at the typical 
undergraduate level will benefit less.
    Changes: None.
    Comments: Some commenters took exception to the Department's 
methodological justification for lowering payments only on 
undergraduate loans to 5 percent of discretionary income and believed 
it should have resulted in setting payments on graduate loans at 5 
percent as well. One commenter mentioned that the President campaigned 
on the basis that 5 percent of discretionary income would be afforded 
to all borrowers under IDR plans thereby dismissing our rationale for 
the discretionary income in the IDR NPRM as pretextual. They said that 
the Department should not have assumed that the undergraduate and 
graduate borrowers have equivalent incomes. They argued that failing to 
grasp this meant that the Department did not capture that graduate 
borrowers with higher earnings will pay more even if the method of 
calculating payments is the same across all types of borrowers.
    A different commenter objected to the idea that an undergraduate 
borrower and a graduate borrower with the same incomes should be 
treated differently. This commenter argued that if a graduate borrower 
and an undergraduate borrower have the same incomes it could be a sign 
of struggle for the former given that graduate degrees generally result 
in higher incomes.
    Finally, the commenter objected that the Department has prioritized 
reducing undergraduate defaults rather than seeking to bring default 
for all borrowers to zero.
    Discussion: We affirm our decision as outlined in the IDR NPRM \74\ 
to lower payments only on undergraduate loans to 5 percent of 
discretionary income. The Department is committed to taking actions to 
make student loans more affordable for undergraduate borrowers, the 
individuals who are at the greatest risk of default and who are not 
using the existing IDR plans at the same frequency as their peers who 
attended graduate school. In accomplishing this goal, the Department 
looked for a way to provide greater parity between the benefits of IDR 
for a typical undergraduate borrower with a typical graduate borrower. 
Historically, graduate borrowers have been more likely to make use of 
IDR than undergraduate borrowers, suggesting that the economic benefits 
provided to them under existing IDR plans help in driving their 
enrollment in IDR. Accordingly, using benefits provided to graduate 
borrowers as a baseline is a reasonable approach to trying to get more 
undergraduate borrowers to enroll in IDR as well. As noted in the NPRM, 
the Department found that at 5 percent of discretionary income, a 
typical undergraduate borrower would see similar savings as a typical 
graduate borrower. Therefore, the approach taken in the NPRM and this 
final rule provides greater parity and will assist the Department in 
its goal of getting more undergraduate borrowers to use these plans, 
driving down delinquency and default. Our experience with current IDR 
programs indicates that graduate borrowers are already willing to 
enroll in IDR at high rates even with payments set at 10 percent 
payment of discretionary income. As already discussed, we already see 
significant usage of the IDR plans by graduate borrowers. It is not 
evident to us that we need to take additional steps to encourage 
graduate borrowers to use IDR to lessen delinquency and default. In 
response to commenters' concern regarding our methodologies, we 
emphasize the inequities that could be created if undergraduate and 
graduate borrowers were treated similarly. For example, if graduate and 
undergraduate borrowers making same income were charged the same in 
monthly payments, the benefits would be substantially greater for 
graduate borrowers given their larger loan amounts. We provided an 
illustrative example of the potential benefits for graduate borrowers 
in the IDR NPRM, and we maintain that our reductions of the payment 
rate only for undergraduates is justified.
---------------------------------------------------------------------------

    \74\ See 88 FR 1902-1905.
---------------------------------------------------------------------------

    Regarding default, the Department agrees that eliminating all 
default is a laudable goal and points out that many of the provisions 
in this rule that would significantly reduce the likelihood of 
undergraduate default and delinquency would benefit graduate borrowers 
as well. This includes the higher income protection, the interest 
benefit, and automatic enrollment in IDR where possible, among other 
benefits. The fact remains that default rates are significantly higher 
among undergraduate borrowers, and they are significantly 
overrepresented among borrowers in default. We believe the final rule 
strikes the proper balance of making changes that will reduce rates of 
delinquency and default while still requiring the borrowers who are 
most able to make payments to do so.
    Changes: None.
    Comments: Commenters argued that the Department does not explain in 
the analysis that supported the proposed 5 percent threshold why it 
would be acceptable to produce an outcome in which borrowers with the 
same income and family size do not have the same payment amount. 
Similarly, some commenters argued that treating graduate loans 
differently meant that the plan was less based upon income than upon 
degree sought.
    Discussion: In the IDR NPRM, we explained why we proposed to set 
the 5 percent threshold for undergraduate borrowers. A key 
consideration in our proposal was to provide greater parity between an 
undergraduate borrower and a graduate borrower that are similarly 
financially situated. We do not want graduate borrowers to benefit more 
than borrowers with only undergraduate debt. We believe that creating 
this parity may make undergraduate borrowers more willing to enroll in 
an IDR plan, possibly at rates equal to or greater than graduate 
borrowers today. This is important because delinquency and default 
rates are significantly higher for undergraduate borrowers than they 
are for graduate borrowers.
    In response to the comment about how the proposed rule would treat 
borrowers who have the same income and same family size but loans from 
different program levels (undergraduate versus graduate), the 
Department is making distinctions between types of loans the same way 
the HEA already does. The HEA already mandates different interest rates 
and loan limits based upon whether a borrower is an undergraduate or 
graduate borrower. The approach in this final rule simply continues to 
acknowledge those distinctions for repayment. Moreover, as we noted in 
the preamble and reaffirm

[[Page 43850]]

here, failing to draw such a distinction could create inequities 
because a graduate borrower is likely to derive far greater economic 
benefits from the IDR plan than a similarly situated undergraduate 
borrower. Overall, we think this change will make the repayment options 
more equitable across two otherwise similar classes of borrowers.
    Changes: None.
    Comments: One commenter raised concerns that one of the 
Department's reasons for reducing payments to 5 percent of 
discretionary income for borrowers with undergraduate loans was a 
survey of just over 2,800 people. They said that is an insufficient 
basis for making regulatory changes of such a significant cost.
    Discussion: The commenters misconstrued our citation of the survey 
from the Pew Charitable Trust-Student Borrower's survey conducted by 
SSRS, a market research firm. In considering whether to reduce the 
payment amount, we considered information from multiple sources, 
including negotiated rulemaking participants and public commenters, 
focus groups,\75\ and data from the FSA Ombudsman. In these areas, 
borrowers consistently expressed concern with the amount of their loan 
payments. In the survey that we cited in the IDR NPRM, we illustrated 
external research that outlined specific problems that borrowers 
experienced while in an IDR plan. This data point was not meant to be 
read in isolation. The focus groups that we cited in the IDR NPRM and 
the data from the FSA Ombudsman \76\ further reflected the concerns of 
borrowers experiencing problems with their loan payments.
---------------------------------------------------------------------------

    \75\ FDR Group. Taking Out and Repaying Student Loans: A Report 
on Focus Groups with Struggling Student Loan Borrowers. (2015). 
www.static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf. 
See also, www.pewtrusts.org/-/.
    \76\ See FY2022 FSA Annual Report, Report of the Federal Student 
Aid Ombudsman, page 150. Studentaid.gov/sites/default/files/fy2022-fsa-annual-report.pdf.
---------------------------------------------------------------------------

    Therefore, we believe the need for and benefits of reducing the 
payments for undergraduate borrowers are grounded in sufficient data 
and sound reasoning.
    Changes: None.
    Comments: One commenter argued that the weighted average approach 
would result in an outcome where a borrower who took on more total debt 
would end up with a lower payment than someone who took on less debt. 
For example, a borrower who takes out $30,000 for undergraduate 
education and $60,000 for graduate school pays 8.3 percent of their 
discretionary income (one-third times 5 percent plus two-thirds times 
10 percent), while a borrower who takes out $10,000 for undergraduate 
education and $30,000 for graduate school pays 8.75 percent of their 
discretionary income (one-quarter times 5 percent plus three-quarters 
times 10 percent). The commenter suggested that it would be more 
equitable to vary the payments based upon the borrower's loan balance.
    Discussion: The commenter's suggested approach would introduce 
greater confusion for borrowers and be complex for the Department to 
administer given the differential loan limits for dependent and 
independent undergraduate students. Moreover, the result would be that 
an independent student could end up with a higher payment than their 
dependent undergraduate peer. Varying payments for undergraduates based 
upon their dependency status runs counter to the Department's goal of 
targeting the effects of the lowered payments on undergraduate 
borrowers so that there is better parity with graduate peers. The 
Department thinks this is important given the need to better use IDR as 
a tool to avert delinquency and default.
    The commenter is correct that one effect of this policy is that the 
more debt for their undergraduate education a borrower has relative to 
the debt for their graduate education, the lower the share of their 
discretionary income the borrower must commit to their loan payments. 
But the commenter fails to address two important considerations of this 
structure. First, this creates an incentive for borrowers to keep their 
borrowing for their graduate education lower, as adding more debt there 
will increase their payments. Second, while a borrower's total balance 
does not affect their monthly payment in this plan, it does affect how 
their payment is applied. Borrowers with higher loan balances will have 
to pay down more interest before payments are applied toward principal. 
This can mean that it takes them longer to pay off the loan or will 
keep them in repayment for the full 25 years until they get forgiveness 
on a graduate loan. As a result, it is not inherently beneficial for 
the borrower to take on more debt to achieve the outcomes described by 
the commenter.
    Changes: None.

Adjustments to Monthly Payment Amounts (Sec.  685.209(g))

    Comments: One commenter noted that the IDR NPRM omitted provisions 
that exist in current regulations regarding rounding monthly IDR 
payments up or down when the calculated amount is low.
    Discussion: We agree we should include the provisions treating the 
rounding of small monthly payments that currently exist in our 
regulations. We are revising the final rule to include Sec.  
685.209(a), (c), and Sec.  685.221(b) from the current regulations for 
the REPAYE, PAYE, and IBR plans. These provisions stipulate that, for 
the REPAYE, PAYE, and IBR, plans, if a borrower's calculated payment 
amount is less than $5, the monthly payment is $0 and, if a calculated 
payment is equal to or greater than $5 but less than $10, a borrower's 
monthly payment is $10. We are also revising the final rule to include 
Sec.  685.209(b) from current regulations, which stipulates that, for 
the ICR plan, if a borrower's calculated payment amount is greater than 
$0 but less than or equal to $5, the monthly payment is $5. We did not 
receive any comments that suggest we should change these provisions and 
have restored them without amending them.
    Changes: For the REPAYE, PAYE, and IBR plans we added Sec.  
685.209(g)(1) to allow for an adjustment to the borrower's calculated 
payment amount under certain circumstances. For the ICR plan, we added 
paragraph Sec.  685.209(g)(2) to allow for an adjustment to the 
borrower's calculated payment amount that if the borrower's calculated 
payment is greater than $0 but less than or equal to $5, the monthly 
payment is $5.
    Comment: One commenter stated that our proposals for the revised 
REPAYE plan do not contain a standard payment cap and that, for some 
borrowers, REPAYE would be inferior compared to the IBR or PAYE plans.
    Discussion: The commenter correctly points out--and we acknowledged 
in the IDR NPRM--that our new REPAYE plan does not contain a standard 
payment cap like those in the IBR and PAYE plans. Under both the IBR 
and PAYE plans, a borrower must have a calculated payment below what 
they would pay on the standard 10-year repayment plan to be eligible 
for that plan. Borrowers on this plan also see their payments capped at 
what they would owe on the standard 10-year repayment plan. By statute, 
borrowers on IBR whose calculated payment hits the standard 10-year 
repayment cap will see any outstanding interest capitalized.
    The Department adopts the decision reflected in the NPRM to not 
include a cap on payments in REPAYE. Such a cap can provide a 
significant benefit for higher-income borrowers and can result in these 
individuals receiving forgiveness instead of paying off their loan 
through higher monthly payments. Therefore, the lack of a cap provides 
a

[[Page 43851]]

way to better target the REPAYE benefits. Finally, we note that if a 
borrower is concerned about their payments going above what they would 
pay on the standard 10-year repayment plan, they are able to switch to 
another repayment plan options, but they might have to give up progress 
toward forgiveness in making such a choice.
    Changes: None.

Interest Benefits (Sec.  685.209(h))

    Comments: The Department received many comments in support of the 
proposed change to the REPAYE plan under which the Secretary will not 
apply accrued interest to a borrower's account if is not covered by the 
borrower's payments. Many commenters suggested that the Department use 
its regulatory authority to provide this benefit for borrowers making 
IBR payments while in default, or to all borrowers while they are in 
any of the IDR plans.
    Another commenter opined that the psychological impact of this 
treatment of accruing interest when borrowers repay their student loans 
would likely have a positive effect on default aversion.
    Discussion: We thank the commenters for their suggestions for 
applying accrued interest to a defaulted borrower's account while the 
borrower is on an IBR plan and for borrowers on any of the IDR plans. 
We do not believe it would be appropriate to change the treatment of 
unpaid monthly interest for all borrowers on any of the other IDR 
plans. The Department cannot alter the terms of the interest accrual 
for the IBR plan, which are spelled out in Sec. 493C(b) of the HEA. We 
also decline to make this change for the PAYE plan because one of the 
Department's goals in this final rule is to streamline the number of 
IDR options available to borrowers in the future. Were we to include 
this benefit on the PAYE plan it might encourage more borrowers to 
remain on the PAYE plan instead of shifting to REPAYE. That would work 
against the Department's simplification goals. We also decline to make 
this change for the ICR plan. As explained earlier, the Department 
views that plan as being the option for borrowers who have a 
consolidation loan that repaid a parent PLUS loan, and we are concerned 
about getting the balance of benefits for those borrowers right given 
the fundamentally different nature of parent versus student loans.
    Changes: None.
    Comments: Many commenters argued that the interest capitalization 
on Federal student loans creates the most significant financial 
hardship for the majority of borrowers. Several commenters stated that 
more borrowers would be inclined to pay their loans if the interest 
capitalization was eliminated. In addition, commenters stated that many 
students have been left feeling hopeless, defeated, and trapped due to 
the compound interest causing their loans to grow significantly larger 
than their initial principal. A few commenters mentioned that a waiver 
of unpaid monthly interest for borrowers with low earnings over the 
course of their career would help borrowers to avoid negative 
amortization.
    Discussion: The Department eliminated interest capitalization in 
instances where it is not statutorily required in the Final Rule 
published on November 1, 2022.\77\ We disagree that we need to provide 
a blanket waiver for unpaid monthly interest because we have already 
eliminated instances of interest capitalization where we have the 
discretion to do so.
---------------------------------------------------------------------------

    \77\ 87 FR 65904.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Commenters argued there was no compelling argument for 
waiving interest and stated that the IDR plans were designed to make 
payments more affordable while still collecting the necessary payments 
over time. These commenters further believed that our proposals would 
primarily benefit borrowers who have low earnings early in their 
careers but higher earnings later in their career.
    Several commenters urged us to allow interest to accrue normally 
during repayment, or at the very least, allow interest to accrue during 
temporary periods when borrowers earn low to no earnings, such as 
during certain deferments or forbearances. These commenters believed 
that our interest benefits proposal was costly, regressive, and 
illegal.
    Discussion: The Department declines to adopt the suggestions from 
commenters to change the treatment of unpaid monthly interest included 
in the proposed rule. Borrowers will still make payments based upon 
their income and their payment will still be applied to interest before 
touching principal. That preserves the possibility for borrowers to pay 
more in interest than they would on other repayment plans, as borrowers 
may continue to make interest-only payments, rather than touching their 
principal balance. However, this change will provide a few key benefits 
for borrowers. It will mean that borrowers will no longer see their 
outstanding amounts owed increasing even as they make their required 
monthly payments on REPAYE. Department data show that 70 percent of 
borrowers on IDR plans have payments that do not cover the full amount 
of their accumulating monthly interest. Apart from borrowers who only 
have subsidized loans and are in the first three years of repayment, 
these borrowers will see their balances grow. The Department is 
concerned that this result can provide a significant reason for 
borrowers to not pursue an IDR plan, can psychologically undercut the 
benefits of IDR for those who are on one of the plans, and those 
factors together may be a further reason why the most at-risk borrowers 
are not using IDR plans at rates sufficient to significantly drive down 
national numbers of borrowers who are delinquent or in default.
    We also note that for borrowers whose incomes are low relative to 
their debt for the duration of the repayment period, this change will 
mean that interest that would otherwise be forgiven after 20 or 25 
years is forgiven sooner. That can provide significant non-monetary 
benefits, such as not having borrowers feel like their debt situation 
is getting worse due to balance growth, and makes it easier for them to 
decide whether to enroll in the REPAYE plan.
    We remind the commenters concerned about the effect of this benefit 
on borrowers whose incomes start low and then increase significantly 
about the lack of a cap on payments at the standard 10-year plan 
amount. That cap exists on the other IDR plans available to borrowers, 
neither of which includes an interest benefit as extensive as the one 
included for REPAYE. The effect of such a cap, though, is that 
borrowers who have seen a lot of interest accumulate over time may 
still not be paying it off, since the capped payment amount may not be 
sufficient to retire all the added interest, let alone pay down the 
principal. By contrast, the REPAYE plan does not include such a cap, 
which can mean that high-income borrowers would make larger payments 
that could increase the likelihood of paying off their loans entirely.
    We also partly disagree with the suggestion to not implement this 
interest benefit for periods when a borrower has no or low earnings or 
when they are in certain deferment and forbearance periods. On the 
latter point, the Department is not changing the treatment of interest 
while a borrower is on a deferment or forbearance. This aligns with the 
commenter's request. That means that borrowers generally will not see 
interest accumulate on their subsidized loans while in deferment, while 
they will see interest charged on unsubsidized or PLUS loans, including 
while in a deferment or forbearance.

[[Page 43852]]

The one exception to this is the cancer treatment deferment, which, 
under the statute, provides interest benefits on more types of loans 
than other deferments. However, we disagree with the suggestion to not 
provide this interest assistance to borrowers with periods of low or no 
earnings who are on the REPAYE plan. We are concerned that these are 
the borrowers who most need assistance to help avert delinquency or 
default and we think this change will help encourage those borrowers to 
select the REPAYE option and set themselves up for longer repayment 
success.
    We discuss comments related to the legality of the interest benefit 
in the Legal Authority section of this document.
    Changes: None.
    Comments: One commenter noted that there is no compelling reason to 
forgive interest because the remaining balance is already forgiven at 
the end of the loan term.
    Another commenter argued that the Department was incorrect on its 
position that interest accumulation will solve issues of borrowers 
being discouraged to repay their loans. They said the change coupled 
with other parameters means that many borrowers will never see their 
balance go down by even $1, which would increase frustration and make 
the problems the Department seeks to solve worse.
    Another commenter suggested that we only apply the unpaid monthly 
interest accrual benefit when preventing negative amortization on 
undergraduate loans. The commenter suggested that this change would 
preserve the interest accrual benefit for those borrowers more likely 
to struggle economically and would protect the integrity of the loan 
program for all borrowers and taxpayers.
    One commenter who opposed the interest benefits argued that there 
will be unintended consequences for high-income professionals, such as 
physicians and lawyers, who will have their interest cancelled rather 
than deferred because we calculate IDR income based on earnings 
reported on tax returns from nearly two years prior.
    Discussion: The Department disagrees with the commenter who argued 
that there is no compelling reason to provide the interest benefit that 
we proposed in the NPRM because the remaining balance is already 
forgiven at the end of the loan term. This rule would provide borrowers 
with more affordable monthly payments, and borrowers need to fulfill 
their obligations to receive forgiveness by making their monthly 
payments. Twenty or twenty-five years is a very long time in repayment, 
especially for someone just beginning to repay their loans. Telling 
these borrowers not to worry as their balances grow because they may 
reach forgiveness sometime in the future is unlikely to assuage their 
concerns as forgiveness after 20 or 25 years can feel very abstract. 
Borrowers may also be skeptical that the forgiveness will actually 
occur, concerns that are furthered because few borrowers have earned 
forgiveness on IDR to date and the Department has acknowledged a long 
history of inaccurate payment counting (which we are separately taking 
steps to address). We believe that addressing the accrual of unpaid 
interest on a monthly basis will provide significant benefits to 
borrowers by ensuring they don't see their balances grow while they 
make required payments. It will lessen the sense that a borrower is 
trapped on an IDR plan by the need to repay extensive amounts of 
accumulated interest. And we believe it is one component that will 
assist our larger goals of making these plans more attractive for 
borrowers who are otherwise highly likely to experience delinquency or 
default.
    We disagree with the commenter who contended that addressing 
interest accumulation will not help to resolve the issue of borrowers 
being discouraged to repay their loans. As we stated in the IDR NPRM, 
the Department is acutely aware of how interest accrual creates 
psychological and financial barriers to repayment. We believe that the 
interest benefits is one of the benefits of REPAYE that will 
independently encourage enrollment in this plan, and borrowers will 
make progress toward repaying their loans. Contrary to that commenter's 
assertion, borrowers will still be required to make a payment under 
REPAYE and many borrowers who make a loan payment will see a reduction 
in their original outstanding principal balance. Additionally, by 
removing interest growth as a barrier to repayment, we expect it will 
be easier to convince borrowers who would have a $0 payment to sign up 
for REPAYE and thereby avoid delinquency or default because we will be 
removing one of the most significant downsides to choosing an IDR plan 
for these borrowers.
    We do not agree with the suggestion that we should apply the 
interest benefit only when needed to prevent negative amortization on 
undergraduate loans. The change suggested by the commenter would 
introduce significant operational complexity and challenges. In 
addition, the Department is concerned that it would create confusion 
with other benefits of REPAYE.
    We disagree with the suggestion that interest benefits will provide 
an unintended benefit for high-income professionals. Borrowers with 
higher incomes will make larger monthly payments than an otherwise 
similar individual with a lower income. If that higher income borrower 
also has a larger loan balance, they will also have large amounts of 
interest they must first pay each month before the principal balance 
declines. That means they will still be paying significant amounts of 
interest on a monthly, annual, and lifetime basis. These borrowers are 
also not subject to an overall cap on payments the way they are on IBR 
or PAYE. That means the highest-income borrowers may end up making 
larger total payments on REPAYE, even if they receive some interest 
benefits at the start of their time in repayment.
    Lastly, the Department is concerned that the initial period of 
repayment is when a borrower might be most likely to exhibit signs of 
struggle and when lower incomes might place them at the greatest risk 
of not being able to afford payments. For borrowers such as the doctors 
described by the commenter, their incomes will rise after a few years 
and the Department will receive significant payments from them in the 
future. Similar reasoning applies to our decision not to adopt the 
proposal to only apply the interest treatment after the first few years 
in repayment.
    Changes: None.

Deferments and Forbearances (Sec.  685.209(k))

    Comments: A few commenters requested that the Department include 
in-school deferments in the list of periods counting toward the maximum 
repayment period under Sec.  685.209(k) or allow for a buyback option 
for these periods of deferment. Another commenter argued that not 
including in-school deferments toward monthly forgiveness credit will 
be especially problematic for many graduate students who are employed 
while going to school and regularly making payments.
    Discussion: The Department does not believe it would be appropriate 
to provide credit for time spent in an in-school deferment toward 
forgiveness. While some borrowers do work while in an in-school 
deferment, there are many that do not. The Department does not think it 
would be appropriate to award credit toward forgiveness solely because 
a borrower is in school. Borrowers have the option to decline the in-
school deferment when they re-enroll and those who wish to make 
progress toward forgiveness should do so. A borrower who believes they 
were

[[Page 43853]]

incorrectly placed in an in-school deferment contrary to their request 
should open a case with the Federal Student Aid Ombudsman by submitting 
a complaint online at www.studentaid.gov.
    Changes: None.
    Comment: Several commenters suggested that once the automatic one-
time payment count adjustment is completed, the Department should 
provide an IDR credit for anyone with a $0 payment who is in deferment 
or forbearance, as well as credit for time spent in an in-school 
deferment.
    Discussion: The Department outlined the terms of the one-time 
payment count adjustment when it announced the policy in April 2022. We 
have continued to provide updates on that policy. The one-time payment 
count adjustment is a tailored response to specific issues identified 
in the long-term tracking of progress toward forgiveness on IDR plans 
as well as the usage of deferments and forbearances that should not 
have occurred. We believe the one-time payment count adjustment policy 
that we announced in 2022 and our other hold harmless provision that we 
discuss elsewhere throughout this document will adequately address 
these commenters' concerns.
    Changes: None.
    Comments: A few commenters suggested that we treat periods of 
deferment and forbearance as credit toward the shortened forgiveness 
periods laid out in Sec.  685.209(k)(3) since the department already 
proposed to count them toward the 20 or 25 years required for 
forgiveness under Sec.  685.209(k)(1) and (2). These commenters stated 
that we should remove the clause in Sec.  685.209(k)(4)(i) that 
prohibited periods in deferment and forbearance to count toward the 
shortened forgiveness timeline.
    Discussion: The Department agrees with these commenters that all 
months of deferment and forbearance listed in Sec.  685.209(k)(4)(iv) 
should count as payments toward the shortened forgiveness period. We 
had originally proposed to exclude these periods because we wanted to 
make certain that borrowers would not try to use a deferment or 
forbearance to minimize the payments made before receiving forgiveness 
in as few as 120 months. However, we think excluding those periods from 
the shortened forgiveness timeline would create confusion for borrowers 
and operational challenges that are more problematic than the 
Department's initial reasons for not counting those periods. We think 
borrowers would have trouble understanding why some months count toward 
one tally of time to forgiveness but not others. Such an approach would 
also create significant operational challenges as the Department would 
have to keep track of two different measures of progress toward 
forgiveness, which could increase the risk of error. Given that the 
periods of deferment and forbearance being counted toward forgiveness 
are tied to specific circumstances that will not just be available to 
most borrowers, we now think the overall gains from establishing one 
measure of progress toward forgiveness is appropriate.
    Changes: We have revised Sec.  685.209(k)(4)(i) to remove the 
phrase ``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'' and in its place add ``or having a monthly payment obligation 
of $0.''
    Comment: Other commenters suggested that the time spent in certain 
deferment and forbearance periods that count toward PSLF also be 
counted toward IDR forgiveness.
    Discussion: The Department agrees with the commenters that all 
months that borrowers spent in deferment or forbearance that get 
credited as time toward forgiveness for PSLF should be credited as time 
toward forgiveness for IDR. However, the inverse is not always true. 
The Department will award credit toward IDR forgiveness for the 
unemployment and rehabilitation training deferments for which a 
borrower would not be able to be employed full-time and which do not 
count for PSLF.
    Changes: We have revised Sec.  685.209(k)(4)(v) to include that a 
payment toward a month of forgiveness in PSLF will count toward a month 
of forgiveness in IDR.
    Comment: A few commenters expressed concern that the Department 
does not provide different forbearance status codes to lenders and loan 
servicers, thereby creating an operational challenge. Specifically, 
commenters pointed out the need to distinguish among and report the 
types of forbearance, as currently only one forbearance status code 
exists in the National Student Loan Data System (NSLDS).
    Discussion: We agree that the Department should provide different 
forbearance status codes to lenders and loan servicers. This is an 
operational issue that does not need to be addressed in the rule. 
However, given the comment we wish to clarify how this provision will 
be implemented for borrowers. The Department will only be implementing 
this treatment of crediting certain periods of forbearance for months 
occurring on or after July 1, 2024. This reflects the data limitations 
mentioned by commenters, which would otherwise result in the 
overawarding of credit for forbearance statuses that go beyond those we 
include in the rule. The Department also believes the one-time payment 
count adjustment will pick up many of these same periods and as a 
result a separate retroactive application is not necessary.
    The Department will take a different approach to deferments. For 
those, the Department has the data needed to determine the months a 
borrower is in specific deferments and can count past periods. Here we 
note that the Department will already be crediting all periods of non-
in-school deferments prior to 2013 as part of the one-time payment 
count adjustment so this will only apply to periods starting in 2013. 
The Department is currently evaluating when we will be able to 
implement this change and as noted earlier in this rule, we may publish 
a Federal Register notice indicating if this is going to be implemented 
sooner than July 1, 2024.
    Changes: We have amended Sec.  685.209 (k)(4)(iv) to clarify that 
only periods in the forbearances noted in that section on or after July 
1, 2024, will be counted toward forgiveness.
    Comments: One commenter disagreed with our proposals for 
considering certain deferment and forbearance periods as counting 
toward IDR forgiveness. This commenter believed that deferments and 
forbearances allow borrowers to avoid making payments and that our 
proposals would allow us to classify those periods of deferments or 
forbearance as payments.
    Discussion: We disagree with the commenter's framing of the 
Department's policy. Forbearances and deferments are statutory benefits 
given to borrowers when they meet certain criteria, such as deferments 
for borrowers while they are experiencing economic hardships or 
forbearances for students who are servicemembers who have been called 
up for military duty. We have carefully reviewed all of the different 
forbearances and deferments available to borrowers and intentionally 
decided to only award credit toward IDR forgiveness for those instances 
where the borrower would or would be highly likely to have a $0 payment 
or where there is confusion about whether they should choose IDR or the 
opportunity to pause their payments. The former category includes 
situations like an unemployment deferment, while

[[Page 43854]]

the latter includes deferments related to service in the military, 
AmeriCorps, or the Peace Corps. All of these deferments and 
forbearances also require borrowers to complete documentation and be 
approved. The forbearances that we are not proposing to provide credit 
toward forgiveness are those where the Department is concerned about 
creating unintended incentives to not make payments.
    Changes: None.
    Comments: Several commenters proposed that borrowers who are in a 
forbearance while undergoing a bankruptcy proceeding should receive 
credit toward forgiveness. They noted that in many cases borrowers may 
be making payments during that proceeding. They also noted that while 
borrowers currently have a way to get credit toward IDR by including 
language in their bankruptcy agreement, that option is infrequently 
used and confusing for borrowers.
    Discussion: The Department agrees with the commenters in part. A 
borrower in a Chapter 13 bankruptcy is on a court-approved plan to pay 
a trustee. However, we do not know the amount that the trustee will 
distribute to pay the borrower's loan, nor do we know the payment 
schedule. The trustee may pay on the student loan for a few months, 
then switch to paying down other debt. It may also take time for a 
borrower to have their Chapter 13 plan approved after filing for 
bankruptcy and not all borrowers successfully complete the plan. For 
those reasons, the Department is modifying the regulatory text to allow 
for the inclusion of periods while borrowers are making required 
payments under a Chapter 13 bankruptcy plan. Borrowers will only be 
credited for the months during which they are fulfilling their 
obligations. Given that the Department will not know this information 
in real time, we have revised the regulation to allow us to credit 
these periods toward forgiveness when we are notified that the borrower 
made the required payments on their approved bankruptcy plan. We 
anticipate that we will be informed about months of successful payments 
after the trustee distributes payments. We believe that this crediting 
of months well after the payments to the trustee are made will still 
provide benefit for borrowers as a Chapter 13 proceeding typically 
lasts for a few years, leaving an extended period remaining prior to 
forgiveness.
    Changes: We have revised Sec.  685.209(k)(4)(iv)(K) to provide that 
the Department will award credit toward IDR forgiveness for months 
where the Secretary determines that the borrower made payments under an 
approved bankruptcy plan.
    Comments: As a response to our request for feedback \78\ on whether 
we should include comparable deferments for Direct Loan borrowers with 
outstanding balances on FFEL loans made before 1993 toward IDR 
forgiveness, a few commenters responded with the view that we should 
include time spent on these deferments toward forgiveness. Another 
commenter noted if we included comparable deferments, we would face 
data limitations and operational constraints.
---------------------------------------------------------------------------

    \78\ See 88 FR 1906.
---------------------------------------------------------------------------

    Discussion: After further evaluation, we concur with the latter 
commenter. It is not operationally feasible for us to provide credit 
toward forgiveness for comparable deferments to Direct Loan borrowers 
with outstanding balances on FFEL loans made before 1993. The 
Department has limited data pertaining to deferments and forbearances 
for Direct Loan borrowers who still have an outstanding FFEL loan made 
before 1993. Therefore, we are unable to include comparable deferments 
to Direct Loan borrowers with outstanding balances on FFEL loans made 
before 1993 toward IDR forgiveness.
    Changes: None.

Catch-Up Payments (Sec.  685.209(k))

    Comment: Many commenters strongly supported the Department's 
proposed catch-up payments provision that would allow borrowers to 
receive loan forgiveness credit when they make qualified payments on 
certain deferments and forbearances that are not otherwise credited 
toward forgiveness.
    Discussion: We thank the commenters for their support. We believe 
this process will provide a way to make certain borrowers can continue 
making progress toward forgiveness even if they intentionally or 
unintentionally select a deferment or forbearance that is not eligible 
for credit toward forgiveness. By requiring borrowers to make 
qualifying payments for these periods we successfully balance that 
flexibility with ensuring borrowers do not have an incentive to 
intentionally pause their payments rather than join an IDR plan.
    Changes: None.
    Comments: Several commenters felt that requiring a borrower to 
document their earnings for past periods to receive catch-up credit 
would create an administrative burden for the borrower, as well as the 
Department. These commenters further suggested that we annually notify 
borrowers if they have eligible periods of deferment and forbearance 
for which they are eligible for catch-up payments.
    Several commenters suggested that the Department automate the hold 
harmless periods and give borrowers credit toward forgiveness for any 
period of paused payments.
    Several commenters requested that the Department set the catch-up 
payments to allow $0 payments if we could not determine the amount of 
the catch-up payments.
    One commenter suggested that the proposed catch-up period would be 
virtually unworkable for the Department and sets both borrowers and FSA 
up for failure. This commenter recommended eliminating or restricting 
this provision because the required information is too difficult for 
borrowers to obtain.
    Discussion: In continuing to review the proposal from the NPRM, the 
Department considered how best to operationalize the process of giving 
borrowers an option for buying back time spent in deferment or 
forbearance that is not otherwise credited toward forgiveness. We also 
looked at ways to create a process that we can administer with minimal 
errors and with minimal burden on borrowers. We believe doing so will 
address both the operational issues raised by some commenters, as well 
as the concerns raised by others about borrowers being unable to take 
advantage of this provision or being unduly burdened in trying to do 
so.
    In considering these issues of operational feasibility and borrower 
simplicity, we have decided to revise the catch-up option that was 
proposed in the IDR NPRM. Specifically, we will offer the catch-up 
option for periods beginning after July 1, 2024. This reflects the 
Department's assessment that we lack the operational capability to 
apply this benefit retroactively. Instead, we believe the one-time 
payment count adjustment will capture most periods that we would have 
otherwise captured in this process--and it will do so automatically.
    In considering the comments about making this process as simple and 
automatic as possible, the Department determined that the best way to 
apply this benefit going forward is to allow borrowers to make catch-up 
payments at an amount equal to their current IDR payment when they seek 
to make up for prior periods of deferment or forbearance that are not 
otherwise credited. This amount will easily be known to both the 
borrower and the Department and minimizes the need for any additional 
work by the borrower. However, because we base the catch-up payment 
upon the current IDR payment, the Department is limiting the usage of

[[Page 43855]]

the catch-up period to only the months of deferment or forbearance that 
ended no more than three years prior to when the borrower makes the 
additional catch-up payment and that took place on or after July 1, 
2024.
    We believe this 3-year catch-up period is reasonable because IDR 
payments can reflect a period of up to 3 calendar years prior to when 
the borrower certifies their income. As an example, a borrower who 
signs up for IDR in 2026 before they file their tax return will likely 
have their monthly payments calculated using their 2024 income. The 
Department is providing borrowers with one additional year, for a total 
of three years, to make catch-up payments to allow for additional 
flexibility while ensuring that current IDR payments will not be used 
to receive credit for periods much further in the past.
    Because we are structuring the catch-up period to use the current 
IDR payment, we are also excluding periods of in-school deferment from 
this provision. Borrowers may spend multiple years in an in-school 
deferment, graduate, and then immediately go onto IDR using their prior 
(or prior-prior) year tax data, which would likely make them eligible 
for a $0 payment if they were not working full-time while in school. 
Allowing borrowers to make catch-up payments for periods of in-school 
deferment would therefore allow recent graduates to get credit toward 
IDR for their entire period of enrollment without having to make any 
payments. While it is true that some borrowers may want to make 
payments while in school and may improperly end up in an in-school 
deferment instead, we believe these instances are best addressed 
through complaints to the Ombudsman rather than through the catch-up 
provisions in this rule.
    The approach taken in this final rule will address several concerns 
raised by the commenters. First, the catch-up payments will always be 
made based upon the borrower's current IDR payment amount. That means 
borrowers will not face the burden of collecting documentation of past 
income. Second, making this policy prospective only and assigning it a 
clearer time limit will make it easier for the Department to make 
borrowers aware of the benefit. We will be able to inform borrowers 
each year on how many payments may be eligible for this catch-up 
process. That way borrowers will know how many months could be 
addressed through the catch-up option and when months would no longer 
be eligible for this approach. At the same time, it avoids the 
operational issues identified by other commenters about retroactive 
review of accounts.
    Upon further review of the operational and budgetary resources 
available, the Department does not believe it would be able to 
administer the catch-up process for earlier periods within a reasonable 
time frame. And we do not believe that other suggestions from 
commenters that would be simpler, such as giving any borrower in this 
situation credit for a $0 payment, would be an appropriate and fair 
step. There likely would be borrowers in that situation who could have 
made an IDR payment and we are concerned that automatically awarding a 
$0 payment would create an inappropriate mechanism for avoiding 
payments.
    The Department recognizes this approach is different from what was 
included in the final rule for PSLF, and we note that months awarded 
for purposes of PSLF through that process will still count for IDR. In 
the final rule \79\ for PSLF published on November 1, 2022, the 
Department proposed allowing catch-up payments for any period in the 
past up to the creation of the PSLF program. However, the Department 
believes such an approach is more feasible in the case of PSLF because 
the PSLF program is 13 years newer than IDR. The PSLF policy also 
affects a much smaller number of borrowers--about 1.3 million to date--
compared to more than 8 million borrowers on IDR overall. Moreover, the 
PSLF program only requires 120 months of payments compared to up to 300 
payments on IDR. That means the administrative burden of counting 
payments will be offset by the fact that the policy will move PSLF 
borrowers significantly closer to forgiveness on PSLF than it would on 
IDR. Similarly, the Department believes awarding credit for catch-up 
periods of in-school deferment is reasonable in PSLF because that 
program has a requirement that borrowers be working full-time, limiting 
the prospect of a borrower using lower earnings while in-school to get 
a $0 payment after school and then receive significant amounts of 
credit toward forgiveness.
---------------------------------------------------------------------------

    \79\ See 87 FR 65904.
---------------------------------------------------------------------------

    Changes: We have amended Sec.  685.209(k)(6)(i) to provide that the 
catch-up period is limited to periods excluding in-school deferments 
ending not more than three years prior to the payment and that the 
additional payment amount will be set at the amount the borrower 
currently must pay on an IDR plan. We have also amended Sec.  
685.209(k)(6)(ii) to note that, upon request, the Secretary informs the 
borrower of the months eligible for payments under paragraph (k)(6)(i).
    Comment: Several commenters suggested that lump sum payments should 
be counted as catch-up payments and treated the same in both IDR and 
PSLF.
    Discussion: The Department agrees with commenters that lump sum 
payments in both IDR and PSLF should count toward forgiveness in the 
same manner. To that end, we believe that our current practice and 
operations are sufficient, as we already consider lump sum payments in 
advance of a scheduled payment to count toward IDR forgiveness. The 
changes made in the PSLF regulation were designed to align with the 
existing IDR practice.
    Changes: None.
    Comments: Several commenters suggested that we clarify that 
defaulted loans could receive loan forgiveness credit if the borrower 
makes catch-up payments. Furthermore, the commenters asked whether 
borrowers would qualify for loan forgiveness credit now if they had 
made $0 payments in the past.
    Discussion: The Department will apply the catch-up option the same 
regardless of whether a borrower was in repayment or in default so long 
as they are on an IDR plan at the time they make the catch-up payment. 
As noted in response to other comments in this section, the catch-up 
payments provision will only apply to periods starting on or after July 
1, 2024. Borrowers in default, like borrowers in repayment, will not be 
able to make catch-up payments to receive credit toward forgiveness for 
periods prior to that date, though they may receive credit for 
additional periods under the Department's one-time payment count 
adjustment.\80\
---------------------------------------------------------------------------

    \80\ www.studentaid.gov/announcements-events/idr-account-adjustment.
---------------------------------------------------------------------------

    Changes: None.

Treatment of Income and Loan Debt (Sec.  685.209(e))

    Comments: Several commenters supported the Department's proposal to 
provide that if a married couple files separate Federal tax returns the 
borrower would not be required to include the spouse's income in the 
information used to calculate the borrower's Federal Direct loan 
payment. Commenters supported this provision to only consider the 
borrower's income when a borrower is married but filing separately to 
be consistent with the PAYE and IBR plans.
    One commenter argued that the married filing separately option is

[[Page 43856]]

seriously flawed, because filing taxes in this manner is often very 
costly, given the deductions and credits that married people filing 
separately lose out on. The commenter further asserted that borrowers 
should not have to choose between paying more on their taxes or their 
loans. They encouraged the Department to consider allowing borrowers to 
submit joint tax returns and all of their individual W2s and 1099s when 
certifying income each year.
    Several other commenters argued that loan payment amounts should be 
tied to the individual who took out the loans. Several other commenters 
argued that if a spouse did not borrow the loans, it is irrelevant how 
much money they earned.
    Discussion: We agree with the commenters that felt that it was 
appropriate to exclude the spouse's income for married borrowers who 
file separately when calculating monthly payments and to have more 
consistent regulatory requirements for all IDR plans. In addition, we 
sought to help borrowers avoid the complications that might be created 
by requesting spousal income information when married borrowers have 
filed their taxes separately, such as in cases of domestic abuse, 
separation, or divorce.
    The HEA requires that we include the spouse's income if the 
borrower is married and files jointly. Specifically, Sec. 455(e)(2) of 
the HEA states that the repayment amount for a loan being repaid under 
the ICR plan ``shall be based on the adjusted gross income (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 adjusted gross income of the 
borrower and the borrower's spouse.'' The Department must include a 
spouse's income for married borrowers who file joint tax returns. The 
new family size definition means that while we will no longer require a 
married borrower filing separately and repaying the loan under the 
REPAYE plan to provide their spouse's income, the borrower cannot 
include the spouse in the family size number under this status. This 
revised definition will apply to the PAYE, IBR, and ICR plans. 
Previously, borrowers repaying under IBR, PAYE, or ICR were permitted 
to include the spouse in family size when filing separately and 
borrowers repaying under REPAYE could include the spouse only if the 
spouse's income was provided separately. However, since borrowers will 
no longer be required to provide the spouse's income, all plans will 
require the removal of the spouse from the family size number when the 
borrower is filing separately. After these new regulations are 
effective, the only instance in which a married borrower will include 
the spouse in family size is when the borrower and spouse file a joint 
Federal tax return. This new definition will provide more consistent 
treatment since borrowers will not include their spouse in the family 
size when excluding the spouse's income for purposes of calculating the 
payment amount under any of the IDR plans.
    Changes: None.

Borrower's Income and Family Size Sec. Sec.  685.209(a)(1)(i), 
685.209(c)(1)(i), and 685.221(a)(1)

    Comments: Many commenters supported the Department's proposal to 
change the regulations to provide that married borrowers who file 
separate Federal tax returns would not be required to include their 
spouse's income for purposes of calculating the payment amount under 
REPAYE. Other commenters believed that our proposals would disadvantage 
married borrowers in relation to single individuals and would make 
couples less likely to get married or, for those borrowers already 
married, more likely to divorce. These commenters explained that 
married couples filing jointly are allowed to exclude less total income 
than are unmarried couples. These commenters suggest that our proposal 
would penalize married couples.
    Another commenter expressed concern over the budgetary cost of the 
regulation and believed certain married borrowers would experience a 
windfall. This commenter believes that married borrowers could choose 
to file separate tax returns to reduce their student loan payments and 
that many borrowers will try to ``game'' the system by filing 
separately, particularly among households with one earning spouse. 
Similarly, several commenters urged us to maintain the current REPAYE 
regulations regarding AGI calculations for married couples.
    Discussion: We thank the commenters who support this provision. 
Establishing the same requirements and procedures with respect to 
spousal income across all of the IDR plans will alleviate confusion 
among borrowers when selecting a plan that meets their needs. It will 
make it easier for future student loan borrowers to choose between IBR 
and REPAYE and may encourage some borrowers eligible for PAYE to switch 
into REPAYE, further simplifying the system. Excluding spousal income 
under all IDR plans for borrowers who file separate tax returns creates 
a more streamlined process for borrowers and the Department.
    Section 455(e)(2) 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.
    Under these final regulations, married borrowers filing separately 
will include only that borrower's income for purposes of determining 
the payment amount under REPAYE. Depending on the couple's 
circumstances, filing separately may or may not be advantageous for the 
taxpayers. The married couple has the option to either file separately 
or file jointly as allowed by the Federal tax laws.
    We already responded to comments about how the use of FPL affects 
marriage incentives in the Other Issues Pertaining to Income Protection 
Threshold section of this document. As also noted in that section, 
allowing married borrowers to file separately and exclude their 
spouse's income from the payment will address the more significant 
potential drawback to marriage that existed in the REPAYE plan. We also 
note that if both earners in a household have student loan debt, both 
of their debts are covered by the same calculated payment amount. That 
means if 5 percent of a household's total income is going to student 
loan payments, then it is in effect 2.5 percent of the household income 
going to one borrower's payments and the other 2.5 percent going to the 
other.
    Changes: None.

Forgiveness Timeline (Sec.  685.209(k))

    Comments: Many commenters urged the Department to set a maximum 
forgiveness timeline of 20 years for both undergraduate and graduate 
borrowers in all IDR plans. A few commenters suggested that the 
disparity between the forgiveness timeline for undergraduate and 
graduate loans may discourage undergraduates from pursuing a graduate 
education.
    Discussion: The Department disagrees with the suggestion and will 
keep the maximum time to forgiveness at 20 years for borrowers with 
only undergraduate loans and 25 years for borrowers with any graduate 
loans. Under the current REPAYE regulations published in 2015,\81\ 
borrowers with any graduate debt are required to pay for 300 months 
(the equivalent of 25 years) to receive forgiveness of the remaining 
loan balance instead of the 240 months required for undergraduate 
borrowers. As discussed in the IDR NPRM \82\ and

[[Page 43857]]

reiterated here, there are significant differences between borrowing 
for undergraduate versus graduate education. Congress recognized these 
distinctions, as well, by providing different loan limits \83\ and 
interest subsidies \84\ between undergraduate and graduate borrowers. 
Graduate PLUS borrowers do not have a strict dollar-based limit on 
their annual or lifetime borrowing in contrast to the specific loan 
limits that apply to loans for undergraduate programs. We believe that 
our 2015 decision to treat undergraduate and graduate borrowing 
differently was appropriate and should not be changed.\85\ We 
appreciate the concerns expressed by the commenters and the suggested 
alternative approaches. However, we continue to believe that it is 
important to have borrowers with higher loan balances make payments 
over a longer period before receiving loan forgiveness. Providing loan 
forgiveness after 20 years of repayment for all borrowers, regardless 
of loan debt, would be inconsistent with this goal and, equally 
importantly, would result in significant additional costs to taxpayers 
that would not address the Department's broader goals in this rule.
---------------------------------------------------------------------------

    \81\ See 80 FR 67204 (October 30, 2015).
    \82\ See 88 FR 1901-1905.
    \83\ See Sec. 428H(d) of the HEA.
    \84\ Congress terminated the authority to make subsidized loans 
to graduate and professional students in 2012. See Sec. 455(a)(3) of 
the HEA.
    \85\ See 80 FR 67221.
---------------------------------------------------------------------------

    We do not share the concern of some commenters that the longer 
forgiveness timeline for graduate borrowers will discourage students 
from pursuing a graduate education. In fact, in the time since REPAYE 
was first created, graduate enrollment has increased even as 
undergraduate enrollment has declined. The Department does not view 
having graduate debt negatively. Pursuing education beyond the 
bachelor's degree opens career pathways that would otherwise be 
unavailable to many people. Nonetheless, we remained concerned about 
the increasing share of loans borrowed for graduate education and how 
the much higher loan balances of borrowers with graduate debt can 
affect the benefits from IDR plans. The longer repayment timeframe is 
the simplest way that we can equitably distribute benefits to 
borrowers.
    Changes: None.
    Comments: Several commenters suggested that we reduce the maximum 
time to forgiveness for borrowers. A few commenters suggested that we 
reduce the maximum time to forgiveness to 15 years for undergraduate 
borrowers and to less than 15 years for borrowers with low incomes. 
Several commenters suggested that we set the maximum forgiveness 
thresholds at 10 years for undergraduate borrowers and 15 years for 
graduate borrowers.
    Discussion: The Department's goal in developing the changes to 
REPAYE included in these regulations is to encourage more borrowers who 
are at a high risk of delinquency or default to choose the REPAYE plan 
and to simplify the process of selecting whether to enroll in a 
particular IDR plan. At the same time, the plan should not include 
unnecessary subsidies for borrowers that do not help accomplish those 
goals. We believe that the various shortened times for forgiveness 
proposed by these commenters would give more benefits to higher-income 
borrowers who can afford to repay their loans.
    We believe the changes to the payment amounts under REPAYE, coupled 
with the opportunity for lower-balance borrowers to receive forgiveness 
after a shortened period, will accomplish our goals better than the 
suggestions from the commenters. These changes will also benefit other 
borrowers who borrowed higher amounts.
    The Department does not think that setting a forgiveness threshold 
at 10 years of monthly payments would be appropriate for all 
undergraduate borrowers. As discussed in the IDR NPRM and in the 
section in this preamble on shortened forgiveness, we think a 
forgiveness period that starts as early as 10 years of monthly payments 
is appropriate only for borrowers with the lowest original principal 
balances. Using a 10-year timeline for all undergraduate borrowers 
would allow individuals with very high incomes to receive forgiveness 
when they would otherwise have repaid the loan. The same is true for 
setting forgiveness at 15 years for graduate borrowers. The Department 
is concerned that such a short repayment time frame for any graduate 
borrower regardless of balance would provide very significant benefits 
to high-income borrowers who might otherwise repay the loan in full 
between years 15 and 25. Helping borrowers with lower incomes is the 
Department's priority as we improve the REPAYE plan.
    Changes: None.
    Comments: Many commenters expressed concerns about possible tax 
liabilities and pointed out that the loan amount forgiven will be 
considered taxable income for the borrower. Several commenters argued 
that it would be harsh to tax the amount of the loan that is forgiven, 
especially because people who are struggling to repay their student 
loans do not have the money to pay taxes on such a potentially large 
sum. One commenter noted that borrowers may be taxed on the amount of 
the loan that is forgiven, which may be reduced due to the interest 
benefit provided to the borrower. Another commenter explained that the 
borrower would have to enter into a payment plan with the IRS--which 
charges interest--and defeats the purpose of loan forgiveness.
    Discussion: The Department does not have the authority to change 
the income tax laws relating to the amount of any loan that is 
forgiven. The IRS and the States have their own statutory and 
regulatory standards for what is considered taxable income--and whether 
that income is taxable or not. A borrower may need to consider any tax 
implications of their choice of repayment plan and potential loan 
forgiveness and any resulting taxes.
    Changes: None.

Shortened Forgiveness Timeline (Sec.  685.209(k))

General Support

    Comments: Many commenters supported the Department's proposal to 
shorten the time to forgiveness for borrowers in the REPAYE plan to as 
few as 10 years of monthly qualifying payments for borrowers with 
original loan balances of $12,000 or less which would increase by 1 
year for every additional $1,000 of the borrower's original principal 
balance.
    Discussion: We thank the commenters for their support. We believe 
that shortening the time to forgiveness for borrowers with loan 
balances of $12,000 or less will help to address our goal of making 
REPAYE a more attractive option for borrowers who are more likely to 
struggle to afford their loan payments and decrease the frequency of 
delinquency and default. This will include counting past qualifying 
payments for borrowers with these low loan balances.

General Opposition

    Comments: Several commenters opposed our proposals for shortened 
forgiveness timelines. They claimed that our proposal conflicts with 
the statute. According to these commenters, the standard repayment 
period under the HEA is 10 years, and while the statute permits ICR 
plans for loans to be repaid for an ``extended period of time,'' the 
commenters suggest that loan forgiveness under an ICR plan may only be 
permitted after 10 years, and that loan forgiveness may not occur as 
soon as 10 years as we have proposed. Several other commenters believed 
that

[[Page 43858]]

we would violate Congress' intent by extending the 10-year forgiveness 
timeline, which applies to the PSLF Program, to all borrowers. These 
commenters believe that Congress generally established maximum 
repayment periods of 20 to 25 years for loans.
    Discussion: We discuss the legal arguments about the underlying 
statutory criteria in the Legal Authority section of this document. As 
a policy matter, we disagree with the commenters. As noted in the IDR 
NPRM and in this preamble, we are concerned about high rates of 
delinquency and default in the student loan programs and those negative 
problems are particularly concentrated among these lower-balance 
borrowers. We believe this provision will help make REPAYE a better 
option for those borrowers, which will assist us in achieving our 
goals.
    Changes: None.
    Comment: Commenters argued that the Department's proposal for 
shortened periods to forgiveness failed to consider that a borrower 
eligible for this forgiveness after 10 years of monthly payments might 
still be able to keep paying and therefore, not need forgiveness.
    Discussion: We disagree with the commenter. By limiting the 
shortened forgiveness period to borrowers with lower loan balances, 
borrowers with higher incomes will still pay down substantial amounts 
of their loan balance, if not pay it off entirely, before the end of 
the 120 monthly payments. This point is strengthened by the fact that 
forgiveness is not available until the borrower has made 10 years' 
worth of monthly payments, which is a point at which borrowers will 
start to see their income trajectories established. Moreover, 
Department data show that in general the borrowers who take out the 
debt amounts that would lead to shortened forgiveness are among those 
who are most likely to default. We believe this simplified approach 
will best address our goals of reducing default, while the strict caps 
on the amount borrowed for undergraduate programs protect against the 
type of manipulation referenced by the commenter.
    Changes: None.
    Comments: One commenter argued that the Department's analysis 
supporting the choice of thresholds for the shortened period to 
forgiveness was arbitrary because it would result in the median person 
benefiting from this policy. They argued that forgiveness should not be 
for the general person.
    Discussion: The Department disagrees with the commenter. The 
overall policy purpose of the shortened timeline to forgiveness is to 
increase the likelihood that the most at-risk borrowers select an IDR 
plan that reduces the time spent in repayment before their loan debt is 
forgiven and, by doing so, reducing rates of default and delinquency.
    To determine the maximum original principal balance that a borrower 
could receive to qualify for a shortened period of forgiveness, the 
Department compared the level of annual earnings a borrower would need 
to make to not qualify for forgiveness to the median individual and 
household earnings for early career adults at different levels of 
educational attainment. These calculations show that a borrower in a 
one-person household would not benefit from the shortened forgiveness 
if their starting income exceeded $59,257, while the median earnings 
for early career workers with at least some college education is 
$74,740. As a result, the median individual with at least some college 
education would not benefit from shortened forgiveness and we believe 
it is reasonable that a borrower with earnings above a typical college-
educated individual should not benefit from the shortened period to 
forgiveness. The commenter did not provide a suggestion for what a 
different reasonable threshold might be.
    We also note that the maximum earnings to benefit from the 
shortened forgiveness deadline is likely to be far different from the 
actual earnings of most individuals who ultimately benefit from this 
policy. Generally, borrowers with this level of debt tend to be 
independent students who only completed one year of postsecondary 
education and left without receiving a credential. These individuals 
tend to have earnings far below the national median figures, which is 
one of the reasons why they are so likely to experience delinquency and 
default.
    Changes: None.

Tying Forgiveness Thresholds to Loan Limits

    Comments: In the IDR NPRM, we requested comments on whether we 
should tie the starting point for the shortened forgiveness to the 
first two years of loan limits for a dependent undergraduate student to 
allow for an automatic adjustment. Several commenters said shortened 
periods until loan forgiveness should not be tied to loan limits. Some 
of those commenters said the starting point for shortened forgiveness 
should remain at $12,000. These commenters felt that if the regulations 
specify that higher loan limits mean earlier forgiveness, the budgetary 
costs of raising the loan limits will increase. Another commenter 
mentioned that if Congress were to raise Federal student loan limits in 
the future, the effectiveness of this threshold would likely be reduced 
for low-balance borrowers. Another point some commenters made was that 
tying forgiveness to the loan limit thresholds would make it harder for 
Congress to raise loan limits.
    Other commenters argued that we should index the starting point of 
shortened forgiveness to the statutory loan limits for the first two of 
years of college for dependent students. Another commenter who 
supported indexing the starting point to the statutory loan limits 
stated that because these loan limits are not indexed to inflation 
there is an implicit understanding when Congress increases loan limits 
that they are acknowledging increases in postsecondary education costs.
    Discussion: The Department's overall goal in crafting changes to 
REPAYE is to make it more attractive for borrowers who might otherwise 
be at a high risk of default or delinquency. In choosing the threshold 
for principal balances eligible for a shortened period until 
forgiveness, we looked at whether borrowers would have earnings that 
placed them below the national median of similar individuals. We then 
tried to relate that amount to loan limits so that it would be easier 
to understand for future students when making borrowing decisions. That 
amount happens to be equal to two years of the loan limit for dependent 
undergraduate students.
    However, the suggestion to tie the shortened forgiveness amount to 
the dependent loan limits generated a number of comments suggesting 
that we should instead adjust the amounts to two years at the 
independent loan limit, an amount that is $8,000 higher than the amount 
included in the IDR NPRM. The Department is concerned that higher level 
would provide the opportunity for borrowers at incomes significantly 
above the national median to receive forgiveness and the result would 
be a benefit that is more expansive than what is needed to serve our 
overall goals of driving down delinquency and default. By contrast, the 
$12,000 threshold not only is better targeted in terms of incomes, it 
also aligns with the borrowing level at which we witness higher levels 
of adverse student loan outcomes. As previously mentioned in the IDR 
NPRM, 63 percent of borrowers in default borrowed $12,000 or less 
originally, while the share of borrowers in default with debts 
originally between

[[Page 43859]]

$12,000 and $19,000 is just 15 percent.\86\
---------------------------------------------------------------------------

    \86\ See 88 FR 1909.
---------------------------------------------------------------------------

    Given that the $12,000 amount is better targeted in terms of income 
where borrowers would benefit and where the Department sees loan 
struggles, we think it is better to continue expressing the point at 
which a borrower could receive forgiveness after 120 monthly payments 
in explicit dollar terms rather than tying it to loan limits.
    Changes: None.

Starting Point for Shortened Forgiveness

    Comments: Many commenters suggested that we increase the starting 
amount of debt at which shortened forgiveness would occur to $20,000, 
which is equal to the maximum amount that an independent student can 
borrow for the first two years of postsecondary education. They argued 
that doing so would provide a shortened time to forgiveness at the 
maximum amount of undergraduate borrowing for two years. One commenter 
said that the starting point should be there because independent 
students are more likely to default on their loans than dependent 
students. Another commenter said that if we did not change the 
shortened forgiveness point to $20,000 for everyone, we should 
distinguish between dependent and independent borrowers and set the 
starting point for shortened forgiveness at $12,000 for dependent 
borrowers and $20,000 for independent borrowers.
    Discussion: We understand why the commenters argued to set the 
threshold for shortened time to forgiveness at $20,000 to maintain 
parity between independent and dependent students if we were to 
establish this threshold explicitly based upon loan limits. However, as 
noted in the IDR NPRM, we considered adopting thresholds such as the 
ones suggested by the commenters but rejected them based on concerns 
that the incomes at which borrowers would benefit from this policy are 
too high and that the rates of default are significantly lower for 
borrowers with those higher amounts of debt, including independent 
borrowers. While independent students have higher loan limits than 
dependent students, Department data show that the repayment problems we 
are most concerned about occur at similar debt levels across 
independent and dependent students. We recognize that independent 
students often face additional challenges, but we believe that the 
$12,000 threshold still protects those borrowers most likely to 
struggle repaying their student loans. For example, Department data 
show that, among independent borrowers with student loans in 2022, 33 
percent of those who borrowed less than $12,000 in total were in 
default, compared to 11 percent of independent students who left higher 
education with higher amounts of debt.
    Additionally, establishing different forgiveness thresholds based 
upon dependency status could also lead to substantial administrative 
burden and complexity for borrowers, as students can start their 
borrowing as dependent borrowers and then become independent. For 
example, of entering students classified as dependent undergraduates in 
the 2011-12 academic year, 53 percent of those who were enrolled five 
years later (in the 2016-17 academic year) were considered 
independent.\87\ This is because an undergraduate student who turns 24, 
gets married, has a child, or meets certain other criteria while 
enrolled as an undergraduate student becomes an independent student. 
Also, all students in graduate school are considered independent. 
Further, it would be administratively difficult to consolidate debt 
incurred by a borrower both as a dependent and an independent student 
and maintain different forgiveness thresholds. Accordingly, we think a 
single structure for shortened forgiveness would be simpler 
operationally and easier for borrowers to understand. Therefore, we 
affirm our position of adopting a threshold starting at $12,000 in this 
final rule.
---------------------------------------------------------------------------

    \87\ Analysis of Beginning Postsecondary Students (BPS) 2012/
2017, nces.ed.gov/datalab/powerstats/table/maaiwf.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters urged the Department to reduce the 
original balance threshold of $12,000 to $10,000 to receive loan 
forgiveness for borrowers who have satisfied 120 monthly payments. 
These commenters argued that associating $10,000 to 10 years is 
simpler. Others argued that this would make more sense since it is 
close to the one-year limit for independent undergraduate borrowers.
    Discussion: As noted elsewhere in this final rule, we are not 
electing to tie the threshold for the shortened period for loan 
forgiveness to loan limits and will instead continue it to base it upon 
the amount originally borrowed. We appreciate the suggestions for 
simplification from commenters but believe the benefits for borrowers 
by setting the threshold at a higher level of original principal 
balance exceeds the simplification benefits.
    Changes: None.

Inflation Adjustment

    Comments: Several commenters suggested that the shortened 
forgiveness threshold should be indexed to inflation. One commenter 
requested that the Department publish annual inflation adjustments. 
Another commenter indicated that if we index the amount to inflation, 
we should explain how inflation adjustments would apply to borrowers 
who were in school versus in repayment.
    Another commenter disagreed and felt that the Department should not 
apply inflation adjustments to the forgiveness level since the 
Department has already linked early loan forgiveness to loan limits and 
loan limits do not change that often and the value erodes. Another 
commenter opposed adjusting for inflation and said that, because the 
$12,000 is tied to the loan limits for a dependent undergraduate 
borrowing for the first two years, we should reconsider the terms of 
our plan in the event that Congress increases loan limits.
    Discussion: The Department has decided not to apply inflation 
adjustments to the shortened forgiveness amount. This provision will 
provide the greatest benefits to borrowers with undergraduate loans and 
those debts are subject to strict loan limits that have not been 
increased since 2008. It would not be appropriate to adjust the amount 
of forgiveness based on inflation when the amount of money an 
undergraduate borrower could borrow has not changed. Doing so could 
result in providing shortened forgiveness to higher-income borrowers 
which would be inconsistent with one of the Department's primary goals 
of providing relief to borrowers who are most at risk of delinquency 
and default. Moreover, any kind of inflation adjustment would create 
different shortened forgiveness thresholds for borrowers based upon 
when they borrowed, since it would not make sense to increase the 
thresholds for individuals who are already in repayment.
    Given that the Department is not choosing to connect the shortened 
forgiveness thresholds to loan limits, we similarly do not think an 
automatic adjustment tied to loan limits would be appropriate. Since 
Congress does not regularly change the amount that undergraduate 
students can borrow, including no changes since 2008, we agree with the 
commenter that it would be more appropriate to conduct an additional 
rulemaking process if circumstances change such that a

[[Page 43860]]

different threshold for shortened forgiveness may be appropriate.
    Changes: None.

Alternative Formulas

    Comment: Many commenters urged the Department to consider providing 
a shorter time to forgiveness for any borrower whose income either 
results in a payment amount of $0 or whose payment is insufficient to 
reduce the principal balance for a period of time under 5 years. Some 
commenters also argued for an approach where borrowers would earn 
different amounts of credit toward forgiveness based upon their 
financial situation. The result is that the lowest income borrowers 
would earn more than a month's worth of credit for each month they 
spent in that status.
    Discussion: The Department does not believe that it is appropriate 
to adopt either of the commenters' suggestions. We are concerned that 
it would put borrowers in a strange circumstance in which if they had a 
$0 payment for a few years in a row they would be better off in terms 
of loan forgiveness staying at $0 as opposed to seeking an income gain 
that would result in the need to make a payment. The Department 
similarly declines to adopt the commenters' suggestion of varying the 
amount of credit toward forgiveness granted each month based upon 
borrowers' incomes. Part of the structure of IDR plans is to create a 
situation where a borrower with a low income at the start of repayment 
will still end up paying off their loan if their income grows 
sufficiently over time. The differential credit proposal could work 
against this goal, especially for individuals who are on career 
trajectories where pay is very low at first and then increases 
substantially, such as doctors and others employed in the medical 
profession. Adopting such an approach could mean that those individuals 
pick up significant credit toward forgiveness, which then reduces the 
months when they might be paying off the loan in full or making very 
significant payments due to their higher income.
    Changes: None.
    Comments: A few commenters recommended that we adopt a forgiveness 
structure in which we discharge part of the borrowers' principal 
balance each year. These commenters said that the problem with the 
current IDR plans is that the lowest income borrowers will not see a 
decrease in their balances. Other commenters provided similar 
suggestions with forgiveness occurring monthly.
    Discussion: As noted in the IDR NPRM, we do not believe the 
Department has the legal authority to make such a change. Section 
455(d)(1)(D) of the HEA contemplates a single instance of forgiveness 
that occurs when the borrower's repayment obligation is satisfied. This 
means that any loan balance that remains outstanding after the borrower 
has made qualifying payments according to the terms of the IDR plan in 
which they are enrolled for a maximum repayment period is to be 
forgiven. An incremental forgiveness structure like that the commenters 
suggested would require a statutory change.
    Changes: None.
    Comments: One commenter proposed that the Department only make 
shortened forgiveness available to borrowers seeking non-degree or 
certificate credentials. Relatedly, several commenters urged us to 
limit the shortened time to forgiveness to only those borrowers who 
pursued sub-baccalaureate degrees.
    Discussion: The Department disagrees with the commenters' 
suggestions. While we understand the concerns about not extending 
benefits to borrowers who are less likely to need them, we believe that 
a limitation like the one the commenter requested would exclude many 
borrowers for whom this policy would be very important. For instance, 
the 2004 Beginning Postsecondary Students Study, which tracked students 
through 2009, found that rates of default are similar between someone 
who finished a certificate (43.5 percent) and someone who did not 
finish a degree (39.7 percent). We are concerned that the commenters' 
suggestion could also disincentivize borrowers who might otherwise 
consider a baccalaureate degree program. We think keeping the point at 
which the shortened time to forgiveness applies better accomplishes the 
overall concern about targeting the benefit. Generally, these debt 
levels are owed by lower-income borrowers. And as shown in the RIA, we 
anticipate that very few graduate borrowers will have debt levels that 
allow them to make use of this benefit.
    Changes: None.
    Comments: Several commenters suggested multiple options for 
forgiveness timelines, such as 10 years for borrowers who had $20,000 
in loan debt, 15 years for borrowers who had $57,500 in loan debt, and 
20 years for all other amounts. Several other commenters suggested 
different forgiveness timelines for dependent versus independent 
students, such as that dependent students receive forgiveness at 10 
years for balances of $12,000 or less, 15 years for balances between 
$31,000 and $12,000, and 20 years for all amounts over $31,000. These 
commenters further stated that independent students should have 
timelines starting at 10 years for balances of $20,000 or less, 15 
years for balances between $20,000 and $57,500, and 20 years for 
balances over $57,500.
    One commenter was concerned that the proposed formula created 
points at which a borrower would see zero added costs from taking on 
additional debt. In other words, they could borrow more debt without 
seeing their total lifetime payments increase. This commenter suggested 
a few possible formulas, including ones that would provide forgiveness 
after as few as five or eight years of payments.
    Several commenters suggested that the Department measure the 
periods for forgiveness in terms of months rather than years. In other 
words, a borrower could have a repayment timeline of 10 years and 1 
month based upon the amount they borrowed.
    Discussion: We appreciate the suggestions from commenters but 
decline to make changes to the shortened forgiveness formula. Regarding 
proposals to start the period of forgiveness sooner, the Department 
believes that it would not be appropriate to have the period of 
forgiveness be shorter than the existing standard 10-year repayment 
period. The Department also believes that some of the other proposals 
would either establish significant cliff effects or create a structure 
for shortened forgiveness that would be overly complicated. On the 
former, the Department is concerned that some suggestions to only 
provide forgiveness after 10, 15, or 20 years would add significant 
jumps in timelines such that a borrower who takes on debt just above a 
threshold would be paying for as long as an additional 5 years. This 
result is distinct from the different treatment of undergraduate and 
graduate debt where the latter reflects an intentional decision to 
borrow for an additional type of program. At the same time, the 
Department is concerned that calculating timelines to forgiveness that 
could vary by a single month or two would be too confusing for 
borrowers to understand and for the Department to administer. A slope 
of an additional year for every $1,000 borrowed creates a clear 
connection between the period in which the student borrowed and the 
repayment time frame. The equivalent of saying every $83.33 in debt 
adds one month would be less likely to affect how

[[Page 43861]]

borrowers consider how much debt to take out.
    Changes: None.

Other Comments

    Comments: Several commenters recommended that the Department 
clarify how we will calculate the forgiveness timeline for a borrower 
who starts repayment, then returns to school and takes out new loans. 
One commenter suggested that the Department create a provision similar 
to Sec.  685.209(k)(4)(v)(B) that would address this situation to 
prorate the amount of forgiveness based on the weighted average of the 
forgiveness acquired for each of the set of loans by the original 
balance, as well as make the update automatic which would standardize 
repayment. The commenter also expressed concern that Sec.  
685.209(k)(4)(v)(B) only applies to consolidated loans.
    Discussion: The timelines for forgiveness will be based upon the 
borrower's total original principal loan balance on outstanding loans. 
As a result, if a borrower goes back to school and borrows additional 
loans after some period in REPAYE, the new total loan balance would 
form the basis for calculating the forgiveness timeline. Absent such an 
approach, the Department is concerned that a borrower would have an 
incentive to borrow for a year, take time off and enter repayment, then 
re-enroll so that they have multiple loans all based upon a shorter 
forgiveness period, even though the total balance is higher.
    Regarding questions about the time to 20- or 25-year forgiveness 
for a borrower with multiple unconsolidated loans, those loans may 
accumulate different periods toward forgiveness, even though the total 
amount of time until forgiveness is consistent. As an example, if a 
borrower repays for 10 years on one set of undergraduate loans and then 
borrows more undergraduate loans without consolidating with the earlier 
loans, the earlier loans will have 10 of the necessary 20 years for 
forgiveness; the newer loans would have no progress toward forgiveness. 
If the second set of loans were graduate loans, the borrower would have 
15 years remaining on the 25-year forgiveness for the earlier loans and 
25 years left for the new loans.
    Changes: None.

Automatic Enrollment in an IDR Plan (Sec.  685.209(m))

    Comments: Many commenters strongly supported automatic enrollment 
into an IDR plan for any student borrower who is at least 75 days 
delinquent on their loan(s). Many commenters urged the Department to 
allow borrowers in default who have provided approval for the 
disclosure of their Federal tax information to also be automatically 
enrolled in an IDR plan.
    One commenter stated that this proposal is a significant step 
forward because defaulting on student loans has long-term financial 
consequences. One commenter urged the Department to add regulatory 
language requiring servicers to notify borrowers with parent PLUS loans 
who are 75 days delinquent about consolidating their loans and then 
enrolling in IDR.
    Discussion: We agree with the commenters that this is a step 
forward to give borrowers an important opportunity to repay their loans 
instead of defaulting. While our hope is that borrowers will give us 
approval for disclosing their Federal tax information prior to going 75 
days without a payment, we recognize that it is possible that a 
borrower may choose to give us their approval only after entering 
default. Therefore, if a borrower in default provides approval for the 
disclosure of their Federal tax information for the first time, we 
would also calculate their payment and either enroll them in IBR or 
remove them from default in the limited circumstances laid out in Sec.  
685.209(n). The same considerations would apply to both delinquent and 
defaulted borrowers in terms of the Department needing approval and the 
borrower needing to see a reduction in payments from going onto an IDR 
plan. However, we will not apply this provision for borrowers subject 
to administrative wage garnishment, Federal offset, or litigation by 
the Department without those borrowers taking affirmative steps to 
address their loans. Accordingly, we have broadened this provision to 
include borrowers whose loans are in default, with the limitation that 
it would not include borrowers subject to Federal offset, 
administrative wage garnishment or litigation by the Department. If a 
borrower has loans both in good standing in repayment and in default, 
the loans in repayment would be eligible for automatic enrollment in 
REPAYE.
    We appreciate the suggestion that the regulations be modified to 
require the Department to notify parent PLUS borrowers who are 
delinquent about the option to consolidate their loans, which would 
allow them access to ICR. Currently, the Department provides borrowers 
with this information through numerous methods. The requirements 
applicable to our servicers in this area are addressed operationally 
and not in regulations.
    Changes: We have revised Sec.  685.209(m)(3) to provide that a 
borrower who has provided approval for the disclosure of their Federal 
tax information and has not made a scheduled payment on the loan for at 
least 75 days or is in default on the loan and is not subject to a 
Federal offset, administrative wage garnishment under section 488A of 
the Act, or a judgment secured through litigation may automatically be 
enrolled in an IDR plan.
    Comments: One commenter was concerned that borrowers may be unaware 
of IDR plans. This commenter stated that automatically moving borrowers 
to an IDR plan and presenting them with an anticipated lower payment 
would more effectively raise awareness than additional marketing or 
outreach. Moreover, this commenter expressed concern that a borrower 
may become delinquent because their current repayment amount may be 
unaffordable.
    Discussion: We thank the commenter for their concern about 
borrowers' awareness of the IDR plans. The Department shares this 
commenter's concern and anticipates having multiple communication 
campaigns and other methods explaining the REPAYE plan to borrowers. We 
agree with the commenter about the benefits of automatically enrolling 
borrowers and will automatically enroll borrowers who are 75 days 
delinquent into the IDR plan. We believe this approach will help 
borrowers avoid default and give them an opportunity for repayment 
success.
    Changes: None.
    Comments: Another commenter supported the automatic enrollment for 
borrowers who are 75 days delinquent but felt that implementation of 
the regulation will be burdensome because borrowers will have to 
provide their consent for the Department to obtain income information 
from the IRS. Several commenters argued that they are concerned that 
automatic enrollment depends on borrowers providing previous approval 
to disclose the borrower's Federal tax information and family size to 
the Department.
    Another commenter stated that automatic enrollment in an IDR plan 
is unlikely to be effective and cannot be implemented. The commenter 
believed it is misleading to characterize the application or 
recertification process as automatic for delinquent borrowers since 
borrower approval for the IRS to share income information with the 
Department is required.

[[Page 43862]]

    Discussion: It is true that a borrower must have previously 
provided approval for the disclosure of tax information to be 
automatically enrolled in an IDR plan when becoming 75 days delinquent; 
however, we believe that calling it automatic enrollment is appropriate 
because the goal is for borrowers to provide such approval when they 
are first in the process of taking out the loan. The result is that the 
enrolment in IDR can be more automatic at the time of delinquency. As 
the Department implements this functionality, we are working to make 
the process of providing such approval as simple as legally possible 
for the borrower.
    Changes: None.

Defaulted Loans (Sec.  685.209(d), (k), and (n))

    Comments: Many commenters expressed strong support for the 
Department's proposal to allow defaulted borrowers to enroll in the IBR 
plan, so that they can receive credit toward forgiveness. Other 
commenters agreed that the IBR plan was the appropriate plan for 
borrowers in default, and also encouraged the Department to 
automatically enroll all borrowers exiting default into the lowest cost 
IDR plan.
    Discussion: We agree with the commenters that enrollment in the IBR 
plan is the proper IDR option for borrowers in default. Allowing them 
to choose this one plan instead of choosing between it and REPAYE 
simplifies the process of selecting plans and provides borrowers with a 
path to accumulate progress toward forgiveness. This is particularly 
important for borrowers who cannot exit default through loan 
rehabilitation or consolidation. As we explain under the ''Automatic 
Enrollment in an IDR Plan'' section of this document, we will 
automatically enroll in IBR a borrower who is in default if they have 
provided us the approval for the disclosure of tax data.
    We agree with the suggestion to help borrowers access other IDR 
plans upon leaving default if possible. To that end, we have updated 
the regulatory text noting that a borrower who leaves default while on 
IBR may be placed on REPAYE if they are eligible for the plan and doing 
so would generate a payment lower than or equal to their monthly 
payment.
    Changes: We added a provision to Sec.  685.210(b)(3) that a 
borrower who made payments under the IBR plan and successfully 
completed rehabilitation of a defaulted loan may chose the REPAYE plan 
when the loan is returned to current repayment if the borrower is 
otherwise eligible for the REPAYE plan and if the monthly payment under 
the REPAYE plan is equal to or less than their payment on IBR.
    Comments: Several commenters disagreed with the proposed 
regulations relating to defaulted borrowers. They believed that the 
cohort default rates (CDR) and repayment rates on Federal loans were 
important indicators of whether a particular institution is adequately 
preparing its graduates for success in the job market so that they are 
able to earn sufficient income to remain current on their student loan 
repayments. Another commenter believed that while our proposals may 
mitigate the risk of default for individual borrowers, our proposals 
would also reduce the utility of CDR rates. This commenter reasoned 
that if CDR were to become a useless accountability tool, we would need 
new methods of quality assurance for institutions. The commenter 
concluded that to avoid risk to the taxpayer investment, we should 
simultaneously draft regulations that provide affordable payments and 
hold institutions accountable.
    In addition, several other commenters noted that consumer 
disclosure websites, including the Department's ``College Scorecard,'' 
point to CDRs and metrics describing the proportion of graduates making 
progress toward repayment as important quality indicators that can help 
families and matriculating students assess the likelihood that a 
particular institution offers a reasonably high return on investment.
    Discussion: We believe that the expanded qualifications under the 
new REPAYE plan will afford defaulted borrowers more of an opportunity 
to repay their obligations because their monthly payment will be more 
appropriately calculated based on their current income and family size. 
Through other rulemaking approaches, as described in the RIA, the 
Department is working to implement other accountability and consumer 
protection measures. In the responses to comments in the RIA we have 
included a longer discussion of these accountability issues.
    Changes: None.
    Comments: Several commenters expressed support for granting access 
to an IDR plan to borrowers in default but said the Department should 
amend the terms of IBR to better align with the terms of the REPAYE 
plan, such as the amount of income protected from payments and the 
share of discretionary income that goes toward payments. Along similar 
lines, some commenters raised concerns that a defaulted borrower's path 
through IBR is not ideal because IBR is not the most generous plan for 
monthly payments, particularly when compared with the additional income 
protections offered in the new REPAYE plan.
    A few commenters argued that the Department should grant defaulted 
borrowers' credit toward cancellation for payments under REPAYE as long 
as the borrower enrolls in IBR at some point during repayment.
    Discussion: We appreciate the commenters' support for allowing 
defaulted borrowers to access an IDR plan. This change will provide a 
much-needed path that can help reduce borrowers' payments and give them 
the opportunity for loan forgiveness. While we understand the requests 
for adjusting the terms of IBR to better match REPAYE, the Department 
does not have the legal authority to do so.
    Changes: None.
    Comments: Several commenters asked that the Department adjust the 
restrictions on when a borrower who has spent significant time on 
REPAYE be allowed to switch to IBR. They asked that if a borrower makes 
extensive payments on REPAYE and then defaults that they still be 
granted access to IBR while in default.
    Discussion: The Department disagrees with commenters. The purpose 
of the restriction on switching to IBR is to prevent situations where a 
borrower might switch so they could get forgiveness sooner. While it is 
unlikely that a borrower would default to shorten their period to 
forgiveness, that is a possibility that we want to protect against. 
However, by changing the limitation on switching into IBR to only apply 
once a borrower has made 60 payments on REPAYE after July 1, 2024, we 
believe that the number of borrowers who end up in default and are 
affected by this restriction will be low. In general, default rates for 
borrowers on IDR plans are quite low and we anticipate they will remain 
low due to improvements in the annual recertification process.
    Changes: None.
    Comments: Several commenters asked the Department to allow a 
borrower in default who has a Direct Consolidation Loan that repaid a 
parent PLUS loan to access the IBR plan. Commenters further explained 
that while this option might not always give borrowers a lower payment 
in default, and it would not count toward forgiveness, it would provide 
more affordable payments for some borrowers.
    Discussion: Section 493C of the HEA precludes a borrower with a 
Direct Consolidation Loan that repaid a parent

[[Page 43863]]

PLUS loan from using the IBR plan. The Department also declines to 
grant access to the ICR plan for a borrower in default. We are 
concerned that time in default does not count toward forgiveness and 
would not help address a borrower's long-term situation. We note that 
if a borrower with a Direct Consolidation Loan that repaid a parent 
PLUS loan rehabilitates their defaulted loan, they may access the ICR 
plan after getting out of default.
    Changes: None.
    Comments: Several commenters argued that we should waive collection 
fees entirely for those making payments under IDR or create a statute 
of limitations on collection fees. Those commenters also recommended 
waiving collection charges during repayment as a greater incentive to 
repay the loan than forgiving a portion of the loan two decades in the 
future.
    Discussion: The Department understands that increasing collection 
fees can discourage borrowers from repaying their loans. However, the 
HEA generally requires borrowers to pay the costs of collection.\88\ We 
will consider the appropriate level of collection fees for borrowers in 
default who make voluntary payments including payments made while 
enrolled in an IDR plan. These are subregulatory issues that are not 
addressed in this final rule.
---------------------------------------------------------------------------

    \88\ See Sec. 455(e)(5) of the HEA.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Many commenters supported the provision that allows 
borrowers to receive credit toward forgiveness for any amount collected 
through administrative wage garnishment, the Treasury Offset Program, 
or any other means of forced collection that is equivalent to what the 
borrower would have owed on the 10-year standard plan. But many of 
these same commenters expressed confusion about regulatory language 
that indicated we would award credit for forgiveness for involuntary 
collections based upon amounts that equaled a payment on the 10-year 
standard plan. They asked why a borrower would not receive credit based 
upon their IBR payment.
    Discussion: The Department expects that borrowers in IBR will make 
payments while they are in default, but we recognize that they may face 
some involuntary collections. We agree with the commenters that if a 
borrower has provided the necessary information to calculate their IBR 
payment, we would treat amounts collected through involuntary methods 
akin to how we consider lump sum or partial payments for a borrower who 
is in repayment. That means if we know what they should be paying each 
month under IBR, we could credit a month of progress toward forgiveness 
on IBR when we have collected an amount equal to their monthly IBR 
payment. In other words, if a borrower's monthly IBR payment is $50 and 
we collect $500 from Treasury offset in one year, we would credit the 
borrower with 10 months of credit toward forgiveness for that year. 
Alternatively, if the borrower's IBR payment was $50 and we collect $25 
a month through administrative wage garnishment, we would credit one 
month of forgiveness for every two months we garnish wages. Upon 
further review of the proposal from the NPRM we think that only 
crediting the progress toward forgiveness based upon amounts equivalent 
to payments on the 10-year standard plan when we know that a payment 
based on their income would be lower is not appropriate.
    This provision would also have limitations that are similar to 
those on lump sum payments. Namely a borrower would not be able to 
receive credit at the IBR payment amount for a period beyond their next 
recertification date. This makes certain amounts stay up to date with a 
borrower's income.
    We do not believe this treatment of forced collections amounts as 
akin to lump sum payments would put borrowers in default in a better 
position than those who are in repayment or provide better treatment to 
someone who voluntarily makes a lump sum payment than someone in this 
situation who has not chosen to. For one, the borrowers in default 
would still be facing the negative consequences associated with 
default, including negative credit reporting. These amounts would also 
not be voluntarily collected. Someone who makes a lump sum payment in 
repayment is choosing to do so. In these situations, a borrower is not 
choosing the amount that is collected and it is highly likely that they 
would choose to not make such large payments all at once. Because the 
borrowers in default are not controlling the amounts collected, they 
cannot guarantee that the amounts collected would not be in excess of 
the amount at which they would stop receiving credit toward 
forgiveness. In other words, if 12 months of an IBR payment is $1,000 
and we collect $1,500, the additional $500 would not be credited as 
additional months in forgiveness. By contrast, a borrower in repayment 
could choose to only make a lump sum payment up to the point that they 
would not be making payments in excess of what is needed to get credit 
toward forgiveness up to their next recertification date. Given these 
existing downsides compared to borrowers in repayment, crediting 
payments at the equivalent of IBR monthly payments is a modest benefit 
for borrowers instead of calculating them at the 10-year standard plan. 
It will help borrowers earn additional credit toward forgiveness and a 
path out of default compared to only crediting payments at the standard 
10-year amount. And the Department hopes that seeing the lower 
available payment may encourage some of these borrowers to take steps 
to make voluntary payments instead and cease being subject to forced 
collections.
    Accordingly, we clarified the language to note that amounts 
collected would be credited at the amount of IBR payments if the 
borrower is on the IBR plan, except that a borrower cannot receive 
credit for an amount of payments beyond their recertification date. 
Borrowers who are not on IBR would be credited toward IBR forgiveness 
at an amount equal to the amount calculated under the 10-year standard 
plan. We need to credit those borrowers at that level because we do not 
know their income and cannot calculate an IBR payment.
    Changes: We amended Sec.  685.209(k)(5)(ii) to clarify that a 
borrower would receive credit toward forgiveness if the amount received 
through administrative wage garnishment or Federal Offset is equal to 
the amount they would owe on IBR, except that a borrower cannot receive 
credit for a period beyond their next recertification date. We also 
added subparagraph (iii) that indicates a borrower would receive credit 
toward forgiveness on an amount equal to the amount due under the 10-
year standard plan from those same sources of involuntary collections 
if the IBR payment amount cannot be calculated.
    Comments: Many commenters recommended that the Department clarify 
that defaulted borrowers who are enrolled in IBR will not be subject to 
any involuntary collections so long as they are satisfying IBR payment 
obligations through voluntary payments--including $0 payments for those 
eligible. Other commenters suggested that the Department should confirm 
that borrowers enrolled in IDR are either not subject to involuntary 
collections (such as wage garnishment, seizure of Social Security 
benefits, or seizure of tax refunds) at all, or at least not for any 
amounts that exceed their IDR payment obligation.
    Discussion: We agree with the goals of the many commenters who 
asked us to cease involuntary collections once a defaulted borrower is 
on IBR. However,

[[Page 43864]]

involuntary collections also involve the Departments of Treasury and 
Justice, and we do not regulate the actions of these other agencies. 
Instead, we will work with those agencies to implement this operational 
change outside of the regulatory process. We also note that we could 
access information about defaulted borrower wages through the 
involuntary collections process even for borrowers not in IBR. We will 
explore using those data to work with the Departments of Treasury and 
Justice to better align involuntary collections with what a defaulted 
borrower would owe under IBR.
    Changes: None.
    Comments: Several commenters asked us to create a path out of 
default based upon a borrower agreeing to repay on an IBR plan. They 
argued that once a borrower is placed on the IBR plan, they should be 
able to move back into good standing.
    Discussion: The Department does not have the statutory authority to 
establish the path out of default as requested by the commenters. 
However, the Department recognizes that there may be borrowers who 
provide the information necessary to calculate an IBR payment shortly 
after entering default and that such information may indicate that they 
would have had a $0 payment for the period leading up to their default 
had they given the Department such information. Since those borrowers 
would have a $0 monthly payment upon defaulting, the Department 
believes it would be appropriate to return those borrowers to good 
standing. This policy is limited to circumstances in which the 
information provided by the borrower to establish their current IBR 
payment can also be used to determine what their IDR payment would have 
been at the point of default.
    An example highlights how this would work. A borrower enters 
default in June 2025. In August 2025, they furnish their Federal tax 
information for the 2024 calendar year, and it shows they would have 
had a $0 payment. We would have calculated a $0 payment had the 
borrower submitted this information in June, thereby preventing the 
default. That borrower would be removed from default and returned to 
good standing. Had the same borrower who defaulted in June 2025 
provided their information in 2028, they would not receive this 
benefit. At that point, the information provided is likely from the 
2027 calendar year, and so it does not cover the period of default. The 
effect of this is that most borrowers will need to provide their 
earnings information within a year of defaulting to benefit from this 
policy.
    Borrowers who receive this benefit will not have the history of 
default or any collections that occurred before providing their income 
information reversed because these defaults did not occur in error. It 
would also not be available for borrowers with a payment higher than 
$0, as the Department cannot guarantee that someone who would have had 
a reduced payment obligation would have met that requirement the way in 
which we know they would have fulfilled the $0 payment requirement.
    This benefit will give low-income borrowers who act swiftly in 
default a fast path back into good standing without exhausting either 
their rehabilitation or consolidation options.
    Changes: The Department has added new paragraph Sec.  685.209(n) to 
provide that a borrower will move from default to current repayment if 
they provide information needed to calculate an IDR payment, that 
payment amount is $0, and the income information used to calculate the 
IDR payment covers the period when the borrower's loan defaulted.
    Comments: Many commenters called for the Department to allow 
previous periods of time spent in default to be retroactively counted 
toward forgiveness. These commenters asserted that some people in 
default are disadvantaged borrowers who were poorly served by the 
system, and that their situation is similar to past periods of 
deferment and forbearance that are being credited toward loan 
forgiveness.
    Discussion: The Department does not agree that periods of time in 
default prior to the effective date of this rule should be credited 
toward forgiveness. To credit time toward IBR, we need to know a 
borrower's income and household information. We would not have that 
information for those past periods. Therefore, there is no way to know 
if the amount paid by a borrower would have been sufficient. The 
Department will award credit for certain periods in deferment 
retroactively on the grounds that most of those are situations in which 
the Department knows the borrower would have had a $0 payment, such as 
an economic hardship deferment or the rehabilitation training 
deferment. We do not have similar information for past periods in 
default.
    Changes: None.
    Comments: One commenter noted that many borrowers experience 
obstacles enrolling in an IDR plan after exiting default, especially 
those who choose to rehabilitate their loans. This commenter said that 
research showed borrowers who have rehabilitated their loans tend to 
re-default.\89\ They suggested that the Department should remove the 
stipulation of completing unnecessary and burdensome loan 
rehabilitation paperwork.
---------------------------------------------------------------------------

    \89\ www.pewtrusts.org/en/research-and-analysis/reports/2023/01/student-loan-default-system-needs-significant-reform.
---------------------------------------------------------------------------

    Discussion: We agree with the commenter that it is critical to make 
it easier for borrowers to navigate the Federal student financial aid 
programs and share their concerns about making sure borrowers can 
succeed after rehabilitating a defaulted loan. To help achieve these 
goals, we have added language that allows the Secretary to place a 
borrower who successfully rehabilitates a defaulted loan and has 
provided approval for the disclosure of their Federal tax information 
on REPAYE if the borrower is eligible for that plan and doing it would 
produce a monthly payment amount equal to or less than what they would 
pay on IBR. We feel that this streamlined approach will remove 
obstacles when borrowers enroll in an IDR plan, especially for those 
borrowers that rehabilitated their defaulted loans. In addition, this 
will remove unnecessary and burdensome paperwork.
    The Department is adopting an additional change to also help 
borrowers navigate the process of rehabilitating their loans. We are 
revising Sec.  685.211(f) to note that a reasonable and affordable 
payment for the purposes of loan rehabilitation can be equal to the IBR 
payment amount calculated for the borrower. The current regulations 
calculate the payment at the IBR amount for borrowers prior to 2014, 
which is 15 percent of discretionary income. Since then, borrowers have 
been able to make payments at 10 percent of discretionary income. This 
change will allow borrowers to make payments at the greater of 10 
percent of discretionary income or $5 while pursuing a loan 
rehabilitation.
    Changes: We have modified Sec.  685.211(f) to provide that a 
reasonable and affordable payment can be equal to the borrower's IBR 
payment amount. We have also added a new paragraph (f)(13) to Sec.  
685.211 that allows the Secretary to move a borrower into REPAYE after 
the satisfaction of a loan rehabilitation agreement if the borrower is 
eligible for that plan and it would produce a lower or equivalent 
payment to the IBR plan.

[[Page 43865]]

Application and Annual Recertification Procedures (Sec.  685.209(l))

    Comments: Many commenters supported the Department's efforts to 
simplify the annual income recertification process for borrowers in IDR 
plans. These commenters also felt that the proposed rules would help 
eliminate burdensome and confusing recertification requirements and 
administrative hurdles for borrowers. A few commenters were concerned 
that administering these regulations contained inherent challenges for 
recertification if a borrower did not file a tax return. One commenter 
commended the Department for its plan to streamline IDR enrollment and 
recertification through IRS data sharing. Several commenters urged that 
we retain the current data retrieval tool with the IRS for FFEL Program 
borrowers who complete the electronic IDR application which is 
currently available on the StudentLoans.gov website. Another commenter 
suggested that a robust regulatory notification process is vital, even 
for borrowers already in IDR since some borrowers will opt out of data-
sharing.
    Discussion: We thank the commenters for their positive comments and 
suggestions for improvement regarding the application and automatic 
recertification processes. We understand the commenters' concern about 
keeping the current process for the IDR application in place. However, 
we believe that the process we have developed improves and streamlines 
our processes for borrowers. We will continue to seek additional ways 
to improve processes.
    In response to the commenters' concern about inherent challenges 
non-filing borrowers face with recertification, under Sec.  685.209(l) 
we provide the procedures under which we may obtain the borrower's AGI 
under the authorities granted to us under the FUTURE Act as well as 
opportunities for borrowers to provide alternate documentation of 
income (ADOI). Accordingly, we modified Sec.  685.209(l) to provide 
examples of how borrowers, including those who do not file Federal tax 
returns, could approve to the disclosure of their tax information for 
purposes of IDR recertification.
    The treatment of IRS data sharing for FFEL Program loans is not a 
regulatory issue and is not addressed in these rules.
    Changes: We have modified Sec.  685.209(l) to provide examples of 
how a borrower could provide approval for the disclosure of tax 
information for the purposes of IDR.
    Comments: One commenter believed we should make recertification 
simpler and, to the maximum extent possible, update the monthly loan 
payment amount automatically instead of requiring annual certification 
for continuation in an IDR plan. This commenter believes that many 
borrowers, especially those borrowers who would otherwise qualify for a 
$0 monthly payment, do not complete the recertification process.
    Discussion: We agree, in part, with the commenter about the 
difficulties borrowers face during recertification. As we acknowledged 
in the IDR NPRM, the current application and recertification processes 
create significant challenges for the Department and borrowers. As a 
solution, we believe that the authorities granted to us under the 
FUTURE Act as codified in HEA section 455(e)(8) will allow us to obtain 
a borrower's AGI for future years if they provide approval for the 
disclosure of tax information. This should ameliorate the commenter's 
concern about borrowers' failure to recertify. This includes borrowers 
who would otherwise qualify for a $0 monthly payment in subsequent 
years.
    Changes: None.

Consequences of Failing To Recertify (Sec.  685.209(l))

    Comments: Commenters noted concerns that the current process of 
annually recertifying participation on IDR plans is burdensome and 
results in many borrowers being removed from IDR plans. Other 
commenters argued that the Department needs to do more to protect 
progress toward forgiveness for those who fail to recertify, especially 
when the recertification was hampered by what they described as inept 
servicers.
    Discussion: We thank the commenters for their support of automatic 
enrollment for IDR. We believe that the recertification process will 
enable borrowers to streamline the process toward forgiveness and 
reduce the burden on borrowers. We also believe that more borrowers 
will recertify so that they are not removed from IDR plans and that 
borrowers who struggle to recertify on time will not lose a few months 
of progress to forgiveness every year. As we explain in the IDR NPRM, 
due to recent statutory changes regarding disclosure of tax information 
in the FUTURE Act \90\ (alongside subsequent amendments to this 
language), upon the Department obtaining the borrower's approval, we 
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.
---------------------------------------------------------------------------

    \90\ See Public Law 116-91.
---------------------------------------------------------------------------

    Changes: None.

Consolidation Loans (Sec.  685.209(k))

    Comments: Many commenters strongly supported the Department's 
proposal to provide that a borrower's progress toward forgiveness will 
not fully reset when they consolidate Direct or FFEL Program Loans into 
a Direct Consolidation Loan. Many commenters supported the proposed 
regulations, citing that we should count previous payments in all IDR 
plans and not reset the time to forgiveness when a person consolidates 
their loans because the debt is not new.
    Several commenters expressed disappointment that the proposed 
regulations did not address how qualifying payments would be calculated 
for joint consolidation loans that may be separated through the Joint 
Consolidation Loan Separation Act,\91\ which was enacted October 11, 
2022, and hoped that the Department would provide more details about 
counting the number of qualifying payments on the loans.
---------------------------------------------------------------------------

    \91\ Text--S.1098--117th Congress (2021-2022): Joint 
Consolidation Loan Separation Act. (2022, October 11). 
www.congress.gov/bill/117th-congress/senate-bill/1098/text.
---------------------------------------------------------------------------

    Discussion: We thank the commenters for their support of the 
provision to retain the borrower's progress toward forgiveness when 
they consolidate Direct or FFEL Program Loans into a Direct 
Consolidation Loan.
    We did not discuss joint consolidation separation in the IDR NPRM. 
However, we agree with the commenters that more clarity would be 
helpful. Accordingly, we have added new language noting that we will 
award the same periods of credit toward forgiveness on the separate 
consolidation loans that result from the split of a joint consolidation 
loan. The Department chose this path as the most operationally feasible 
option given that these loans are all from 2006 or earlier and it may 
otherwise not be possible to properly determine the amount of time each 
loan spent in repayment. We are also clarifying how consideration of 
whether the separate consolidation loans that result from the split of 
a joint consolidation loan would be eligible for the shortened period 
until forgiveness would work. Eligibility for that provision would be 
calculated based upon the original principal balance of

[[Page 43866]]

the loans that have been split from a joint consolidation loan.\92\
---------------------------------------------------------------------------

    \92\ The Department has published regular updates on the Joint 
Consolidation Separation Act on StudentAid.gov: www.studentaid.gov/announcements-events/joint-consolidation-loans.
---------------------------------------------------------------------------

    Changes: We have amended Sec.  685.209(k)(4)(vi)(C) to provide 
that, for borrowers whose Joint Direct Consolidation Loan is separated 
into individual Direct Consolidation loans, each borrower receives 
credit for the number of months equal to the number of months that was 
credited prior to the separation.

Choice of Repayment Plan Sec.  685.210

    Comments: One commenter recommended that we update our regulations 
to provide that, when a borrower initially selects a repayment plan, 
the Secretary must convey to the borrower specific information about 
IDR plans, including the forgiveness timelines. This commenter cited a 
report from the GAO that flagged this area for improvement. Another 
group of commenters urged us to include regulatory language to make 
sure that borrowers are aware of the terms and conditions of their IDR 
plans. This group of commenters were concerned that we eliminated the 
detailed notices in existing regulations without proposing adequate 
replacements and provided examples of the notice types that they 
believed we should implement.
    Discussion: We believe that our regulations at Sec.  685.210(a) 
provide an adequate framework describing when the Department notifies 
borrowers about the repayment plans available to them when they 
initially select a plan prior to repayment. Moreover, Sec.  
685.209(l)(11) already provides that we will track a borrower's 
progress toward eligibility for IDR forgiveness. In the GAO report \93\ 
cited by the commenter, the GAO recommended that we should provide 
additional information about IDR forgiveness, including what counts as 
a qualifying payment toward forgiveness, in communications to borrowers 
enrolled in IDR plans. The recommendation further noted that we could 
provide this information to borrowers or direct our loan servicers to 
provide it. In response to the GAO, we concurred with the 
recommendation and identified steps we would take to implement that 
recommendation. As part of the announcement of the one-time payment 
count adjustment we have also discussed how we will be making 
improvements to borrowers' accounts so they will have a clearer picture 
of progress toward forgiveness. Moreover, we do not think we need 
regulatory language to accomplish what the commenter requests. We can 
address these issues while working with our contractors and a 
subregulatory approach gives us greater ability to tailor our 
activities to what works best for borrowers.
---------------------------------------------------------------------------

    \93\ U.S. Government Accountability Office, 2022. Federal 
Student Aid: Education Needs to Take Steps to Ensure Eligible Loans 
Receive Income-Driven Repayment Forgiveness. GAO-22-103720.
---------------------------------------------------------------------------

    We similarly disagree that we need to add regulatory text around 
notifications as suggested by the group of commenters. As part of this 
regulatory effort, the Department streamlined and standardized the IDR 
plans. To provide uniformity across the different IDR plans, Sec.  
685.209(l)(5) specifies the repayment disclosure that we send to 
borrowers including: the monthly payment amount, how the payment was 
calculated, the terms and conditions of the repayment plan, and how to 
contact us if the borrower's payment does not accurately reflect the 
borrower's income or family size. The Department thinks it is important 
to preserve flexibility around how we conduct outreach and notification 
to borrowers, and we are concerned that overly prescriptive regulations 
would work against those goals.
    Changes: None.
    Comments: None.
    Discussion: The IDR NPRM did not reflect the statutory requirement 
under section 493C(b)(8) of the HEA (20 U.S.C. 1098e(b)(8)) that 
provides that borrowers who choose to leave the IBR plan must repay 
under the standard repayment plan. This requirement is reflected in 
current regulations at Sec.  685.221(d)(2)(i) and requires a borrower 
leaving IBR to make one payment under the standard repayment plan 
before requesting a change to a different repayment plan. A borrower 
may make a reduced payment under a forbearance for the purposes of 
meeting this statutory provision. This provision does not apply to 
borrowers leaving ICR, PAYE, or REPAYE. To clarify that this statutory 
provision still applies we are reflecting it in this final rule. It 
mirrors the Department's longstanding interpretation and implementation 
of this statutory requirement.
    Changes: We have added Sec.  685.210(b)(4) which requires a 
borrower leaving the IBR plan to make one payment under the standard 
repayment plan prior to enrolling into a different plan.

Alternative Repayment Plan Sec.  685.221

    Comments: Several commenters noted that the Department's proposal 
to simplify the Alternative Plan is a positive step. They believed that 
changing the regulations to re-amortize the remaining loan balance over 
10 years would make certain that borrowers' monthly payments are lower 
than they would have been under the Standard 10-year Repayment Plan. A 
few commenters stated that the Department should count all payments on 
the alternative plan toward forgiveness on REPAYE, rather than just 12 
months of payments. Others argued that, instead of being placed on the 
alternative payment plan, borrowers should be placed on the 10-year 
standard plan so that all the months of payments would count toward 
REPAYE forgiveness.
    Discussion: We appreciate the support for the creation of a 
simplified alternative repayment plan. However, we disagree and decline 
to accept either set of recommended changes. For one, we think the 
policy to allow a borrower to count up to 12 months of payments on the 
alternative plan strikes the proper balance between giving a borrower 
who did not recertify their income time to get back onto REPAYE while 
not creating a backdoor path to lower loan payments. For some 
borrowers, it is possible that the alternative repayment plan could 
produce payments lower than what they would owe on REPAYE. Were we to 
credit all months on the alternative plan toward forgiveness then we 
would risk creating a situation where a borrower is encouraged to not 
recertify their income so they could receive lower payments and then 
get credit toward forgiveness. Doing so works against our goal to 
target the benefits of, and encourage enrollment in, REPAYE. It would 
also in effect work as a cap on payments, which the Department is 
intentionally not including in REPAYE.
    Moreover, the Department anticipates that the number of borrowers 
who fail to recertify each year will decline thanks to the improvements 
made by the FUTURE Act. With those changes borrowers will be able to 
authorize the automatic updating of their payment information, limiting 
the likelihood that a borrower ends up on the alternative plan for 
failure to submit paperwork.
    We similarly disagree with the suggestion to place borrowers on the 
10-year standard repayment plan. Doing so creates a risk that borrowers 
would face extremely high unaffordable payments right away. That is 
because the 10-year plan calculates the payment needed for a borrower 
to pay off the loan within 10-years of starting repayment. For example, 
a borrower who spent four years on REPAYE and then went onto the 10-
year standard repayment plan

[[Page 43867]]

would be on a plan that amortizes their entire remaining loan balance 
over six years. That amount could easily be hundreds of dollars more a 
month than what the borrower was paying on an IDR plan, increasing the 
risk of delinquency or default. The alternative plan is a better option 
that would result in less payment shock than the 10-year standard plan 
would, so we encourage borrowers to recertify.
    Changes: None.

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, as 
amended by Executive Order 14094, 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 $200 million or more 
(adjusted every 3 years by the Administrator of OIRA for changes in 
gross domestic product), or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, territorial, or 
Tribal governments or communities;
    (2) Create a 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 legal or policy issues for which centralized review would 
meaningfully further the President's priorities, or the principles 
stated in the Executive Order, as specifically authorized in a timely 
manner by the Administrator of OIRA in each case.
    The Department estimates the net budget impact to be $156.0 billion 
in increased transfers among borrowers, institutions, and the Federal 
Government, with annualized transfers of $16.6 billion at 3 percent 
discounting and $17.9 billion at 7 percent discounting, and largely 
one-time administrative costs of $17.3 million, which represent annual 
quantified costs of $2.3 million related to administrative costs at 7 
percent discounting. Therefore, this final action is subject to review 
by OMB under section 3(f) of Executive Order 12866 (as amended by 
Executive Order 14094). Notwithstanding this determination, we have 
assessed the potential costs and benefits, both quantitative and 
qualitative, of this final regulatory action and have determined that 
the benefits will 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 regulations only on a reasoned determination 
that their benefits will 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 will not unduly 
interfere with State, local, territorial, and Tribal governments in the 
exercise of their governmental functions.
    The Director of OMB has waived the requirements of section 263 of 
the Fiscal Responsibility Act of 2023 (Pub. L. 118-5) pursuant to 
section 265(a)(2) of that act.
    As required by OMB Circular A-4, we compare the final 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.
1. Congressional Review Act Designation
    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated that this 
rule is covered under 5 U.S.C. 804(2) and (3).
2. Need for Regulatory Action
    Postsecondary education provides significant individual and 
societal benefits. For individuals, obtaining postsecondary credentials 
can lead to higher lifetime earnings and increased access to other 
benefits like health insurance and employer-sponsored retirement 
accounts, and is also positively correlated with job satisfaction, 
homeownership, and health.\94\ Our society also benefits from increased 
postsecondary attainment through a better educated and flexible 
workforce, increased civic participation, and improved health and well-
being for the next generation.\95\
---------------------------------------------------------------------------

    \94\ Oreopoulos, P., & Salvanes, K.G. (2011). Priceless: The 
Nonpecuniary Benefits of Schooling. Journal of Economic 
Perspectives, 25(1), 159-184.
    \95\ Moretti, E. (2004). Workers' Education, Spillovers, and 
Productivity: Evidence from Plant-Level Production Functions. 
American Economic Review, 94(3), 656-690.
    Dee, T.S. (2004). Are There Civic Returns to Education? Journal 
of Public Economics, 88(9-10), 1697-1720.
    Currie, J., & Moretti, E. (2003). Mother's Education and the 
Intergenerational Transmission of Human Capital: Evidence from 
College Openings. Quarterly Journal of Economics, 118(4), 1495-1532.
---------------------------------------------------------------------------

    But postsecondary education is expensive. For many attendees, a 
postsecondary education will be among the most expensive and 
consequential purchases they make in their lifetimes. Most students 
cannot afford this cost out of pocket. This is particularly the case 
for students from low-income families, individuals who are the first in 
their families to go to college, adults who do not attend postsecondary 
education immediately after high school, and other students who face 
barriers to college enrollment and success. For these individuals in 
particular, Federal student loans are

[[Page 43868]]

often a necessary component for financing college.
    Student loans provide the necessary financial resources to 
borrowers who cannot finance their educations out of pocket, allowing 
them to reap the benefits from enrolling in and completing a 
postsecondary education, and, as a result, to repay their debt through 
the earnings gains resulting from their increased educational 
attainment. This is why student loans are often described as borrowing 
against one's future income.
    However, in the years since the Great Recession, a greater number 
of students are borrowing student loans, and student loan balances have 
become larger. Many students are able to repay their Federal student 
loans from their earnings gains from postsecondary education. However, 
some borrowers find the amount of debt burdensome, and it may impact 
their decisions to buy a home, start a family, or start a new business.
    Many borrowers end up significantly constrained due to loan 
payments that make up an unaffordable share of their income. Among 
undergraduate students who started higher education in 2012 and were 
making loan payments in 2017, at least 19 percent had monthly payments 
that were more than 10 percent of their total annual salary.\96\
---------------------------------------------------------------------------

    \96\ Calculations using 2012 BPS data; table reference tcedtf.
---------------------------------------------------------------------------

    Borrowing to pursue a postsecondary credential also involves risk. 
First is the risk of noncompletion. In recent years, about one-third of 
undergraduate borrowers did not earn a postsecondary credential.\97\ 
These individuals are at a high risk of default, with an estimated 40 
percent defaulting within 12 years of entering repayment.\98\ Even 
among graduates, there is substantial variation in earnings across 
colleges, programs, and individuals. Some borrowers do not receive the 
expected economic returns due to programs that fail to make good on 
their promises or lead to jobs that provide financial security. 
Conditional on educational attainment, Black students take on larger 
amounts of debt.\99\ Additionally, discrimination in the labor market 
may lead borrowers of color to earn less than white borrowers, even 
with the same level of educational attainment.\100\ Unanticipated 
macroeconomic shocks, such as the Great Recession, provide an 
additional type of risk--specifically, that borrowers' postsecondary 
credentials may pay off less than anticipated in the short- or even 
long-run due to prolonged periods of unemployment or lower wages. 
Finally, there is individual-level risk of unanticipated events such as 
a serious illness that may reduce a borrower's ability to keep up with 
a fixed monthly payment.
---------------------------------------------------------------------------

    \97\ Calculations using 2012 BPS data; table reference: icvago.
    \98\ Calculations using 2004/2009 BPS data; table reference: 
lvafhq.
    \99\ E.g., Scott-Clayton, J., & Li, J. (2016). Black-white 
disparity in student loan debt more than triples after graduation. 
Economic Studies, Volume 2 No. 3.
    \100\ See https://nces.ed.gov/programs/raceindicators/indicator_RFD.asp.https://nces.ed.gov/programs/raceindicators/indicator_RFD.asp. For an overview of research on earnings gaps by 
race and the role of labor market discrimination, see Altonji, J.G., 
& Blank, R.M. (1999). Race and gender in the labor market. Handbook 
of labor economics, 3, 3143-3259.
---------------------------------------------------------------------------

    Income-driven repayment (IDR) plans are intended to help borrowers 
whose incomes are insufficient to sustain reasonable debt payments. The 
plans are created through statute and regulation and base a borrower's 
monthly payment on their income and family size. Under these plans, 
loan forgiveness occurs after a set number of years in repayment, 
depending on the repayment plan that is selected. Because payments are 
based on a borrower's income, they may be more affordable than 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 income-
based repayment (IBR) plan; (2) the income contingent repayment (ICR) 
plan; (3) the pay as you earn (PAYE) plan; and (4) the revised pay as 
you earn (REPAYE) plan. Within the IBR plan, there are two versions 
that are available to borrowers, 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.
    Because payments are calculated based upon income, the IDR plans 
can assist borrowers who may be overly burdened at the start of their 
time in the workforce, those who experience a temporary period of 
economic hardship, and those who perpetually earn a low income. For the 
first and second groups, an IDR plan may be the ideal option for a few 
years, while the last group may need assistance for multiple decades. 
IDR plans simultaneously provide protection for the borrower against 
the consequences of having a low income and adjust repayments to fit 
the borrower's changing ability to pay.\101\
---------------------------------------------------------------------------

    \101\ Krueger, A.B., & Bowen, W.G. (1993). Policy Watch: Income-
Contingent College Loans. Journal of Economic Perspectives, 7(3), 
193-201. doi.org/10.1257/jep.7.3.193.
---------------------------------------------------------------------------

    Federal student loan borrowers are increasingly choosing to repay 
their loans using one of the currently available IDR plans.\102\ 
Enrollment in IDR 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 borrowers with collectively more than $500 
billion in debt are currently enrolled in an IDR plan.\103\ Similarly, 
the share of borrowers with Federally managed loans enrolled in an IDR 
plan rose from just over one-quarter to one-third during this 
time.\104\
---------------------------------------------------------------------------

    \102\ 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. doi.org/10.1111/1756-2171.12097.
    \103\ U.S. Department of Education, Federal Student Aid Data 
Center, Repayment Plans, available studentaid.gov/manage-loans/repayment/plans. Includes all Federally managed loans across all IDR 
plans, measured in Q4 2016 through Q1 2022.
    \104\ Ibid.
---------------------------------------------------------------------------

    While existing IDR plans have helped millions of borrowers afford 
their monthly payments, they have not been selected by large numbers of 
the most vulnerable borrowers. Despite the availability of these plans, 
more than 1 million borrowers a year were still defaulting on student 
loans prior to the national pause on repayment, interest, and 
collections that began in March 2020. Many other borrowers were behind 
on their payments and at risk of defaulting.
    Research shows that undergraduate borrowers, borrowers with low 
incomes, and borrowers with high debt levels relative to their incomes 
enroll in IDR plans at lower rates than their counterparts with higher 
levels of education and incomes.\105\ An analysis of IDR usage by the 
JPMorgan Chase Institute found that there are two borrowers who could 
potentially benefit
---------------------------------------------------------------------------

    \105\ 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); Sarah Gunn, Nicholas Haltom, and Urvi Neelakantan, Should 
More Student Loan Borrowers Use Income-Driven Repayment Plans?, 
Federal Reserve Bank of Richmond (June 2021).

---------------------------------------------------------------------------

[[Page 43869]]

from an IDR plan for each borrower who actually enrolls in an IDR 
plan.\106\ Moreover, the borrowers not using the IDR plans appear to 
have significantly lower incomes than those who are enrolled. According 
to a Federal Reserve Bank of Richmond report, a quarter or less of 
borrowers in households with incomes less than $20,000 per year were in 
an IDR plan, compared to 46 percent of borrowers in households with 
income between $60,000 and $80,000 and 38 percent in households with 
incomes between $80,000 and $100,000.\107\ An Urban Institute analysis 
using the 2016 Survey of Consumer Finances found that households headed 
by borrowers who were receiving Federal benefits, such as support from 
the Supplemental Nutrition Assistance Program, were more likely to not 
make any payments because of forbearance, some other forgiveness 
program, or an inability to afford payments, than to be enrolled in an 
IDR plan.\108\ Similarly, a one-time analysis of student loan data 
conducted by the U.S. Treasury and disclosed in a GAO report found that 
70 percent of defaulted borrowers had incomes that met the requirements 
to qualify for IBR. This means that they would have had payments lower 
than the 10-year standard plan had they signed up for IBR.\109\ In line 
with evidence that Black borrowers are more likely to experience 
default on their loans, there is evidence of lower take-up in IDR usage 
among potentially-eligible Black borrowers. In particular, households 
headed by Black borrowers in the 2016 Survey of Consumer Finances were 
slightly more likely to report not making payments on their loans than 
to report using IDR.\110\
---------------------------------------------------------------------------

    \106\ 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. www.jpmorganchase.com/institute/research/household-debt/student-loan-income-driven-repayment.
    \107\ Sarah Gunn, Nicholas Haltom, and Urvi Neelakantan, Should 
More Student Loan Borrowers Use Income-Driven Repayment Plans?, 
Federal Reserve Bank of Richmond (June 2021).
    \108\ www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment.
    \109\ 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.
    \110\ www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment.
---------------------------------------------------------------------------

    These trends are further borne out in the Department's 
administrative data on borrowers with outstanding debt who recently 
entered repayment.\111\ Currently, just under a quarter (23 percent) of 
borrowers with only undergraduate loans are on an IDR plan, as compared 
to half (50 percent) of those who borrowed to attend a graduate 
program. As a result, about 79 percent of borrowers who recently 
entered repayment only had undergraduate loans, but these individuals 
represent only 64 percent of recent borrowers on IDR plans. By 
contrast, 21 percent of borrowers who recently entered repayment had 
graduate loans, but they represent 36 percent of borrowers on an IDR 
plan. Usage rates are even lower among the borrowers who are likeliest 
to face repayment difficulties. Among undergraduate only borrowers who 
recently entered repayment, 22 percent of borrowers who did not 
complete a credential are using an IDR plan, and IDR usage increases as 
educational attainment increases: 24 percent of those who completed a 
sub-baccalaureate credential and 25 percent of those who completed a 
bachelor's degree but not a graduate degree are on IDR plans. About 
half of borrowers who completed a graduate degree and recently entered 
repayment on are on IDR plan. These results are shown in Table 2.1 
below.
---------------------------------------------------------------------------

    \111\ Based on borrowers with who had at least one loan enter 
repayment between 2015 and 2018, excluding borrowers who only had 
Parent PLUS loans. IDR use is measured as of 12/31/2019.

 Table 2.1--IDR Usage by Borrower Characteristics, Borrowers Who Entered
                     Repayment Between 2015 and 2018
------------------------------------------------------------------------
                                                          Percentage  of
                                          Percentage  of  IDR  borrowers
                                          borrowers  (%)        (%)
------------------------------------------------------------------------
Has undergraduate loans only............              79              64
Has graduate loans......................              21              36
------------------------------------------------------------------------
             Among those that have undergraduate loans only
------------------------------------------------------------------------
Did not complete any credential.........              47              44
Completed a sub-baccalaureate credential              20              20
Completed a bachelor's degree but no                  30              32
 graduate degree........................
------------------------------------------------------------------------
                           Among all borrowers
------------------------------------------------------------------------
Completed a graduate degree.............              17              27
------------------------------------------------------------------------
Note: Borrowers who entered repayment with only Parent PLUS loans are
  excluded from these analyses. IDR usage is measured as of 12/31/2019.

    Even the borrowers who do use an IDR plan may continue to face 
challenges in repayment. Many borrowers on IDR still report concerns 
that their payments are too expensive. For example, one survey of 
student loan borrowers found that, of those currently or previously 
enrolled in an IDR plan, 47 percent reported that their monthly payment 
was still too high.\112\ Complaints from borrowers enrolled in IDR 
received by the Student Loan Ombudsman show that borrowers find that 
IDR payments are unaffordable because competing expenses, such as 
medical bills, housing, and groceries, cut into their discretionary 
income. Furthermore, borrowers in IDR still struggle in other areas of 
financial health. One study showed that borrowers enrolled in IDR had 
less money in their checking accounts and a lower chance of 
participating in saving for retirement than borrowers in other 
repayment plans, suggesting that struggling borrowers may not obtain 
sufficient relief from unaffordable

[[Page 43870]]

payments under the current IDR options to achieve financial 
stability.\113\
---------------------------------------------------------------------------

    \112\ Plunkett, Travis, Fitzgerald, Regan, Denten, Brain, West, 
Lexi, Upcoming Rule-Making Process Should Redesign Student Loan 
Repayment (September 2021), www.pewtrusts.org/en/research-and-analysis/articles/2021/09/24/upcoming-rule-making-process-should-redesign-student-loan-repayment.
    \113\ Collier, D.A., Fitzpatrick, D., & Marsicano, C.R. (2021). 
Another Lesson on Caution in IDR Analysis: Using the 2019 Survey of 
Consumer Finances to Examine Income-Driven Repayment and Financial 
Outcomes. Journal of Student Financial Aid, 50(2).
---------------------------------------------------------------------------

    Many borrowers on IDR plans face challenges beyond the 
affordability of their monthly payments. Department data show that 70 
percent of borrowers on IDR plans prior to March 2020 had payment 
amounts that did not cover their full interest payment.\114\ Borrowers 
in those situations on existing IDR plans will see their balances grow 
unless they only have subsidized loans and are in the first three years 
of repayment. Focus groups of borrowers show that this causes borrowers 
on IDR stress even when they are able to afford their payments.\115\
---------------------------------------------------------------------------

    \114\ 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.
    \115\ Sattelmeyer, Sarah, Brian Denten, Spencer Orenstein, Jon 
Remedios, Rich Williams, Borrowers Discuss the Challenges of Student 
Loan Repayment (May 2020), www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf.
---------------------------------------------------------------------------

    A significant share of borrowers report their expected monthly 
payments will still be unaffordable when they return to repayment 
following the end of the payment pause. For example, 26 percent of 
borrowers surveyed in 2021 disagreed with the statement that they would 
be able to afford the same monthly amount they were paying before the 
pause.\116\ A 2022 survey found that over a fifth of borrowers were 
chronically struggling with repayment before the pause and expected 
that they would continue to struggle when payments resume.\117\
---------------------------------------------------------------------------

    \116\ Survey on Student Loan Borrowers 2021, The Pew Charitable 
Trusts--Student Loan Research Project. survey-on-student-loan-
borrowers-2021-topline.pdf (pewtrusts.org).
    \117\ Akana, Tom and Dubravka Ritter. 2022. Expectations of 
Student Loan Repayment, Forbearance, and Cancellation: Insights from 
Recent Survey Data. Federal Reserve Bank, Philadelphia. Consumer 
Finance Institute.
---------------------------------------------------------------------------

    The Department is also concerned that while borrowers using IDR 
have lower default rates than borrowers not on these plans, the rate of 
default for borrowers on IDR still remains high. According to research 
from the Congressional Budget Office (CBO), the default rate for 
borrowers in IDR is about half that of borrowers in payment plans with 
a fixed amortization period. However, the cumulative default rates of 
undergraduate borrowers who began repayment in 2012 and participated in 
an IDR plan in their first and/or second year of repayment still 
approached nearly 20 percent by 2017.\118\ While the Department cannot 
definitively know why these borrowers defaulted, the fact that nearly 
one in five of them defaulted despite the usage of IDR shows that many 
borrowers struggle to make their payments under the current IDR options 
and suggests there is still significant work to do to make sure that 
these plans can set borrowers up for long-term repayment success.
---------------------------------------------------------------------------

    \118\ www.cbo.gov/publication/55968.
---------------------------------------------------------------------------

    The improved terms of the REPAYE plan in this final rule will help 
address these concerns. To the extent that borrowers are still 
defaulting because they cannot afford their payments, this plan will 
provide a $0 payment for more low-income borrowers and will reduce 
payments for all other borrowers relative to the current REPAYE plan, 
making payments more manageable and reducing the risk of default. In 
particular, income information currently on file suggests that more 
than 1 million borrowers on IDR could see their payments go to $0 based 
upon the parameters of the plan in this final rule, including more than 
400,000 that are already on REPAYE whose payment amounts would be 
updated automatically to $0.
    The Department is also taking steps to make it easier for borrowers 
to stay on IDR, which will further support their long-term repayment 
success. In particular, this is done through the ability to 
automatically recalculate payments when a borrower provides approval 
for the sharing of their Federal tax information. Such changes are 
important because historically, many borrowers failed to complete the 
income recertification process that is required to recalculate payments 
and maintain enrollment in an IDR plan. Borrowers who fail to complete 
this process at least once a year are moved to other repayment plans 
and may see a significant increase in their required monthly payment. 
Further, the fact that it is currently easier to obtain a forbearance 
or deferment than to enroll in or recalculate payments under IDR may 
lead some borrowers to choose to enter deferment or forbearance to 
pause their payments temporarily, rather than enrolling in or 
recertifying their income on IDR to access more affordable payments 
following a change in their income.\119\ In particular, borrowers may 
not have to provide income information or complete as much paperwork to 
obtain a pause on their loans through deferment or forbearance. 
Borrowers who are struggling financially and working to address a 
variety of financial obligations may be particularly inclined to enter 
deferment or forbearance rather than navigating the IDR enrollment or 
recertification process, despite the fact that staying on IDR--and 
updating their income information to recalculate monthly payments as 
needed--may better set them up for long-term repayment success. For 
example, 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.\120\ In contrast, delinquency rates for those who did recertify 
their incomes slowly improved.
---------------------------------------------------------------------------

    \119\ Consumer Financial Protection Bureau. Borrower Experiences 
on Income-Driven Repayment. November 2019. 
files.consumerfinance.gov/f/documents/cfpb_data-point_borrower-experiences-on-IDR.pdf.
    \120\ Ibid.
---------------------------------------------------------------------------

    The Department has several goals in pursuing these regulatory 
changes. First, we want to increase enrollment in an IDR plan among 
borrowers who are at significant risk of default or struggling to repay 
their student loans. Doing so will help reduce the number of defaults 
nationally and protect borrowers from the resulting negative 
consequences. Second, we want to make it simpler for borrowers to 
choose among IDR plans. This requires considering the benefits 
available to borrowers in other plans and minimizing the number of 
situations in which a borrower might have an incentive to pick a 
different plan. In other words, if the terms of the new REPAYE plan 
provide fewer benefits to a large group of borrowers compared to 
existing plans, it will be harder for borrowers to identify and select 
an IDR plan that meets their needs. Third, we want to make it easier 
for borrowers to navigate repayment overall. This involves addressing 
elements of the repayment experience in which well-meaning choices by 
borrowers could accidentally result in being required to repay for a 
significantly longer period of time. It also means simplifying the 
overall process for the borrower of choosing between IDR and other 
types of repayment plan.
    Different parameters of the plan in this final rule accomplish 
these various goals. For instance, the provisions to protect a higher 
amount of income, set payments at 5 percent of discretionary income for 
undergraduate loans, not charge unpaid monthly interest, automatically 
enroll borrowers who are delinquent or in default, provide credit 
toward forgiveness for time spent in certain deferments and 
forbearances, and shorten the time to forgiveness for low balance 
borrowers all provide disproportionate benefits for undergraduate 
borrowers, particularly

[[Page 43871]]

those at greater risk of default. That will make the IDR plans more 
attractive to the very groups of borrowers the Department is concerned 
about being at risk of delinquency or default.
    The inclusion of borrowers who have graduate loans in some but not 
all elements of the REPAYE plan and the treatment of married borrowers 
who file separately in particular accomplish the second goal of making 
it easier to choose among IDR plans. Currently, the process of 
selecting among IDR plans is unnecessarily complicated. Borrowers may 
be better off choosing different plans depending on a variety of 
factors, including whether they are married, when they borrowed, and 
both their current and anticipated future income relative to the annual 
amount due on eligible loans. That makes it harder for student loan 
servicers to explain the different plans to borrowers when they are 
trying to make important financial decisions. Such complexity also 
complicates efforts to explain IDR to more vulnerable borrowers. 
Allowing borrowers with graduate loans to gain access to some of the 
benefits provided by REPAYE will make the REPAYE plan the best option 
for almost all borrowers. Absent such a structure, it would be harder 
to sunset new enrollment in other plans and borrowers would continue to 
face a confusing set of IDR choices.
    Provisions around the counting of prior credit toward forgiveness 
following a consolidation, not charging unpaid monthly interest, and 
providing credit for deferments and forbearances make it easier for 
borrowers to navigate repayment. The Department is concerned that the 
current process of navigating repayment and choosing between IDR and 
non-IDR plans is overly complicated. There are too many ways for 
borrowers to accidentally make choices that seemed reasonable at the 
time but result in the loss of months, if not years, of progress toward 
forgiveness. For example, a borrower may choose certain deferments or 
forbearances instead of picking an IDR plan where they would have a $0 
payment. Or they may consolidate their loans because they think it 
would be easier to have one loan to keep track of, not knowing it would 
erase all prior progress toward forgiveness. Similarly, the fact that 
IDR plans are the only payment options available where a borrower can 
make their required payments and still see their balance grow makes it 
difficult for borrowers to understand the choices and options that are 
best for them. With these changes, the negative consequences associated 
with various repayment choices, including enrollment in REPAYE, will be 
minimized.
    The Department believes the REPAYE plan as laid out in these final 
rules focuses appropriately on supporting the most at-risk borrowers, 
simplifying choices within IDR, and making repayment easier to 
navigate. The result is a plan that targets benefits to the borrowers 
at the greatest risk of delinquency or default, while providing a 
single option that is clearly the most advantageous for the vast 
majority of borrowers.
    The changes to REPAYE focus on borrowers who are most at risk of 
default: those who have low earnings, borrowed relatively small 
amounts, and only have undergraduate debt. This emphasis is especially 
salient for those who are at the start of repayment. For example, among 
borrowers earning less than 225 percent of the Federal poverty level 
five years from their first enrollment in postsecondary education, 36 
percent had at least one default in the within 12 years of entering 
postsecondary education, compared to 24 percent of those earning 
more.\121\ And borrowers with relatively small debts--$10,000 or less 
in 2009--defaulted at a rate of 43 percent 12 years after beginning 
postsecondary education, compared to 21 percent for those who borrowed 
more.\122\ Finally, those who borrowed only for their undergraduate 
education were more than three times as likely to experience a default 
from 2004 to 2016 (34 percent vs. 9 percent for those with any graduate 
loans).\123\
---------------------------------------------------------------------------

    \121\ Analysis of Beginning Postsecondary Students (BPS) 2004/
2009. https://nces.ed.gov/datalab/powerstats/table/lqawqv.
    \122\ Ibid.
    \123\ Ibid.
---------------------------------------------------------------------------

3. Summary of Comments and Changes From the IDR NPRM

       Table 3.1--Summary of Key Changes in the Final Regulations
------------------------------------------------------------------------
                                    Regulatory     Description of final
           Provision                 section             provision
------------------------------------------------------------------------
Adding SAVE as an alternative    Sec.   685.209.  Indicating that REPAYE
 name for REPAYE.                                  may also be referred
                                                   to as Saving on a
                                                   Valuable Education,
                                                   or SAVE plan.
Family size and Federal tax      Sec.   685.209.  Indicating that
 data.                                             information from
                                                   Federal tax
                                                   information reported
                                                   to the Internal
                                                   Revenue Service can
                                                   be used to calculate
                                                   family size for an
                                                   IDR plan.
Minimum payment amount.........  Sec.   685.209.  Rounding calculated
                                                   payment amounts of
                                                   less than $5 to $0
                                                   and those between $5
                                                   and $10 to $10.
5% and 10% payments on REPAYE..  Sec.   685.209.  Clarifying that
                                                   borrowers pay 5% of
                                                   discretionary income
                                                   toward loans obtained
                                                   for their
                                                   undergraduate study
                                                   and 10% for all other
                                                   loans, including
                                                   those when the
                                                   academic level is
                                                   unknown.
Borrower eligibility for         Sec.   685.209.  Stating that a Direct
 different IDR plans.                              Consolidation loan
                                                   disbursed on or after
                                                   July 1, 2025, that
                                                   repaid a Direct
                                                   parent PLUS loan, a
                                                   FFEL parent PLUS
                                                   loan, or a Direct
                                                   Consolidation Loan
                                                   that repaid a
                                                   consolidation loan
                                                   that included a
                                                   Direct PLUS or FFEL
                                                   PLUS loan may only
                                                   chose the ICR plan.
                                                   Also states that a
                                                   borrower maintains
                                                   access to PAYE if
                                                   they were enrolled in
                                                   that plan on July 1,
                                                   2024 and does not
                                                   change repayment
                                                   plans. Similar
                                                   language is adopted
                                                   for ICR with an
                                                   exception for Direct
                                                   Consolidation Loans
                                                   that repaid a parent
                                                   PLUS loan.
Payments made in bankruptcy....  Sec.   685.209.  Granting the Secretary
                                                   the authority to
                                                   award credit toward
                                                   IDR forgiveness for
                                                   periods when it is
                                                   determined that the
                                                   borrower made
                                                   payments on a
                                                   confirmed bankruptcy
                                                   plan.
Treatment of joint               Sec.   685.209.  Clarifying that joint
 consolidation loans.                              consolidation loans
                                                   that are separated
                                                   will receive equal
                                                   credit toward IDR
                                                   forgiveness.
Crediting involuntary            Sec.   685.209.  Stating that
 collections toward forgiveness.                   involuntary
                                                   collections are
                                                   credited at amounts
                                                   equal to the IBR
                                                   payment, if known,
                                                   for a period that
                                                   cannot exceed the
                                                   borrower's next
                                                   recertification date.

[[Page 43872]]

 
Catch up payments..............  Sec.   685.209.  Stating that catch up
                                                   payments are only
                                                   available for periods
                                                   beginning after July
                                                   1, 2024, can only be
                                                   made using the
                                                   borrower's current
                                                   IDR payment, and are
                                                   limited to periods
                                                   that ended no more
                                                   than 3 years
                                                   previously.
Providing approval for           Sec.   685.209.  Expanding the
 disclosure of Federal tax                         situations in which
 information.                                      the borrower could
                                                   provide approval for
                                                   obtaining their
                                                   Federal tax
                                                   information.
Removal from default...........  Sec.   685.209.  Allowing the Secretary
                                                   to remove a borrower
                                                   from default if they
                                                   enroll in an IDR plan
                                                   with income
                                                   information that
                                                   covers the point at
                                                   which they defaulted
                                                   and their current IDR
                                                   payment is $0.
Shortened time to forgiveness..  Sec.   685.209.  Stating that periods
                                                   of deferment or
                                                   forbearance that are
                                                   credit toward IDR
                                                   forgiveness may also
                                                   be credited toward
                                                   the shortened time to
                                                   forgiveness.
Rehabilitation.................  Sec.   685.209.  Clarifying that a
                                                   reasonable and
                                                   affordable payment
                                                   amount for
                                                   rehabilitations may
                                                   be based upon the IBR
                                                   formula and that a
                                                   borrower on IBR who
                                                   exits default may be
                                                   placed on REPAYE if
                                                   they are eligible for
                                                   it and it would
                                                   result in a lower
                                                   payment.
------------------------------------------------------------------------

    Comments: Many commenters expressed concerns about the estimated 
net budget impact of the REPAYE plan. Several commenters cited 
Executive Order 13563, which requires agencies to ``propose or adopt a 
regulation only upon a reasoned determination that its [the 
regulation's] benefits justify its costs'' and to ``use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' Other commenters argued 
that the cost alone indicated that Congress should have taken this 
action, rather than the Department. Commenters also expressed concerns 
about the fairness of providing such spending to individuals who had 
gone to college compared to the effects on someone who never enrolled 
in postsecondary education.
    Discussion: As discussed in greater detail in the Benefits of the 
Regulation section of this RIA, the Department believes that the 
benefits of this final regulation justify its costs. These changes to 
REPAYE will create a safety net that can help the most vulnerable 
borrowers avoid default and delinquency at much greater rates than they 
do today. Doing so is important to make certain that a student's 
background does not dictate their ability to access and afford 
postsecondary education. The Department is concerned that the struggles 
of current borrowers may dissuade prospective students from pursuing 
postsecondary education.
    Importantly, these benefits are provided to existing borrowers and 
future ones. That means anyone who has previously not enrolled in 
college because they were worried about the cost or the risk of 
borrowing will have access to these benefits as well. In considering 
who these individuals might be, it is important to recall there are 
many people today who may seem like they are not going to enroll in 
postsecondary education today who may ultimately end up doing so. 
Currently, 52 percent of borrowers are aged 35 or older, including 6 
percent who are 62 or older.\124\ The benefits of revisions to REPAYE 
are also available to borrowers enrolled in all types of programs, 
including career-oriented certificate programs and liberal arts degree 
programs. The additional protections provided by this rule may also 
encourage borrowers who did not complete a degree or certificate and 
are hesitant to take on more debt to re-enroll, allowing them to 
complete a credential that will make them better off financially.
---------------------------------------------------------------------------

    \124\ From Q1 2023 data in studentaid.gov/sites/default/files/fsawg/datacenter/library/Portfolio-by-Age.xls.
---------------------------------------------------------------------------

    We also note that the sheer scale of the student loan programs 
plays a major role in the overall estimated net budget impact. Student 
loans are the second largest source of consumer debt after mortgages 
and ahead of credit cards.\125\ There is currently $1.6 trillion in 
outstanding student loan debt.\126\ The Department estimates that 
another $872 billion will be lent over the coming decade. By contrast, 
there was $23 billion outstanding in 1993 when Congress created the ICR 
authority and $577 billion in 2008, the last time Congress reauthorized 
the Higher Education Act. This growth is not just a function of higher 
prices but also of a significant expansion of postsecondary enrollment. 
The number of students enrolled in college has increased from 12.29 
million in fall 1994 to 18.66 million in fall 2021.\127\ The types of 
students who borrow have also changed as the composition of college 
students has expanded to include more individuals who are low-income, 
the first in their families to attend college, or working adults. The 
costs observed in the net budget impact are at least partly affected by 
the overall growth in volume and the characteristics of who is 
borrowing, not just the extension of certain benefits.
---------------------------------------------------------------------------

    \125\ https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2023Q1.
    \126\ https://studentaid.gov/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls.
    \127\ nces.ed.gov/programs/digest/d22/tables/dt22_303.10.asp.
---------------------------------------------------------------------------

    Changes: None.
    Comments: The Department received comments expressing concern that 
the most expensive elements of the plan are also the ones that are the 
least well-targeted. For instance, the commenters pointed to estimates 
from the IDR NPRM showing that the most expensive components of the 
proposal were the increase in the amount of income protected from 
payments and having borrowers pay 5 percent of their discretionary 
income on undergraduate loans. The commenters argued that the cost of 
those provisions plus the extent of the benefits they provided to 
higher-income borrowers created an imbalance between the costs and 
benefits of the rule. They also argued that there is little evidence 
that the most expensive provisions will provide sufficient benefits to 
justify their costs. Several commenters argued that our proposals lack 
a cost and benefit analysis specific to graduate borrowers. This group 
of commenters claim our proposals provide uncapped subsidies for the 
most educated Americans.
    Discussion: The commenters accurately identified the elements of 
the plan that we project have the greatest individual costs. However, 
we disagree with the claim that the benefits of the plan are ill-
targeted. First, because payments under REPAYE are not capped, 
borrowers with the highest incomes will still have higher scheduled 
payments under the plan than under the

[[Page 43873]]

standard 10-year plan. Second, graduate borrowers--who tend to have 
higher incomes--will only receive the 5 percent of discretionary income 
payment rate for the debt they took on for their undergraduate 
education. The Department considered the cost of providing additional 
relief to graduate borrowers and we believe that our plan balances our 
goals of protecting the borrowers most at risk of delinquency while 
ensuring borrowers pay back their fair share. The Department's analyses 
of the distributional benefits of the plan show that borrowers at the 
bottom of the lifetime income distribution are projected to see the 
largest reduction in payments per dollar borrowed.
    Changes: None.
    Comments: One commenter claimed that the proposed plan was 
regressive and benefitted wealthy borrowers more than lower-income 
borrowers, citing Table 7 of the IDR NPRM (the updated version of this 
table is now Table 5.5). This is a table that showed the breakdown of 
mean debt and estimated payment reductions for undergraduate and 
graduate borrowers by income range. A commenter argued that the 
expansion of eligibility for forgiveness to borrowers with higher 
incomes is the costliest component of the proposed regulations. This 
commenter claims that these regulations significantly increase the 
range of starting incomes that borrowers can earn and still expect to 
receive some type of loan forgiveness from approximately $32,000 under 
the current IDR plan to $55,000 under the new IDR plan.
    Discussion: Assessing the starting incomes that could lead to 
forgiveness is not a one-size-fits-all endeavor. That is because the 
borrower's student loan balance also affects whether the borrower is 
likely to fully repay the loan or have some portion of their balance 
forgiven. For instance, a borrower who earns $55,000 as a single 
individual and only borrowed $5,000 would pay off the loan before 
receiving forgiveness. The REPAYE plan will provide many borrowers with 
lower payments, particularly helping low-income borrowers avoid 
delinquency and default while ensuring middle-income borrowers are not 
overburdened by unaffordable payments.
    Regarding the discussion of Table 7 in the IDR NPRM (Table 5.5 in 
this RIA), there are a few important clarifications to recall. First, 
this table reflects existing differences in the usage of IDR between 
these groups. The new plan emphasizes its benefits toward the lower-
income borrowers that do not currently use IDR at rates as high as some 
of their counterparts with higher incomes. Second, many borrowers in 
the lowest income categories will have $0 monthly payments as part of 
these changes. A borrower cannot see their payments reduced below $0, 
so this will cap the possible reduction in payments for the lowest-
income borrowers. The potentially smaller dollar savings that occur 
each month will still be important for them, as the marginal burden of 
each additional $1 in student loan payments will be greater for a 
lower-income borrower compared to a higher income one. We also note 
that an undergraduate borrower in the middle of the three income ranges 
still sees larger typical savings than a graduate borrower in the same 
range does.
    Finally, it is important to recall that some of the savings that 
are occurring for these graduate borrowers are due to the fact that 
they also have undergraduate loans. That means had they never borrowed 
for graduate school they would still be seeing some of those savings.
    Changes: None.
    Comments: One commenter argued that the Department's explanation 
for the net budget estimate in the IDR NPRM does not match its stated 
goal of assisting student loan borrowers burdened by their debt. This 
commenter further claimed that the Department's refusal to tailor its 
IDR plan to the students that it purports to help demonstrates that the 
IDR NPRM's reasoning is contrived and violated the Administrative 
Procedure Act (APA). This commenter cited an analysis that claimed that 
the Department's proposed new IDR plan constituted a taxpayer gift to 
nearly all former, current, and prospective students.
    The commenter further believed that the level of income protected 
and share of income above the protected amount that goes toward loan 
payments exceeds what would be needed for a targeted policy measure 
that solves the specific problem of young borrowers struggling with 
debt because borrowers below this level would have a zero-dollar 
payment under the IDR Plan.
    Discussion: As noted elsewhere in this final rule, the Department 
has several goals for this regulatory action. Our main goal is to 
reduce the rates of default and delinquency by making payments more 
affordable and manageable for borrowers, particularly those most at 
risk of delinquency and default. We are also working to make the 
overall repayment experience simpler. This means making it easier both 
to decide whether to sign up for an IDR plan and which IDR plan to 
select. Achieving that goal requires operating within the existing IDR 
plans. For example, a REPAYE plan that fully excluded all graduate 
borrowers would increase confusion because many borrowers carry both 
graduate and undergraduate loans, and there are currently many graduate 
borrowers using the REPAYE plan. We are concerned that added complexity 
would make it harder for the most at-risk borrowers to pick the best 
plan for them as they may be overwhelmed by choices that vary based 
upon highly technical details.
    Changes: None.
    Comments: Several commenters submitted different types of analyses 
of how many borrowers would fully repay their loans or what share of 
their loans they would repay. One commenter provided an analysis 
showing that they estimated that 69 percent of borrowers with 
certificates and associate degrees will repay less than half their loan 
before receiving forgiveness. They also estimated that would be the 
case for 49 percent of bachelor's degree recipients. These are both 
increases from existing plans. Several other commenters cited this 
analysis in their comments.
    A different commenter provided their own estimate that borrowers 
from programs with a negative return on investment would pay 21 percent 
of what they originally borrowed. That same commenter said that 
borrowers from private for-profit colleges would repay just under 45 
percent of what they borrowed.
    Another commenter estimated that 85 percent of individuals with 
postsecondary education would benefit from lower payments based upon 
their assumptions about typical debt levels.
    Discussion: As discussed in the IDR NPRM, the Department developed 
its own model to look at what would occur if all borrowers were to 
choose the proposed REPAYE plan versus the existing one. We continue to 
use this model for the final rule. The model includes projections of 
all relevant factors that determine payments in an IDR plan, including 
debt and earnings at repayment entry, the evolution of earnings in 
subsequent years, transitions into and out of nonemployment, 
transitions into and out of marriage, spousal earnings and student loan 
debt, and childbearing. The model also allows these factors to vary 
with educational attainment and student demographics. While simpler 
models that do not include these factors can provide a rough indication 
of payments in the plan early in the repayment process, total 
repayments will depend on the entire sequence of labor market outcomes 
and family formation outcomes for the full length of

[[Page 43874]]

repayment. Projections based on simplifying assumptions, such as a 
constant rate of income growth, or a median income for a broad set of 
borrowers, fail to capture the volatility of changes in earnings over 
time, and cannot fully capture the distribution of earnings relative to 
the amount of student loan debt a borrower acquires. As a result, we 
believe the model we designed for the IDR NPRM and used again in this 
final rule provides more accurate projections of the types of analyses 
the commenters provided.
    Changes: None.
    Comments: Some commenters pointed to a prior report from GAO about 
the Department's estimation of the cost of IDR plans to argue that the 
Department will not fully capture the cost of this rule.\128\
---------------------------------------------------------------------------

    \128\ www.gao.gov/products/gao-17-22.
---------------------------------------------------------------------------

    Discussion: The Department's student loan estimates are regularly 
reviewed by several entities, including GAO. The report cited by the 
commenter referenced the lack of modeling of repayment plan switching, 
resulting in upward re-estimates of IDR plan costs. The Department 
conducts regular re-estimates of the student loan programs to capture 
changes in the repayment plan distribution. This allows us to make 
certain we are updating our cost estimates to reflect updates to 
administrative data as well as changes in underlying economic 
indicators, such as government interest rates.
    Changes: None.
    Comments: Some commenters asked the Department to provide more 
clarity with regard to the quantified economic benefits of this rule 
versus its estimated costs.
    Discussion: The Department believes we have appropriately described 
the economic benefits of the rule in the discussion of costs and 
benefits section, including the benefits to borrowers in the form of 
reductions in payments, decreased risk of student loan delinquency and 
default, and reduction in the complexity involved in choosing between 
different repayment plans. Included in this section is an analysis of 
the reduction in payments per dollar borrowed under the new plan 
compared to current REPAYE and the standard plan, both overall and by 
quintile of lifetime income and graduate debt. Many of the benefits 
that are provided that go beyond the reduction in payments are 
important but not quantifiable.
    Changes: None.
    Comments: Some commenters argued that the Department did not 
sufficiently connect the discussion of costs and benefits to stated 
goals. They also questioned why, if the concern is about preventing 
defaults, the Department did not first conduct an analysis of who 
defaults to drive decisions.
    Discussion: With respect to the concerns about who defaults, the 
Department has intentionally taken a number of steps in the regulation 
that directly reflect research and data on default. For instance, as 
noted in the IDR NPRM, 90 percent of borrowers who default borrowed 
exclusively for their undergraduate education. This is one of the 
reasons why we are only lowering the share of income that goes toward 
payments for undergraduate loans. Similarly, as noted in the IDR NPRM, 
63 percent of defaulters had an original principal balance of less than 
$12,000, the threshold we chose for the early forgiveness provision. 
The raised income protection will capture more of the lowest-income 
borrowers, which will also help avert default, as will the provision to 
automatically enroll delinquent borrowers in REPAYE. As noted in the 
NPRM and reiterated in the preamble to this final rule, the Department 
decided to protect earnings up to 225 percent of FPL after conducting 
an analysis showing that individuals at that point reported similar 
rates of material hardship than those with family incomes at or below 
the 100 percent of the FPL. Therefore, we believe the borrowers that 
will now have a $0 payment from this rule are those who were going to 
be at the greatest risk of default.
    Changes: None.
    Comments: Many commenters raised concerns that the budget estimates 
in the IDR NPRM understated the costs of the proposals. In particular, 
commenters pointed to three issues that they said should have been 
accounted for in the budgetary estimates:
    (1) Existing student loan borrowers who do not currently choose an 
IDR plan may choose to begin repaying on an IDR plan given the more 
generous terms. The result would be an overall increase in the share of 
borrowers and loan volume in the IDR plans.
    (2) Existing student loan borrowers may choose to take on higher 
levels of debt. This could be driven by personal choices since the cost 
of repaying debt for the individual has fallen or due to increases in 
tuition charged by institutions. Some commenters noted that this 
increased borrowing may only be for living expenses.
    (3) More students who would not otherwise have borrowed may choose 
to take on debt as a result of these changes. This could include both 
more students going to college who might not have previously borrowed 
as well as students who would not otherwise have obtained student loans 
now choosing to borrow.
    Commenters provided a range of estimates for how to quantify these 
various effects. These included estimates from the Penn Wharton Budget 
Model, the Urban Institute, and analyses done by Adam Looney and 
Preston Cooper, among others. These various analyses projected that 
between 70 and 90 percent of borrowers would benefit from the proposed 
changes to REPAYE. Commenters also included calculations using data 
from the National Postsecondary Student Aid Study looking at borrowers 
who did not take out the maximum amount of student loans available to 
them, data on the number of community colleges that might now choose to 
participate in the loan programs, data from the American Community 
Survey on earnings by field of study, information from the College 
Scorecard about typical debt and earnings levels, data from the 
Beginning Postsecondary Students Longitudinal Study, and trends in 
usage of IDR plans. Commenters also cited research from the Federal 
Reserve Bank of New York and Howard Bowen on possible effects on 
college prices.
    Another commenter claimed that the Department's proposed revisions 
to the REPAYE plan would effectively discount the cost of college by 44 
percent for the average borrower (relative to the current REPAYE plan) 
at a cost to taxpayers of several hundred billion dollars.
    Discussion: The Department has updated the main budget estimate in 
this final rule that includes more future loan volume being repaid on 
the IDR plans, with most of this volume going onto the new REPAYE plan. 
We have also added a number of sensitivities that consider what would 
happen if total annual loan volume increases. These items are all 
explained in greater detail in the Net Budget Impact section of this 
RIA. This approach captures the fact that the degree of increases in 
take-up and new loan volume are subject to uncertainty. Given the 
timing of benefits received through IDR forgiveness and the uncertainty 
around many factors that would determine these benefits (e.g., 
individual earnings trajectories and macroeconomic conditions), it is 
not unreasonable to assume that any price responses by higher education 
institutions would be muted relative to changes in prices that have 
been found following increases in the generosity of Federal student aid 
that students receive while enrolled. While we agree with the 
commenters that a significant majority of borrowers could benefit from 
the

[[Page 43875]]

changes to the REPAYE plan, it is also true that many more borrowers 
who could benefit from existing IDR plans do not select them, so the 
highest take-up levels suggested by some analyses are unlikely to be 
achieved, at least as an immediate consequence of the regulation.
    We have estimated the present discounted value (PDV) of the change 
in total payments under the new plan compared to total payments under 
REPAYE for borrowers representative of the 2017 repayment cohort. This 
includes modeling all of the factors that would affect payments (e.g., 
future earnings and nonemployment, marriage, childbearing). Using this 
model, we compare the average difference in the PDV of total payments 
by institutional control and predominant degree (assuming all borrowers 
participate in each plan) and can compare this projected reduction in 
payments with the average cost of attendance in each sector, multiplied 
by 2 years for sub-baccalaureate institutions and by 4 for 
baccalaureate institutions. Table 3.2 shows these estimates which 
suggests that at most, the average reduction in payments under the new 
plan relative to existing REPAYE would be 13 percent of the average 
total cost of attendance. Among 4-year institutions, the reduction in 
payments never exceeds 6 percent of the average total cost of 
attendance. Both of these figures are well below the 44 percent figure 
provided by commenters.

  Table 3.2--Average Reduction in the Present Discounted Value of Total
     Payments by Sector as a Percentage of the Average Total Cost of
                        Attendance in the Sector
------------------------------------------------------------------------
                                           Associate or    Baccalaureate
                                            certificate     or graduate
                                             (percent)    only (percent)
------------------------------------------------------------------------
Public..................................              10               6
Nonprofit...............................              13               4
For-profit..............................              12               5
------------------------------------------------------------------------
Notes: Average cost of attendance from Table 330.40, Digest of Education
  statistics, 2021-22 academic year, using off-campus living expenses.
  For public institutions, the average cost of attendance includes
  tuition and fees for in-state students. The annual average cost of
  attendance from the table is multiplied by 2 to get the average total
  cost of attendance for sub-baccalaureate institutions and by 4 to get
  the average total cost of attendance for baccalaureate institutions.

    We also reject some of the implications by commenters that greater 
usage of IDR is inherently bad. As noted already, the Department is 
concerned about the significant number of borrowers who end up in 
delinquency and default each year. Past studies have shown that large 
numbers of these individuals would likely have a low-to-zero payment on 
IDR yet do not sign up. Moving all or most of this volume in default 
into IDR will represent a net benefit for the borrowers and for society 
overall as the consequences of defaulting are very damaging and can 
prevent borrowers from engaging in other behaviors like buying a house 
or starting a business.
    Changes: The Department has increased the share of volume in IDR 
plans for the main budget estimate and incorporated additional analyses 
of IDR take-up and additional loan volume in the Net Budget Impact 
section of this RIA.
    Comments: One commenter expressed concern with our cost estimates, 
which account for the Administration's one-time debt relief plan to 
forgive $20,000 for Pell Grant eligible borrowers and $10,000 for other 
borrowers. This issue remains before the Supreme Court. The commenter 
suggests that we should produce a secondary cost estimate in the event 
that the loan cancellation plan does not go into effect. The commenter 
further stated that our cost estimates and our analyses do not account 
for increased borrowing.
    Discussion: The Department is confident in our authority to pursue 
debt relief and is awaiting the Supreme Court's ruling on the issue. 
Our cost estimates account for the Department's current and anticipated 
programs and policies. It is difficult to assess whether increased 
borrowing will occur and for which students. For example, undergraduate 
borrowers receive more repayment benefits under the new REPAYE plan but 
are also subject to annual borrowing limits which are likely to 
restrict any additional borrowing. Roughly 48 percent of those who 
borrowed for their undergraduate education in 2017-18 already borrowed 
at their individual maximum amount for Federal loans.\129\
---------------------------------------------------------------------------

    \129\ Powerstats analysis of the National Postsecondary Student 
Aid Student-Administrative Collection 2018 (NPSAS-AC). Reference 
table number: dfwcsn.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Some commenters argued that borrowers would use certain 
provisions in the rules to reduce their payments in ways that would 
understate potential savings to the Department and increase the overall 
cost of the regulation. Commenters argued that borrowers who would have 
higher payments on the plan would not stay on it and would instead 
switch onto a non-IDR plan. Commenters also argued that the proposal to 
allow a married borrower who files separately to not include their 
spouse's income would also result in more borrowers filing separately 
so a non-working or otherwise lower-income spouse could have lower loan 
payments.
    Discussion: We disagree with the commenters about the switching 
behavior of borrowers. For one, borrowers who have spent an extended 
time in an IDR plan would likely face large and possibly unaffordable 
payments if they were to switch back to the standard 10-year plan. If a 
borrower leaves a repayment plan and is placed on the standard plan, 
their balance will be amortized over however many years are remaining 
until the loan is repaid in a time frame equal to 10 years of time in 
repayment. In other words, a borrower who pays on IDR for 5 years and 
then switches to the 10-year standard plan would see their remaining 
loan balance amortized over 5 years. Realistically, the kinds of 
borrowers described by the commenters who might be switching are going 
to be doing so later in their repayment period when they have had a 
significant number of years of work experience. Those borrowers may no 
longer have access to a 10-year standard plan. At that point, if they 
left IDR, they would have to go onto other payment plans that do not 
qualify for IDR forgiveness and which result in the loan being paid off 
in full.
    We also disagree with the assessment of what married borrowers may 
or may not do. For one, the ability for married borrowers to avoid 
having their spouse's income counted for IDR by filing taxes separately 
currently exists on every

[[Page 43876]]

other IDR plan, and the different treatment in REPAYE makes the process 
of choosing plans more confusing. On a policy level, filing one's taxes 
separately as a married couple has significant consequences. According 
to the IRS, a married couple that files separately may pay more in 
combined Federal tax than they would with a joint return. This is 
partly because income levels for the child tax credit and retirement 
savings contributions credit are based on income levels half that of 
what is used for a joint return.\130\ Married couples that file 
separate returns are also ineligible for the Earned Income Tax Credit. 
Moreover, married couples that file separately must wait several years 
to file jointly again. The effect is that any savings on loan payments 
may be offset by higher costs in taxes. We also note that this final 
rule does not allow a borrower who files taxes separately from their 
spouse to include that spouse in their household size, which reduces 
the amount of income protected when calculating IDR payments.
---------------------------------------------------------------------------

    \130\ www.irs.gov/publications/p504.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Related to concerns about the effect of the plan on 
tuition, commenters argued that the mention in the IDR NPRM that 
institutions could have an incentive to raise prices created a conflict 
with the public statements when some parameters of the plan were 
announced that this rule was part of a plan to tackle prices. They 
argued that the Department failed to reckon with how a plan that was 
part of a solution to the problem of college prices could exacerbate 
this issue.
    Discussion: We disagree with the commenters. A required component 
of the RIA is to explore every major benefit or cost that we can 
identify when considering the possible effect of the rule. Where 
possible, these elements are quantified, where not, they are at least 
mentioned. There are thousands of institutions of higher education that 
participate in the financial aid programs. Most of them already raise 
their cost of attendance each year, which is a major reason why 
concerns about student debt have grown so much in recent years. The 
Department thinks it is highly unlikely that significant numbers of 
institutions would raise their prices in response to this plan. For 
one, many public institutions do not have direct tuition setting 
authority. For another, there are many institutions whose prices are 
already above the combination of annual limits on Pell Grants and 
undergraduate loans, meaning it would not be possible to simply offset 
any higher price with greater loan debt. There are also other student-
related factors, such as price sensitivity and debt aversion, that 
influence tuition setting behavior. The mention in the IDR NPRM simply 
indicated that, given the sheer number of institutions operating, there 
is a possibility that some number could choose to raise prices. We 
continue to think the benefits of creating a safety net that will help 
the most at-risk borrowers and deliver affordable payments for middle-
income borrowers far outweigh the potential costs associated with this 
risk.
    Changes: None.
    Comments: Commenters argued that the costs and benefits analysis in 
the IDR NPRM did not sufficiently engage with the potential effects of 
the rule on accountability for institutions or programs that do not 
provide strong returns on investment or otherwise serve students well. 
Some commenters calculated that the IDR NPRM would result in subsidies 
of nearly 80 percent for programs with negative returns on investment 
and more than 50 percent at private for-profit colleges. Some 
commenters argued that these effects could result in a race to the 
bottom for institutions under severe financial pressure and argued that 
colleges would present REPAYE as a de facto wage subsidy to recruit 
underprepared students. Similarly, commenters argued that the IDR NPRM 
should have reckoned more with the effects of the proposal on 
accountability measures such as cohort default rates (CDRs) and the 
likelihood of institutions marketing low-value programs. Commenters 
also argued that the request for information about creating a list of 
the least financially valuable programs that was released concurrent 
with the IDR NPRM was insufficient to address these issues.
    Discussion: We disagree with some concerns raised by the commenters 
with regard to CDRs and think that other issues are best understood by 
considering the totality of the Department's work, not just this 
regulatory package.
    Cohort default rates already affect a very small number of 
institutions on an annual basis. For the 2017 CDRs--the last set of 
rates that do not include time periods covered by the national pause on 
repayment, interest, and collections--just 12 institutions encompassing 
1,358 borrowers in the corresponding repayment cohort had rates that 
were high enough to put them at risk of losing access to title IV aid. 
That represents approximately 0.03 percent of all borrowers tracked for 
that measure in that fiscal year. Furthermore, some of these 
institutions maintained aid access through appeals created by statute 
and waivers granted by the Department, including those effectuated in 
response to language inserted in Federal appropriations bills. While 
paying attention to default rates is important, most colleges face no 
risk of negative consequences from the existing CDR measure as it does 
not have significant effect on eligibility for poorly performing 
institutions or programs.
    This rule would also not diminish any potential effect CDRs have on 
encouraging institutions to keep their default rates generally low to 
avoid even the possibility of sanctions. That is because the CDR only 
looks at results for borrowers in their first few years in repayment 
and institutions face no consequences for borrowers who default outside 
the measurement window or face long-term repayment challenges. That is 
partly why there have been concerns raised in the past by entities such 
as GAO that institutions keep their default rates low by working with 
companies that encourage borrowers to enter forbearances.\131\ Such 
situations create a short-term solution for the borrower and the school 
but do not produce the type of long-term assistance that an IDR plan 
provides. As such, using IDR instead of forbearance for struggling 
borrowers is a better long-term outcome for borrowers.
---------------------------------------------------------------------------

    \131\ https://www.gao.gov/products/gao-18-163.
---------------------------------------------------------------------------

    Moreover, the payment pause will continue to reduce the already 
minimal effects of the CDR for the next several years. Already, the 
cohorts that partly included the pause have seen national default rates 
fall from 7.3 percent to 2.3 percent between the FY 2018 and FY 2019 
cohorts (the most recent rates available).\132\ The effects of the 
payment pause on the CDR will likely continue for the next several 
years.
---------------------------------------------------------------------------

    \132\ fsapartners.ed.gov/knowledge-center/topics/default-management/official-cohort-default-rates-schools.
---------------------------------------------------------------------------

    The Department has separately proposed other actions that would 
address the other accountability concerns raised by commenters if 
finalized in a form similar to the proposed versions. The first is the 
issue of marketing programs with lower economic returns to borrowers. 
The Department recognizes that there are programs currently receiving 
Federal student aid on the condition that they prepare students for 
gainful employment in a recognized occupation that nevertheless provide 
undesirable economic returns. This includes programs that result in 
typical debts that far exceed typical earnings and those that produce 
graduates who do see no

[[Page 43877]]

benefit from additional wages as a result of their postsecondary 
experience. To address this issue, the Gainful Employment NPRM released 
on May 19, 2023, (88 FR 32300) proposes new definitions for what it 
means for a program to provide training that prepares students for 
gainful employment in a recognized occupation based on the debt burden 
and earnings relative to those of high school graduates. We estimate in 
that NPRM that there are more than 700,000 students who enroll in about 
1,800 of these low-financial-value career programs each year. The 
proposed rule would cut off eligibility for federal student aid when 
career programs consistently leave graduates with a monthly debt burden 
that exceeds 8 percent of their annual earnings or 20 percent of their 
discretionary earnings, or with earnings that are no greater than 
students with only a high school diploma.
    The Department is also proposing steps to address the borrowers 
enrolled in programs that leave graduates with unaffordable debt 
burdens that would not be subject to the eligibility loss under the 
Gainful Employment NPRM (88 FR 32300). We are proposing that students 
attending programs that have high ratios of debt-to-earnings would have 
to complete an acknowledgment before they borrow or receive other forms 
of Federal student aid. We think this approach will have two effects. 
First, students may consider choosing a program that will produce 
better outcomes. Second, institutions will not want to have their 
programs subject to such acknowledgements and will take steps to 
improve their outcomes.
    The Department has also announced that it intends to publish a list 
of the programs that provide the least financial value. The Department 
published a request for information around how to best define this list 
in January 2023 (88 FR 1567). When finalized, such a list would draw 
national attention to some of the biggest drivers of unaffordable 
student debt. The Department has also announced that it intends to ask 
institutions with programs on this list to provide plans to improve 
their outcomes.
    The combined effect of these policies would be that programs which 
burden their students with unaffordable debt levels will be subject to 
additional Federal accountability, ranging from ineligibility to a 
student warning. Notably, these gainful employment requirements and 
student warnings would be applied each year. That means if an 
institution raises prices to the point that students take on 
unaffordable levels of debt, they would face consequences as the debt 
levels of their students rise. Combined, these actions would represent 
a significant increase in accountability compared to the status quo.
    Changes: None.
    Comments: Commenters raised concerns about the effect of the 
proposed changes to REPAYE on State actions and said the IDR NPRM did 
not sufficiently account for them. They argued this should have 
triggered a greater Federalism analysis. Commenters asserted that 
several States rely on State tax revenue from loans that have been 
forgiven. As a result, they asserted that this regulation would have 
significant State-level budgetary implications because of the loan 
forgiveness provisions, such as the fact that interest that is not 
charged on a monthly basis would not be part of the forgiven amount at 
the end of the repayment period that is subject to State taxation. The 
commenter cited several other ways States could be affected by our 
regulation. These included the claim that States would choose to spend 
less on higher education; States would divert subsidies away from 
alternative pathways to family-sustaining employment; that State 
performance funding formulas would be weakened by new Federal spending; 
that States would gain less of an advantage from making significant 
public investments in postsecondary education; that more students would 
go out of State for postsecondary education; States that fund higher 
education on a per capita basis would see expenditures rise believing 
that the Federal subsidy would result in increased enrollment; and 
institutions would change their prices. Commenters did not provide 
evidence to quantify the extent of any effects mentioned.
    Discussion: We did not identify any Federalism implications in the 
proposed rule and do not believe that these final regulations require a 
Federalism impact statement.
    The Department is not persuaded by the concerns about foregone tax 
revenue on interest that no longer accumulates. The Federal 
government's reason for providing this Federal benefit is that the 
accrual of interest can create situations under which a borrower's 
loans are negatively amortized, which harms borrowers. Moreover, there 
is no way for the States to know with any certainty what amounts they 
would or would not collect in the form of foregone tax revenue. REPAYE 
and other IDR plans base payments on borrowers' incomes. The result is 
that, if a borrower's income goes up, they will repay more of their 
loan, including in many cases paying off the loan entirely. In 
addition, some of the interest that would not be charged on this plan 
is interest that would otherwise have been paid by the borrower today 
due to the higher payment amounts on REPAYE. That interest is therefore 
not a transfer from the potential State tax revenue to the borrower, 
but rather a transfer from the Department to the borrower. Moreover, a 
minority of States tax student loan forgiveness, and other IDR plans 
also provide interest subsidies of varying amounts. Therefore, there is 
only a small amount of tax on the amount of increased forgiveness over 
what the borrower would have received on this plan versus another plan. 
There are also not enough borrowers who have received forgiveness 
through an IDR plan to date to establish that a State is relying on 
revenue from these plans. Because only the original ICR plan has been 
around long enough for borrowers to reach the required number of 
monthly payments for forgiveness, only a few borrowers have earned 
forgiveness through an IDR plan. This number will rise through planned 
actions like the one-time payment count adjustment, but that is not a 
change States could have planned for.
    We are similarly unconvinced on the other arguments about 
federalism. For instance, the commenters have not outlined how 
performance-based funding systems would be affected. Only a minority of 
institutions nationally are subject to performance-funding systems, as 
not every State has a performance-funding system, most such systems 
only apply to public institutions, and they often represent only a 
portion of State dollars for postsecondary education. Beyond that, it 
is unclear what metrics the commenters expect would be affected in 
these systems, which commonly consider things like enrollment levels 
and completion.
    The Department also disagrees that the rule would result in States 
spending less on postsecondary education. The rule does not change the 
total amount of Federal aid available for enrollment in undergraduate 
programs, which are the ones most heavily subsidized by States. That 
means funding reductions that increase prices could not necessarily be 
backfilled by additional loans. Such concerns also ignore how powerful 
sticker prices are in affecting student choice. None of those dynamics 
are changed by this rule.
    The same goes for pricing issues raised by commenters. Most public 
colleges already charge out-of-state tuition that is well above what a 
typical

[[Page 43878]]

undergraduate student can borrow for postsecondary education. This rule 
is not changing those statutory loan limits.
    Changes: None.
    Comments: Commenters suggested several types of distributional 
analyses that they argued the Department should provide in the final 
rule. These included breaking down who benefits from the rule in terms 
of income, family background, and demographics to show that the 
benefits do go to low- and middle-income borrowers. Commenters also 
argued for separating cost estimates for undergraduate and graduate 
borrowers and asked the Department to provide annual estimates of gross 
cancellations.
    Discussion: Undergraduate borrowers and borrowers with lower 
lifetime incomes are projected to see the largest reductions in total 
payments in the new REPAYE plan relative to the current REPAYE plan. 
Table 3.3 shows these projections for future cohorts of borrowers by 
quintiles of lifetime income (measured across all borrowers), 
calculated using a model that includes relevant lifecycle factors that 
determine IDR payments (e.g., household size, income, and spousal 
income when relevant). This model assumes full participation in current 
REPAYE and the new plan. More details on the model can be found in the 
discussion of the costs and benefits in this RIA. For example, 
undergraduate borrowers in the bottom 20 percent of lifetime income 
(measured across all borrowers) are projected to pay $10,339 in present 
discounted value terms in current REPAYE, on average, but only $1,209 
in the new plan, an 88 percent reduction. In contrast, undergraduate 
borrowers in the top 20 percent of lifetime income are projected to pay 
only 1 percent less in the new plan compared to the current REPAYE 
plan. Low- and middle-income graduate borrowers see the largest 
reductions in payments as well. Reductions for graduate borrowers are 
larger in absolute terms than reductions for undergraduates because 
graduate borrowers have higher average levels of outstanding debt, but 
the reductions for graduate borrowers are smaller in percentage terms 
than those for undergraduate borrowers.

   Table 3.3--Projected Present Discounted Value of Total Payments 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..................         $10,339         $16,388         $17,760         $19,649         $19,738
Final Rule REPAYE...............          $1,209          $6,692         $12,417         $17,292         $19,597
Difference......................          $9,130          $9,696          $5,344          $2,357            $141
Percent reduction...............             88%             59%             30%             12%              1%
----------------------------------------------------------------------------------------------------------------
                                        Borrowers with any graduate debt
----------------------------------------------------------------------------------------------------------------
Current REPAYE..................         $49,412         $67,072         $75,409         $81,662         $95,581
Final Rule REPAYE...............         $32,936         $48,241         $60,351         $70,180         $89,737
Difference......................         $16,476         $18,831         $15,058         $11,482          $5,844
Percent reduction...............             33%             28%             20%             14%              6%
----------------------------------------------------------------------------------------------------------------

    Changes: None.
    Comments: Commenters argued that the Department should have run a 
net budget impact figure that did not include the one-time debt relief 
program providing up to $20,000 in relief to make sure borrowers are 
not made worse off with respect to their loans as a result of the 
pandemic.
    Discussion: The Department's cost estimates in the NPRM and this 
final rule include final agency actions in the baseline. This includes 
the one-time debt relief program, the final regulations that were 
issued on November 1, 2022, and the extension of the payment pause. The 
sensitivity runs we have included represent different possible 
scenarios that might occur due to this regulation. We do not believe it 
is necessary in evaluating the effects of this rule to provide 
sensitivity runs related to other final policies.
    Changes: None.
    Comments: A commenter raised concerns about statistics used by the 
Department in rollout materials for the IDR NPRM that were not included 
in the IDR NPRM itself. These related to modeling by the Department 
about the potential effects of the proposal on different types of 
borrowers based upon their race or ethnicity. The commenter argued that 
the Department should make clear whether it based the proposed rule on 
considerations of whether certain racial or ethnic groups would be more 
likely to benefit. A different commenter raised similar concerns about 
the use of statistics related to racial groupings. They argued that 
making decisions on the basis of which racial groups win and lose is 
improper and violates the Constitution and Federal civil rights laws.
    Discussion: The Department did not design the proposed or final 
rule based upon considerations of which types of racial or ethnic 
groups would benefit more or less from the changes. The figures used in 
rollout materials were from the same modeling used to produce Table 3 
in the IDR NPRM's RIA (what is now Table 3.3 in this RIA). The provided 
figures simply give greater context of one element of the anticipated 
effects of the IDR NPRM.
    Changes: None.
    Comments: One commenter argued that the Department did not account 
for the connection between the net budget impact in the IDR NPRM with 
the statements made by the Department's financial statement auditor 
around certifying the Department's consolidated financial statements 
for FY 2022. They argued that, because components of the IDR NPRM were 
announced at the same time as the President's announcement of the one-
time debt relief program, any issues related to scores of that program 
would also affect budget estimates of the IDR NPRM.
    Discussion: The audit opinion is a result of the size and newness 
of the Department's one-time debt relief program and is related to the 
Department's evidence-based estimation of the take-up rate among 
borrowers eligible for that program. The IDR NPRM was not released 
until January 2023 and was not included in the audit. Nor did the audit 
address the cost

[[Page 43879]]

estimate of this rule. In the Net Budget Impact section, the Department 
produces cost estimates related to existing loans as well as loans to 
be issued in the future. One-time debt relief does not affect future 
loan costs because those loans are not eligible for that relief.
    Changes: None.
    Comments: Some commenters argued that the net budget impact did not 
account for other types of costs including increased spending on Pell 
Grants from more students enrolling in college, as well as borrowers 
choosing to spend more time out of the workforce due to the treatment 
of deferments and forbearances.
    Discussion: The Department disagrees with the assertions related to 
the effect of deferments and forbearances on employment. The types of 
deferments and forbearances for which the Department would award credit 
toward forgiveness are largely ones where borrowers would be highly 
likely to have a $0 monthly payment if they instead enrolled in IDR. 
For instance, unemployment deferments fall into this category. 
Furthermore, Sec. 455 of the HEA already allows periods spent in 
economic hardship deferments to count toward the maximum repayment 
period. The other periods that will receive credit under this rule are 
limited to cases where borrowers are engaged in other specified 
activities like military service, AmeriCorps, or Peace Corps. None of 
these are situations that would discourage work.
    Concerning the potential costs for Pell Grants, the Department does 
not generally model changes in college-going based on a policy. This is 
true for both elements that would add costs, as well as policies that 
would produce savings, such as increased overall tax revenue from a 
more highly educated populace. Inducement effects are highly unknown 
and there is not strong data available to model these potential costs 
and savings. Moreover, national trend data show college enrollment has 
generally been declining, particularly at the undergraduate level. This 
reflects a strong economy and fewer students in the core college-going 
age ranges. The Department will continue to acknowledge these costs in 
the discussion of costs, benefits, and transfers, but not include them 
in the net budget impact beyond the existing estimates in the baseline.
    Changes: None.
    Comments: Some commenters argued that the Department did not 
sufficiently consider whether the terms of the proposed REPAYE plan 
would result in more students choosing 4-year institutions instead of 
lower-cost community colleges and technical schools.
    Discussion: We disagree with the commenters that this final rule 
would result in significant changes in the types of institutions chosen 
by borrowers who are already enrolled in college or prospective 
students who are deciding to enroll in college. Moreover, we note the 
commenter provided no analysis to quantify such an effect. For one, the 
final rule makes no changes to the overall loan limits set in the 
Higher Education Act for undergraduate borrowers and does not change 
the amount of aid available to students. Second, the choice of 
institution, particularly for community college students, often appears 
to be motivated by geographic proximity. Among community college 
students, 50 percent chose an institution within 11 miles of their 
home.\133\ Third, recent trends in enrollment patterns emphasize how 
much the choice about community college enrollment is motivated by the 
strength of the underlying labor market. Community college enrollment, 
in particular, has fallen significantly over the past several years as 
there are more job opportunities for these students. This rule has no 
effect on employment options available to these individuals. Finally, 
this rule does not address the sticker or net prices charged by 
institutions and the generally higher prices of 4-year institutions 
relative to two-year public institutions would persist.
---------------------------------------------------------------------------

    \133\ nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2019467.
---------------------------------------------------------------------------

    Changes: None.
    Comments: The Department received a few comments arguing that the 
estimate in the IDR NPRM that the proposal carried estimated 
administrative costs of $10 million was too low and that the Department 
had not fully accounted for the costs of implementing its proposals. 
Similarly, commenters noted that it was challenging to know if the 
effects of the rule would be a net benefit or cost to servicers based 
upon the number of borrowers who continue repaying compared to the 
number who will receive forgiveness.
    Discussion: The publication of the IDR NPRM gave the Department a 
greater opportunity to engage in discussions internally to gauge the 
implementation cost of these regulations. Based upon those discussions, 
we have adjusted the implementation costs of this rule to about $4.7 
million for the changes in this rule that are being early implemented 
in July 2023, including renaming REPAYE to SAVE, and another $12.6 
million for the changes that go into effect on July 1, 2024. We believe 
these are largely one-time costs. Ongoing costs for these changes would 
be part of the Department's ongoing servicing expenses.
    With regard to effects on servicers, we think this approach will 
ultimately be a net positive for them. The Federal Tax Information 
(FTI) Module will automatically calculate IDR payments when a borrower 
provides approval for the sharing of their tax information, so the 
scope of servicers' work will be reduced to only calculations where 
automated processing via the FTI Module is not possible. Having one IDR 
plan that is clearly the best option for most borrowers will make it 
easier to counsel borrowers about their repayment options. We 
anticipate that the automatic enrollment of delinquent borrowers in IDR 
will keep more borrowers current and reduce the number of defaults, 
providing more accounts for servicers to manage. Reductions to 
borrowers' payment amounts and the interest benefit should also reduce 
the number of borrower complaints and increase customer satisfaction.
    Changes: We have updated the estimate of administrative costs of 
this rule to $17.3 million.
    Comments: The Department received comments arguing that the IDR 
NPRM failed to consider the potential effects of the proposed changes 
on inflation. This included citing one analysis produced after the 
August 2022 announcement of one-time debt relief and aspects of the IDR 
NPRM that said inflation would increase over the next year. Relatedly, 
some commenters said budget estimates should reflect estimated changes 
on net Federal interest costs.
    Discussion: The Department disagrees with the commenters. We have 
captured the costs and benefits that we think are most likely to be 
affected by this final rule. There has been no evidence to date that 
Federal student loans affected larger government borrowing costs and we 
do not think that would change in this rule.
    Changes: None.
    Comments: We received comments arguing that the analysis of the 
effects of the IDR NPRM on small businesses was insufficient. The 
comments argued that the terms of the repayment plan could harm small 
nonprofit organizations, because borrowers may now be less inclined to 
pursue Public Service Loan Forgiveness (PSLF) since the greater 
generosity of the proposed plan would make that kind of relief less 
necessary.

[[Page 43880]]

    Discussion: We disagree with the commenters, who did not provide 
any analyses of these potential effects. For one, the benefits 
discussed in this regulation would also be available to those seeking 
PSLF. That means these borrowers would also see a payment reduction 
during the 10-year repayment period prior to receiving forgiveness. 
Moreover, the typical balances forgiven in PSLF are significantly 
higher than the amounts that would be subject to the early forgiveness 
provision in this rule. The result is that most borrowers would still 
receive greater benefits from PSLF than the early forgiveness provision 
here. For those with balances not subject to early forgiveness, the 
shorter time to forgiveness for PSLF would make that option still more 
attractive than use of REPAYE for 20 or 25 years.
    Changes: None.
    Comments: One commenter suggested that the net budget impact should 
also be measured using ``fair value accounting.'' This is an 
alternative approach to cost estimation that uses different interest 
rates and methodologies from what the Department traditionally employs.
    Discussion: The Department disagrees. Our process for cost 
estimation is spelled out by policies and procedures established by the 
Department's Budget Service and the Office of Management and Budget. 
Model assumptions are approved by a mix of career and appointed 
Department leadership. The model is also audited on an annual basis. We 
do not think it would be appropriate to deviate from the consistent 
approach taken in all our regulatory packages.
    Changes: None.
4. Discussion of Costs and Benefits
    The final 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 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 rules, the Department 
simulated how future cohorts of borrowers would benefit from enrolling 
in REPAYE under the new 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 new 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 or the current REPAYE plan. 
Payments made after repayment entry are discounted using the Office of 
Management and Budget's Present Value Factors for Official Yield Curve 
(Budget 2023) so that the resulting amounts are all provided in present 
discounted terms.
    These projections are different from the estimates of the budgetary 
costs of the changes to REPAYE. 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 changes to REPAYE will reduce the amount 
repaid per $10,000 of debt at repayment entry 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 new 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 4.1--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment
                     Cohorts, Assuming All Borrowers Enroll in the Specified 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
Final Rule 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,

[[Page 43881]]

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 new 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 new 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 4.2--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment
             Cohorts by Quintile of Lifetime Income, Assuming All Borrowers Enroll in 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
Final Rule 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
Final Rule 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 new 
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 new REPAYE plan) and make their scheduled payments. 
Future borrowers' actual realized benefits will 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 new REPAYE plan should reduce rates of delinquency and default by 
providing more borrowers with a $0 payment and automatically enrolling 
eligible borrowers into REPAYE once they are 75 days late on their 
payments. 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 cannot automatically enroll them in 
IDR.
    The final regulations will make additional improvements to help 
borrowers navigate their repayment options by allowing more forms of 
deferments and forbearances to count toward IDR forgiveness. This 
protects borrowers from having 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 final 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 regulations will 
also provide clarity for borrowers about their repayment plan options 
and reduce complexity in the student loan repayment system, including 
by phasing out some of the existing IDR plans to the extent the current 
law allows.
4.1 Benefits of the Regulatory Changes
    The final regulations would benefit multiple groups of 
stakeholders, especially Federal student loan borrowers.
    One of the key benefits of the changes made in the final rule to 
the IDR plans is to reduce the incidence of student loan default. The 
final rule does this in three ways. First, it increases the benefits of 
REPAYE in a way that would make this plan more attractive for the 
borrowers who are at greatest risk of delinquency and default, 
borrowers who are largely not using IDR plans today. Second, it 
simplifies the choice of whether to enroll in an IDR plan as well as 
which plan to select among the IDR options. That will make it easier to 
counsel at-risk borrowers and reduce confusion. Third, it contains 
operational improvements that will make it easier to automatically 
enroll borrowers in REPAYE and keep them there instead of having 
borrowers fall out during recertification.
    Increasing the amount of income protected to 225 percent of the 
Federal poverty guidelines is one step to better serve borrowers at 
risk of delinquency or default. The larger protection amount will 
result in more borrowers having a $0 monthly payment instead of owing 
relatively small payments. For instance, using the 2023 Federal poverty 
guidelines, an individual borrower with no dependents who makes $32,805 
a year will no longer have to make a payment, with the same true of a 
family of four that earns $67,500 or less. By contrast, under the 
current REPAYE threshold of 150 percent of the Federal poverty 
guidelines, borrowers have to make a payment once their income exceeds 
$21,870 for a single individual and $45,000 for a family of four. This 
change protects relatively low-wage borrowers from having to make a 
monthly loan payment. Income information currently on file suggests 
that more than 1 million borrowers on IDR could see their payments go 
to $0 based upon the parameters of the plan in this final rule, 
including more than 400,000 that are already on REPAYE whose payment 
amounts would be updated automatically to $0.
    Greater income protection will further help borrowers who may have 
a non-$0

[[Page 43882]]

monthly payment and are at risk of default. It also caps the total 
monthly savings, as a borrower who makes 226 percent of FPL saves the 
same as someone who makes 400 percent of FPL. The result is that the 
benefits of this change are better targeted on borrowers with incomes 
closer to 225 percent of FPL, since they would see larger savings as a 
percentage of their total income. In particular, the higher poverty 
threshold would provide a maximum additional savings of $91 a month for 
a single individual and $188 a month for a family of four compared to 
the existing REPAYE plan.
    The targeting of reductions in the share of discretionary income 
that goes toward undergraduate loan payments will further assist with 
the goals of making loans more manageable and helping borrowers who 
would otherwise struggle with their payments. As noted in the IDR NPRM, 
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.\134\ The payment relief provided in the final rule will 
further help borrowers manage the loans that they are more likely to 
struggle to repay.
---------------------------------------------------------------------------

    \134\ 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.
---------------------------------------------------------------------------

    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.\135\ It is 
reasonable to expect that more generous IDR plans will decrease the 
delinquency rate further.
---------------------------------------------------------------------------

    \135\ Herbst, D. The Impact of Income-Driven Repayment on 
Student Borrower Outcomes. American Economic Journal: Applied 
Economics. www.aeaweb.org/articles?id=10.1257/app.20200362.
---------------------------------------------------------------------------

    Reductions in delinquency and default may also lead to overall 
improvements in borrowers' credit scores. Higher credit scores can 
allow borrowers to access other forms of credit, such as for a home 
mortgage, and to obtain lower interest rates on other loans.\136\ 
Further, avoiding the credit impacts of a sustained delinquency or 
default can improve a borrower's ability to obtain a lease, acquire a 
job, or accomplish other milestones for which a credit background check 
may be required. Prevention of default also allows borrowers continued 
access to Federal financial aid (as borrowers in default must remedy 
the default before they are eligible for additional Federal grants or 
loans), and prevents the possibility of other default consequences, 
such as a loss of a professional license.
---------------------------------------------------------------------------

    \136\ Musto, David K. & Souleles, Nicholas S., 2006. ``A 
portfolio view of consumer credit,'' Journal of Monetary Economics, 
Elsevier, vol. 53(1), pages 59-84, January.
    Edelberg, Wendy. Risk-based pricing of interest rates for 
consumer loans. Journal of Monetary Economics, Volume 53, Issue 8, 
November 2006, Pages 2283-2298.
---------------------------------------------------------------------------

    The second way the final rule targets default is through a set of 
changes that simplify the process of choosing whether to use an IDR 
plan and which one to choose. This is partly accomplished by phasing 
out some of the existing IDR plans to the extent the current law 
allows. Student borrowers seeking an IDR plan will 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 
will maintain their access to those plans. It is estimated that, 
because of the significantly larger benefits available through the 
REPAYE plan, most student borrowers will 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 will generally be either 
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 will 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 will 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 would help borrowers easily identify plans that are 
affordable and appropriate for their circumstances.
    Additional improvements that can help borrowers make the choice 
about how to navigate repayment relate to benefits to borrowers in the 
form of more opportunities to earn credit toward forgiveness and a 
shorter repayment period 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 
will 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 will provide 
small-dollar borrowers--often 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. Reductions in the time for 
forgiveness for those who borrow smaller amounts may also generate an 
incentive for some borrowers to borrow only what they need, so as to 
minimize the amount of time in repayment under the new REPAYE plan.
    The third way the final rule targets delinquency and default is 
through operational improvements that 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 will 
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. These changes will also reduce 
administrative burden on borrowers, who otherwise must complete new IDR 
applications at least every 12 months. Using statutory authority to 
automatically recalculate the IDR monthly payment amount for the 
borrowers who have provided approval for tax information disclosure 
will also help address the fact that large numbers of borrowers 
currently fail to recertify on time. This both puts borrowers at risk 
of seeing their payment suddenly jump and means that the Department and 
its contractors must expend resources to re-enroll borrowers

[[Page 43883]]

who would otherwise not struggle with their loan payments. That reduces 
resources that can go toward supporting and counseling the most at-risk 
borrowers that are not currently on an IDR plan.
    The final rule will also provide broader benefits to help 
borrowers. 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.\137\ That study also found that those borrowers 
saw an increase in consumer spending that was roughly equal to the 
decrease in monthly student loan payments.\138\ The increase in 
consumption suggests these borrowers faced liquidity constraints before 
they enrolled in IDR and that the reduction in payments in IDR freed up 
resources for essential goods and services. 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.\139\
---------------------------------------------------------------------------

    \137\ 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. 
doi.org/10.1111/jofi.13088.
    \138\ Ibid.
    \139\ Findeisen, S., & Sachs, D. (2016). Education and optimal 
dynamic taxation: The role of income-contingent student loans. 
Journal of Public Economics, 138, 1-21. doi.org/10.1016/j.jpubeco.2016.03.009.
---------------------------------------------------------------------------

    The increased liquidity that comes from reduced loan payments could 
also facilitate savings and loan eligibility for larger purchases, such 
as an automobile or a home. Borrowers who use IDR plans see reductions 
in their delinquencies and outstanding balances, compared to those not 
on IDR plans, and may be more likely to see increases in credit scores 
and mortgage rates.\140\ And evidence from the student loan pause 
suggests that borrowers who experienced a pause in repayment were more 
likely to increase borrowing for mortgages and auto debt.\141\ Further, 
decreases in the monthly payment amount under IDR could lead to a lower 
debt-to-income (DTI) ratio calculation for some borrowers. For example, 
borrowers using a Federal Housing Administration (FHA) loan, commonly 
used by first-time homebuyers, have a DTI ratio calculated based on 
actual monthly payment, rather than on the total loan amount, for 
borrowers who pay at least $1 monthly.\142\ The REPAYE plan could as 
much as halve this DTI calculation for borrowers who only have student 
debt. For borrowers with a $0 monthly payment, DTI is calculated as 0.5 
percent of the outstanding balance on the loan.\143\ Given that the new 
REPAYE plan limits the accrual of interest through negative 
amortization, even borrowers who make $0 payments will also experience 
improvements in DTI on the new plan.
---------------------------------------------------------------------------

    \140\ Herbst, Daniel. 2023. ``The Impact of Income-Driven 
Repayment on Student Borrower Outcomes.'' American Economic Journal: 
Applied Economics, 15 (1): 1-25.
    \141\ Dinerstein, Michael and Yannelis, Constantine and Chen, 
Ching-Tse, Debt Moratoria: Evidence from Student Loan Forbearance 
(December 24, 2022). Available at SSRN: ssrn.com/abstract=4314984 or 
dx.doi.org/10.2139/ssrn.4314984, Blagg, Kristin, and Jason Cohn. 
``Student Loan Borrowers and Home and Auto Loans during the 
Pandemic.'' (2022). Urban Institute, Washington DC, www.urban.org/sites/default/files/2022-02/student-loan-borrowers-and-home-and-auto-loans-during-the-pandemic.pdf.
    \142\ Blagg, Kristin, Jung Hyun Choi, Sandy Baum, Jason Cohn, 
Liam Reynolds, Fanny Terrones, and Caitlin Young. ``Student Loan 
Debt and Access to Homeownership for Borrowers of Color.'' (2022). 
Urban Institute, Washington, DC. www.urban.org/sites/default/files/2023-02/Student%20Loan%20Debt%20and%20Access%20to%20Homeownership%20for%20Borrowers%20of%20Color.pdf.
    \143\ www.hud.gov/sites/dfiles/OCHCO/documents/2021-13hsgml.pdf.
---------------------------------------------------------------------------

    Not charging unpaid monthly interest after applying a borrower's 
payment will provide both financial and non-financial benefits for 
borrowers. For some borrowers, particularly those who have low incomes 
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. This policy also 
provides a non-financial benefit because borrowers will not see their 
balances otherwise grow.\144\ Qualitative research and borrower 
complaints received by the Department have shown that interest growth 
on IDR plans is a significant concern for borrowers.\145\ Research has 
similarly shown that interest accumulation may discourage 
repayment.\146\ The Department expects that this benefit may encourage 
borrowers to keep repaying.
---------------------------------------------------------------------------

    \144\ The Pew Charitable Trusts. Borrowers Discuss the 
Challenges of Student Loan Repayment. (2020). www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment.
    \145\ Ibid.; FDR Group. Taking Out and Repaying Student Loans: A 
Report on Focus Groups with Struggling Student Loan Borrowers. 
(2015). 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.
    \146\ Ibid.
---------------------------------------------------------------------------

    As discussed in the Net Budget Impact section, the Department's 
main budget estimate includes an increase in the total volume being 
repaid on IDR as well as several alternative budget scenarios that 
generally involve an increase in the amount of loans being repaid on 
IDR, either due to greater usage of the plan by existing borrowers, 
increased amounts of debt taken out by existing borrowers, or 
additional borrowing from individuals who would not otherwise take out 
loans. The benefits discussed in this section would generally remain 
the same under any of these scenarios. Borrowers would be protected 
from a greater risk of delinquency or default; they would have an 
easier time deciding whether to choose an IDR plan and staying enrolled 
on such a plan.
    There are, however, some additional benefits that could possibly 
accrue under some of the scenarios. For instance, there are benefits to 
additional borrowing in the future by students who would otherwise 
avoid loans.\147\ When student loans were packaged as part of a 
financial aid letter for borrowers attending a community college, 
students were more likely to borrow for their education. This increased 
borrowing--about $4,000--led to increases in GPA and completed credits 
among students and increased transfers by 11 percentage points.\148\ 
When students use loans, they may be less likely to rely on higher 
interest credit card debt, or substitute in longer working hours; both 
of these choices could interfere with a student's ability to complete a 
degree.\149\ Reduction in student loan repayment risk may also induce 
more institutions that previously did not package loans or offer them 
as part of Federal student financial aid to do so. Researchers estimate 
that in the 2012-13 school year, more than 5 million students attended 
community colleges that did not offer Federal student loans.\150\
---------------------------------------------------------------------------

    \147\ Boatman, Angela, Brent J. Evans, and Adela Soliz. 
``Understanding loan aversion in education: Evidence from high 
school seniors, community college students, and adults.'' Aera Open 
3, no. 1 (2017): 2332858416683649.
    \148\ Marx, Benjamin M., and Lesley J. Turner. 2019. ``Student 
Loan Nudges: Experimental Evidence on Borrowing and Educational 
Attainment.'' American Economic Journal: Economic Policy, 11 (2): 
108-41.
    \149\ Avery, Christopher, and Sarah Turner. ``Student loans: Do 
college students borrow too much--or not enough?.'' Journal of 
Economic Perspectives 26, no. 1 (2012): 165-192.
    \150\ Marx, Benjamin M., and Lesley J. Turner. 2019. ``Student 
Loan Nudges: Experimental Evidence on Borrowing and Educational 
Attainment.'' American Economic Journal: Economic Policy, 11 (2): 
108-41.
---------------------------------------------------------------------------

    The final rule will also provide benefits to the Federal 
government. The Federal government benefits from increases in 
borrowers' improved economic stability and potential for

[[Page 43884]]

economic growth that comes from them being less likely to default and 
be subject to the conditions that can constrain economic success after 
default, such as challenges in getting a job or securing housing.\151\ 
These benefits are returned to taxpayers in the form of increased 
economic activity and growth. The improved repayment terms in the new 
REPAYE plan, including limitations on interest accrual, will make 
careers in non-profit and public service industries more appealing to 
borrowers who are seeking PSLF. This will be particularly relevant in 
instances where there is a substantial pay difference relative to the 
private sector. This allows State and Federal governments to better 
attract and retain talent in their workforces. Although the potential 
effects of these IDR changes are hard to project, a study of the impact 
of waivers for PSLF indicated that the broad take up of these waivers 
particularly benefited those in occupations like teaching, social work, 
law enforcement, and firefighting.\152\
---------------------------------------------------------------------------

    \151\ Kiviat, B. (2019). The art of deciding with data: evidence 
from how employers translate credit reports into hiring decisions. 
Socio-Economic Review, 17(2), 283-309.
    So, W. (2022). Which Information Matters? Measuring Landlord 
Assessment of Tenant Screening Reports. Housing Policy Debate, 1-27.
    \152\ Briones, Diego A., Nathaniel Ruby & Sarah Turner. (2022). 
Waivers for the Public Service Loan Forgiveness Program: Who Would 
Benefit from Takeup? Working paper 30208. www.nber.org/papers/w30208.
---------------------------------------------------------------------------

    By reducing defaults through the adoption of the new REPAYE plan, 
the Department will reduce the incidence of involuntary collections 
which inhibit the effectiveness of other government programs that act 
to support low-income families. For example, the Department collects 
more in Federal non-tax delinquent debt than any other Federal agency, 
collecting $14.5 billion in the 2019 fiscal year, 54 percent of the 
total amount collected by all agencies.\153\ These debts may be 
collected through involuntary transfers, such as through Treasury 
offsets of tax refunds and benefit payments. Treasury offsets can 
directly reduce Federal payments intended to help lower-income 
households. For example, some older borrowers may have their Social 
Security benefits offset, sometimes to the point where their benefits 
are reduced to payments below 100 percent of FPL.\154\ Offsets to tax 
refunds can affect a household's receipt of the earned income tax 
credit, a benefit for low- and middle-income workers and families which 
has been shown to create incentives for employment, improve children's 
math and reading achievement, and lift some families out of 
poverty.\155\
---------------------------------------------------------------------------

    \153\ FY 2019 Report to the Congress: U.S. Government Non-Tax 
Receivables and Debt Collection Activities of Federal Agencies. 
fiscal.treasury.gov/files/dms/debt19.pdf.
    \154\ U.S. Government Accountability Office. December 2016. 
Social Security Offsets. Improvements to Program Design Could Better 
Assist Older Student Loan Borrowers with Obtaining Permitted Relief. 
www.gao.gov/assets/690/682476.pdf.
    \155\ Schanzenbach, Diane Whitmore and Michael R. Strain. 
(October 2020).``Employment Effects of the Earned Income Tax Credit: 
Taking the Long View.'' IZA Institute of Labor Economics. 
docs.iza.org/dp13818.pdf. Dahl, Gordon B., and Lance Lochner. 2012. 
``The Impact of Family Income on Child Achievement: Evidence from 
the Earned Income Tax Credit.'' American Economic Review, 102 (5): 
1927-56. www.aeaweb.org/articles?id=10.1257/aer.102.5.1927.
---------------------------------------------------------------------------

    Another form of involuntary payment for defaulted student debt, 
administrative wage garnishment, can result in the garnishment of an 
average of 10 percent of a worker's monthly gross pay.\156\ By the end 
of 2019, about 0.4 percent of workers were subject to wage garnishment 
for at least one student loan.\157\ Wage garnishment also appears to be 
associated with an increased rate of job turnover,\158\ which could 
result in more volatility in earnings and in long-run career 
trajectory, which may cause individuals to rely more on other Federal 
social safety nets, such as the Supplemental Nutrition Assistance 
Program and Medicaid.
---------------------------------------------------------------------------

    \156\ DeFusco, Anthony A., Random M. Enriquez, and Margaret B. 
Yellen. (December 2022). Wage Garnishment in the United States: New 
Facts from Administrative Payroll Records. NBER working paper 30714. 
www.nber.org/papers/w30724.
    \157\ Ibid.
    \158\ Ibid.
---------------------------------------------------------------------------

    The Department will also benefit operationally from this final 
rule. While there will be costs to implement these changes, the changes 
to REPAYE will make it easier for the Department to counsel borrowers 
about their repayment options. This includes both the decision of 
whether to enroll in IDR or not, and then which plan to pick among the 
IDR options. This is a significant improvement from current rules, in 
which there are multiple IDR plans with very similar terms and some 
that have confusing tradeoffs that can be hard to explain. For example, 
borrowers today must decide whether to take the benefit on REPAYE that 
results in the Department not charging 50 percent of the monthly unpaid 
interest in exchange for provisions that require a married borrower who 
files separately to include their spouse's income. Simpler and clearer 
choices that establish REPAYE as the best option for essentially all 
undergraduate borrowers and the best payment on a monthly basis for all 
but the graduate borrowers with the highest income will make it easier 
to guide borrowers. Moreover, the expanded interest benefit will remove 
a major potential downside to using IDR, which can help assuage 
concerns about the plan that might otherwise dissuade a borrower who 
needs help from reduced payments.
    On net, the final regulations will likely present a benefit to 
servicers. They would have some upfront costs to administer the program 
and retrain their call center representatives, but the Department pays 
servicers through the contract change process when it asks them to 
implement new benefits. That means the cost of implementing new 
provisions will ultimately be paid for by the Department. After this 
transitionary period, servicers will be more likely to benefit. For 
one, the reduced payments will help more borrowers stay current, a 
benefit for servicers who are paid more when loans are not delinquent. 
The treatment of interest as well as counting progress toward 
forgiveness from certain deferments and forbearances will also reduce 
frustration and concerns from borrowers, which may mean fewer cases 
that need to be escalated to more experienced (and expensive) staff. 
While the new REPAYE plan will result in increased levels of 
forgiveness, we do not project that it would result immediately in 
significant amounts of forgiveness. That's because the one-time payment 
count adjustment will be providing discharges for borrowers who already 
have enough time in repayment to get them to the equivalent of 20 or 25 
years in repayment, while only about 16 percent of all borrowers have 
original principal balances that make them eligible for forgiveness 
after as few as 120 payments, as shown in Table 5.4. Moreover, it is 
not a given that all these borrowers would sign up for the new REPAYE 
plan or that all who do would have their loans forgiven instead of 
being repaid within the 10-year maximum repayment period.
    The Department believes that, despite the additional costs to 
taxpayers of the new REPAYE plan, both borrowers and the Department 
will greatly benefit from a plan that helps borrowers avoid delinquency 
and default, which are loan statuses that create negative, long-lasting 
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.

[[Page 43885]]

    In sum, borrowers will 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 and its contracted servicers will benefit from streamlining 
administration, and taxpayers will benefit from the lower rates of 
delinquent and defaulted loans.
4.2 Costs of the Regulatory Changes
    The increased benefits on the new 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 
there is an increase in borrowing rates or amounts and those borrowers 
then fail to fully repay that additional debt. 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 would generate additional Federal income tax 
revenue.\159\
---------------------------------------------------------------------------

    \159\ 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), 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, www.aeaweb.org/articles?id=10.1257/pol.20180279. Black et al. 
2020 www.nber.org/papers/w27658.
---------------------------------------------------------------------------

    The changes to the 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 
standards currently cause 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 enrollments, and 
many still maintained access to aid as a result of successful appeals. 
The most recent rates released in fall 2022 showed just eight 
institutions potentially subject to the loss of eligibility.\160\ The 
effect of the cohort default rate will also remain small for several 
years into the future because of the pause on payments, interest, and 
collections that was put in place in March 2020.
---------------------------------------------------------------------------

    \160\ www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html.
---------------------------------------------------------------------------

    The small reduction in accountability from the cohort default 
metric could be mitigated by other actions by the Department to 
increase accountability for programs that are required to provide 
training that prepares students for gainful employment in a recognized 
occupation, but instead leave graduates with student debt that 
outweighs their typical earnings or with earnings that are less than 
those of high school graduates. If finalized, these accountability 
measures would likely reduce the transfers to borrowers under the new 
REPAYE plan, as students would be unable to use title IV aid to enroll 
in career programs with low economic returns.
    Additional efforts by the Department to inform students about debt 
burden and typical earnings for graduates from programs not subject to 
the gainful employment rule may also reduce transfers to poor-
performing programs. As a result of additional information, students 
may consider choosing a program with better earnings or loan burden 
outcomes, and programs may take steps to reduce students' debt burdens 
or improve earnings after graduation.\161\ Whether the new REPAYE plan, 
combined with accountability changes, results in an increased transfer 
to borrowers, and the size of that transfer, depends on the likelihood 
that an aid recipient would have enrolled elsewhere and whether their 
alternative options would have resulted in higher or lower earnings. It 
also depends on institution and program action in response to the 
implementation of new accountability rules. An additional concern is 
the possibility that additional assistance for borrowers through the 
updated REPAYE plan may 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 repay their loans. This 
concern already exists with IDR plans, but could increase with the more 
generous benefits available under the new REPAYE provisions. Relatedly, 
institutions may be more inclined to raise tuition 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. At the same time, this plan 
targets its benefits at undergraduate students, so the change in 
incentives for graduate schools relative to the existing IDR plans are 
smaller. Increases in tuition would not solely affect borrowers and, 
indirectly, taxpayers; students who do not borrow would face higher 
education costs as well.
---------------------------------------------------------------------------

    \161\ Joselynn Hawkins Fountain, 2019. ``The Effect of the 
Gainful Employment Regulatory Uncertainty on Student Enrollment at 
For-Profit Institutions of Higher Education,'' Research in Higher 
Education, Springer; Association for Institutional Research, vol. 
60(8), pages 1065-1089, December.; Hentschke, G.C., Parry, S.C. 
Innovation in Times of Regulatory Uncertainty: Responses to the 
Threat of ``Gainful Employment''. Innov High Educ 40, 97-109 (2015). 
doi.org/10.1007/s10755-014-9298-z.
---------------------------------------------------------------------------

    The alternative budget scenarios discussed in the Net Budget Impact 
also have potential implications for the costs of this final rule. 
Similar to the discussion of this issue in the Benefits of the 
Regulatory Changes section, the costs associated with any additional 
borrowing will depend based upon what types of individuals take on 
additional debt, what outcomes are achieved with that debt, and whether 
it is likely to be ultimately repaid. For instance, additional 
borrowing that leads more students to successfully complete their 
education will result in lower net costs since it would produce 
additional benefits, such as increased earnings and higher Federal tax 
revenues. By contrast, additional borrowing that does not affect 
completion and is not repaid would carry a greater cost because there 
are not additional benefits to offset the expense.
    The final regulations will also result in short-run administrative 
costs to the Department to implement the changes to the plan, which 
would require modifications to contracts with servicers. As discussed 
in the responses to comments in this RIA, we estimate that this will be 
approximately $17.3 million. This includes an initial cost of $4.7 
million to implement the changes that will go into effect on July 30, 
2023,

[[Page 43886]]

including rebranding the plan from REPAYE to SAVE. The remaining $12.6 
million is related to standing up other changes in time for the rest of 
this regulation to go into effect on July 1, 2024. Ongoing costs beyond 
this amount would be part of the Department's annual expenses for 
student loan servicing.
5. Net Budget Impacts
    These regulations are estimated to have a net Federal budget impact 
in costs over the affected loan cohorts of $156.0 billion, consisting 
of a modification of $70.9 billion for loan cohorts through 2023 and 
estimated costs of $85.1 billion for loan cohorts 2024 to 2033. The 
Department's primary estimate updates the IDR NPRM estimate to include 
assumptions about increased undergraduate loan volume being repaid on 
IDR and for the President's Budget for FY 2024 with small updates. 
There are also additional sensitivities that address points raised in 
comments or the Department's internal review. 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 offer borrowers a more generous IDR 
plan that would have a net budget impact of approximately $156.0 
billion, consisting of a modification of $70.9 billion for cohorts 
through 2023 and $85.1 for cohorts 2024-2033. This estimate is based on 
the President's Budget for 2024 baseline that includes the PSLF waiver, 
the one-time payment count adjustment, the payment pause extension to 
August 2023, 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. It also 
includes the regulatory changes included in the final regulations for 
Institutional Eligibility Under the Higher Education Act of 1965, as 
Amended; Student Assistance General Provisions; Federal Perkins Loan 
Program; Federal Family Education Loan Program; and William D. Ford 
Federal Direct Loan Program published on November 1, 2022 (87 FR 
65904), and the final regulations for 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 published on October 28, 2022 (87 FR 
65426) that made changes to several other areas related to Federal 
student loans including interest capitalization, loan forgiveness 
programs, loan discharges, and the 90/10 rule.
    The most significant reasons for the change in the net budget 
impact estimate from the IDR NPRM to the final regulations are changes 
that increase the share of future loan volume that we project to be 
repaid through the new plan. There are also underlying changes in the 
baseline against which the changes to IDR are costed against. In 
addition, the Department updated its methodology related to plan 
switching to reflect that approximately 25 percent of the 800,000 
borrowers currently on ICR have Direct Consolidation loans that repaid 
a parent PLUS loan and are therefore ineligible to switch to REPAYE. 
Since the subsidy rate on REPAYE is greater than on ICR, this reduces 
costs for taxpayers by a small amount.
    As noted in the IDR NPRM, the Department has significant data 
limitations that create challenges in estimating many of the other 
factors identified by commenters in the primary budget estimate. In 
particular, we lack information on the incomes, income trajectories, 
and household sizes of borrowers who are not enrolled on an IDR plan. 
For these reasons, the Department's past regulations under the ICR 
authority have not incorporated estimates in changes in the percent of 
volume using IDR.
    We also noted in the IDR NPRM that we would continue to assess the 
issue of potential increased usage of IDR plans in response to this 
rule based upon the public comments received. We agree with the 
commenters that it is reasonable to expect an increase in the amount of 
loan volume being repaid on IDR, particularly in the revised REPAYE 
plan, which is now also being referred to as the SAVE plan. Such a 
situation is consistent with the Department's stated goals of having 
IDR plans better serve as protection against delinquency and default 
and to make certain we do not return to a world where more than 1 
million borrowers default on their loans each year.
    The Department is still concerned that properly determining 
potential take-up of the IDR plan is challenging, particularly given 
the difficulty in forecasting future income, family size, and marital 
status for borrowers who were not estimated to enroll in IDR under the 
baseline. The effect of provisions like the automatic enrollment of 
borrowers who are at least 75 days delinquent is also hard to project 
because it is dependent on how many borrowers provide approval for the 
disclosure of their Federal tax information and that functionality is 
not yet available.
    Given these challenges, the Department decided in the final rule to 
adopt estimates for increased loan volume for undergraduate borrowers 
based upon the share of undergraduate loan volume held by borrowers 
that are projected to be able to benefit from lower payments under the 
current REPAYE plan (the most generous IDR option that is currently 
available to all borrowers) who actually enroll in an IDR plan. 
Specifically, we used the model discussed in both the IDR NPRM and this 
final rule that projects the present discounted value of lifetime 
payments for all future borrowers if they were to enroll in REPAYE, the 
standard 10-year plan, and the graduated repayment plan. If a borrower 
is projected to pay less in present discounted value terms in REPAYE 
than the PDV of their payments in the other two plans, then we project 
that they would benefit from REPAYE and calculated the share of loan 
volume associated these borrowers. While this analysis is based upon 
REPAYE, that plan is the most generous plan available to student 
borrowers with Direct Loans to all but some graduate borrowers with 
high ratios of their income to their debt.\162\ We grouped these 
borrowers into categories that mirror the risk categories used in 
budget modeling. These are 2-year proprietary; 2-year nonprofit; 4-year 
freshman or sophomore; and 4-year junior or senior. We then looked at 
the share of volume from each of those risk categories that are 
currently enrolled in IDR. These figures can be thought as the 
``Current REPAYE usage rate.'' The results of those calculations are 
displayed below in Table 5.1.
---------------------------------------------------------------------------

    \162\ REPAYE has the same formula for calculating payments as 
PAYE and IBR for new borrowers, but also does not charge half of 
unpaid monthly interest. REPAYE does not cap payments at the 
standard 10-year plan as PAYE and IBR do, but those plans have an 
upfront eligibility requirement that a borrower must see a payment 
reduction relative to the standard 10-year plan.

[[Page 43887]]



 Table 5.1--Share of Loan Volume Held by Borrowers Projected To Benefit From REPAYE That Are Estimated To Enroll
                                                     in IDR
----------------------------------------------------------------------------------------------------------------
                                                                    Share that
                                                                   would benefit    Share that       Estimated
                   Risk category and loan type                     from current    enroll in IDR    current IDR
                                                                      REPAYE         (percent)      usage rate
                                                                     (percent)                       (percent)
----------------------------------------------------------------------------------------------------------------
2-year proprietary, subsidized..................................              56              25              45
2-year proprietary, unsubsidized................................              56              27              49
2-year nonprofit, subsidized....................................              72              29              40
2-year nonprofit, unsubsidized..................................              72              29              41
4-year fresh/soph, subsidized...................................              45              28              62
4-year fresh/soph, unsubsidized.................................              45              28              63
4-year junior/senior, subsidized................................              45              30              67
4-year junior/senior, unsubsidized..............................              45              32              71
----------------------------------------------------------------------------------------------------------------

    We next used the same model to estimate what share of volume would 
be associated with borrowers who are projected to have the lowest PDV 
of payments in the SAVE plan/the final rule version of REPAYE, again 
compared to the standard 10-year and graduated plans. We multiplied 
this percentage by the Current REPAYE usage rate to determine the 
percentage of future volume that we estimated would enroll in the final 
rule's version of REPAYE. Those numbers are shown below in Table 5.2.

                              Table 5.2--Projected Usage of Final Rule REPAYE Plan
----------------------------------------------------------------------------------------------------------------
                                                                                                     Increased
                                                       Share         Estimated       Estimated    volume in SAVE
                                                   estimated to     current IDR        share        compared to
           Risk category and loan type             benefit from     usage rate     enrolling in     current IDR
                                                  SAVE (percent)     (percent)    SAVE (percent)     volume (%
                                                                                                      points)
----------------------------------------------------------------------------------------------------------------
2-year proprietary, subsidized..................              89              45              40              15
2-year proprietary, unsubsidized................              89              49              43               1
2-year nonprofit, subsidized....................              84              40              34               5
2-year nonprofit, unsubsidized..................              84              41              34               5
4-year fresh/soph, subsidized...................              72              62              45              17
4-year fresh/soph, unsubsidized.................              72              63              46              17
4-year junior/senior, subsidized................              72              67              48              18
4-year junior/senior, unsubsidized..............              72              71              51              19
----------------------------------------------------------------------------------------------------------------

    The Department believes this is the best approach for estimating 
the possible increased usage of the plan within the limitations of the 
Department's data and concerns about properly estimating behavioral 
effects. It does not presume that borrowers use the plan at a greater 
rate because of a behavioral effect, but rather acknowledges that the 
share of volume associated with borrowers that would benefit from the 
plan has increased.
    The Department did not apply this approach to two of its risk 
groups--graduate borrowers and consolidation volume. We did not include 
the latter because our modeling of the plan's benefits does not group 
borrowers in that manner. The Department also already attributes that a 
higher share of consolidation loan volume will be repaid in IDR than 
any other risk group. For instance, starting with cohort 2014 and going 
forward, the Department has projected that more than 70 percent of 
consolidated volume from subsidized loans and 80 percent of 
consolidated volume from unsubsidized loans volume will be repaid in an 
IDR plan. These figures do not include consolidation loan volume from 
borrowers exiting default, which since 2015 has been projected to be 
more than 80 percent of loan volume. We also did not use this approach 
for graduate borrowers because since 2013 the Department has projected 
around 60 percent of graduate PLUS volume and 50 percent of 
unsubsidized graduate volume will be repaid in an IDR plan. These 
figures are higher than undergraduate borrower IDR enrollment. In fact, 
we already project a higher share of graduate loan volume enrolling in 
IDR than would come from this formula.
    We believe that graduate enrollment in IDR is much higher under 
than undergraduate IDR enrollment under the baseline primarily for two 
reasons.
    First, graduate borrowers--who are more likely to have been through 
years of interaction with Federal student aid system and institutional 
financial aid offices--are likely to have a greater awareness of 
repayment options than undergraduate borrowers. This increased 
knowledge of repayment options likely contributes to higher IDR take-up 
under the baseline.
    Second, graduate borrowers may be able to draw greater benefits 
from current IDR plans than undergraduate borrowers. Graduate borrowers 
have higher average loan balances than undergraduate borrowers--and in 
many cases higher interest rates--meaning that they may be more likely 
to benefit from greater reductions in monthly payments than 
undergraduate borrowers in current IDR plans. The potential for greater 
benefits perhaps increases the relative propensity of graduate 
borrowers to enroll in IDR compared to undergraduate borrowers. In 
other words, the structure of the existing IDR plans may provide a 
stronger incentive for graduate borrowers to enroll.
    The changes to the REPAYE plan resulting in the new SAVE plan, 
meanwhile, are primarily geared toward

[[Page 43888]]

undergraduate borrowers. Undergraduate borrowers will owe a lower 
percentage of their discretionary income each month, while payments on 
graduate debt will remain at 10 percent. Undergraduate borrowers with 
low original principal balances will also be eligible for forgiveness 
much sooner than under existing plans. Graduate borrowers, by contrast, 
would be relatively less likely to have balances small enough to 
benefit from this provision.
    While the provisions in the SAVE plan related to the higher 
discretionary income protection and no longer charging unpaid monthly 
interest apply to graduate and undergraduate borrowers, we believe that 
most graduate borrowers in position to substantially benefit from these 
provisions would already derive large benefits from existing IDR plans 
and therefore would already be likely to enroll in IDR under the 
baseline. The relative benefits of both these changes are greater for 
borrowers whose debt payments represent a larger share of their 
household income compared to those for whom their debt payments are a 
smaller share of their household income. But the same is true for IDR 
more generally. REPAYE also already had a version of the interest 
benefit in place. That means the magnitude of the effects of the 
interest benefit are greater under the SAVE plan, but the basic 
incentives to use this plan to receive some help with accumulating 
unpaid interest are the same as what currently exists.
    Finally, we note that prior to this final rule, REPAYE was not the 
most popular IDR option for graduate borrowers. Those borrowers were 
more likely to choose IBR or PAYE because those plans provide 
forgiveness after 20 years of payments instead of the 25 years on 
REPAYE. They also cap payments at the 10-year standard plan, while 
REPAYE has no cap. While the SAVE plan will produce lower monthly 
payments than those other plans for most borrowers, the longer time to 
forgiveness and lack of a payment cap are still present in the SAVE 
plan. That means graduate borrowers will face a trade-off between the 
benefits of SAVE (e.g. a higher discretionary income threshold) and the 
less beneficial aspects of SAVE relative to IBR--particularly the 
longer maximum repayment period. Undergraduate borrowers on the other 
hand will have the same maximum repayment period on the SAVE plan as 
they have under existing IDR plans--the SAVE plan is almost entirely 
beneficial to them relative to existing IDR plans.
    Overall, we therefore expect that the final rule will create a 
greater change in the incentives for undergraduate borrowers to enroll 
in IDR relative to graduate borrowers. As noted, we already have 
estimates of significant IDR usage by graduate borrowers and do not 
think the changes in this rule appreciably change the existing 
incentives. There are also still some downsides to the plan in this 
final rule that would be most relevant for graduate borrowers. Due to 
all of these factors we have not increased the expected graduate volume 
being repaid in IDR that already exists in the baseline.
    This additional IDR usage only applies to the outyears in our 
budget estimates. This approach best captures the effect of the plan 
resulting in greater usage from future borrowers. It also reflects data 
and modeling limitations that would overstate the effects of the IDR 
change if we were to move existing borrowers into an IDR plan. In the 
Department's current model, switching a percent of volume from one 
repayment plan to another applies from the time that volume entered 
repayment, changing the payment stream more than would be the case for 
borrowers changing plans several years into repayment. Given the higher 
subsidy costs for IDR plans, this would overstate the costs of the 
modification for past cohorts and cause changes to cashflows to past 
years, which is not possible. We have done this in one sensitivity for 
illustrative purposes, but do not believe it is appropriate for the 
primary estimate.
    We have modeled other proposals from commenters related to 
increases in overall loan volume or changes in borrower behavior as 
alternative budget scenarios.
    The final 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. The revision to the REPAYE plan will also provide 
that the borrower will not be charged any remaining accrued interest 
each month after the borrower's payment is applied under the REPAYE 
plan. That provision 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 leads future cohorts of students to increase the 
volume and quantity of loans they obtain. The primary budget estimate 
assumes that there will be no change in volume or quantity of loans 
issued due to the improved terms. As noted in the IDR NPRM and by 
several commenters, additional borrowing would increase costs of the 
regulations, with the magnitude of the impact depending on the 
characteristics of those borrowing more. Data limitations make it 
challenging to anticipate who such borrowers would be, so the 
Department has developed the Low Additional Volume and High Additional 
volume scenarios described in the Sensitivities discussion of this Net 
Budget Impact section.
    To estimate the effect of the rule 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 new REPAYE plan is available. 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 new 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. For this final rule, the 
Department keeps 25 percent of ICR borrowers in that plan to represent 
parent borrowers who will not have access to the new REPAYE plan. Table 
5.3 shows the result of this plan assignment, which is that more than 
93 percent of future volume that enrolls in IDR is projected to enroll 
in the new REPAYE plan.

[[Page 43889]]



                     Table 5.3--Plan Assignment for Borrowers Entering Repayment in FY 2024
                [Percent distribution of borrowers in baseline plan when new REPAYE is available]
----------------------------------------------------------------------------------------------------------------
                                                                                                    Final rule
                  Baseline plan                         ICR             IBR            PAYE           REPAYE
----------------------------------------------------------------------------------------------------------------
ICR.............................................           27.27  ..............  ..............           72.73
IBR.............................................  ..............           20.33  ..............           79.67
PAYE............................................  ..............  ..............             6.5            93.5
REPAYE..........................................  ..............  ..............  ..............             100
                                                 ---------------------------------------------------------------
    Total.......................................            0.01            1.09             5.4            93.5
----------------------------------------------------------------------------------------------------------------

    In categorizing plans, we combine the 10-percent IBR plans with 
PAYE borrowers, as the key characteristics of those plans are very 
similar. The IBR row and columns refers to those remaining in 15 
percent IBR, which represents 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 
plan revisions. It does, however, consider the effect of the one-time 
debt relief program announced in August 2022. Possible alternatives 
include choosing the plan that has the most favorable monthly payments 
in 2023 or another near-term year, assuming 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 electing to participate in the 
new REPAYE plan. By assuming IDR borrowers select the plan with the 
lowest long-run cost, this generates a higher-end estimate of the net 
budget impact of the changes for borrowers currently enrolled in IDR 
plans, though there are alternative budget scenarios explored that 
could present a higher possible cost. 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 in the primary estimate. 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 main budget estimate does 
include a projection that additional undergraduate borrowing will 
switch into IDR plans from non-IDR plans as explained above. We also 
further model other versions of plan switching in the sensitivity runs. 
This change in the main estimate results in projecting 45 percent of 
volume from four-year freshmen and sophomores being repaid on IDR, 
around 50 percent for four-year juniors and seniors, and just over 40 
percent of future volume for two-year proprietary students. 
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. That is why we have presented 
additional possible increases in the usage of IDR or increased 
borrowing in the alternative budget scenarios. We reviewed this issue 
in response to public comments on the NRPM and the data points and 
analysis received was helpful in developing the revisions to the main 
budget estimate and the sensitivity scenarios. Regardless, to the 
extent such increases in volume and increases in IDR participation are 
observed, they will be reflected in future loan program initial subsidy 
estimates and re-estimates.
    With the significant budget impact from these final regulations, 
the Department seeks to show the effects of the various changes 
individually. Table 5.4 details the scores for the modification cohorts 
through 2023 and the outyears through 2033 when the changes are run 
with one or more elements kept as in the baseline. This provides an 
indication of the impact of the specific changes. The scores for each 
component will not sum to the total because of the significant 
interaction between elements of the 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 $126.3 billion compared to 
$130.6 billion when adding the individual savings together. These 
estimates are removing the 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 5.4--IDR Component Estimates
                                                 [$ in billions]
----------------------------------------------------------------------------------------------------------------
                                      Income                                        No balance-
                                    protection       No 5% of        No unpaid         based           Other
                                   kept at  150%  income payment     interest        shortened      provisions
                                      of FPL                          benefit       forgiveness
----------------------------------------------------------------------------------------------------------------
Modification through cohort 2023        ($36.55)        ($28.08)         ($6.60)         ($0.96)         ($3.77)

[[Page 43890]]

 
Outlays for cohorts 2024-2033...        ($35.04)        ($30.98)        ($10.59)         ($2.71)         ($4.52)
                                 -------------------------------------------------------------------------------
    Total.......................        ($71.59)        ($59.06)        ($17.19)         ($3.67)         ($8.29)
----------------------------------------------------------------------------------------------------------------
Note: Savings are relative to the scenario in which the final rule is implemented in full, so a negative number
  reflects a smaller increase in costs.

    As can be seen in Table 5.4, 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 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, one that 
increases incomes by 5 percent and the other that decreases them by 10 
percent. 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 percent increase in incomes would 
cost a total of $129.0 billion and the 10 percent decrease would cost 
$203.1 billion. Recall that our central estimate of the rule's net 
budget impact is $156.0 billion above baseline. Incomes are likely the 
factor in the IDR model with the greatest effect, but other aspects, 
such as projected family size, and events such as defaults or 
discharges, also affect the estimates.
    We also wanted to consider the distributional effects of the 
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 included in the primary estimate. 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 5.5 summarizes the change in payments 
between the President's budget baseline for FY 2024 including waivers, 
one-time debt relief, and recent regulatory packages and the final 
regulations for a representative cohort of borrowers (i.e., those 
entering repayment in FY 2024).

Table 5.5--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
----------------------------------------------------------------------------------------------------------------
                                    Borrowed only as an undergraduate student
----------------------------------------------------------------------------------------------------------------
% of Pop........................................................          16.40%          22.46%          24.25%
% of Debt.......................................................           5.74%          10.30%          13.59%
Mean Debt.......................................................         $26,492         $34,681         $42,372
Mean Reduction in Payments......................................         $10,270         $18,246         $20,065
----------------------------------------------------------------------------------------------------------------
                             Borrowed as both an undergraduate and graduate student
----------------------------------------------------------------------------------------------------------------
% of Pop........................................................           1.76%           5.21%          20.56%
% of Debt.......................................................           3.02%           9.09%          38.54%
Mean Debt.......................................................        $129,814        $131,995        $141,752
Mean Reduction in Payments......................................         $19,693         $25,412          $3,675
----------------------------------------------------------------------------------------------------------------
                                       Borrowed only as a graduate student
----------------------------------------------------------------------------------------------------------------
% of Pop........................................................           0.46%           1.55%           7.36%
% of Debt.......................................................           0.94%           3.05%          15.73%
Mean Debt.......................................................        $155,844        $148,791        $161,673
Mean Reduction in Payments......................................         $12,874         $11,293       ($12,253)
----------------------------------------------------------------------------------------------------------------
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.

    All groups would see significant reductions in average payments, 
except those who borrowed as graduate students and have over $100,000 
in average annual 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 drops to $0, they cannot receive any greater 
savings under the new plan. Moreover, borrowers in this category 
generally have lower loan balances; therefore, the amount of potential 
savings is also smaller.
    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 5.6. The high-income, high-debt 
graduate students may not benefit from the rate reduction and the 
continued absence of

[[Page 43891]]

the standard payment cap on REPAYE will likely affect them more. Some 
may still choose the new REPAYE plan if their payments are lower in the 
beginning and then get higher at the end of the repayment period. Table 
5.6 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 drivers of reductions in borrower payments from the 
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 
5.6 is based on the borrower's balance and does not take into account 
any deferments, forbearances, or early payoffs.

 Table 5.6--Years to Forgiveness and Distribution of Balances for Borrowers Entering Repayment in FY 2024 Under
                                                   Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                   Undergraduate   Any graduate
                  Expected years to forgiveness                      borrowers       borrowing        Overall
----------------------------------------------------------------------------------------------------------------
10..............................................................           23.53            0.99           15.78
11..............................................................            1.83            0.11            1.24
12..............................................................            2.04            0.12            1.38
13..............................................................            2.07            0.12             1.4
14..............................................................            2.24            0.19            1.54
15..............................................................            2.12            0.21            1.46
16..............................................................            2.31             0.2            1.58
17..............................................................            2.13            0.15            1.45
18..............................................................            2.25            0.16            1.53
19..............................................................            2.27            0.18            1.55
20..............................................................            57.2            0.24            37.6
21..............................................................  ..............            0.31            0.11
22..............................................................  ..............            0.16            0.06
23..............................................................  ..............            0.27            0.09
24..............................................................  ..............            0.34            0.12
25..............................................................  ..............           96.25           33.12
----------------------------------------------------------------------------------------------------------------

    As noted, the Department received a significant number of comments 
about the budget impact estimates in the IDR NPRM, several of which 
included analysis of the proposed rule. With respect to the budget 
impact estimate, many comments indicated the Department underestimated 
the effect of the rule by not accounting for increased take-up of IDR 
and failing to account for new borrowing.
    Increased take-up would be from borrowers choosing the new plan for 
its lower payments, increased income protection, reduced time to 
forgiveness, or other benefits. The policy to switch delinquent 
borrowers into IDR will also contribute to increased use of the plan. 
Several commenters referenced the Penn-Wharton Budget model analysis 
that analyzed a range of IDR take-up from 70-90 percent of loan volume 
while another analysis found that 85 percent of borrowers could benefit 
from the new plan. The Department's projections of payments made by 
future cohorts of borrowers by institutional level and control found 
that 72 percent of loan volume at 4-year institutions was associated 
with borrowers who could benefit from the new REPAYE plan in terms of 
reductions in the present discounted value of total payments made. 
However, the same analysis suggested that 45 percent of loan volume is 
owed by borrowers from 4-year institutions who would benefit from the 
current REPAYE plan, but actual take up of any IDR plan is only around 
30 percent. The results are similar for loan volume from 2-year 
institutions, where the Department's model estimates that approximately 
56 percent of volume at 2-year proprietary institutions and 72 percent 
at 2-year private nonprofit institutions is owed by borrowers who would 
benefit from REPAYE, yet the President's FY24 baseline, which is based 
upon actual historical data, projects that only about 26 percent and 29 
percent of volume from those types of schools, respectively, is 
enrolled in an IDR plan. Therefore, as described above, the Department 
adjusted the main budget estimate to include increased usage of IDR by 
undergraduate borrowers based upon assuming the share of volume 
associated with borrowers that would benefit from IDR enroll in those 
plans as is observed under current plans. This results in an increase 
of volume on IDR since the total amount of volume that would benefit 
from an IDR plan is higher under this final rule.
    To further explore a range of possible outcomes in terms of take up 
we developed Sensitivities 1 and 2 with two take-up increases, the 
first increasing take-up even further for existing undergraduate and 
graduate cohorts and future cohorts with no ramp-up and the second 
being an increase that ramps up across seven outyear cohorts to maximum 
levels between 67 percent and 77 percent depending on loan type and 
risk group.
    The treatment of past cohorts varies between the two IDR take-up 
sensitivity runs. The Department recognizes that borrowers from past 
cohorts may switch to the new REPAYE plan. However, the Department's 
scoring model handles plan switching between non-IDR and IDR plans for 
past cohorts from the time when the loan enters repayment. Therefore, 
when we increase take-up of IDR plans for past cohort borrowers, the 
change is applied from the time they enter repayment and will overstate 
the cost of the modification. Only the first budget sensitivity shows 
the potential effect on past cohorts.
    Analysis provided by the commenters and Department analysis 
indicates if every or nearly every borrower that would benefit from the 
new REPAYE plan joins it then IDR take-up would increase significantly 
to around 70-85 percent of volume. Therefore, the maximum take-up 
adjustment factor was calculated as the percentage point increase that 
would bring the baseline IDR percentage into that range. The percentage 
point increase applied to various cohorts for Sensitivity 1, the 
maximum take-up adjustment factor, is presented in Table 5.7. Baseline 
rates for

[[Page 43892]]

selected cohorts and the resulting IDR percentages are presented in 
Tables 5.10 and 5.11.

                         Table 5.7--Take-Up Percentage Point Increase for Sensitivity 1
----------------------------------------------------------------------------------------------------------------
                                                 Past cohort take-up sensitivity                   Outyear take-
                               ------------------------------------------------------------------       up
    Proposal: cohort range                                                                       ---------------
                                    Pre-2008         2008-2012       2013-2017       2018-2023     2024 and out
----------------------------------------------------------------------------------------------------------------
2yr prop......................  No change.......            0.15             0.3             0.3             0.4
2yr NFP.......................  No change.......            0.15             0.3             0.3             0.4
4yr Fr/SO.....................  No change.......             0.2            0.35            0.35            0.45
4yr JR/SR.....................  No change.......             0.2            0.35            0.35            0.45
GRAD..........................  No change.......             0.2             0.2             0.2            0.25
----------------------------------------------------------------------------------------------------------------

    For Sensitivity 2, the additional element determining the IDR take-
up increase is the ramp-up factor shown in Table 5.8. The ramp-up 
factor is multiplied by the maximum take-up adjustment factor for 
cohorts 2024 and beyond in Table 5.7 to generate the percentage point 
change added to the baseline IDR percentage to get the new IDR 
percentage. For example, the 2-year proprietary risk group IDR 
percentage would be increased by 17.64 points (.4 * .4409). Added to 
the baseline IDR percentage of 25.37 percent, this generates the new 
IDR percentage of 43.01 percent for subsidized loans for cohort 2024.

                                                                       Table 5.8--Sensitivity 2 IDR Take-Up Ramp-Up Factor
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                               2024                                     2025          2026          2027          2028          2029          2030          2031          2032          2033
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
44.09%............................................................       63.85%        74.98%        84.14%        91.43%        96.52%        99.99%        100.0%        100.0%        100.0%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    The ramp-up factor is based on pre-covid information about the 
timing of when borrowers first change into an IDR plan with over 43 
percent in year one and above 98 percent by year 7. This ramp-up is 
based on the timing of borrowers' first change to an IDR plan, it is 
not tied to introduction of new repayment plans and the effect of new 
plans on the percent of the portfolio choosing IDR. To evaluate if a 
cohort-based ramp-up was reasonable, we also looked at the baseline IDR 
percentages for cohorts surrounding previous IDR plan changes, 
especially the introduction of PAYE and REPAYE. The percent volume 
assumption used in the President's Budget for FY 2024 has a difference 
of a few percentage points in each cohort from 2008 to 2013, after 
which the percentage stays around 27 percent for several cohorts as 
seen in Table 5.9. This indicates that even years after the 
introduction of PAYE, a difference in the percent of volume in IDR 
persists across cohorts (18.85 percent for 2008 and 27.40 percent for 
2014).

                          Table 5.9--FY2024 Cohort Non-Consolidated Loan Repayment Plan Distribution for Sensitivities 1 and 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Sensitivity 1: FY2024 cohort           Sensitivity 2: FY2024 cohort
                                                                           -----------------------------------------------------------------------------
                 Risk group                          Repayment plan             Sub          Uns          PLUS         Sub          Uns          PLUS
                                                                             (percent)    (percent)    (percent)    (percent)    (percent)    (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2 Yr Proprietary
                                             Standard.....................        28.51        26.57        86.12        46.93        44.71        86.12
                                             Extended.....................         0.21         0.22         1.47         0.35         0.36         1.47
                                             Graduated....................         5.90         5.98        12.41         9.71        10.06        12.41
                                             IDR..........................        65.37        67.23         0.00        43.01        44.87         0.00
2 Yr Not for Profit
                                             Standard.....................        25.57        24.74        86.47        43.97        42.82        86.47
                                             Extended.....................         0.59         0.76         2.53         1.02         1.32         2.53
                                             Graduated....................         4.91         5.09        11.00         8.45         8.81        11.00
                                             IDR..........................        68.92        69.41         0.00        46.55        47.05         0.00
4-Year FR/SO
                                             Standard.....................        22.10        21.25        90.78        42.57        41.39        90.78
                                             Extended.....................         0.71         0.86         2.29         1.37         1.67         2.29
                                             Graduated....................         4.34         4.44         6.93         8.37         8.65         6.93
                                             IDR..........................        72.85        73.45         0.00        47.69        48.29         0.00
4 Yr Jr/Sr
                                             Standard.....................        18.77        16.78        78.31        37.77        35.11        78.31
                                             Extended.....................         0.99         1.20         5.75         1.99         2.51         5.75
                                             Graduated....................         5.09         5.05        15.94        10.25        10.56        15.94
                                             IDR..........................        75.15        76.98         0.00        49.99        51.82         0.00
Graduate
                                             Standard.....................       100.00        17.33        11.41       100.00        27.16        21.89
                                             Extended.....................         0.00         2.01         1.28         0.00         3.14         2.45
                                             Graduated....................         0.00         5.31         2.54         0.00         8.32         4.86
                                             IDR..........................         0.00        75.36        84.77         0.00        61.38        70.79
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 43893]]

    Tables 5.10 and 5.11 provide additional information on the baseline 
take-up rates by loan type and risk group for selected cohorts as well 
as the IDR take-up rates applied to outyear cohorts in various 
scenarios.

           Table 5.10--Baseline Non-Consolidated Loan Repayment Plan Distribution for Selected Cohorts
----------------------------------------------------------------------------------------------------------------
                                                     2007         2010         2015         2020         2030
          Loan type               Risk group      (percent)    (percent)    (percent)    (percent)    (percent)
----------------------------------------------------------------------------------------------------------------
Subsidized
                               2 Yr Proprietary        15.44        23.16        27.48        25.37        25.37
                               2 Yr Not for            20.09        26.25        30.77        28.92        28.92
                                Profit.
                               4 Yr Freshman           21.89        28.51        29.04        27.85        27.85
                                Sophomore.
                               4 Yr Jr/Sr......        21.23        29.95        32.06        30.15        30.15
Unsubsidized
                               2 Yr Proprietary        16.74        24.34        29.07        27.23        27.23
                               2 Yr Not for            19.88        27.78        31.68        29.41        29.41
                                Profit.
                               4 Yr Freshman           21.47        28.82        29.66        28.45        28.45
                                Sophomore.
                               4 Yr Jr/Sr......        20.94        31.07        34.09        31.98        31.98
                               Graduate........        21.97        38.21        50.24        50.36        50.36
Plus
                               2 Yr Proprietary         0.00         0.00         0.00         0.00         0.00
                               2 Yr Not for             0.00         0.00         0.00         0.00         0.00
                                Profit.
                               4 Yr Freshman            0.00         0.00         0.00         0.00         0.00
                                Sophomore.
                               4 Yr Jr/Sr......         0.00         0.00         0.00         0.00         0.00
                               Graduate........        23.68        47.43        60.72        59.77        59.77
----------------------------------------------------------------------------------------------------------------


[[Page 43894]]

[GRAPHIC] [TIFF OMITTED] TR10JY23.000

    Sensitivities 3 and 4 estimate the costs of additional borrowing 
related to the regulation. Additional borrowing could come from future 
borrowers in the baseline who take out more loans or new borrowers who 
substitute loans for other sources of funding because of the reduced 
cost of borrowing. Institutions could also raise tuition because of the 
lower borrowing costs, which could also increase future loan volumes. 
To develop the low and high additional volume options in Sensitivities 
3 and 4, the Department analyzed National Student Loan Data System 
information

[[Page 43895]]

about borrowing in FY 2021 to estimate additional capacity for 
subsidized and unsubsidized loans. The analysis aggregated borrowers' 
loans by academic level and compared the total to the applicable 
borrowing limit for that loan type at that academic level. It accounted 
for additional capacity for independents and dependent borrowers whose 
parents were unable to obtain PLUS loans. Grad PLUS loans were not 
included because those students can borrow up to the cost of attendance 
and that information was not available in our data. Table 5.12 
summarizes this additional capacity, which was the basis for the low 
end of our additional volume range.

 Table 5.12--Annual Additional Borrowing Capacity of Existing Borrowers
                             [$ in billions]
------------------------------------------------------------------------
                                                            Additional
                                               Total      subsidized and
                                          subsidized and   unsubsidized
                                           unsubsidized      borrowing
                                             borrowing       capacity
------------------------------------------------------------------------
2-Year Proprietary......................            $2.5            $8.1
2-Year Priv/Pub.........................             2.9             1.5
4-Year FR/SO............................            13.8             4.1
4-Year JR/SR............................            15.7             8.2
Graduate................................            26.7             6.1
------------------------------------------------------------------------

    As this additional capacity does not account for new borrowers or 
tuition increases, we developed Sensitivity 4 with higher additional 
volume, as seen in Table 5.13. The additional volume does increase in 
cohorts 2027 and beyond to allow some time for borrowers to react to 
the changes in the borrowing costs.

                           Table 5.13--Additional Annual Volume Sensitivity Scenarios
                                                 [$ in billions]
----------------------------------------------------------------------------------------------------------------
                                                   Sensitivity 3: low additional  Sensitivity 4: high additional
                                                          volume scenario                 volume scenario
                                                 ---------------------------------------------------------------
                                                      2024-26        2027 Out         2024-26        2027 Out
----------------------------------------------------------------------------------------------------------------
Undergraduate...................................             $10             $14             $20             $26
Graduate........................................               7              10              16              20
----------------------------------------------------------------------------------------------------------------

    The amount of additional volume generated by the individual factors 
leading to the increase, such as tuition increases or new borrowers 
taking on loans, is not specified. The additional volume was attributed 
to risk groups based on the percentage of additional capacity in Table 
5.13 represented by the risk group. The split between loan types was 
based on the percentage of total subsidized and unsubsidized loans 
borrowed in 2021-22 represented by each loan type, with 47 percent 
going to subsidized loan volume. The graduate loans were split to PLUS 
and unsubsidized loan volume on the same basis, with 32 percent going 
to additional PLUS volume.
    Sensitivity 5 estimates the effects of reduced defaults from the 
provision that moves delinquent borrowers into IDR, where a significant 
percentage are expected to have low or zero payments and potentially 
avoid default. Additionally, within IDR, the increased income 
protection to 225 percent of the Federal poverty line and the lower 
payment of 5 percent for undergraduate loans provides relief that could 
allow borrowers to avoid default. To estimate the effect in IDR, we 
looked at the percentage of borrowers projected to default in our 
baseline IDR model that have incomes between 150 and 225 percent of the 
federal poverty level in the year of their default. This was 
approximately 8 percent of defaulters and we increased that to 10 
percent for our default reduction sensitivity for IDR borrowers.
    Switching delinquent borrowers to IDR should also reduce the 
default risk of those remaining in non-IDR plans. Some reduction in 
defaults will occur in the model estimates just from switching volume 
to IDR plans, which have lower default rates than the non-IDR plans. To 
estimate the effect of the reduced risk of remaining non-IDR borrowers, 
the Department reduced non-IDR defaults 25 percent as seen in 
Sensitivities 5.
    There is a significant interaction between volume, take-up, and the 
default reduction, so Sensitivity 6 combines the low additional volume, 
ramped take-up increase, and 25 percent default reduction for an 
overall alternate scenario.
    Finally, Sensitivity 7 removes the increases in estimated 
additional undergraduate volume that would be repaid on IDR. This 
sensitivity is roughly comparable to the main budget estimate in IDR 
NPRM, with the additional adjustments related to the President's 
budget, extension of the payment pause, and revised treatment of some 
ICR borrowers included.
    All the cost estimates presented in this document are focused on 
impact of the new repayment rules, without also considering other 
policy changes. For example, the Department recently proposed 
regulations to establish a new minimum earnings threshold and a maximum 
debt-to-earnings ratio for career programs (88 FR 32300), which could 
constrain some of the additional borrowing envisioned in Sensitivities 
3, 4, and 6. The Department is expanding consumer information on 
student debt and earnings to better inform student choices. And the 
President's Budget seeks hundreds of billions of dollars in new 
investments in Pell Grants; free community college; and tuition 
assistance for students at Historically Black Colleges and 
Universities, Tribally Controlled Colleges and Universities, and 
Minority-Serving Institutions. The potential effects of these proposed 
policy changes are not

[[Page 43896]]

reflected in the estimates contained in this RIA.
    Table 5.14 displays the taxpayer costs associated with the various 
sensitivity runs.

                                                       Table 5.11--Sensitivity Run Cost Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Sens 6:
                                                                                                                                Ramped take-  Sens 7: No
                                                                 Sens 1:      Sens 2:                   Sens 4:     Sens 5: 25    up, low    increase in
                                                                 Full IDR    Ramped IDR  Sens 3: Low      High       percent     additional   projected
                                                                 take-up      take-up     additional   additional    default    volume, 25%     volume
                                                                 increase     increase      volume       volume     reduction     default     repaid on
                                                                                                                                 reduction       IDR
                                                                                                                                combination
--------------------------------------------------------------------------------------------------------------------------------------------------------
Modification through cohort 2023.............................       $75.89       $70.91       $70.91       $70.91       $70.91       $70.91       $70.91
Outlays for cohorts 2024-2033................................       194.00       173.20       171.90       312.68        78.25       256.66        56.50
                                                              ------------------------------------------------------------------------------------------
    Total....................................................       269.89       244.11       242.81       383.59       149.16       327.57       127.40
--------------------------------------------------------------------------------------------------------------------------------------------------------

6. 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. These effects occur over the 
lifetime of the first ten loan cohorts following implementation of this 
rule. The cashflows are discounted to the year of the origination 
cohort in the modeling process and then those amounts are discounted at 
3 and 7 percent to the present year in this Accounting Statement. This 
table provides our best estimate of the changes in annualized monetized 
transfers as a result of these final regulations. Expenditures are 
classified as transfers from the Federal government to affected student 
loan borrowers.

 Table 6.1--Accounting Statement: Classification of Estimated Annualized
                              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                   $2.3            $2.0
 Federal government to updates systems
 and contracts to implement the final
 regulations............................
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                     Transfers
                Category                 -------------------------------
                                                7%              3%
------------------------------------------------------------------------
Reduced transfers from IDR borrowers due        17,871.0       16,551.60
 to increased income protection, lower
 income percentage for payment,
 potential early forgiveness based on
 balance, and other IDR program changes.
------------------------------------------------------------------------

7. Alternatives Considered
    The Department considered the following items, many of which are 
also discussed in the preamble to this final rule.
    The Department considered suggestions by commenters to provide 
payments equal to 5 percent of discretionary income on all loan types. 
However, we believe that doing so would not address the Department's 
goals of targeting benefits on the types of loans that are most likely 
to experience delinquency and default. The result would be expending 
additional transfers to loans that have a higher likelihood of being 
successfully repaid.
    The Department also considered whether to permit borrowers with a 
consolidation loan that repaid a Parent PLUS loan to access REPAYE. 
However, we do not believe that extending benefits to these borrowers 
would accomplish our goal of focusing on the loans at the greatest risk 
of delinquency and default. Moreover, we are concerned that extending 
such benefits could create a high risk of moral hazard for borrowers 
who are close to retirement age. Instead, we think broader reforms of 
the Parent PLUS loan program would be a better solution.
    As noted in the IDR NPRM, we considered suggestions made during 
negotiated rulemaking to provide partial principal forgiveness to 
borrowers as they repaid. We lack the legal authority to enact such a 
policy change.
    Relatedly, we considered alternative proposals for calculating time 
to forgiveness, including different formulas for early forgiveness that 
started sooner than 10 years, forgiveness after a shorter period for 
borrowers with very low incomes or those who receive public assistance, 
or a proposal in which borrowers would receive differing periods of 
credit toward forgiveness if they had lower incomes.

[[Page 43897]]

For the periods shorter than 10 years, we do not think it would be 
appropriate to provide forgiveness sooner than the 10 years offered by 
the standard 10-year repayment plan. For the other proposals, we are 
concerned about complexity, particularly any structure that would only 
provide benefits after a consecutive period in a status, since that 
could create situations where a borrower on the cusp of forgiveness 
would paradoxically be worse off for earning more money.
    We also considered suggestions by commenters to both increase or 
decrease the amount of income protected from loan payments. We discuss 
our reasons for not changing this level upward or downward in the 
preamble to this final rule.
    Finally, we considered suggestions by commenters to provide credit 
for all periods in deferment or forbearance. However, we are concerned 
that doing so would create disincentives for borrowers to choose IDR 
over other types of deferments or forbearances when they would have a 
non-$0 payment on IDR. For instance, a borrower might be incentivized 
to pick a discretionary forbearance, which can be obtained without the 
need to provide any documentation of hardship. Therefore, we believe 
the deferments and forbearances we are proposing to credit are the 
correct ones.
8. Regulatory Flexibility Act
    The Secretary certifies, under the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), that this final 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 IDR 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 4-year institution, 
less than 1,000 FTE students.\163\
[GRAPHIC] [TIFF OMITTED] TR10JY23.001

    Table 8.1 summarizes the number of institutions affected by these 
final 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 
8.2, the average total revenue at small institutions ranges from $2.3 
million for proprietary institutions to $21.3 million at private 
institutions.
---------------------------------------------------------------------------

    \163\ 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 43898]]

[GRAPHIC] [TIFF OMITTED] TR10JY23.002

    The IDR regulations will not have a significant impact on a 
substantial number of small entities because IDR plans are arrangements 
between the borrower and the Department. As noted in the Paperwork 
Reduction Act section, burden related to the final regulations will be 
assessed in a separate information collection process and that burden 
is expected to involve individuals more than institutions of any size.
9. 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 make certain 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.
    Section 685.209 of this final rule contains information collection 
requirements. Under the PRA, the Department has or will at the required 
time submit a copy of the section and an Information Collections 
Request to OMB for its review. PRA approval will be sought via a 
separate information collection process. The Department will 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.
    Section 685.209--Income-driven repayment plans.
    Requirements: The Department amended 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 is 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 for their undergraduate 
study; 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, do not charge 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 under some conditions; modify the 
regulations for all IDR plans to allow for periods under certain 
deferments and forbearances to count toward 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 will 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 will be completed and made

[[Page 43899]]

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 will 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 9.1 describes the 
sections of the final 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 9.1--PRA Information Collection
----------------------------------------------------------------------------------------------------------------
                                                                 OMB Control No. and      Estimated cost unless
        Regulatory section           Information collection       estimated burden           otherwise noted
----------------------------------------------------------------------------------------------------------------
Sec.   685.209 IDR Plans.........  The final regulations at   1845-0102 Burden will be  Costs will be cleared
                                    Sec.   685.209 will be     cleared at a later date   through separate
                                    amended to include         through a separate        information collection
                                    regulations for all of     information collection    for the form.
                                    the IDR plans. These       for the form.
                                    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 
Final Rule. 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 collection associated with this IDR NPRM 
is 1845-0102.
10. 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.
11. 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 final regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
12. Federalism
    Executive Order 13132 requires us to provide 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 regulations do not have Federalism implications.
Regulatory Flexibility Act Certification
    Pursuant to 5 U.S.C. 601(2), the Regulatory Flexibility Act applies 
only to rules for which an agency publishes a general notice of 
proposed rulemaking.
    Accessible Format: On request to the program contact person 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 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

34 CFR Part 682

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

34 CFR Part 685

    Administrative practice and procedure, Colleges and universities, 
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 amends 
parts 682 and 685 of title 34 of the Code of Federal Regulations as 
follows:

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

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

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

0
2. Section 682.215 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  682.215   Income-based repayment plan.

    (a) * * *
    (3) Family size means the number of individuals that is determined 
by adding together--
    (i) The borrower;
    (ii) The borrower's spouse, for a married borrower filing a joint 
Federal income tax return;
    (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 are 
not included in the family size for any other borrower except the 
borrower's spouse who filed jointly with the borrower; and
    (iv) Other individuals if, at the time the borrower certifies 
family size, the

[[Page 43900]]

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.
* * * * *

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

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

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

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


Sec.  685.102   Definitions.

* * * * *
    (b) * * *
    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
5. Section 685.208 is amended by:
0
a. Revising the section heading;
0
b. Revising paragraphs (a) and (k); and
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
6. 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, which may also be 
referred to as the Saving on a Valuable Education (SAVE) 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) of 
this section 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)(A) The borrower;
    (B) The borrower's spouse, for a married borrower filing a joint 
Federal income tax return;
    (C) 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 are 
not included in the family size for any other borrower except the 
borrower's spouse who filed jointly with the borrower; and
    (D) 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.
    (ii) The Department may calculate family size based on Federal tax 
information reported to the Internal Revenue Service.
    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, a 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 FFEL Program 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

[[Page 43901]]

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.
    (c) Borrower eligibility for IDR plans. (1) Except as provided in 
paragraph (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 60 or more qualifying repayments under 
the REPAYE plan on or after July 1, 2024, 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) Was repaying a loan under the PAYE plan on July 1, 2024. A 
borrower who was repaying under the PAYE plan on or after July 1, 2024 
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) Was repaying a loan under the ICR plan on July 1, 2024. A 
borrower who was repaying under the ICR plan on or after July 1, 2024 
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) A borrower may choose the ICR plan to repay a Direct 
Consolidation Loan disbursed on or after July 1, 2006 and that repaid a 
parent Direct PLUS Loan or a parent Federal PLUS Loan.
    (iii) A borrower who has a Direct Consolidation Loan disbursed on 
or after July 1, 2025, which repaid a Direct parent PLUS loan, a FFEL 
parent PLUS loan, or a Direct Consolidation Loan that repaid a 
consolidation loan that included a Direct PLUS or FFEL PLUS loan may 
not choose any IDR plan except the ICR plan.
    (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 the borrower's 
undergraduate study by the original total loan balance

[[Page 43902]]

attributable to all eligible loans, divided by 12; plus
    (iii) For loans not subject to paragraph (f)(1)(ii) of this 
section, 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 minus the original total loan balance of loans subject to 
paragraph (f)(1)(ii) of this section 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 began paying under 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 began paying under the IBR plan.
    (4)(i) For the ICR plan, the borrower's monthly payments are the 
lesser of--
    (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 began repaying under 
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. (1) Monthly payment 
amounts calculated under paragraphs (f)(1) through (3) of this section 
will be adjusted in the following circumstances:
    (i) 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--
    (A) 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
    (B) 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.
    (C) If the borrower's calculated payment amount is--
    (1) Less than $5, the monthly payment is $0; or
    (2) Equal to or greater than $5 but less than $10, the monthly 
payment is $10.
    (ii) 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--
    (A) 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
    (B) 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.
    (C) If the borrower's calculated payment amount is--
    (1) Less than $5, the monthly payment is $0; or
    (2) Equal to or greater than $5 but less than $10, the monthly 
payment is $10.
    (2) Monthly payment amounts calculated under paragraph (f)(4) of 
this section will be adjusted to $5 in circumstances where the 
borrower's calculated payment amount is greater than $0 but less than 
or equal to $5.
    (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

[[Page 43903]]

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 or the equivalent, 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 or having a monthly payment 
obligation of $0;
    (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)(9)(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;
    (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) on or 
after July 1, 2024;
    (H) A national guard duty forbearance under Sec.  685.205(a)(7) on 
or after July 1, 2024;
    (I) A Department of Defense Student Loan Repayment forbearance 
under Sec.  685.205(a)(9) on or after July 1, 2024;
    (J) An administrative forbearance under Sec.  685.205(b)(8) or (9) 
on or after July 1, 2024; or
    (K) A bankruptcy forbearance under Sec.  685.205(b)(6)(viii) on or 
after July 1, 2024 if the borrower made the required payments on a 
confirmed bankruptcy plan.
    (v) Making a qualifying payment as described under Sec.  
685.219(c)(2),
    (vi) (A) Counting payments a borrower of a Direct Consolidation 
Loan made on the Direct Loans or FFEL program loans repaid by the 
Direct Consolidation Loan if the payments met the criteria in paragraph 
(k)(4) of this section, the criteria in Sec.  682.209(a)(6)(vi) that 
were based on a 10-year repayment period, or the criteria in Sec.  
682.215.
    (B) For a borrower whose Direct Consolidation Loan repaid loans 
with more than one period of qualifying payments, the borrower receives 
credit for the number of months equal to the weighted average of 
qualifying payments made rounded up to the nearest whole month.
    (C) For borrowers whose Joint Direct Consolidation Loan is 
separated into individual Direct Consolidation loans, each borrower 
receives credit for the number of months equal to the number of months 
that was credited prior to the separation; or,
    (vii) Making payments under paragraph (k)(6) of this section.
    (5) For the IBR plan only, a monthly repayment obligation for the 
purposes of forgiveness includes--
    (i) A payment made pursuant to paragraph (k)(4)(i) or (k)(4)(ii) of 
this section on a loan in default;
    (ii) An amount collected through administrative wage garnishment or 
Federal Offset that is equivalent to the amount a borrower would owe 
under paragraph (k)(4)(i) of this section, except that the number of 
monthly payment obligations satisfied by the borrower cannot exceed the 
number of months from the Secretary's receipt of the collected amount 
until the borrower's next annual repayment plan recertification date 
under IBR; or
    (iii) An amount collected through administrative wage garnishment 
or Federal Offset that is equivalent to the amount a borrower would owe 
on the 10-year standard plan.
    (6)(i) A borrower may obtain credit toward forgiveness as defined 
in paragraph (k) of this section for any months in which a borrower was 
in a deferment or forbearance not listed in paragraph (k)(4)(iv) of 
this section by making an additional payment equal to or greater than 
their current IDR payment, including a payment of $0, for a deferment 
or forbearance that ended within 3 years of the additional repayment 
date and occurred after July 1, 2024.
    (ii) Upon request, the Secretary informs the borrower of the months 
for which the borrower can make payments under paragraph (k)(6)(i) of 
this section.
    (l) Application and annual recertification procedures. (1) To 
initially enter or recertify their intent to repay under an IDR plan, a 
borrower provides approval for the disclosure of applicable tax 
information to the Secretary either as part of the process of 
completing a Direct Loan Master Promissory Note or a Direct 
Consolidation Loan Application and Promissory Note in accordance with 
sections 455(e)(8) and 493C(c)(2) of the Act or on application form 
approved by the Secretary;
    (2) 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 promissory note or on the application form 
for an IDR plan, the borrower must provide documentation of the 
borrower's income and family size to the Secretary;
    (3) 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;
    (4) 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;
    (5) 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) Informs the borrower of how to contact the Secretary if the 
calculated payment amount is not reflective of the borrower's current 
income or family size;
    (6) 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. 
To support the request, the

[[Page 43904]]

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;
    (7) If the borrower provides alternative documentation under 
paragraph (l)(6) of this section or if the Secretary obtains 
documentation from the borrower or spouse under paragraph (l)(3) 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;
    (8) Once the borrower has 3 monthly payments remaining under the 
12-month period specified in paragraph (l)(4) of this section, the 
Secretary follows the procedures in paragraphs (l)(3) through (l)(7) of 
this section.
    (9) If the Secretary requires information from the borrower under 
paragraph (l)(3) of this section to recalculate the borrower's monthly 
repayment amount under paragraph (l)(8) 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)(4) 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 total balance of 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 is removed from the REPAYE plan.
    (10) At any point during the 12-month period specified under 
paragraph (l)(4) 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 a loss of income or employment or divorce. In 
such cases, the 12-month period specified under paragraph (l)(4) of 
this section is reset based on the borrower's new information.
    (11) 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 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)(1) or (l)(2) of this section;
    (3) The borrower has not made a scheduled payment on the loan for 
at least 75 days or is in default on the loan and is not subject to a 
Federal offset, administrative wage garnishment under section 488A of 
the Act, or to a judgment secured through litigation; and
    (4) The Secretary determines that the borrower's payment under the 
IDR plan would be lower than or equal to the payment on the plan in 
which the borrower is enrolled.
    (n) Removal from default. The Secretary will no longer consider a 
borrower in default on a loan if--
    (1) The borrower provides information necessary to calculate a 
payment under paragraph (f) of this section;
    (2) The payment calculated pursuant to paragraph (f) of this 
section is $0; and
    (3) The income information used to calculate the payment under 
paragraph (f) of this section includes the point at which the loan 
defaulted.

0
7. 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 a 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 IDR 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 IBR plan or who is repaying 
a Direct Consolidation Loan under an IDR 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 IDR 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 3 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 IDR 
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 IDR plan under Sec.  685.209, as determined under Sec.  
685.209(k).
    (3) A borrower who made payments under the IBR plan and 
successfully completed rehabilitation of a defaulted loan may chose the 
REPAYE plan when the loan is returned to current repayment if the 
borrower is otherwise eligible for the REPAYE plan and if the monthly 
payment under the REPAYE

[[Page 43905]]

plan is equal to or less than their payment on IBR.
    (4)(i) If a borrower no longer wishes to pay under the IBR plan, 
the borrower must pay under the standard repayment plan and the 
Secretary recalculates the borrower's monthly payment based on--
    (A) For a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a 
Direct PLUS Loan, the time remaining under the maximum ten-year 
repayment period for the amount of the borrower's loans that were 
outstanding at the time the borrower discontinued paying under the IBR 
plan; or
    (B) For a Direct Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under Sec.  
685.208(j) and the amount of that loan that was outstanding at the time 
the borrower discontinued paying under the IBR plan.
    (ii) A borrower who no longer wishes to repay under the IBR plan 
and who is required to repay under the Direct Loan standard repayment 
plan in accordance with paragraph (b)(4)(i) of this section may request 
a change to a different repayment plan after making one monthly payment 
under the Direct Loan standard repayment plan. For this purpose, a 
monthly payment may include one payment made under a forbearance that 
provides for accepting smaller payments than previously scheduled, in 
accordance with Sec.  685.205(a).

0
8. Section 685.211 is amended by:
0
a. Revising paragraph (a)(1);
0
b. Revising paragraph (f)(1)(i);
0
c. Revising paragraph (f)(3)(ii); and
0
d. Adding paragraph (f)(13).
    The revisions and addition 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) * * *
    (1) * * *
    (i) The Secretary initially considers the borrower's reasonable and 
affordable payment amount to be an amount equal to the minimum payment 
required under the IBR plan, except that if this amount is less than 
$5, the borrower's monthly payment is $5.
* * * * *
    (3) * * *
    (ii) Family size as defined in Sec.  685.209; and
* * * * *
    (13) A borrower who has a Direct Loan that is rehabilitated and 
which has been returned to repayment status on or after July 1, 2024, 
may be transferred to REPAYE by the Secretary if the borrower's minimum 
payment amount on REPAYE would be equal to or less than the minimum 
payment amount on the Income-Based Repayment Plan.
* * * * *

0
9. Amend Sec.  685.219 by:
0
a. Revising paragraph (i) of the definition of ``Qualifying repayment 
plan'' in paragraph (b).
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 plan under Sec.  685.209.


Sec.  685.220   [Amended]

0
10. In Sec.  685.220 amend paragraph (h) by adding ``Sec.  685.209, and 
Sec.  685.221,'' after ``Sec.  685.208,''.

0
11. Section 685.221 is revised to read as follows:


Sec.  685.221   Alternative repayment plan.

    (a) The Secretary may provide an alternative repayment plan to a 
borrower who demonstrates to the Secretary's satisfaction that the 
terms and conditions of the repayment plans specified in Sec. Sec.  
685.208 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.
    (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
12. 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
13. Amend Sec.  685.403 by revising paragraph(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. 2023-13112 Filed 7-3-23; 8:45 am]
BILLING CODE 4000-01-P