[Federal Register: December 1, 1995 (Volume 60, Number 231)]
[Rules and Regulations ]
[Page 61819-61828]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[[Page 61819]]
_______________________________________________________________________
Part VIII
Department of Education
_______________________________________________________________________
34 CFR Part 685
William D. Ford Federal Direct Loan Program; Final Rule
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DEPARTMENT OF EDUCATION
34 CFR Part 685
RIN 1840-AC19
William D. Ford Federal Direct Loan Program
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary of Education amends provisions of the
regulations governing the income contingent repayment plan under the
William D. Ford Federal Direct Loan (Direct Loan) Program regulations.
The Secretary is amending these provisions to provide benefits to
borrowers and protect the taxpayers' interests.
EFFECTIVE DATE: These regulations take effect July 1, 1996. However,
affected parties do not have to comply with the information collection
requirements in Sec. 685.209 until the Department of Education
publishes in the Federal Register the control number assigned by the
Office of Management and Budget (OMB) to these information collection
requirements. Publication of the control number notifies the public
that OMB has approved these information collection requirements under
the Paperwork Reduction Act of 1995.
FOR FURTHER INFORMATION CONTACT: Ms. Rachel Edelstein, Program
Specialist, Direct Loan Policy Group, Policy Development Division, U.S.
Department of Education, Room 3053, ROB-3, 600 Independence Avenue, SW,
Washington, D.C. 20202-5400. Telephone: (202) 708-9406. Individuals who
use a telecommunications device for the deaf (TDD) may call the Federal
Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8
p.m., Eastern time, Monday through Friday.
SUPPLEMENTARY INFORMATION:
Background
On July 1, 1994, the Secretary published final regulations that
included provisions for the income contingent repayment plan during
Year One of the Direct Loan Program. The Higher Education Act of 1965,
as amended (HEA), directed the Secretary, to the extent practicable, to
develop proposed rules for the Direct Loan Program through a negotiated
rulemaking process for the second and subsequent years of the program
(1995-1996 and beyond). Therefore, following negotiated rulemaking, the
Secretary published a Notice of Proposed Rulemaking (NPRM) on August
18, 1994, and final regulations on December 1, 1994, both of which
included new provisions for the income contingent repayment plan of the
Direct Loan Program. On December 22, 1994, the Secretary published
regulations that revised the July 1, 1994, regulations to provide that
provisions for income contingent repayment would be identical for Year
One and Year Two of the Direct Loan Program.
On September 20, 1995, the Secretary published a notice of proposed
rulemaking (60 FR 48848), proposing to make improvements to the
existing income contingent repayment plan. These changes were proposed
for Year Three of the program and beyond. The following section
summarizes the major revisions to the proposed rule.
Substantive Revisions to the Proposed Rule
Section 685.209(a)(3)
* The definition of ``discretionary income'' under the
proposed income contingent repayment plan has been revised. Under these
final regulations, discretionary income is now defined as the
borrower's adjusted gross income (AGI) minus the United States
Department of Health and Human Services (HHS) poverty level appropriate
to the borrower's family size. This is the same definition of
discretionary income as in existing regulations.
Appendix A
* The income percentage factor chart has been revised so
that there are only two categories of borrowers: single and married/
head of household. Therefore, married and head-of-household borrowers
with the same family size, income, and debt make the same payments.
Under the proposed income contingent repayment plan, head-of-household
borrowers actually made higher payments than married borrowers with the
same income and debt levels; the Secretary has determined that head-of-
household borrowers should not be required to make higher payments than
married borrowers with the same debt and income.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 19 parties
submitted comments on the proposed regulations. An analysis of the
comments and the changes follows. Major issues are grouped according to
subject, with references to the appropriate sections of the
regulations. Technical and other minor changes, and suggested changes
the Secretary is not legally authorized to make under the applicable
statutory authority, generally are not addressed.
Revising Income Contingent Repayment
Comments: A number of commenters recommended that any revisions to
the plan be brought about through negotiated rulemaking. These
commenters noted that the existing repayment plan was developed through
extensive negotiated rulemaking.
Discussion: Section 457 of The HEA requires the Secretary to
conduct negotiated rulemaking for the Direct Loan Program only to the
extent practicable. This section does not require negotiated rulemaking
for amendments to existing regulations. Further, the Secretary does not
believe that it is practicable to conduct negotiated rulemaking for
amendments to these regulations. Negotiated rulemaking is a lengthy
process that would have prevented implementation of the revised income
contingent repayment plan for the 1996-1997 academic year. For these
amendments, the Secretary has decided not to use the negotiated
rulemaking process to solicit input from the higher education
community. In the Secretary's opinion, the revised income contingent
repayment plan is an improvement over the existing plan, and borrowers
should be able to benefit from these regulatory revisions as soon as
possible. Further, a number of commenters supported the Secretary's
proposal to revise the existing plan.
Changes: None.
Required Minimum Payment
Comments: In response to the Secretary's request for comments
regarding a required minimum payment for all borrowers, one commenter
recommended establishing a minimum payment of $15.00 for all borrowers,
including those with a calculated repayment amount of $0. Another
commenter advocated establishing a minimum payment of $2.00, if the
Secretary were to require a minimum payment from all borrowers. A third
commenter suggested that borrowers simply send in a coupon on a monthly
basis in place of a payment amount.
Most commenters argued against requiring a payment from a borrower
whose calculated repayment amount is $0. In addition, many commenters
questioned whether collecting $2.00 payments would be cost-effective.
One commenter stated that borrowers with a calculated payment of less
than $2.00 would not likely have a checking account and that the
requirement to make these minimal payments would,
[[Page 61821]]
therefore, be burdensome. To reduce burden and improve the cost-
effectiveness of collection efforts, several commenters suggested that
the Secretary bill borrowers with minimal monthly payments on a
quarterly or annual basis.
One commenter questioned whether the Secretary would send
delinquency notices to borrowers with $2.00 monthly payments who are
$4.00 behind in payments (that is, two months behind in payments).
Discussion: The Secretary agrees with those commenters who argued
that borrowers with a calculated monthly payment amount of $0 should
not be required to make monthly payments. In addition, the Secretary
agrees with commenters that collecting $2.00 monthly payments may not
be cost-effective. The Secretary has determined that requiring a $5.00
minimum monthly payment of borrowers whose calculated monthly payment
amount is greater than $0 but less than or equal to $5.00 would be more
cost-effective and would better promote responsible repayment practices
than establishing a minimum $2.00 payment amount. In addition, the
Secretary believes that this change in policy will not impose a
significant burden on borrowers. Therefore, the Secretary has decided
to require a $5.00 minimum monthly payment of borrowers whose
calculated monthly payment amount is greater than $0 but less than or
equal to $5.00.
In response to concerns that monthly billing will be burdensome for
borrowers with minimal monthly repayment amounts, the Secretary will
consider carefully the option of billing these borrowers on a quarterly
or other less frequent basis. The Secretary has not prescribed billing
cycles or billing frequency in these regulations and thus has the
flexibility to change billing frequency if this action is warranted.
The Secretary considers a borrower to be delinquent after the
borrower has missed a monthly payment. Therefore, a borrower with
required $5.00 monthly payments who is $10.00 behind in payments is
considered to be delinquent, and the Secretary would send a delinquency
notice to the borrower.
Changes: None.
Comment Period
Comments: Several commenters were concerned that the comment period
was too short, especially considering that the Department published six
NPRMs, all with comment periods ending at approximately the same time.
Discussion: In the six NPRMs referred to above, the Secretary
proposed numerous improvements and necessary changes to the Student
Financial Assistance Program. The ``Master Calendar'' provisions
contained in section 482 of the HEA require that regulations be
published in final form by December 1 prior to the start of the award
year for which they will become effective. Because of the importance of
implementing these changes and improvements for the award year
beginning July 1, 1996, the Secretary established a comment period that
would allow publication of these final regulations by December 1, 1995,
consistent with the ``Master Calendar'' timeframe. The Secretary always
endeavors to provide as long a comment period as possible.
Changes: None.
Section 685.209(a) Repayment Amount Calculation
Comments: Several commenters expressed support for the new
repayment amount calculation provisions. Many commenters approved of
the Secretary's simplifying the existing income contingent repayment
plan, which requires borrowers to choose between two formulas, so that
there is only one formula. However, several commenters expressed
objections to the new formula. For example, in response to the
Secretary's statement in the preamble to the NPRM that the revised
income contingent repayment plan will discourage over-borrowing,
several commenters argued that the Secretary should not attempt to
discourage over-borrowing through the income contingent repayment plan.
One commenter suggested that the Secretary's efforts to discourage
over-borrowing will result in a repayment plan that will prevent
borrowers from entering public service and will discourage borrowers
from choosing high-tuition institutions, even if they wish to attend
such institutions.
With regard to specific problems commenters identified in the new
income contingent repayment plan, numerous commenters noted that the
new formula makes no adjustment for family size. To address this
problem, several commenters recommended that the Secretary incorporate
into the new plan the current income contingent repayment plan's
definition of discretionary income, which takes family size into
account. Another commenter suggested offering forbearance to borrowers
with larger households. Similarly, several commenters were concerned
that the levels of discretionary income the plan established are well
below the poverty level for borrowers with dependents. In addition,
commenters argued that the level of discretionary income for single
borrowers and head-of-household borrowers should not be identical.
Other commenters noted that head-of-household borrowers would make
higher payments than married borrowers with the same level of income
and debt, due to the income percentage factors applicable to the two
categories of borrowers. These commenters questioned whether this
outcome of the proposed formula is appropriate. Another commenter who
commented on the income percentage factors asked when the Secretary
would apply the annually updated income percentage factors--each
January 1st or when the Secretary obtains updated income data.
One commenter stated that the proposed revision to the income
contingent repayment plan violates section 455(e)(4) of the HEA because
the proposed calculation amount is relative to income and debt, and the
statute states only that payments should be relative to income.
Finally, one commenter questioned whether the effect of the revised
income contingent repayment plan would result in middle-class borrowers
supporting lower-income borrowers.
Discussion: The Secretary agrees with the commenters that using
only one formula to calculate repayment under the income contingent
repayment plan will simplify the income contingent repayment option.
While several commenters objected to the Secretary's attempt to
discourage over-borrowing, the Secretary believes that it is fiscally
irresponsible to structure an income contingent repayment plan that
encourages over-borrowing. As stated in the preamble to the September
20, 1995, NPRM, the Secretary believes that the existing income
contingent repayment plan may encourage over-borrowing because
borrowers' payments increase only negligibly as debt increases. To
remove this incentive to over-borrow, the Secretary believes it is
appropriate to revise the plan so that payments increase significantly
with amounts borrowed.
The Secretary disagrees with the commenter who stated that the
proposed revision to the income contingent repayment plan is in
violation of the HEA because it bases payments on income and debt. The
existing plan also bases payments on income and debt. The new plan
simply takes the amount borrowed into greater consideration than the
existing plan. Contrary to this commenter's suggestion, section
455(e)(4) of the HEA does not prohibit the Secretary from taking into
account a borrower's debt
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level when determining repayment schedules. The statute requires that
income be included but does not address the factors which the Secretary
may, in his discretion, include.
The Secretary agrees with the commenters that payments should be
adjusted for family size, that discretionary income levels for single
and head-of-household borrowers should not be identical, and that
payments for head-of-household borrowers should not be higher than
those for married borrowers with the same income and debt levels. In
order to revise the regulations accordingly, the Secretary has amended
the definition of discretionary income. Under the revised regulations,
discretionary income is now defined as AGI minus poverty levels
established by HHS; these poverty levels take family size into account.
In response to the commenter's question as to when the Secretary
would apply the adjusted income percentage factor, the Secretary will
apply new income percentage factors and new HHS Poverty Guidelines at
the same time that new interest rates are applied: each July 1st.
Finally, the Secretary assures the commenter who suggested that
middle-income borrowers may be supporting lower-income borrowers that
there is no cross-subsidization under either the existing or the
revised income contingent repayment plan.
Changes: The income percentage chart has been revised to reflect
only two categories of borrowers: single and married/head of household.
Because the income percentage factors applicable to married and head-
of-household borrowers will be identical, married and head-of-household
borrowers with the same family size, income, and debt make the same
monthly payments.
Section 685.209(a)(3) has been revised so that discretionary income
is now defined as AGI minus the amount of the ``HHS Poverty Guidelines
for all States (except Alaska and Hawaii) and the District of
Columbia'' as published by the United States Department of Health and
Human Services on an annual basis. For residents of Alaska and Hawaii,
discretionary income is defined as a borrower's AGI minus the amounts
in the ``HHS Poverty Guidelines for Alaska'' and the ``HHS Poverty
Guidelines for Hawaii'' respectively. These guidelines adjust for
family size.
Comments: One commenter stated that the Secretary should make the
new income contingent repayment plan formula available on software, so
that borrowers can calculate their payments. This commenter suggested
extending the comment period until 30 days after this software becomes
available. In addition, this commenter suggested that the final
regulation should include charts showing typical repayments over 25
years. In these charts, the commenter suggested that the Secretary show
both the accrual and capitalization of interest during periods of
negative amortization and during periods of positive amortization.
Discussion: The Secretary is considering making available to the
public software for income contingent repayment calculations. However,
the Secretary cannot extend the comment period until this software is
available without seriously delaying the effective date of the
regulations. In addition, the Secretary is not including charts showing
typical repayments over 25 years. The Secretary will make such charts
available in informational repayment materials provided to borrowers.
Changes: None.
Section 685.209(b) Treatment of Married Borrowers
Comments: Several commenters approved of the Secretary's treatment
of married borrowers under the new income contingent repayment plan.
However, one commenter argued against the Secretary's requiring
borrowers who file their income tax separately from their spouse to
obtain consent to disclosure of tax return information from their
spouse. This commenter stated that the proposed policy would prohibit
borrowers whose spouses are unwilling to provide this consent to
disclosure from repaying under the income contingent repayment plan.
Also, this commenter asked how the Secretary would determine whether
the borrower is married.
One commenter suggested an alternative to the wording in the NPRM
that provides that married borrowers who are legally separated are not
required to obtain their spouse's consent to tax return disclosure.
This commenter stated that the regulations should provide that the
borrower is not required to obtain this consent to disclosure if the
borrower provides proof that he or she is living apart from the spouse
and has filed for divorce. According to this commenter, some states do
not recognize the status of being legally separated.
One commenter questioned whether there were any provisions for
married couples who choose to repay their loans jointly under the
income contingent repayment plan and subsequently divorce and wish to
separate their payments.
Discussion: The Secretary feels strongly that repayment amounts for
married borrowers must be based on the income of the borrower and the
borrower's spouse. This policy will ensure that payments from married
borrowers are calculated based on an accurate assessment of the
borrower's ability to repay. The Direct Loan Program offers borrowers a
variety of repayment plans; therefore, a married borrower who is unable
to repay under the income contingent repayment plan because the spouse
is unwilling to provide consent to disclosure of tax return information
would be eligible to repay under any of the other Direct Loan repayment
plans. Further, the Secretary intends to update income information
concerning borrowers' spouses annually.
To respond to the commenter's concern regarding how the Secretary
would determine whether or not the borrower is married, the Secretary
obtains a borrower's filing status (married, single, or head of
household) from the Internal Revenue Service (IRS) when AGI information
is reported. The Secretary acknowledges that some states do not
recognize the status of ``legally separated'' and has made a change
accordingly. Finally, with regard to the commenter's concern that
married borrowers who have been repaying jointly should be able to
begin repaying separately should they divorce, the Secretary assures
the commenter that borrowers in joint repayment can always begin
repaying separately at any time by changing their repayment plan
option.
Changes: Section 685.209(b)(1) has been revised so that a married
borrower who has filed taxes separately from his or her spouse and is
``separated'', rather than ``legally separated'', is not required to
provide his or her spouse's written consent to disclosure of tax return
information.
Section 685.209(c)(2) Alternative Documentation of Income
Comments: One commenter advocated allowing all borrowers to submit
alternative documentation of income to establish monthly payments under
the income contingent repayment plan while the Direct Loan Servicer is
waiting for adjusted gross income (AGI) information from the IRS.
Another commenter asked the Secretary to clarify whether the Secretary
would require alternative documentation of income from borrowers who
have been in repayment for a number of years but are in their first
year of repayment under a Direct Consolidation Loan. In addition, this
commenter noted that a
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borrower may be in the first two years of repayment on some loans but
may have been in repayment for a longer period of time on other loans.
Finally, this commenter asked whether the Secretary would collect
alternative documentation of income from a borrower and the borrower's
spouse, if the borrower is in his or her first or second year of
repayment and is married.
Discussion: With regard to the comment that all borrowers be
allowed to submit alternative documentation of income while the
Servicer is waiting for AGI, the Secretary may use other documentation
of income provided by the borrower if AGI is not available or if, in
the Secretary's opinion, the borrower's reported AGI does not
reasonably reflect current income. Therefore, if a borrower's AGI will
not reflect current income, the borrower can submit alternative
documentation of income to the Servicer before IRS-reported AGI becomes
available.
The Secretary intends to collect alternative documentation of
income from borrowers in their first and second years of repayment,
when IRS-reported AGI does not reasonably reflect the borrower's
current income. The Secretary will likely collect alternative
documentation of income from borrowers who are in their first and
second years of repayment on any of their loans, even if they have been
in repayment for a longer period of time on other loans. These
borrowers have recently completed school and, therefore, the prior
year's AGI is unlikely to reflect current income.
On the other hand, the Secretary does not intend to collect
alternative documentation of income from borrowers who have been in
repayment for more than two years but have recently changed into the
income contingent repayment plan or from borrowers who have recently
consolidated and chosen to repay under this plan. These borrowers have
not recently left school and have likely been working. For these
borrowers, the prior year's AGI will probably reflect the current
year's income.
Finally, the Secretary intends to collect alternative documentation
of income from the borrower and the borrower's spouse if the borrower
is in his or her first or second year of repayment and AGI does not, in
the Secretary's opinion, accurately reflect the borrower's current
income. The Secretary will collect this alternative documentation of
income from the spouse of these borrowers in order to assess accurately
the borrower's ability to repay.
Changes: None.
Section 685.209(c)(5) Limitation on Capitalization of Interest
Comments: One commenter mistakenly believed that the Secretary has
removed the existing limit on capitalization.
Discussion: The Secretary has not removed the existing limit on
capitalization, which provides that unpaid interest is capitalized only
until the outstanding principal amount is ten percent greater than the
original principal amount. While the Secretary has revised certain
provisions under the income contingent repayment plan, the Secretary
has not altered the provision that limits interest capitalization under
the income contingent repayment plan.
Changes: None.
Section 685.209(c)(4)(iv) Forgiveness after 25 Years of Repayment
Comments: Several commenters asked whether the Secretary is
pursuing a legislative solution to the current tax problem under the
income contingent repayment plan (that is, the problem that any amount
forgiven at the end of 25 years is treated as income).
Discussion: The Secretary is working with the Department of the
Treasury to pursue a legislative solution to the tax liability problem
under the income contingent repayment plan. The Department included its
proposal to remove the tax liability under the income contingent
repayment plan in the Administration's Sallie Mae privatization bill
that was submitted to Congress.
Changes: None.
Executive Order 12866
These final regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those determined by the
Secretary as necessary for administering this program effectively and
efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, the Secretary has
determined that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
Summary of Potential Costs and Benefits
The potential costs and benefits of these final regulations are
discussed elsewhere in this preamble under the following heading:
Analysis of Comments and Changes.
Assessment of Educational Impact
In the NPRM, the Secretary requested comments on whether the
proposed regulations would require transmission of information that is
being gathered by or is available from any other agency or authority of
the United States. Based on the response to the proposed rules and on
its own review, the Department has determined that the regulations in
this document do not require transmission of information that is being
gathered by, or is available from, any other agency or authority of the
United States.
List of Subjects in 34 CFR Part 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Number 84.268, William D.
Ford Federal Direct Loan Program)
Dated: November 27, 1995.
Richard W. Riley,
Secretary of Education.
The Secretary amends Part 685 of Title 34 of the Code of Federal
Regulations as follows:
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
1. The authority citation continues to read as follows:
Authority: 20 U.S.C. 1087a et seq.
2. Section 685.209 is amended by revising paragraphs (a) and (b);
removing paragraph (c) and redesignating paragraph (d) as paragraph
(c); redesignating newly redesignated paragraphs (c)(2) through (5) as
(c)(4) through (7), respectively; and adding new paragraphs (c)(2) and
(c)(3) to read as follows:
Sec. 685.209 Income contingent repayment plan.
(a) Repayment amount calculation. (1) The amount the borrower would
repay is based upon the borrower's Direct Loan debt when the borrower's
first loan enters repayment, and this basis for calculation does not
change unless the borrower obtains another Direct Loan or the borrower
and the borrower's spouse obtain approval to repay their loans jointly
under paragraph (b)(2) of this
[[Page 61824]]
section. If the borrower obtains another Direct Loan, the amount the
borrower would repay is based on the combined amounts of the loans when
the last loan enters repayment. If the borrower and the borrower's
spouse repay the loans jointly, the amount the borrowers would repay is
based on both borrowers' Direct Loan debts at the time they enter joint
repayment.
(2) The annual amount payable under the income contingent repayment
plan by a borrower is the lesser of--
(i) The amount the borrower would repay annually over 12 years
using standard amortization multiplied by an income percentage factor
that corresponds to the borrower's adjusted gross income (AGI) as shown
in the income percentage factor table in Appendix A to this part; or
(ii) 20 percent of discretionary income.
(3) For purposes of this section, discretionary income is defined
as a borrower's AGI minus the amount of the ``HHS Poverty Guidelines
for all States (except Alaska and Hawaii) and the District of
Columbia'' as published by the United States Department of Health and
Human Services on an annual basis. \1\ For residents of Alaska and
Hawaii, discretionary income is defined as a borrower's AGI minus the
amounts in the ``HHS Poverty Guidelines for Alaska'' and the ``HHS
Poverty Guidelines for Hawaii'' respectively. If a borrower provides
documentation acceptable to the Secretary that the borrower has more
than one person in the borrower's family, the Secretary applies the HHS
Poverty Guidelines for the borrower's family size.
\1\ The HHS Poverty Guidelines are available from the Office of
the Assistant Secretary for Planning and Evaluation, Department of
Health and Human Services (HHS), Room 438F, Humphrey Building, 200
Independence Avenue, S.W., Washington, D.C. 20201
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(4) For exact incomes not shown in the income percentage factor
table in Appendix A, an income percentage factor is calculated, based
upon the intervals between the incomes and income percentage factors
shown on the table.
(5) Each year, the Secretary recalculates the borrower's annual
payment amount based on changes in the borrower's AGI, the variable
interest rate, the income percentage factors in the table in Appendix
A, and updated HHS Poverty Guidelines (if applicable).
(6) For purposes of the annual recalculation described in paragraph
(a)(5) of this section, after periods in which a borrower makes
payments that are less than interest accrued on the loan, the payment
amount is recalculated based upon unpaid accrued interest and the
highest outstanding principal loan amount (including amount
capitalized) calculated for that borrower while paying under the income
contingent repayment plan.
(7) For each calendar year after calendar year 1996, the Secretary
publishes in the Federal Register a revised income percentage factor
table reflecting changes based on inflation. This revised table is
developed by changing each of the dollar amounts contained in the table
by a percentage equal to the estimated percentage changes in the
Consumer Price Index (as determined by the Secretary) between December
1995 and the December next preceding the beginning of such calendar
year.
(8) Examples of the calculation of monthly repayment amounts and
tables that show monthly repayment amounts for borrowers at various
income and debt levels are included in Appendix A to this part.
(b) Treatment of married borrowers. (1) A married borrower who
wishes to repay under the income contingent repayment plan and who has
filed an income tax return separately from his or her spouse must
provide his or her spouse's written consent to the disclosure of
certain tax return information under paragraph (c)(5) of this section
(unless the borrower is separated from his or her spouse). The AGI for
both spouses is used to calculate the monthly repayment amount.
(2) Married borrowers may repay their loans jointly. The
outstanding balances on the loans of each borrower are added together
to determine the borrowers' payback rate under (a)(1) of this section.
(3) 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.
(c) * * *
(2) First and second year borrowers. The Secretary requires
alternative documentation of income from borrowers in their first and
second years of repayment, when in the Secretary's opinion, the
borrower's reported AGI does not reasonably reflect the borrower's
current income.
(3) Adjustments to repayment obligations. The Secretary may
determine that special circumstances, such as a loss of employment by
the borrower or the borrower's spouse, warrant an adjustment to the
borrower's repayment obligations.
* * * * *
3. Appendix A to part 685 is revised to read as follows:
Appendix A to Part 685--Income Contingent Repayment
Examples of the Calculation of Monthly Repayment Amounts
Example 1. A single borrower with $12,500 of Direct Loans, 8.25
percent interest, and an AGI of $25,000.
Step 1: Determine annual payments based on what the borrower
would pay over 12 years using standard amortization. To do this,
multiply the principal balance by the constant multiplier for 8.25%
interest (0.1315452). The constant multiplier is a factor used to
calculate amortized payments at a given interest rate over a fixed
period of time. (See the constant multiplier chart below to
determine the constant multiplier you should use for the interest
rate on the loan. If the exact interest rate is not listed, choose
the next highest rate for estimation purposes.)
0.1315452 x 12,500=1,644.315
Step 2: Multiply the result by the income percentage factor
shown in the income percentage factor table that corresponds to the
borrower's income (if the income is not listed, you can calculate
the applicable income percentage factor by following the
instructions under the interpolation heading below):
85.55% (0.8555) x 1,644.315=1,406.7115
Step 3: Determine 20 percent of discretionary income. To do
this, subtract the lowest income for single borrowers shown in the
income percentage factor table (HHS poverty level for a family of
one) from the borrower's income and multiply the result by 20%:
$25,000-$7,470=$17,530
$17,530 x 0.20=$3,506
Step 4: Compare the amount from step 2 with the amount from step
3. The lower of the two will be the borrower's annual payment
amount. This borrower will be paying the amount calculated under
step 2. To determine the monthly repayment amount, divide the annual
amount by 12.
1,406.7115 / 12=$117.23
Example 2. Married borrowers both repaying under the income
contingent repayment plan with a combined Adjusted Gross income
(AGI) of $30,000. The husband has a Direct Loan balance of $5,000,
and the wife has a Direct Loan balance of $15,000. This couple has
no children.
Step 1: Add the Direct Loan balances of the husband and wife
together to determine the aggregate loan balance.
$5,000+$15,000=$20,000
Step 2: Determine the annual payments based on what the couple
would pay over 12 years using standard amortization. To do this,
multiply the aggregate principal balance by the constant multiplier
for 8.25% interest (0.1315452). (See the constant multiplier chart
to determine the constant multiplier you should use for the interest
rate on the
[[Page 61825]]
loan. If the exact interest rate is not listed, choose the next highest
rate for estimation purposes.)
0.1315452 x 20,000=2630.904
Step 3: Multiply the result by the income percentage factor
shown in the income percentage factor table that corresponds to the
couple's income (if the income is not listed, you can calculate the
applicable income percentage factor by following the instructions
under the interpolation heading below):
82.74% (0.8274) x 2,630.904=2,176.80997
Step 4: Determine 20 percent of the couple's discretionary
income. To do this, subtract the lowest income for married borrowers
shown in the income percentage factor table (HHS poverty level for a
family of 2) from the couple's income and multiply the result by
20%:
$30,000-$10,030=$19,970
$19,970 x 0.20=$3,994
Step 5: Compare the amount from step 3 with the amount from step
4. The lower of the two will be the annual payment amount. The
married borrowers will be paying the amount calculated under step 3.
To determine the monthly repayment amount, divide the annual amount
by 12.
$2,176.80997 / 12=$181.40
Interpolation: If your income does not appear on the income
percentage factor table, you will have to calculate the income
percentage factor through interpolation. For example, let's say you
are single and your income is $26,000. To interpolate, you must
first find the interval between the closest income listed that is
less than $26,000 and the closest income listed that is greater than
$26,000 (for this discussion, we'll call the result ``the income
interval''):
$27,112-$25,000=$2,112
Next, find the interval between the two income percentage factors
that are given for these incomes (for this discussion, we'll call
the result, the ``income percentage factor interval''):
88.77-85.55=3.22
Subtract the income shown on the chart that is immediately less than
$26,000 from $26,000:
$26,000-$25,000=1,000
Divide the result by the number representing the income interval:
1,000 / 2,112=0.4735
Multiply the result by the income percentage factor interval:
0.4735 x 3.22=1.52
Add the result to the lower income percentage factor used to
calculate the income percentage factor interval for $26,000 in
income:
1.52+85.55=87.07%
BILLING CODE 4000-01-P
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[FR Doc. 95-29207 Filed 11-30-95; 8:45 am]
BILLING CODE 4000-01-C