Vol. 80 Friday, No. 210 October 30, 2015

Part VI

Department of Education

34 CFR Parts 668, 682, and 685 Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Final Rule

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DEPARTMENT OF EDUCATION telephone (TTY), call the Federal Relay to 30 percent, and will not be placed on Service (FRS), toll free, at 1–800–877– provisional certification based on two 34 CFR Parts 668, 682, and 685 8339. such rates, if it brings a timely appeal [Docket ID ED–2014–OPE–0161] SUPPLEMENTARY INFORMATION: or challenge with respect to any of the relevant rates and demonstrates a PRI RIN 1840–AD18 Executive Summary less than or equal to 0.0625, provided that the institution has not brought a Student Assistance General Purpose of This Regulatory Action: PRI challenge or appeal with respect to Provisions, Federal Family Education These final regulations will amend the that rate before, and that the institution Loan Program, and William D. Ford Student Assistance General Provisions has not previously lost eligibility or Federal Direct Loan Program regulations governing Direct Loan cohort default rates (CDRs) to expand been placed on provisional certification AGENCY: Office of Postsecondary the circumstances under which an based on that rate. • Education, Department of Education. institution may challenge or appeal the Provide that a successful PRI ACTION: Final regulations. potential consequences of a draft or challenge with respect to a draft CDR is final CDR based on the institution’s PRI. effective not only in preventing SUMMARY: The Secretary amends the In addition, we are implementing imposition of sanctions upon issuance regulations governing the William D. changes to the FFEL Program of the official CDR for that year, but in Ford Federal Direct Loan (Direct Loan) regulations to streamline and enhance preventing the institution from being Program to create a new income- existing processes and provide support placed on provisional certification or contingent repayment plan in to borrowers by establishing new losing eligibility in subsequent years accordance with the President’s procedures for FFEL Program loan based on the official CDR for that year initiative to allow more Direct Loan holders to identify servicemembers who if the official rate is less than or equal borrowers to cap their loan payments at may be eligible for benefits under the to the draft rate. 10 percent of their monthly incomes. SCRA. The final regulations will also To reduce the burden on military The Secretary is also implementing require guaranty agencies to provide servicemembers who may be entitled to changes to the Federal Family FFEL Program borrowers who are in the an interest rate reduction under the Education Loan (FFEL) Program and process of rehabilitating a defaulted SCRA, the final regulations— Direct Loan Program regulations to loan with information on repayment • Require FFEL Program loan holders streamline and enhance existing plans available to them after the loan to proactively use the authoritative processes and provide additional has been rehabilitated, as well as database maintained by the DOD to support to struggling borrowers. These additional financial and economic begin, extend, or end, as applicable, the regulations will also amend the Student education materials. We have also made SCRA interest rate limit of six percent. Assistance General Provisions several technical changes to the loan • Permit a borrower to use a form regulations by expanding the rehabilitation provisions contained in developed by the Secretary to provide circumstances under which an § 682.405. In addition, the final the loan holder with alternative institution may challenge or appeal a regulations will add a new income- evidence of military service to draft or final cohort default rate based contingent repayment plan, called the demonstrate eligibility when the on the institution’s participation rate Revised Pay As You Earn repayment borrower believes that the information index. plan (REPAYE plan), to § 685.209. The contained in the DOD database may be DATES: The regulations are effective July REPAYE plan is modeled on the inaccurate or incomplete. 1, 2016. existing Pay As You Earn repayment In regard to loan rehabilitation, the Implementation date: For the plan, and will be available to all Direct final regulations— implementation dates of the included Loan student borrowers regardless of • Assist with the transition to loan regulatory provisions, see the when the borrower took out the loans. repayment for a borrower who Implementation Date of These Finally, the regulations will allow lump rehabilitates a defaulted loan, by Regulations section of this document. sum payments made through student requiring a guaranty agency to: Provide FOR FURTHER INFORMATION CONTACT: For loan repayment programs administered each borrower with whom it has entered further information related to the by the DOD to count as qualifying into a loan rehabilitation agreement Servicemembers Civil Relief Act payments for purposes of the Public with information on repayment plans (SCRA), the treatment of lump sum Service Loan Forgiveness Program. available to the borrower after payments made under Department of Summary of the Major Provisions of rehabilitating the defaulted loan; Defense (DOD) student loan repayment This Regulatory Action: explain to the borrower how to select a programs for the purposes of public To expand the circumstances under repayment plan; and provide financial service loan forgiveness, and expanding which an institution may challenge or and economic education materials to the use of the participation rate index appeal the potential consequences of a borrowers who successfully complete (PRI) challenge and appeal, Barbara draft or official CDR based on the loan rehabilitation. Hoblitzell at (202) 502–7649 or by email institution’s PRI, the final regulations-– • Amend § 682.405 with respect to at: [email protected]. For • Permit an institution to bring a the cap on collection costs that may be information related to loan timely PRI challenge or appeal in any added to a rehabilitated loan when it is rehabilitation, Ian Foss at (202) 377– year in which the institution’s CDR is sold to a new holder and the treatment 3681 or by email at: [email protected]. less than or equal to 40 percent, but of rehabilitated loans for which the For information related to the Revised greater than or equal to 30 percent, for guaranty agency cannot secure a buyer, Pay As You Earn repayment plan, Brian any of the three most recently calculated to conform with the Higher Education Smith or Jon Utz at (202) 502–7551 or fiscal years. Act of 1965, as amended (HEA). (202) 377–4040 or by email at: • Provide that an institution will not To establish a new, widely available [email protected] or [email protected]. lose eligibility based on three years of income-contingent repayment plan If you use a telecommunications official CDRs that are less than or equal targeted to the neediest borrowers, the device for the deaf (TDD) or a text to 40 percent, but greater than or equal REPAYE regulations—

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• Provide that, for each year a borrower begins repayment under the available to borrowers during the borrower is in the REPAYE plan, the alternative repayment plan, or by the rehabilitation process. borrower’s monthly payment amount is end date of the 20- or 25-year REPAYE On July 9, 2015, the Secretary recalculated based on income and plan repayment period, whichever is published a notice of proposed family size information provided by the earlier. rulemaking (NPRM) for these parts in borrower. If a process becomes available • Allow the borrower to return to the the Federal Register (80 FR 39607).1 in the future that allows borrowers to REPAYE plan if the borrower provides The final regulations contain changes give consent for the Department of the Secretary with the income from the proposed regulations, which Education (the Department) to access information for the period of time that are fully explained in the Analysis of their income and family size the borrower was on the alternative Comments and Changes section of this information from the Internal Revenue repayment plan or another repayment final rule. Service (IRS) or another Federal source, plan. If the payments the borrower was Implementation Date of These the regulations will allow use of such a required to make under the alternative Regulations: Section 482(c) of the HEA process for recalculating a borrower’s repayment plan or the other repayment requires that regulations affecting monthly payment amount. plan are less than the payments the programs under title IV of the HEA be • In the case of a married borrower borrower would have been required to published in final form by November 1, filing a separate Federal income tax make under the REPAYE plan, the prior to the start of the award year (July return, use the adjusted gross income borrower’s monthly REPAYE payment 1) to which they apply. However, that (AGI) of both the borrower and the amount will be adjusted to ensure that section also permits the Secretary to borrower’s spouse to calculate the the excess amount owed by the designate any regulation as one that an monthly payment amount. A married borrower is paid in full by the end of the entity subject to the regulations may borrower filing separately who is REPAYE plan repayment period. choose to implement earlier and the separated from his or her spouse or who • Provide that payments made under conditions for early implementation. is unable to reasonably access his or her the alternative repayment plan will not Consistent with the Department’s spouse’s income is not required to count as qualifying payments for objective to ensure all borrowers with provide his or her spouse’s AGI. purposes of the Public Service Loan Federal student loans can use a loan • Limit the amount of interest Forgiveness Program, but may count in repayment plan that caps their monthly charged to the borrower of a subsidized determining eligibility for loan payments at an affordable amount, the loan to 50 percent of the remaining forgiveness under the REPAYE plan, the Secretary is exercising his authority accrued interest when the borrower’s income-contingent repayment plan, the under section 482(c) to implement the monthly payment is not sufficient to income-based repayment plan, or the new and amended regulations specific pay the accrued interest (resulting in Pay As You Earn repayment plan (each to the REPAYE repayment plan negative amortization). This limitation included in this document in December applies after the consecutive three-year of these plans may be referred to as an ‘‘income-driven repayment plan’’ or 2015. period during which the Secretary does The implementation of the regulations ‘‘IDR plan’’) if the borrower returns to not charge the interest that accrues on that expand availability of PRI the REPAYE plan or changes to another subsidized loans during periods of challenges and appeals from the income-driven repayment plan. negative amortization. potential consequences of an Costs and Benefits: As further detailed • Limit the amount of interest institution’s CDR is predicated on the in the Regulatory Impact Analysis, the charged to the borrower of an automated support that will be provided benefits of these regulations, which will unsubsidized loan to 50 percent of the through the implementation of the Data require guaranty agencies to provide remaining accrued interest when the Challenges and Appeals Solutions additional information to borrowers in borrower’s monthly payment is not (DCAS) system within the Department’s the process of rehabilitating a defaulted sufficient to pay the accrued interest Federal Student Aid office. The DCAS loan, include a reduction of the risk that (resulting in negative amortization). system is slated for implementation in • a borrower will re-default on a loan after For a borrower who only has loans 2017. We will publish a separate having successfully completed loan received to pay for undergraduate study, Federal Register document to announce rehabilitation. Student borrowers will provide that the remaining balance of when we are ready to implement these benefit from the availability of the the borrower’s loans that have been regulations. repaid under the REPAYE plan is REPAYE plan that makes an IDR plan The Secretary has not designated any forgiven after 20 years of qualifying with payments based on 10 percent of of the remaining provisions in these payments. income available to borrowers final regulations for early • For a borrower who has at least one regardless of when they borrowed. The implementation. Therefore, the loan received to pay for graduate study, changes to the SCRA provisions should remaining final regulations included in provide that the remaining balance of reduce the burden on servicemembers this document are effective July 1, 2016. the borrower’s loans that have been and ensure the correct application of the Public Comment: In response to our repaid under the REPAYE plan is six percent interest rate limit. invitation in the NPRM, 2,919 parties forgiven after 25 years of qualifying Additionally, the changes to the PRI submitted comments on the regulations. payments. challenges and appeals process may We group major issues according to • Provide that, if the borrower does encourage more institutions to subject, with appropriate sections of the not provide the income information participate in the loan program, giving regulations referenced in parentheses. needed to recalculate the monthly their students additional options to We discuss other substantive issues repayment amount, the borrower is finance their education at those under the sections of the final removed from the REPAYE plan and institutions. regulations to which they pertain. placed in an alternative repayment plan. There will be costs incurred by Generally, we do not address technical The monthly payment amount under guaranty agencies under these or other minor changes. the alternative repayment plan will regulations. In particular, guaranty equal the amount required to pay off the agencies will be required to make 1 The NPRM is available at www.gpo.gov/fdsys/ loan within 10 years from the date the information about repayment plans pkg/FR-2015-07-09/html/2015-16623.htm.

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We received many recommendations so low as to suggest that the Department only community colleges to assess the from commenters to make other changes would not experience any increased impact before considering expanding to the Federal student loan programs. burden in processing these challenges the scope of the rule to other Generally, we do not address and appeals without the support of the institutional sectors. recommendations that are out of the DCAS system. Discussion: Section 435(a)(8) of the scope of this regulatory action, or that Discussion: We agree that only a HEA requires PRI appeals and would require statutory changes, in this relatively small number of institutions challenges, outlines how the PRI is to be preamble. are likely to qualify to submit a PRI computed, and establishes the PRI Analysis of Comments and Changes: challenge or appeal due to CDRs that ceiling applicable to appeals or An analysis of the comments and of any would trigger sanctions. At the current challenges from statutory sanctions changes in the regulations since time, however, PRI challenges and based on three years of CDRs equal to publication of the NPRM follows. appeals, as well as certain other types of or greater than 30 percent. The statute challenges and appeals, must be does not distinguish between General handled through time-consuming institutional sectors with respect to Comment: The majority of manual processes. Due to the number of appeals and challenges. The new commenters expressed strong support challenges and appeals that must be regulations do not relax the standards for the proposed regulations. They processed manually and the need to for a successful challenge or appeal or stated that these regulations would: devote limited resources to processing a change how the PRI is computed. Protect colleges with low borrowing high volume of loan servicing appeals, Instead, they provide opportunities for rates from sanctions triggered by high it is not feasible for the Department to schools to bring their challenges and CDRs; increase the efficacy of PRI implement the regulatory changes to the appeals earlier than in the past, challenges and appeals to encourage PRI challenge and appeal process earlier including before the point at which it colleges to continue offering Federal than February 2017, when the DCAS becomes clear that sanctions would student loans; help ensure that military system is scheduled to be implemented. apply absent a successful challenge or servicemembers benefit from the The implementation of the DCAS appeal. The regulations do not purport interest rate cap provided under the system will allow the Department to to affect the timing of statutory SCRA; help ensure that borrowers who handle PRI challenges and appeals in a sanctions in the event of an are rehabilitating their loans make an timely manner through an automated unsuccessful appeal or challenge; that informed decision about which process. While we appreciate the timeline is also set by statute (section repayment plan to select after commenters’ interest in accelerating the 435(a)(2)(A) of the HEA). Indeed, successfully rehabilitating their loans; implementation of this change, we do altering the PRI challenge or appeal help borrowers by creating a repayment not agree that the current required by statute to impose a higher plan that allows all Direct Loan student implementation schedule decreases the hurdle for avoiding sanctions, or to borrowers to cap their monthly effectiveness of the rule change or impose sanctions sooner, whether for all payments at 10 percent of their results in missed opportunities to institutions or for only some, in the discretionary income, and prevents protect students from having to take out manner suggested by the commenter, ballooning loan balances by limiting private loans or having to drop out of would require a statutory change. In interest accrual for borrowers with low school. Institutions are currently able to addition, the Department would regard income relative to their debt; and appeal a CDR based on PRI, which regulations providing differential provide that lump sum payments made enables those institutions that do so treatment of institutions by sector, even on borrowers’ behalf directly to the successfully to continue to participate as a pilot, as inappropriate given the Department through student loan in the title IV student aid programs and absence of such a distinction in the repayment programs administered by ensure their students have access to statutory provisions regarding CDRs. the DOD are counted as qualifying Federal funds. Changes: None. Changes: None. payments for public service loan Due Diligence in Servicing a Loan forgiveness. Draft Cohort Default Rates and Your (§ 682.208(j)) Discussion: We appreciate the support Ability to Challenge Before Official from the overwhelming majority of Comment: One commenter noted that, Cohort Default Rates Are Issued in other areas of lending covered by the commenters. (§ 668.204(c)(1)(ii)) Changes: None. SCRA, creditors often extend voluntary Comment: One commenter expressed ‘‘grace’’ periods to servicemembers. The Implementation concern that the regulations did not commenter suggested that we consider Comment: Several commenters urged sufficiently ensure that protections for extending application of the SCRA’s six the Department to implement the students are maintained when an percent interest rate to servicemembers change to the PRI challenge and appeal institution’s default rate has risen to 30 for a transitional period after the end of processes in 2015, rather than in or 40 percent (i.e., the point at which the servicemembers’ military service. February 2017. Some commenters suspension or sanctions are imposed). Discussion: We appreciate the suggested that delaying the While the commenter recognized the commenter’s concern for implementation of the regulations to benefit this rule would provide to servicemembers who are transitioning coincide with the launch of the DCAS community colleges with low Federal from the SCRA interest rate limit to the system would decrease the effectiveness student loan participation rates, the regular interest rate that applies to their of the change and result in missed commenter was concerned that it may Federal student loans. Section 427A(m) opportunities to assure institutions also allow unscrupulous schools with of the HEA provides that a FFEL lender continue to participate in the Direct poor training outcomes the opportunity may charge a borrower interest at a rate Loan program. Several commenters to delay their suspension or sanction less than the rate that is applicable opined that the number of schools with under the title IV programs. The under statute. Accordingly, a FFEL borrowing rates low enough to qualify commenter recommended a limited lender may choose to continue to charge for a PRI challenge or appeal due to pilot implementation of the PRI the SCRA interest rate for a period after CDRs that would trigger sanctions was challenge and appeals processes with the end of the servicemember’s military

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service. Under the HEA, the Department of military service are not covered by Eligibility Reporting System (DEERS), is required to charge the statutory the SCRA for that period of military which is accessed through the DMDC, to interest rate on Direct Loans. service. We note that servicemembers be the definitive record of Changes: None. who are eligible for the SCRA six servicemembers’ military service. We Comment: One commenter suggested percent interest rate limit are not also note that the letters or other that if a borrower has multiple loans disadvantaged by this treatment. If a documents suggested by the commenter and the application of the SCRA’s six borrower obtains a consolidation loan could be vulnerable to fraud. Therefore, percent interest rate limit to one of the during a period of military service when it is most appropriate that the loans results in an overpayment of the the interest rate on the loans the servicemember work with the DOD to final remaining balance on the loan, the borrower is consolidating is reduced to correct his or her DEERS data and, in excess amount should be returned to the six percent under the SCRA, the interest the meantime, submit the online form to borrower rather than applied to his or rate used in determining the weighted enable application of the SCRA interest her other outstanding loans. average interest rate for the Direct rate limit of six percent. Discussion: The commenter’s Consolidation Loan will be the six Changes: None. suggested treatment of overpayments percent SCRA rate rather than the Comment: Two commenters requested would be inconsistent with the way the higher statutory rate that would that the regulation specifically state that Federal student loan programs are otherwise apply to the loans. Since the loan holders, upon finding evidence of administered. If a borrower has multiple interest rate on a Direct Consolidation SCRA eligibility, must provide a refund loans with the same servicer and a Loan is a fixed rate, this means that the for the benefit retroactive to at least payment is made that exceeds the borrower would effectively lock in the August 14, 2008, or the first date of amount required to fully pay off one of benefit of the lower SCRA interest rate SCRA eligibility. the loans, the excess amount is not for the life of the consolidation loan. If Discussion: The regulation requires refunded to the borrower. Rather, it is a borrower consolidates his or her loans loan holders to apply the SCRA interest applied to reduce the outstanding prior to beginning a period of military rate limit of six percent for the longest balance on the borrower’s other loans. service, the new consolidation loan is period supported by the official We believe this approach is more subject to the six percent SCRA interest electronic database, or by alternative beneficial to the borrower, as it reduces rate limit during any future period of evidence of military duty status the borrower’s remaining loan debt. military service. provided by the borrower, using the Changes: None. Changes: None. combination of evidence that provides Comment: A few commenters Comment: One commenter suggested suggested that we not use the term that a consolidation loan should not be the borrower with the earliest military ‘‘active duty military service’’ when treated as a new loan unless the loan duty start date on or after August 14, referring to borrowers who may be holder has notified the servicemember 2008, and the latest military duty end eligible for the SCRA six percent of the impact of consolidation on his or date. In response to a search request, the interest rate limit. The commenters her eligibility for the SCRA six percent DMDC provides data for the last 367 recommended the regulation use the interest rate limit. days. If the loan holder finds evidence definition of ‘‘military service’’ in the Discussion: Under the HEA, in the database that a borrower had a SCRA at 50 U.S.C. App. 511(2). borrowers who take out a consolidation period of military service within that Discussion: We appreciate the loan may lose some benefits available 367-day period that began earlier, the commenters’ suggestion and agree that it on their prior loans while receiving loan holder would apply the SCRA six is more appropriate to use the other benefits offered by the percent interest rate limit beginning on terminology used in the SCRA. We also consolidation loan. The current loan the day the period of military service agree that the regulations should clearly consolidation materials that we provide began, but not earlier than August 14, describe how the SCRA provisions in to borrowers include notification of this 2008. The SCRA interest rate limit was these regulations apply to National possibility. We are scheduled to update established by the Higher Education Guard members. the Federal Direct Loan Consolidation Opportunity Act, which made the SCRA Changes: We have replaced the term promissory note during the first quarter interest rate limit applicable as of the ‘‘active duty’’ throughout of 2016. At that time, we will revise the date of its enactment, August 14, 2008. §§ 682.202(a)(8), 682.208(j), and disclosure regarding the potential loss of As discussed previously, overpayments 685.202(a)(11) with the term ‘‘military benefits to include a specific reference resulting from the application of the service’’ and added the definition of the to the SCRA interest rate limit of six SCRA six percent interest rate limit will term ‘‘military service’’ in percent. However, it is unlikely that a be applied to future loan payments (and §§ 682.208(j)(10) and 685.202(a)(11). borrower would lose SCRA benefits as these payments will be qualifying These changes will provide consistency a result of consolidation, as discussed in payments under the Public Service Loan with the language in the SCRA and response to the previous comment. Forgiveness Program). In the event the clarify how the SCRA applies to Changes: None. application of the SCRA six percent National Guard members. Comment: One commenter requested interest rate limit results in payment of Comment: One commenter requested that the Department accept letters from all of the borrower’s loans in full, any that consolidation loans made after a commanders and other military overpayment greater than the de borrower has started a period of military documents as alternative evidence of minimus amount of $25 for Federal service be made eligible for the SCRA military service so that servicemembers student loan overpayments would be interest rate limit of six percent if the seeking to demonstrate an error in the refunded to the borrower. underlying loans were originated prior information in the Defense Manpower Changes: None. to the start of the period of military Data Center (DMDC) database are not Comment: One commenter requested service. required to complete a special form. clarification that a loan’s disbursement Discussion: We appreciate the Discussion: We consulted with the date is only relevant to the military commenter’s concern. However, under DOD and determined that DOD service period for which the loan holder the law, a consolidation loan is a new considers the information contained is evaluating eligibility for the SCRA loan and new loans made after a period within the Defense Enrollment interest rate limit of six percent.

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Discussion: The DOD database excluding consolidation loans that able to select the REPAYE plan provides information regarding periods include parent PLUS loans from regardless of when they obtained their of military service within a 367-day eligibility for the REPAYE plan. The Direct Loans. The REPAYE plan does window prior to the date on which the commenter recommended that we not include the requirement in the Pay loan holder queries the database. As modify the REPAYE plan regulations to As You Earn repayment plan limiting long as the loan disbursement date is allow consolidation loans that include eligibility to loans disbursed after before the beginning of the military parent PLUS loans to be repaid under October 1, 2007. service period reflected in the database, the REPAYE plan. Several commenters While borrowers with FFEL loans the loans are eligible for the SCRA six echoed that recommendation. may repay those loans under the IBR percent interest rate. However, if the As an alternative, one commenter plan, REPAYE is an ICR plan and is loan holder has other information recommended that we create a process only available to Direct Loan borrowers. showing an earlier service period, the under which a borrower who repaid a Borrowers with FFEL loans may pay loan holder must apply the SCRA parent PLUS loan through a their loans under the REPAYE plan if interest rate limit as of the earliest date, consolidation loan could somehow they consolidate their loan(s) into a on or after August 14, 2008, supported recreate the parent PLUS loan by Direct Consolidation Loan, and then pay by that evidence. The loan holder is not removing it from the consolidation loan, the consolidation loan under the required to conduct multiple queries of so the consolidation loan can be repaid REPAYE plan. prior periods to determine if the under the REPAYE plan, or be Changes: None. servicemember may have had a previous grandfathered into another more REPAYE Plan (§ 685.209(c)) period of military duty service that affordable repayment plan. The coincides with the date(s) the loans commenter argued that this would help Comment: Thousands of student loan were disbursed. borrowers who consolidated their borrowers expressed strong support for the REPAYE plan, praising the Changes: None. student loans with parent PLUS loans Department for its efforts to let all Direct without understanding the financial Loan Rehabilitation Agreement Loan borrowers cap their monthly (§ § 682.405(b)(1)(vi)(B)) consequences. Discussion: Section 455(d)(1)(D) of the payments at 10 percent of their income, Comment: One commenter asked the HEA, which authorizes the income- and to prevent ballooning loan balances Department to provide guidance to contingent repayment (ICR) plans, by limiting interest accrual for guaranty agencies that are seeking to specifically provides that the ICR plans borrowers with low incomes relative to assign to the Department otherwise are not available to parent PLUS their debt. One commenter stated that the rehabilitated loans for which the borrowers. Although Direct REPAYE plan rightly reflects the guaranty agencies have been unable to Consolidation Loans that have repaid Department’s interest in expanding secure a buyer. parent PLUS loans may be repaid income-driven repayment to all Discussion: Guaranty agencies may through the original ICR plan, they may borrowers, while ensuring that the continue to contact the Department with not be repaid through the income-based benefits of an IDR plan remain targeted specific questions concerning this issue. repayment (IBR) or Pay As You Earn toward the most at-risk individuals. The Changes: None. repayment plans. To maintain commenter also noted that the Revised Pay As You Earn Repayment consistency with those plans, we have regulations take important steps to keep Plan (REPAYE Plan) Repayment Plans retained that restriction in the REPAYE the costs of income-based repayment (§ 685.208(a)(2)(iii) and (iv)) plan. reasonable. The commenter supported Comment: Section 685.208(a)(1)(i)(D) Contrary to the commenter’s suggestion, there is no basis for the the decisions, discussed in more detail of the regulations provides that Direct in the following sections, to: Not Subsidized, Direct Unsubsidized, Direct Department to ‘‘recreate’’ a PLUS loan that was intentionally repaid by the establish a cap on monthly payment Subsidized Consolidation Loans, and amounts to ensure that high-income Direct Unsubsidized Consolidation borrower through consolidation. A loan can be ‘‘backed out’’ of a consolidation borrowers pay their fair share; require Loans may be repaid under the REPAYE that payments for married borrowers be plan. However, under loan and reconstituted only if the loan was included in the consolidation loan based on their combined income; and § 685.208(a)(2)(iv)(D), a Direct PLUS include provisions to discourage Loan made to a parent borrower, or a by error after the borrower requested that the loan not be included. Therefore, borrowers from intentionally failing to Direct Consolidation Loan that repaid a report their income accurately when parent PLUS loan, may not be repaid the situation described by the commenter would not qualify for this they experience a significant increase in under the REPAYE plan. One earnings. commenter noted that, currently, the treatment. Changes: None. Commenters also supported the only way for parent PLUS borrowers to Comment: Commenters had a variety decision not to require borrowers to access an income-driven repayment of suggestions for expanding REPAYE have a partial financial hardship (PFH) plan is by consolidating their loan(s) plan eligibility. These commenters to select the REPAYE plan. As one into a Direct Consolidation Loan, and recommended making the REPAYE plan commenter noted, this decision allows repaying that loan under the income- available to: borrowers to select the REPAYE plan contingent repayment plan described in • All borrowers, regardless of when regardless of their debt-to-income ratio, § 685.209(b). The commenter asserted they obtained student loans. and provides all Direct Loan student that this option is often insufficient to • Borrowers with government loans borrowers with a repayment plan that meet the needs of many parent PLUS disbursed prior to October 2007. allows their payments to reflect their borrowers. The commenter disagreed • Borrowers with FFEL Program loans income. Those who earn less will pay with the Department’s position that we who are repaying the loans through the less, and those who earn more will pay are prohibited from making the REPAYE IBR repayment plan more. plan available to parent PLUS • FFEL Stafford Loan borrowers. Not all commenters supported the borrowers. The commenter argued that Discussion: Under the regulations, REPAYE plan. One commenter believed there is no basis in the HEA for Direct Loan student borrowers will be that the REPAYE plan would have a

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minimal beneficial impact on law current Pay As You Earn repayment forward that is less complex and school graduates. Another commenter plan. These commenters believed that burdensome. questioned the need for establishing a adding a new IDR plan to the existing Some commenters recommended complicated repayment plan, and array of repayment plans adds reducing the number of repayment recommended that the Department unnecessary complication. The plans to two: A standard repayment make case-by-case loan forgiveness commenters noted that the Department plan and the REPAYE plan as the only determinations with regard to borrowers already offers four separate income- income-driven repayment plan. They who cannot make payments on their driven student loan repayment plans noted that this would simplify student loans. with varying eligibility requirements, loan repayment options. Several commenters opposed to the costs, and benefits. These commenters One commenter noted that, with the REPAYE plan viewed the plan as a loan noted that the Direct Loan Program addition of REPAYE, there will be eight forgiveness plan, and argued that it continues to generate significant different repayment plans with different would provide an incentive to revenue for the Federal government, terms and eligibility requirements. institutions to continue the constant estimated to total $89 billion over the Borrowers will have to navigate many escalation of education costs. These next ten years. In the commenters’ view, options that look similar but have commenters felt strongly that regardless of the changes the complex differences that may not be individuals should take responsibility Department makes to income-driven immediately obvious. The commenter for how they choose to pursue and fund repayment options, the Federal contended that an abundance of options their educations, and it should not be government will undoubtedly continue with varying terms and benefits can the taxpayers’ responsibility to pay for to generate revenue from borrowers confuse borrowers and make choosing a those who choose to spend repaying their student loans. The repayment plan difficult. This irresponsibly. commenters believed that the commenter believed that providing Discussion: We thank the commenters Department can and should channel a better information and assistance with who expressed support for the REPAYE substantial portion of these revenues making the best choice could help plan. into expanding and improving the increase the benefits of the REPAYE We acknowledge that the REPAYE existing Pay As You Earn repayment plan and other income-driven plans. plan might not be the best option for all plan. They asserted that the Commenters encouraged the borrowers and encourage law school Department’s goal should be to help as Department to explore streamlining and graduates and all borrowers to learn many borrowers as possible, not to improving the loan repayment and about their options and select the maximize government revenue. forgiveness programs that are already in repayment plan that they believe will place to ensure borrowers receive clear work best for them. One commenter noted that, in 2014, and thorough information regarding We understand the desire for a more President Obama announced his their repayment options. simplified approach to borrower intention to make student loans more Discussion: We appreciate the repayment. But, with millions of affordable by extending the current Pay commenters’ concerns but believe that student loan borrowers in repayment, it As You Earn repayment option to an the best approach is to establish the is not practical for the Department to additional five million borrowers with REPAYE plan as a new ICR repayment make case-by-case loan forgiveness loans too old to qualify under the Pay plan. If we only modified the existing determinations. As You Earn rules. According to this Pay As You Earn repayment plan to We appreciate the concerns raised by commenter, many financial aid reflect the provisions included in the several commenters who do not support administrators thought that REPAYE plan, the current Pay As You REPAYE. We agree that borrowers are modifications would be made to the Earn repayment plan terms and responsible for repaying their student current Pay As You Earn repayment conditions would continue to apply to loans, and we believe that most plan as a result of the President’s borrowers who were in the plan before borrowers repaying their loans under announcement. Many commenters the REPAYE plan provisions became the REPAYE plan will be successful in preferred this approach, urging the effective. We believe that having two repaying their loans, in many cases Department to support the extension of versions of the Pay As You Earn before the end of the 20- or 25-year the existing Pay As You Earn repayment repayment plan with different terms and repayment period. However, we also plan to cover additional borrowers, conditions would be more confusing for believe the REPAYE plan will provide rather than create the REPAYE plan. borrowers and servicers than having two relief to struggling borrowers who Several commenters expressed separate and distinct plans. experience financial difficulties that support for streamlining the multiple Contrary to the suggestion by some prevent them from repaying their loans. IDR plans into one improved IDR plan commenters, the Department’s We note that the REPAYE plan requires that would cap monthly payments at 10 motivation in developing the REPAYE 20 or 25 years of qualifying payments percent of income, provide loan plan is not to maximize government before a loan is forgiven. We also note forgiveness after 20 years of payments, revenue. If that were our goal, the that under the REPAYE plan, while and target benefits to borrowers who simplest way to achieve it would be to lower-income borrowers will make need help the most. These commenters not offer any income-driven repayment reduced payments, higher-income recognized that this would require plans that provide for loan forgiveness. borrowers will make increased statutory changes. The commenters Instead, our goal with the REPAYE plan payments. Given these characteristics of believed that the REPAYE plan, with is two-fold: to create an income-driven the REPAYE plan, we do not believe the certain modifications, would become an repayment plan that requires a plan will encourage irresponsible over- excellent model for Congress to consider reasonable monthly payment amount borrowing by students. when developing a single, streamlined from those borrowers who can afford it; Changes: None. IDR plan. Similarly, another commenter and to provide relief to struggling Comment: Several commenters recommended that, instead of creating borrowers who may still have large expressed significant concerns about the new processes and options, the outstanding balances after years of Department’s proposal to create a new Department work towards a unified, making payments on their student IDR plan instead of expanding the simplified standard for borrowers going loans.

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We thank the commenters for their expressed concern that this may lead to not receive any financial benefit from recommendation that the REPAYE plan confusion, particularly among struggling the other, even if the other has taxable be the model for a single income-driven borrowers who may already have income. One commenter noted that repayment plan. However, as the difficulty navigating the characteristics student loan payments based on the commenters noted, such a change of the different income-driven combined AGI of borrowers who file would require congressional action. repayment plans. The commenter noted separately may not be something that a We reiterate our intention to provide that the approach used in the REPAYE married couple has budgeted or can clear, understandable information plan may lead to higher payments for afford. regarding the various Federal student some married borrowers who file taxes Commenters noted that married loan repayment plans, to enable separately for a myriad of practical borrowers who file a separate tax return borrowers to make informed choices reasons, and who already accept already lose substantial tax benefits by when selecting repayment plans. significant financial consequences as a filing separately with the elimination of Changes: None. result of filing separate tax returns. The various tax deductions and/or credits. commenter supported the Department’s Another commenter recommended a Definition of ‘‘Adjusted Gross Income’’ goal of ensuring that borrowers do not (§ 685.209(c)(1)(i)(A) and (B)) uniform AGI calculation for both single ‘‘game’’ the system. However, the and married borrowers, arguing that the AGI of Married Borrowers Filing commenter expressed concern that tax penalty of filing taxes separately Separately many borrowers whose tax filing makes the REPAYE plan not helpful for decisions are not determined by their Comment: Under the proposed married borrowers in most cases. title IV loan repayment options will be definition of ‘‘adjusted gross income Some commenters offered counter- hurt under the REPAYE plan. The (AGI)’’ in § 685.209(c)(1)(i), for a proposals to the proposed definition of commenter asked whether the married borrower filing separately, the AGI. One commenter proposed allowing Department could adopt for the AGI for each spouse is combined to a married borrower the same AGI REPAYE plan the methodology used in calculate the monthly payment amount calculation as a single borrower, the other income-driven repayment under the REPAYE plan. Several provided that the married borrower plans, with some additional protections, commenters supported this provision of would not qualify for any student loan if needed, to prevent abuse. Along these the REPAYE regulations. The forgiveness. Another commenter lines, the commenter proposed recommended allowing borrowers in commenters noted that, under the including an income threshold under REPAYE plan, married borrowers are public sector jobs to use their individual which married borrowers filing AGI for REPAYE calculations regardless treated consistently, regardless of how separately may repay their loans under they file their Federal income taxes. In of marital status. the REPAYE plan based on their One commenter proposed combining the Pay As You Earn, IBR, and ICR individual incomes. This would ease the AGI of two spouses and dividing plans, married borrowers who file their the difficulty for struggling borrowers that number by two instead of counting Federal income taxes jointly have their while closing a loophole for married all of the spouse’s AGI. As an alternative eligibility and payment amounts based borrowers who may be more financially to this proposal the commenter on their combined income and secure than single borrowers. combined Federal debt. However, those Several commenters were opposed to recommended adding one-half of the who file separately exclude their the proposed definition of AGI. These spouse’s AGI to the borrower’s AGI. The spouse’s income from payment commenters believed that combining commenter believed that this approach calculations, but still include their the AGIs of spouses who file separately would recognize that almost all spouses spouse in their family size, which could would encourage borrowers to divorce will have expenses of their own, so not result in an artificially low monthly and continue to cohabitate with the all of their income is actually available payment. In addition, a married former spouse in order to prevent their for repayment of the borrower’s student borrower who earns a low income and student loan payments from increasing. loans. But it would also reflect the fact files taxes separately could have very One commenter argued that the that, typically, some of a spouse’s low or even $0 monthly payments, even provision will lead to the degradation of income is available for this purpose. if the borrower’s spouse is a high the concept of marriage by encouraging Commenters also asserted that the income earner. people to live together unmarried and spouse’s income should not be As noted by one commenter, the costs have children out of wedlock. considered unless the married couple’s of the REPAYE plan to taxpayers will be Another commenter believed that the loans can be added together even if they kept reasonable by ensuring that proposed AGI definition would shift the are from different loan providers, or married borrowers’ incomes are burden of student loan payments to unless both spouses cosigned the loans. properly captured for purposes of married couples from single borrowers, One commenter stated that borrowers determining the appropriate payment increasing married couples’ payment who qualify for the REPAYE plan will amount. The definition of AGI in the requirements under the REPAYE plan. also qualify for IBR. A borrower who is REPAYE regulations ensures that One commenter believed that the married to a spouse with, for example, borrowers cannot manipulate the system proposed AGI definition would, in the same amount of AGI as the to qualify for lower payments than other effect, take the decision to file income borrower, and who wanted to avoid the similarly-situated borrowers. taxes separately out of the married higher repayment under the One commenter expressed concern couple’s hands. Department’s formula could simply that counting the AGI of the spouse for Several commenters noted that they elect IBR instead of the REPAYE plan. married borrowers who file separately acquired their student loan debt before The person would pay 15 percent rather could have unintended consequences. they met their spouse, and did not than 10 percent of discretionary income, Because the treatment of married believe the spouse should be held but would still save money compared to borrowers’ income under REPAYE accountable for their debt. Several using the REPAYE plan. Many married would be inconsistent with the commenters noted that a married couple borrowers would thereby be treatment in the other income-driven could easily have a financial discouraged from using the REPAYE repayment plans, the commenter arrangement in which one spouse does plan.

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Some commenters suggested that the With regard to some of the other spouse’s own expenses. Neither did the definition of AGI was not consistent comments that we received on the AGI commenter provide support for the with the law. These commenters definition: claim that married couples tend to asserted that computing the AGI of all • We agree that unless the borrowers separate expenses such as food or health married borrowers by adding the have a joint consolidation loan, a care between each spouse, rather than incomes of the spouses is inconsistent borrower’s spouse is not responsible for treat them as joint expenses for the with 20 U.S.C. 1087e(e)(2), and beyond paying the borrower’s student loan debt. married couple. With regard to the the statutory authority of the The definition of AGI does not affect commenter’s alternative suggestion that Department. According to the that. we add the AGI of both borrowers and commenters, the Department is only • The definition of AGI does not shift divide by two, we note that, this would authorized to base the repayment the burden of student loan payments significantly reduce the calculated AGI schedule on the AGI of the borrower, from single borrowers to married for a high-income borrower with a low- unless the borrower files a joint return. borrowers. The payments made by income spouse. Two commenters raised constitutional married borrowers have no impact on We do not agree with the legal concerns, asserting that the approach the payments made by single borrowers, arguments made by some commenters. under the REPAYE plan stigmatizes and and vice versa. Section 455(e)(2) of the HEA provides disincentives marriage and is contrary • There are many differences between that a repayment amount for a Direct to both the recent Supreme Court the REPAYE plan and the other IDR Loan repaid under an ICR plan by a decision that finds a dignity right to plans. We believe that the difference borrower who is married and files a marriage and to the classical equal with regard to the definition of AGI is joint Federal income tax return with his protections afforded by the 14th fairly easily explained to borrowers, and or her spouse is based on the AGI of Amendment. will not be particularly confusing to both the borrower and the spouse. The Discussion: We agree with the struggling borrowers in their choice of statute does not address the situation in commenters who supported using the an IDR plans. which the borrower and his or her AGI of both spouses when a married • The definition of AGI recognizes spouse file separate Federal income tax couple files separate Federal income tax the reality that, to one degree or another, returns. Moreover, section 455(e)(1) of returns. As noted by the commenters, most married borrowers operate as a the HEA provides that the Secretary this provides for more equitable single economic unit. may obtain information that is treatment of married borrowers—most • We agree that the difference in the reasonably necessary regarding the of whom file joint income tax returns. treatment of AGI for married borrowers income of a borrower and the borrower’s As the commenters noted, married may encourage some borrowers to select spouse if applicable for the purpose of borrowers who file separately already or stay in IBR or the Pay As You Earn determining the annual repayment lose some tax benefits by filing repayment plan. Our intent in providing obligation of the borrower. Thus, the separately, as they are not able to take a choice of IDR plans is to provide statute leaves it up to the Secretary to advantage of various tax deductions borrowers with the option to choose determine what AGI to consider in the and/or tax credits. The treatment of a among repayment plans. We encourage case of a married borrower who files a spouse’s AGI for the purpose of borrowers to select the repayment plan separate income tax return. In fact, determining the payment amount under that the borrowers believe works best for between July 1, 1996 and 2012, the the REPAYE plan would simply be them. payment amount under ICR for married another factor that a married couple • We disagree that the treatment of a borrowers who filed separate Federal considers when determining how to file married couple’s income because of a income tax returns was based on the their income tax return. Depending on tax filing status chosen by the borrower joint AGI. See 34 CFR 685.209(b)(1) the couple’s circumstances, filing for purposes of determining student (2009). separately may or may not continue to loan payments under a repayment plan Changes: None. be advantageous for the couple. Either voluntarily chosen by the borrower has way, a married couple always has the any impact on the borrower’s rights. AGI of Married Borrowers Who Are option to either file separately or file We appreciate the comments we Separated, or Are Unable To Access the jointly. received suggesting alternative Income Information of Their Spouse While we acknowledge the approaches to the treatment of married (§ 685.209(c)(1)(i)(A) and (B)) commenters’ concerns that the proposed borrowers who file income taxes Comment: Under proposed treatment of married borrowers may separately. The commenter who § 685.209(c)(1)(i)(A) and (B) of the incentivize divorce and cohabitation, it recommended establishing an income REPAYE regulations, the monthly seems highly unlikely that a couple that threshold above which married payment for married borrowers is wishes to marry (or remain married) borrowers’ payments would be based on calculated based on the combined would give that up for the 20- or 25-year their combined AGIs and below which income of the borrower and spouse REPAYE repayment period to lower payments would be based on individual regardless of how they file Federal tax their student loan payments. With AGIs didn’t suggest a threshold amount. returns, except for a borrower who is regard to borrowers who are currently Any amount that we chose for this separated from his or her spouse or repaying their loans through IBR or the purpose could be deemed arbitrary. In cannot reasonably access his or her Pay As You Earn repayment plan, and addition, such an approach would spouse’s income information. have budgeted their student loan potentially create a cliff effect, in which As one commenter noted, the vast payments based on only counting the a borrower slightly above the threshold majority of married borrowers file joint AGI of the borrower, the definition of would have much higher payments than tax returns due to the monetary AGI for purposes of those repayment a borrower slightly below the threshold. advantage it provides. In this plans is not changing. The only The commenter who recommended commenter’s view, married borrowers borrowers affected by the definition of that we consider only one-half of the who file separately are likely to be AGI in the REPAYE regulations will be spouse’s AGI provided no basis for the estranged from their spouses or those borrowers who select the REPAYE assumption that that half of a spouse’s otherwise unable to access their plan. income would commonly be for the spouse’s income. In some cases, these

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tax filers may be survivors of domestic NPRM, the certification form will be these cases, the commenter violence. This commenter believed that modeled on a similar certification for recommended revising the definitions of the Department struck the right balance individuals completing the Free ‘‘adjusted gross income’’ and ‘‘partial by allowing these borrowers to self- Application for Federal Student Aid financial hardship’’ in § 685.209(c)(1) certify that they are separated from their (FAFSA), and we intend to make the and the formula for calculating the spouse or are otherwise unable to process of certifying separation or monthly payment amount in reasonably access the income inability to obtain income information § 685.209(c)(2)(i). The commenter also information of their spouse, and simple and straightforward. The recommended that the definition of therefore should have their monthly certification will be done through the ‘‘family size’’ be modified to exclude a payments calculated based solely on standard process of applying for the borrower’s spouse if the borrower and their own income–-but without REPAYE plan. It will not require the the spouse are separated, regardless of including the spouse in their household borrower to appeal an earlier decision, whether the borrower and the spouse size calculation. and will not add undue burden or filed jointly or separately. Another commenter supported the complexity to that process. Discussion: We do not believe it is Department’s decision to allow We note that the strategies suggested necessary to provide an exemption for vulnerable married borrowers who file by the commenter who raised concerns borrowers who have their spouse’s their taxes separately to calculate their that some borrowers might try to evade income information. It is possible that REPAYE payment based upon the higher payments by hiding income or married borrowers who are separated borrower’s adjusted gross income falsifying the certification form would have not necessarily separated their without a cumbersome appeal process. be fraudulent. We expect that most finances. As one of the non-Federal One commenter expressed concern borrowers would be deterred from negotiators during the negotiated that, by requiring a borrower to certify falsifying information on a Federal rulemaking process noted, sometimes that he or she is unable to reasonably application form by the significant married couples who are legally access the spouse’s income information, penalties that can be applied. We separated continue to live together. the requirements to qualify for this believe the benefits of providing these In cases where couples have separated exception will place too heavy a burden exceptions outweigh the costs that their finances and the joint AGI reported on the borrowers it is meant to help. could result if some borrowers falsify on the borrower’s Federal tax return is The commenter asked the Department to information in violation of Federal law. no longer applicable to the borrower, clarify this certification process and Changes: None. the borrower may submit alternative confirm that no additional documents or documentation of income, as allowed by Treatment of Recently Separated verification will be required for this § 685.209(c)(4)(i)(B). The borrower Borrowers Who Filed Jointly exemption, to ensure that struggling would be required to provide alternative borrowers are not faced with further Comment: One commenter asserted documentation to the borrower’s loan hardship. that the proposed REPAYE regulations servicer. If the documentation provided Another commenter expressed may still cause a hardship for some is approved by the Department, it would concern about the proposed exception, recently separated borrowers. Under the be used in place of the prior year’s AGI. arguing that it would encourage two proposed regulations, a married This process would most commonly be methods for evading the requirement to borrower who has filed a joint tax return used in cases where a borrower has lost add spousal AGI. The commenter but who subsequently separates from a job, but the process also would be suggested that some sophisticated his or her spouse is not allowed to self- used for the situation discussed by the married couples will simply arrange to certify that they are separated at the commenter, with no need for changes to have separate and secret bank accounts, time of applying for the REPAYE plan. the regulation. decline to share pay stubs, and file That option is only available to a We agree with the commenter that a separate tax returns in order to reduce borrower who is married but files a borrower’s spouse should be excluded a borrower’s student loan repayments separate tax return. The commenter from the determination of the without having to divorce. The argued that a married borrower who borrower’s family size if the borrower is commenter suggested that blogs will filed a joint Federal tax return, but who separated, regardless of the tax filing quickly spread suggestions for how to is separated from his or her spouse at status of the borrower and the spouse. do this. the time of application for the REPAYE Changes: We have revised the The commenter also suggested that plan, should have the option to exclude definition of ‘‘family size’’ in borrowers who want to evade the the spouse’s income from the monthly § 685.209(c)(1)(iii) to specify that requirement will not bother to have payment amount calculation. ‘‘family size’’ does not include the their spouse keep separate income The commenter acknowledged that borrower’s spouse if the borrower is information, but will falsely claim that the issue is not the borrower’s inability separated from his or her spouse. they have no access to such information to access income information of the instead. According to the commenter, if spouse, since the spouses would have Terms of the REPAYE Plan the Department simply accepts such already filed a joint tax return. But, the (§ 685.209(c)(2)) Calculating Monthly claims, some borrowers will unfairly commenter argued, if the borrower is Payment Amounts benefit, and if the Department contests separated from his or her spouse, the Comment: Commenters provided a borrower claims that their spouse’s borrower would not have the joint wide variety of recommendations for income information cannot be accessed, resources with which to make the modifying the formula for determining a it will lead to controversies and lawsuits monthly payment amount that would be borrower’s monthly payment amount. at great expense to taxpayers. required under the REPAYE plan. In One commenter recommended setting Discussion: We thank the commenters this situation, in the view of the criteria for determining monthly for their support for the exceptions commenter, the joint tax filing status payment amounts that take into provided for borrowers who are would unfairly impact the monthly consideration the borrowers’ income separated from their spouse, or who are payment amount of the borrower. levels, suggesting that we either protect unable to obtain income information To exclude the spouse’s income from a larger portion of income against which from their spouse. As we noted in the the monthly payment calculation in the payment is determined for

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borrowers with lower wages, or using the borrower’s AGI and family The comment about incomes establish progressive loan payment-to- size, and the poverty guidelines for the changing from month to month may be income ratios for borrowers with higher State in which the borrower lives. true in many cases. But some measure incomes. We appreciate the many of income must be used to determine Other proposals included: recommendations for modifications to payments under an income-based • Factoring in private student loan the formula for determining monthly repayment plan. We believe AGI is the payments. payment amounts. However, we believe simplest way to do that, and easiest for • Using take-home pay, after each of the proposed revisions to the borrowers to report. It also accounts for withholding of taxes, insurance, formula would be difficult to borrowers who may have fluctuating retirement payments, and other items. implement, and would create month-to-month incomes, by relying on • Exempting Social Security income inconsistencies with the existing income for the complete calendar year. from consideration. income-driven repayment plans that We disagree with the comment that • Taking into account judicial actions would be confusing for borrowers. recommended excluding a spouse’s against the borrower that impact ability The recommendation for an option for eligible loans from the determination of to repay (such as alimony or child a longer repayment period of 40 years the borrower’s payment amount when a support orders or Chapter 13 mandated would not be consistent with the HEA, married borrower files a separate tax payments). which sets a maximum length for the return because he or she is separated • Factoring in child care costs. repayment period in an ICR plan at 25 from his or her spouse or is unable to • Taking into consideration the debt/ years. obtain his or her spouse’s income at the loan ratio based on regional markets, Lowering the cap to five percent of time of application for REPAYE. While such as city/state, instead of using the disposable income without extending the spouse’s income information may be Federal poverty guidelines. the repayment period, as one unavailable to the borrower, the • Considering the cost of living, commenter suggested, would Department will be able to identify the specifically in high-rent areas where significantly increase the costs of the eligible loans owed by the spouse, and yearly income may not be an adequate REPAYE plan. It would cut in half the take those loans into consideration reflection of disposable income. monthly payment amounts the when making its determinations. • Including house mortgages in the Department receives and would increase Although spouses are not responsible calculation of overall debt burden. the amount of the outstanding loan for repaying each other’s loans unless • Considering total debt-to-income balance that is forgiven at the end of the the loans have been consolidated, under ratio. 20- to 25-year repayment period. § 685.209(c)(2)(B), the Department One commenter recommended that The recommendation to ‘‘take other adjusts the monthly payment amount the REPAYE plan provide an option to bills into account’’ is too vague for us for each borrower based on each reduce the payment amount to 5 percent to address with specificity because the borrower’s percentage of the couple’s of AGI, with a 40-year repayment commenter does not identify which total eligible debt. period. Another commenter types of bills the Department should Changes: None. recommended that the Department consider. But any process to reduce the lower the payment amount cap to five monthly payment amount by Payment Cap percent, and take other bills into subtracting all or some of the borrower’s Comment: Several commenters noted account. bills from the calculation would be that, while the Pay As You Earn Several commenters recommended complicated for the Department to repayment plan caps a borrower’s that, in establishing a formula for administer, and would require monthly payment at the amount the calculating the monthly payment borrowers to meet additional borrower would have paid under the 10- amount, we consider the implications of documentation requirements both in the year standard repayment plan, the loan repayment on those who retire at initial application process and the REPAYE plan does not have a cap on a normal retirement age. One of these recertification process. the monthly payment amount. A commenters recommended restructuring We do not believe it is necessary to borrower in the REPAYE plan will pay repayment conditions for those who are adjust the monthly payment amount 10 percent of his or her discretionary of normal retirement age or older, to formula for borrowers who retire at the income, even if that leads to a higher provide for a higher allowance of standard retirement age. The payment than under a standard income not counted toward setting the determination of the monthly repayment plan. While noting that this loan repayment amount, for set-asides repayment amount uses AGI as a provision is directed towards ensuring such as medical expenses. measure of income. After a borrower that borrowers pay equitably, One commenter noted that income retires, the monthly payment amount commenters expressed concerns that the may change from month to month, and calculated based on the borrower’s new regulation could have a negative suggested that borrowers should not income when the borrower was effect on certain borrowers. One have to file for a loan amount employed may no longer be applicable. commenter recommended adding a redetermination every month. However, the reduction in income will provision requiring the Department to One commenter recommended be reflected in the borrower’s AGI and provide a specific and clear notice to excluding a spouse’s eligible loans from will result in a corresponding reduction borrowers in this situation. The notice the determination of the borrower’s in the monthly payment amount. Since would inform borrowers that they are payment amount when a married the payment amount is already limited paying more than they might under borrower files a separate tax return to 10 percent of the amount by which other payment plans and present them because he or she is separated from his the AGI exceeds the applicable poverty with their other options for repayment. or her spouse or is unable to obtain his guideline amount, we do not believe Several commenters supported not or her spouse’s income at the time of that reducing the payment amount including a cap on the payment amount, application for the REPAYE plan. further, by taking into consideration believing that this change increases Discussion: The REPAYE plan does certain expenses for retirees that we do program fairness by requiring higher- take borrower income levels into not take into consideration otherwise, is income borrowers to pay the same share account, basing payments on a formula necessary. of their income as lower-income

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borrowers, and by preventing high-debt, other income-driven repayment plans, a expenses and tax withholding. The high-income borrowers from receiving borrower will have to pay potentially commenter did not provide any substantial loan forgiveness when they ever-increasing amounts if the borrower evidence demonstrating that individuals could afford to pay more. receives a pay raise each year. The regularly make a conscious choice not to A commenter noted that one concern commenter contended that this reduces seek a higher-paying job to avoid the about the other income-driven payment incentives for borrowers to seek higher additional expenses that come with a plans is that individuals whose incomes incomes, especially when Federal and higher income. rise dramatically over time may still State tax brackets take higher With regard to borrowers who are receive loan forgiveness because they percentages out at higher-income levels. making qualifying payments under the are never required to pay more than The commenter further argued that a Public Service Loan Forgiveness what they would owe under the 10-year cap on monthly payments would give Program, we believe that such borrowers standard plan. This raises the costs for borrowers and families a better chance should make payments on their student the Federal government and targets at buying other things, such as a house, loans commensurate with their income. benefits away from the most at-risk which would in turn bring more money High-income borrowers qualifying for borrowers. The REPAYE plan addresses into local economies. public service loan forgiveness could this issue by removing that payment cap Another commenter proposed making conceivably receive extensive loan so that high earners will still pay 10 a payment cap available to borrowers forgiveness at the end of their 10 years percent of their discretionary income working in public service who will be of qualifying payments. We do not even if that amount is above what they eligible for forgiveness after 10 years. believe such borrowers should have would owe on the standard 10-year Discussion: We agree with the both the benefit of an income-driven plan. The commenter further noted that commenters who supported not having repayment plan when their incomes are borrowers in the REPAYE plan will a cap on the monthly payment amount. low, and then have their increased have the option to switch to the This feature of the REPAYE plan will incomes shielded from the monthly standard 10-year plan if they desired, help to ensure that the benefits of the payment calculation when their but payments under the standard plan plan are targeted to struggling borrowers incomes increase. will not count toward forgiveness. The and ensure that higher-income We believe that a notice specifically commenter suggested that the REPAYE borrowers repay their loans. informing borrowers of the option to plan might also be a favorable option for We disagree with the comment that switch to another repayment plan could higher-income earners wishing to pay high-income earners will switch out of be confusing for borrowers. It could off their loan balance faster than 10 the REPAYE plan, or select a different result in borrowers switching to years. repayment plan at the outset, rather repayment plans that are less beneficial One commenter contended that the than pay under the REPAYE plan. Both to them, or create misunderstandings ability to switch to another repayment the IBR plan and the Pay As You Earn and confusion among borrowers. plan without penalty defeats the repayment plan require a borrower to Therefore, we disagree with the purpose of not having a payment have a PFH to qualify for the plan. It is recommendation to provide such amount cap. A borrower who has a unlikely that a high-income borrower notices. dramatic rise in income could easily would meet this requirement. The Changes: None. switch to another repayment plan to standard repayment plan does not have avoid the higher monthly payment. This an eligibility criterion based on income Negative Amortization commenter also noted that high-income but also does not provide for loan Comment: Several commenters borrowers can easily select a different forgiveness. supported the proposal to limit the plan at the outset of repayment. Moreover, the Department is not amount of interest charged to borrowers One commenter suggested that it trying to steer borrowers into one whose monthly payments do not cover might not be beneficial to the Federal repayment plan over another. We accrued interest (‘‘negative government for a high-income borrower believe borrowers should make amortization’’). As in the Pay As You to remain in the REPAYE plan. With no informed decisions about the repayment Earn and IBR plans, for borrowers in a monthly payment amount cap, plans that they choose, and we negative amortization situation, no payments by high-income borrowers encourage borrowers to select the unpaid interest accrues on subsidized who remain in REPAYE will accelerate, repayment plan that they believe will loans during the first three years a and the borrower will pay off the loan work best for them. borrower is in the REPAYE plan. In faster. While this would benefit the We disagree with the commenter who addition, under the REPAYE borrower, it would correspondingly suggested that it would be more regulations, if the borrower is in deprive the Department of additional beneficial to the Federal government to negative amortization, only 50 percent revenue. The commenter argued that, keep borrowers in repayment as long as of any unpaid interest will accrue on given the government’s low borrowing possible. It is not the Department’s goal subsidized loans after the first three rates, it would be in the interest of the to use income-driven repayment plans years, and only 50 percent of any Department (and taxpayers) to keep to maximize revenues. Our goal for unpaid interest on unsubsidized loans these loans outstanding for as long as these plans is to provide options to will accrue at any time. possible, particularly for borrowers in a borrowers that make it easier for them The commenters noted that capping negative amortization situation, who are to repay their loans. the accrual of unpaid interest for paying the full interest charge. We also disagree with the comment borrowers who are in negative Other commenters opposed the that the absence of a payment cap will amortization is a targeted benefit that absence of a payment amount cap in the reduce incentives for borrowers to seek helps minimize the growth of loan REPAYE plan. One commenter stated higher incomes. While a pay raise that balances for borrowers with low that the purpose of the REPAYE plan results in increased AGI would increase incomes relative to their debt. should be to help relieve the stress a borrower’s monthly payments under Other commenters believed that borrowers and their families experience the REPAYE plan, few borrowers will adding on 50 percent of the remaining from student loan debt. Without a cap forgo a pay raise for that reason. Pay interest cost would still be a hardship to on the monthly payment amount, as in raises frequently result in additional people with incomes at the level of 150

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percent to 200 percent of the poverty Discussion: We appreciate the it adds unnecessary complexity and can level. commenters’ support for the treatment increase costs for borrowers whose One commenter stated that the of negatively amortizing loans in the incomes are low for extended periods of assumption that amortization is taking REPAYE plan. We acknowledge that, time. place in the course of loan repayment, even with the ‘‘discount’’ on interest In the view of these commenters, so that after several years the amount of payments provided for in the REPAYE given the lack of a standard payment interest is low, and that 50 percent of regulations, some borrowers may have a cap and of a PFH requirement for initial the interest would not be a large greater amount of interest accrue over eligibility for the REPAYE plan, PFH is amount, is a false assumption. For some time. However, we believe that the no longer a relevant benchmark, but borrowers, the accumulation of interest treatment of negatively amortizing loans rather is simply a carryover from other means that after many years of making balances the goal of providing some IDR plans with different eligibility payments, the current balance is larger relief to struggling borrowers, while requirements. Since borrowers’ monthly than the original amount borrowed. The protecting the interests of the taxpayers. payments in the REPAYE plan are commenter believed that, for borrowers We believe the use of the terms always based on income, there is no in this situation, the new rules will ‘‘charge,’’ ‘‘accrue,’’ and ‘‘capitalize’’ in need to capitalize interest when their result in a slight, but not very the regulations is clear and consistent debt-to-income ratio falls below a significant, discount. with existing regulations and current particular threshold. Under the As noted by one commenter, even operational processes. We see no need proposed regulations, the only reason with the amount of unpaid interest each to define these longstanding student the Department would have to calculate month not covered by the minimum financial aid terms at this time. PFH would be to determine whether monthly payment being reduced by 50 We do not agree with the legal interest should capitalize at what will concerns raised by a commenter. percent, a borrower might still pay a lot be an irrelevant threshold, adding, Section 455(e)(5) of the HEA defines more than the original principal of the according to these commenters, how to calculate the balance due on a loan. According to this commenter, this unnecessary complexity for the loan repaid under the ICR plan but does increase might more than offset the Department and creating confusion for not restrict the Secretary’s discretion to reduced monthly payment on the borrowers. The commenters postulated define or limit the amounts used in REPAYE plan (10 percent) versus IBR that removing interest capitalization calculating the balance. These (15 percent). within the REPAYE plan would regulations reflect the Secretary’s simplify implementation of the program One commenter believed that, as used regulatory authority to define those because the Department would no in the regulations, the terms ‘‘charge,’’ terms for purposes of the REPAYE plan. longer need to treat interest differently ‘‘accrue,’’ and ‘‘capitalize’’ are unclear. We disagree with the suggestion that under specific scenarios or implement The commenter expressed concerns that all negatively amortized loans will be the current 10 percent interest these rules could pose problems for loan forgiven at the end of the repayment capitalization cap in the REPAYE plan. servicers, or for borrowers dealing with period. The comment assumes a The commenters also argued that issues around consolidation, economic borrower in negative amortization will capitalizing interest when borrowers in hardship, and bankruptcy. Furthermore, remain in that situation for the entire 20 the REPAYE plan lose their PFH status the commenter believed that any or 25-year repayment period. However, may increase costs for borrowers whose confusion caused by the use of these a borrower’s income can change incomes are low for extended periods of terms may make it especially difficult significantly over that period of time. A time. The commenters said that for borrowers to make informed borrower who recovers from the borrowers with low incomes relative to decisions when selecting repayment financial difficulties that put the their debt are more likely to have plans. The commenter proposed borrower into negative amortization monthly payment amounts that do not defining the terms ‘‘charge,’’ ‘‘accrue,’’ may resume making payments towards cover accrued interest. and ‘‘capitalize.’’ principal, and may repay the loan in its One commenter noted that Another commenter raised legal entirety by the end of the repayment capitalization is not required by Federal objections to proposed period. law. The commenter suggested that it is § 685.209(c)(2)(iii)(A), which would Changes: None. not necessary to charge borrowers charge borrowers only half of the additional interest and urged the interest that accrues but is unpaid after Capitalization of Accrued Interest Department to consider elimination of the initial three-year period. According Comment: Several commenters capitalization in the REPAYE plan, and to this commenter, the proposed recommended elimination of the in all Federal student loan programs. regulation conflicts with section capitalization of interest within the One commenter noted that switching 455(e)(5) of the HEA, which specifies REPAYE plan. Under the proposed from one plan (such as IBR) to another that the balance due ‘‘shall equal the regulations, interest would capitalize (such as the REPAYE plan) would result unpaid principal amount of the loan, when a borrower enrolled in the in accrued interest capitalizing, and, as any accrued interest . . .’’ The REPAYE plan no longer has a PFH and a result a borrower’s monthly interest commenter believed that the Secretary’s when he or she switches from the payments could increase significantly. regulatory authority is limited to REPAYE plan to another repayment A commenter currently enrolled in specifying details of the capitalization of plan. A borrower no longer has a PFH IBR with interest that has accrued (but this interest. The commenter also when 10 percent of his or her not been capitalized) due to negative claimed this proposal is moot, as discretionary income is greater than or amortization asked for clarification negatively amortized borrowers will equal to the permanent standard regarding what happens to this type of have the accrued but unpaid interest payment amount due to changes in his interest if one switches from IBR to forgiven at the end of the repayment or her income and/or family size. REPAYE. The commenter asked if it term. The commenter believed that this These commenters recommended would be capitalized before the proposed aspect of the REPAYE plan eliminating the capitalization of interest REPAYE monthly payment amount is merely adds complexity to an already while a borrower remains in the calculated or if the interest would complicated repayment plan. REPAYE plan because they believe that remain uncapitalized.

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Another commenter recommended One commenter suggested that ‘‘Net Budget Impacts.’’) Borrowers who that we not capitalize interest on student borrowers under the REPAYE are currently in the IBR plan or the Pay borrowers switching into the REPAYE plan receive a notice regarding accrued As You Earn repayment plan may plan from a similar income-driven interest in certain circumstances. determine that it is not in their financial repayment plan. The commenter argued Specifically, the commenter interest to switch to the REPAYE plan. that if it makes sense for someone to recommended that the regulations Since these borrowers are already on switch to the REPAYE plan, any unpaid require the Department to clearly track to have their loans forgiven, we do interest that has accumulated under describe the role of PFH in the REPAYE not believe that it significantly those programs should not capitalize, plan, notify a borrower when the disadvantages these borrowers to retain since the borrower is simply switching Department determines that he or she the requirement that accrued interest be from one income-driven repayment plan no longer has a PFH, and explain to the capitalized for borrowers switching to another. borrower whether and how accrued from one of those plans to the REPAYE As noted by one commenter, under interest will be capitalized in such plan. For the same reasons, we do not the IBR repayment plan, interest that is circumstances. believe that allowing a one-time switch accrued but unpaid (due to the payment Several commenters recommended without capitalizing interest is amount being lower than the total ending capitalized interest entirely. In warranted. interest due) is capitalized into the loan addition, commenters recommended With regard to some of the other balance only upon a borrower leaving changing the regulations, variously, to comments we received relating to the IBR plan or ceasing to have a PFH. eliminate the accrual of interest, lower capitalization of accrued interest: Thus, as long as a borrower continues to the accruing interest, freeze the accrual • When accrued interest is have a PFH and is in the IBR plan, the of interest, not accrue interest above capitalized, it is always done accrued interest will not be capitalized. minimal payments, waive accrued retroactively. Some event, such as However, under the current wording of interest, or not accrue interest while the leaving a particular repayment plan, § 685.221(b)(4), if an existing borrower borrower is in school. triggers capitalization of all interest that who has been repaying under the IBR Discussion: We agree with the has accrued up to that point. plan elects to take advantage of the new commenters who recommended • With the elimination of the REPAYE plan, he or she would suffer eliminating capitalization of interest requirement to capitalize unpaid the negative consequence of triggering when a borrower paying under the interest when a borrower ceases to have full capitalization of all interest accrued REPAYE plan no longer has a PFH. a PFH, there will be no necessity for the up to such time. The commenter However, we have retained the Department to make an annual contended that this could be a requirement to capitalize interest at the determination of PFH status, or provide significant deterrent to many borrowers time a borrower leaves the REPAYE the borrower a notification if the in taking advantage of the new REPAYE plan. This is consistent with the borrower does not have a PFH. plan and a potential ‘‘trap for the treatment of accrued interest when a • Modifications to how interest unwary.’’ One commenter requested borrower leaves the IBR plan or the Pay accrues on Direct Loans, or the that we specify that interest that accrued As You Earn repayment plan. We also elimination of capitalization of interest under the IBR plan would not be note that the removal of the provision altogether, are outside the scope of this capitalized for a borrower who switches for capitalizing interest when a regulatory action. from the IBR plan to the REPAYE plan. borrower is determined to no longer Changes: We have removed the The commenter asserted that failing to have a PFH does not totally eliminate provision in proposed allow borrowers to switch to the the possibility of interest capitalization § 685.209(c)(2)(iv)(A)(1) that would have REPAYE plan without capitalizing while a borrower is in repayment under required capitalization of unpaid accrued interest will create a significant the REPAYE plan. As provided in accrued interest when the Secretary hardship for many of the borrowers that § 685.202(b)(3), unpaid interest will be determines that a borrower does not the REPAYE plan is designed to help. capitalized upon the expiration of a have a PFH. We have also removed One commenter recommended deferment or forbearance period. proposed § 685.209(c)(2)(iv)(B), which allowing a one-time switch into the As many commenters noted, if a would have limited the amount of REPAYE plan without capitalizing borrower who is currently in the IBR unpaid interest that is capitalized when interest for those that are eligible for the plan or the Pay As You Earn repayment a borrower loses PFH status, and the new REPAYE plan. They suggested that plan had accrued interest on his or her reference to subsequent year PFH a deadline could be added to this one- loan and chose to switch from the IBR determinations in § 685.209(c)(4)(i)(A). time switch opportunity. The plan or the Pay As You Earn repayment In addition, we have removed proposed commenter felt that it is unfair to offer plan to the REPAYE plan, the interest § 685.209(c)(4)(iv), which provided that a new repayment plan to people who would be capitalized at the time the the Secretary would send the borrower have already begun repayment, but then borrower leaves the IBR plan or the Pay a written notification that unpaid penalize them for using it. As You Earn repayment plan. Some interest would be capitalized each time One commenter requested that we not commenters stated that this would be a the Secretary made a determination that allow interest to capitalize retroactively deterrent to such borrowers entering the a borrower did not have a PFH, and when a PFH is no longer demonstrated. REPAYE plan. While this may be the have redesignated paragraphs (c)(4)(v) The commenter believed that this point case, we note that the primary goal of through (ix) as paragraphs (c)(4)(iv) is vague in the proposed regulation, but the REPAYE plan is to allow borrowers through (viii), respectively. Finally, we that interest should never capitalize who do not qualify for the 10 percent have made a conforming change to retroactively. The commenter suggested IBR plan or the Pay As You Earn § 685.209(c)(1) by removing the that anyone could no longer have a PFH repayment plan to have access to an definition of ‘‘partial financial at any point (e.g., if they received an affordable income-driven repayment hardship.’’ inheritance one year), and given that plan. In fact, we estimate that most Comment: Some commenters raised a many people have negatively amortizing borrowers in those repayment plans will concern that it would be inappropriate loans, this could have disastrous stay in those repayment plans after the to allow the ‘‘importation’’ of existing consequences. REPAYE plan becomes available. (See accrued but uncapitalized interest into

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the REPAYE plan, for borrowers who Eligibility Documentation, Verification, note that when the process described by switch from another repayment plan to and Notifications (§ 685.209(c)(4)) the commenters was in place, there was the REPAYE plan. The commenters Comment: An overwhelming majority only one income-driven repayment plan noted that under proposed of commenters urged the Department to (the original ICR Plan) and only one § 685.209(c)(2)(iv), the 10 percent limit implement a system whereby a borrower servicer for Direct Loans. After new on capitalization within the REPAYE repaying under the REPAYE plan or income-driven repayment plans were plan provides more favorable treatment another income-driven repayment plan established and the Department of unpaid accrued interest than other could provide advance consent for the contracted with additional servicers for repayment plans. These commenters Department to automatically obtain the Direct Loans, the multi-year consent believed that requiring capitalization of borrower’s AGI from the IRS for process was no longer feasible, due to interest for borrowers who switch to the multiple tax years, so that it would not the significant increased complexity. As explained earlier in this REPAYE plan would be an appropriate be necessary for the borrower to submit discussion, we are working with the IRS safeguard to prevent ‘‘importation’’ of income documentation each year, as is and the Department of Treasury to accrued interest when a borrower currently required. Some commenters switches to the REPAYE plan. In the address the issues that forced us to stated that borrowers should be able to discontinue the prior multi-year consent view of these commenters, the proposed revoke the consent at any time. The rules provide adequate protection to process, so that a multi-year consent commenters believed that a multi-year process will be possible for the REPAYE ensure that a borrower with interest consent approach would greatly accrued under the IBR plan would not plan. As we do so, we will consider the simplify the annual income issues raised by the commenters, benefit from the more generous documentation requirement for capitalization provisions of the REPAYE including procedures for revocation of borrowers, reduce burden for both consent. plan. Discussion: We agree with the borrowers and the Department, and commenters that the REPAYE Changes: None. significantly reduce the number of Comment: A few commenters asked regulations provide appropriate borrowers who fail to provide the the Department to revise proposed safeguards against accrued interest from required documentation on time and as § 685.209(c)(4)(iii)(B) to allow borrowers other repayment plans being a result lose eligibility to make more than 10 days following the ‘‘imported’’ into the REPAYE plan, with payments based on income. Many specified annual deadline to provide the borrower being given more generous commenters noted that in the past it was their required annual documentation of treatment as a result. However, we note possible for borrowers to provide the income and avoid the consequence of that, with the elimination of the Department with a multi-year consent to being removed from the REPAYE plan capitalization requirement for borrowers obtain income information directly from and being placed on the alternative who no longer have a PFH, we have also the IRS and believed that this process repayment plan. One commenter eliminated the 10 percent cap on should be reinstated. believed that an extension of the accrued interest that may be capitalized Discussion: For all of the reasons cited deadline would allow for unforeseen for such borrowers. by the commenters, we strongly agree delays that a borrower might face or Changes: None. that allowing borrowers to provide possible deficiencies in notification Application of Payments (34 CFR advance consent for the Department to procedures. Another commenter 685.209(c)(3)) obtain their AGI directly from the IRS suggested that giving borrowers 30 days for multiple tax years would be after the annual deadline to provide Comment: One commenter preferable to the current process that income documentation would be recommended that we mandate that any requires borrowers to submit income appropriate. payments made by borrowers in excess documentation each year. As we noted A few commenters expressed support of the monthly amount due be applied in the NPRM, in an Executive for the Department’s plan, announced in to the loan principal. Memorandum dated March 10, 2015, the preamble to the NPRM, to conduct Another commenter recommended the President instructed the Department a pilot to test enhanced messaging that the Department provide borrowers to work with the IRS and the U.S. techniques that would help the with accounts in good standing Department of the Treasury to develop Department determine whether the incentives for keeping loan payments and create a multi-year consent process. current process for notifying borrowers current. The Department continues to work of the annual deadline for providing Discussion: The application of closely with these agencies to resolve income documentation should be payments in the Direct Loan Program is the issues that currently preclude the modified to prevent more borrowers specified in § 685.211. Under use of a multi-year consent process and from missing the deadline. One § 685.211(a)(3)(i), a prepayment is we intend to implement such a process commenter urged the Department to applied first to any accrued charges and in the future. We note that the inform the public of the results of the collection costs, then to outstanding regulations governing the REPAYE plan pilot, and to move forward as soon as interest, and then to outstanding and the other income-driven repayment possible to implement changes based on principal. We do not believe that plans require a borrower to provide those results. establishing a different application of documentation ‘‘acceptable to the Discussion: During the negotiated payments rule for Direct Loans paid Secretary’’ of the borrower’s AGI. This rulemaking sessions, some of the non- under the REPAYE plan is warranted. language is sufficiently broad to allow Federal negotiators recommended that Under section 455(b)(8)(C) of the for income information to be obtained the Department extend the time after the HEA, the Department has limited through a multi-year consent process in annual deadline during which a authority to provide payment incentives the future without regulatory changes. borrower may submit income to certain categories of Direct Loan In response to the commenters who documentation. As we explained in the borrowers. The Department cannot noted that borrowers were previously NPRM, the Department declined to expand on this statutory authority able to provide the Department with consider this recommendation, noting through our regulations. multi-year consent to obtain their that the proposed regulations related to Changes: None. income information from the IRS, we the annual deadline for submitting

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income documentation were the same as notice that is sent to a borrower who has conditions described in redesignated the corresponding regulations for the been placed on an alternative repayment §§ 685.209(c)(4)(vi)(D) and (E). Pay As You Earn repayment plan that plan due to failure to provide required Comment: One commenter noted that were developed through negotiated income documentation by the annual proposed § 685.209(c)(4)(vii)(B) implies, rulemaking after extensive discussion. deadline. Specifically, the commenter but does not explicitly state, that the We further noted that, because those suggested that we present the provisions notice sent to a borrower who has been regulations have been in effect for less in proposed § 685.209(c)(4)(vii)(D) placed on an alternative repayment plan than two years, we did not believe there through (G), which describe the will include the alternative repayment was sufficient evidence to conclude that requirements that apply to a borrower plan monthly payment amount. The the existing timeframes for borrowers to who wishes to return to the REPAYE commenter recommended that the submit income documentation should plan after being removed from the plan Department revise § 685.209(c)(4)(vii) to be modified. This continues to be our or voluntarily leaving the plan, in a clearly state that the notice will include view. However, as we also noted in the separate section of the regulations. In the borrower’s new monthly payment preamble to the NPRM, we have the commenter’s view, the current amount. initiated a pilot project to determine if structure of proposed Discussion: We agree with the there may be more effective means of § 685.209(c)(4)(vii) results in confusing commenter’s recommendation. communicating information about the cross-references elsewhere in the Changes: We have revised annual deadline to borrowers. The pilot REPAYE plan regulations. The redesignated § 685.209(c)(4)(vi) to project is still ongoing and will not be commenter noted that, as a result of clarify that the notice sent to a borrower completed until after these final these changes, we would need to who has been placed on an alternative regulations are published. Once the renumber other paragraphs and update repayment plan will include the project has been completed and the cross-references, as appropriate. borrower’s new monthly payment amount. results have been analyzed, the The same commenter also believed Department will issue an announcement Comment: One commenter contended that proposed § 685.209(c)(4)(vii)(D) that the proposed treatment of with more information. may be confusing in the context of the Changes: None. borrowers who miss the annual lead-in language in proposed deadline for providing updated income Comment: One commenter § 685.209(c)(4)(vii), which explains the recommended that the annual information, as described in proposed requirements that apply to a borrower § 685.209(c)(4)(vi), is unnecessarily notification to the borrower described in who wishes to return to the REPAYE proposed § 685.209(c)(4)(iii) should complex and will be difficult for plan after having been removed from borrowers to understand. The explain that a failure to provide income that plan due to a failure to provide documentation by the annual deadline commenter stated that under the income information or after voluntarily Department’s proposed approach, a will result in capitalization of any leaving the plan. The commenter noted unpaid accrued interest. The commenter borrower who wishes to return to the that the lead-in language in proposed REPAYE plan after having been noted that the comparable notification § 685.209(c)(4)(vii) refers only to to borrowers in the Pay As You Earn removed due to their failure to provide borrowers who have been removed from income documentation would be repayment plan under the REPAYE plan and placed on an § 685.209(a)(5)(iii)(B) includes this required to provide what could be years alternative repayment plan due to a of income documentation and to clear information. failure to provide income information Discussion: We agree with the any delinquencies resulting from by the specified annual deadline, yet commenter. alternative repayment plan payments. proposed § 685.209(c)(4)(vii)(D) also Changes: We have revised The commenter proposed an covers borrowers who voluntarily chose § 685.209(c)(4)(iii)(B) to specify that the alternative approach under which to leave the plan. notice’s description of the consequences borrowers who miss the annual income if the Secretary does not receive the Discussion: Although we do not documentation deadline would not be required income information by the believe it is necessary to restructure removed from the REPAYE plan but annual deadline will include proposed § 685.209(c)(4)(vii) as instead would remain on the REPAYE capitalization of any unpaid accrued suggested by the commenter, we agree plan with a recalculated monthly interest in accordance with with the commenter that proposed payment equal to the higher of the 10- § 685.209(c)(2)(iv). § 685.209(c)(4)(vii)(D) may be confusing year standard repayment plan payment Comment: One commenter asked the in the context of the lead-in language in amount based on the borrower’s Department to confirm that a borrower proposed § 685.209(c)(4)(vii). We have outstanding loan balance at the time he who is repeatedly late in providing his made changes to address this concern. or she entered the REPAYE plan, or the or her required annual income Changes: We have revised borrower’s previous income-driven documentation could be placed on the redesignated § 685.209(c)(4)(vi)(D) by payment amount under the REPAYE alternative repayment plan in removing the references to borrowers plan based on the most recent income accordance with proposed who have voluntarily changed to a documentation provided. In addition, § 685.209(c)(4)(vi) more than once, and different repayment plan (including the commenter proposed that any each time this occurs the borrower’s borrowers who changed to a different payments made in the absence of required monthly payment amount plan after being placed on the updated income information would not under the alternative repayment plan alternative repayment plan), and have count toward loan forgiveness under the would be recalculated. added language to § 685.209(c)(2)(vi) REPAYE plan or the Public Service Discussion: The commenter’s explaining that borrowers who leave the Loan Forgiveness Program. The understanding is correct. REPAYE plan because they no longer commenter noted that excluding such Changes: None. wish to repay under that plan or payments from counting toward loan Comment: One commenter strongly borrowers who change to a different forgiveness would encourage borrowers recommended that, for greater clarity, repayment plan after being placed on an to submit income documentation on the Department restructure proposed alternative repayment plan may return time, and would help prevent borrowers § 685.209(c)(4)(vii), which describes the to the REPAYE plan under the who miss the deadline for providing the

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income documentation from receiving placing them on an alternative public service loan forgiveness. The loan forgiveness under the REPAYE repayment plan that requires them to commenter stated that the Department plan or the Public Service Loan pay the potentially higher amount that did not explain the reason for excluding Forgiveness Program sooner than they will repay their loans in full within the these payments, and the commenter did should. Borrowers who never recertify earlier of 10 years from the date the not see any reason to exclude them, their income under the REPAYE plan borrower begins repayment under the noting that payments made by would end up paying their loans in full alternative plan or the ending date of borrowers under the Pay As You Earn and receiving no loan forgiveness. the 20- or 25-year repayment period, repayment plan after they have missed The same commenter recommended and not allowing payments made under the annual income documentation that if the Department maintains the the alternative repayment plan to count deadline continue to count toward approach described in proposed toward public service loan forgiveness. public service loan forgiveness. The § 685.209(c)(4)(vi), the calculation of the One alternative suggested by the commenter added that there is no borrower’s required monthly payment commenter was to allow borrowers who requirement in the Public Service Loan under the alternative repayment plan fail to recertify income to remain on the Forgiveness Program for all 120 should be revised. Under proposed REPAYE plan with a recalculated qualifying monthly payments to be § 685.209(c)(4)(vi), the monthly monthly payment equal to the higher of made under an income-driven payment amount under the alternative the 10-year standard plan payment or repayment plan. The commenter repayment plan would be the amount the borrower’s last income-driven recommended that the Department necessary to repay the borrower’s loan payment amount, and to not count allow payments made by a borrower in full within the earlier of 10 years payments made without income under the alternative plan after being from the date the borrower begins documentation toward loan forgiveness removed from the REPAYE plan to repayment under the alternative under the REPAYE plan or the Public count toward public service loan repayment plan, or the ending date of Service Loan Forgiveness Program. forgiveness. the borrower’s 20- or 25-year repayment However, under this approach, there Discussion: In the preamble to the period as described in § 685.209(c)(5)(i) would be no basis under the law for not NPRM, we explained our view that, in or (ii). The commenter believed that the counting payments made without the absence of a process that allows alternative plan payment amount income documentation toward REPAYE borrowers to provide consent to access should instead be the amount needed to or public service loan forgiveness. their income information for multiple repay the borrower’s loan in full by the Payments made under an ICR plan are years, the regulations should provide an later of 10 years from the date the qualifying payments for loan forgiveness incentive for borrowers to comply with borrower begins repayment under the purposes under an ICR plan and under the annual income documentation alternative plan, or the ending date of the Public Service Loan Forgiveness requirement in a timely manner, and the borrower’s 20- or 25-year repayment Program in accordance with section should also provide a disincentive for period. The commenter stated that the 455(e)(7)(B)(v) and (m)(1)(A)(iv) of the borrowers who might intentionally Department’s proposed approach could HEA. Under the commenter’s proposed withhold updated income information require borrowers to make monthly alternative approach, payments made when there is a significant increase in payments under the alternative without income documentation would their income. Not allowing alternative repayment plan that are much higher still be payments made under the plan payments to count toward public than their previous income-based REPAYE plan (an income-contingent service loan forgiveness serves these payments, particularly if they have a repayment plan) and therefore would purposes. Moreover, the statutory low income or are near the end of their have to be counted as qualifying provisions governing the Public Service 20- or 25-year repayment period. The payments for loan forgiveness under Loan Forgiveness Program in section commenter argued that their alternative both the REPAYE plan and the Public 455(m) of the HEA do not provide for approach, by providing for a longer Service Loan Forgiveness Program. This counting payments made under an repayment period under the alternative would be contrary to the Department’s alternative repayment plan as qualifying repayment plan, would give borrowers a intent of providing a strong incentive for payments. lower alternative plan monthly payment borrowers to provide updated income In response to the commenter’s amount than the Department’s proposed information by the specified annual observation that payments made by approach and thus would help deadline. We also note that the borrowers under the Pay As You Earn borrowers who fail to recertify their Department’s approach is more repayment plan after they have missed income from falling into delinquency favorable to borrowers than the the annual income documentation due to their inability to afford the commenter’s alternative in that deadline continue to count toward alternative plan payment amount. payments made under an alternative public service loan forgiveness, we note Discussion: We believe it is important repayment plan will still count as that under the Pay As You Earn to provide a strong incentive for qualifying payments toward income- repayment plan regulations, borrowers borrowers who wish to continue driven loan forgiveness, if the borrower who do not submit their required receiving the benefits offered by the later returns to the REPAYE plan or income documentation by the annual REPAYE plan to provide their annual another income-driven repayment plan. deadline are not removed from the Pay income information by the specified Changes: None. As You Earn repayment plan. Rather, annual deadline, and to discourage Comment: One commenter believed they remain on the Pay As You Earn borrowers from purposely withholding that the REPAYE plan regulations will repayment plan with a recalculated income information to avoid the unduly penalize borrowers in public payment amount that is no longer based consequences of a higher monthly service jobs who miss the annual on their income. These recalculated payment amount resulting from an deadline for submitting income payments are still made under the Pay increase in income. The Department’s documentation and are placed on an As You Earn repayment plan and proposed approach serves this purpose alternative repayment plan, because any therefore count toward public service by removing borrowers from the payments made by borrowers under the loan forgiveness. The commenter is REPAYE plan if they miss the deadline alternative repayment plan are not correct in noting that there is no for providing income information, counted as qualifying payments toward requirement in the Public Service Loan

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Forgiveness Program for all 120 plan is one of the income-contingent plan should qualify for loan forgiveness qualifying payments to be made under repayment plans in § 685.209, meaning after 20 years of repayment. The reasons an income-driven repayment plan. that payments made under that plan, if cited by these commenters included the Payments made under the standard they otherwise meet the requirements of following: repayment plan with a 10-year the Public Service Loan Forgiveness • Providing a 20-year repayment repayment period count toward public Program, would count as qualifying period for borrowers with only service loan forgiveness, as do payments payments for public service loan undergraduate loans and a 25-year made under other repayment plans, if forgiveness. We do not believe it is repayment period for borrowers with the payment amount is not less than necessary to state in the REPAYE one or more loans obtained for graduate what would have been paid under the regulations themselves that payments study is inequitable and may serve as a 10-year standard repayment plan. made under that plan count toward disincentive for individuals considering However, as explained earlier, there is public service loan forgiveness, since post-graduate education, and could lead no statutory authority for counting the appropriate place to describe what some students to take out private loans payments made under an alternative constitutes a qualifying payment for to pay for graduate school. repayment plan toward public service public service loan forgiveness is in the • The proposed longer repayment loan forgiveness. regulations that govern the Public period for borrowers with loans Changes: None. Service Loan Forgiveness Program. We received for graduate study further Comment: A number of commenters note that the regulations governing the penalizes graduate and professional urged the Department to clarify that Pay As You Earn, ICR, and IBR plans do students, who contribute significantly to payments made under the REPAYE plan not specify that payments made under the success of our Nation. Graduate and will count as qualifying payments for those plans count toward public service professional students have already been purposes of the Public Service Loan loan forgiveness. negatively impacted by recent statutory Forgiveness Program. One commenter If a borrower who made qualifying changes such as the loss of eligibility for understood the proposed regulatory public service loan forgiveness subsidized loans and higher interest language to mean that borrowers payments on an eligible Direct Loan rates on unsubsidized loans. employed in public service would have Program loan under the IBR plan later • The proposed 25-year repayment to give up their access to the Public begins repaying that loan under the period for any borrower who received Service Loan Forgiveness Program to REPAYE plan, the prior payments that loans for graduate study is a punitive reduce their monthly loan payments were made under the IBR plan will still measure for those who seek to further through the REPAYE plan. Another count toward public service loan their academic studies, and is especially commenter said that the proposed forgiveness. harmful for those who are required to regulations would discourage public In response to the commenter who obtain a graduate degree to secure service by excluding payments made believed that the REPAYE plan employment in their field. under the REPAYE plan from counting regulations should allow borrowers who • The proposed regulations establish toward public service loan forgiveness. received loans prior to October 1, 2007 a ‘‘degree-based’’ repayment plan that A couple of commenters asked the to qualify retroactively for public requires a longer repayment period for Department to clarify whether payments service loan forgiveness, we note that individuals who borrowed to pay for that a borrower previously made under there is nothing in the law or graduate studies, without taking into the IBR plan would continue to count regulations that precludes borrowers consideration the total amount toward public service loan forgiveness if who received loans prior to October 1, borrowed or ability to repay. the borrower later changes to the 2007 from receiving public service loan • The proposed regulations do not REPAYE plan. forgiveness. However, in accordance differentiate between borrowers who One commenter said that the with section 455(m)(1)(A) of the HEA, receive loans for graduate study, but do regulations for the REPAYE plan should only payments made after October 1, not ultimately complete a graduate allow borrowers who received loans 2007 may be counted toward the 120 program, and those who are able to prior to October 1, 2007 to qualify qualifying payments required to receive complete a graduate degree. As a result, retroactively for public service loan public service loan forgiveness. a student with undergraduate loan debt forgiveness. Changes: None. who begins a graduate program and Discussion: Some commenters may takes out additional loans, but who is have misunderstood proposed Loan Forgiveness Under the REPAYE ultimately unable to finish the graduate § 685.209(c)(4)(vii)(G), which stated that Plan (§ 685.209(c)(5)) program, will not qualify for loan payments made under the alternative Comment: A large number of forgiveness until after 25 years of repayment plan described in proposed commenters strongly opposed the qualifying repayment. In contrast, other § 685.209(c)(4)(vi) will not count toward provisions in proposed borrowers with only undergraduate public service loan forgiveness under § 685.209(c)(5)(ii)(A) and (B) under degrees will qualify for loan forgiveness § 685.219. This limitation applies only which a borrower would qualify for after 20 years of qualifying repayment. to payments made under the alternative forgiveness after 20 years if the loans • Requiring a different repayment repayment plan after a borrower has being repaid under the REPAYE plan period depending on whether a been removed from the REPAYE plan include only loans the borrower borrower received only loans for due to not meeting the annual income received to pay for undergraduate study, undergraduate study or received one or documentation deadline. Payments whereas a borrower would qualify for more loans for graduate study further made under the alternative repayment forgiveness after 25 years if the loans complicates the REPAYE plan and will plan are not REPAYE plan payments. being repaid under the REPAYE plan be difficult to explain to borrowers. Section 685.219(c)(1)(iv)(B) of the include a loan the borrower received to • Many individuals are older when regulations governing the Public Service pay for graduate or professional study. they begin graduate or professional Loan Forgiveness Program indicates that The commenters who objected to study. Establishing a maximum 20-year payments made under an income- proposed § 685.209(c)(5)(ii)(A) and (B) repayment period under the REPAYE contingent repayment plan in § 685.209 believed that all borrowers who choose plan for all borrowers will help are qualifying payments. The REPAYE to repay their loans under the REPAYE individuals focus sooner on other

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priorities, such as saving for retirement both graduate and undergraduate study only after 25 years of qualifying or paying for their children’s education. who might have a lower total loan repayment if a borrower received any Some commenters believed that a balance than a student who only has loans for graduate or professional study. borrower’s age should be taken into loans that were obtained for an We disagree with the commenters account when establishing the expensive undergraduate program. who believed that the 25-year maximum repayment period under the However, the borrower with both repayment period is a punitive measure REPAYE plan. A few commenters graduate and undergraduate loans for those who take out loans for suggested that loan forgiveness should would be required to repay for five more graduate or professional study, and be provided to all borrowers after a years than the undergraduate borrower. could have a substantial impact on their repayment period of less than 20 years. Some commenters believed that the financial health. We believe that the One commenter noted that in the Department did not provide sufficient many benefits of the REPAYE plan, preamble to the NPRM the Department justification for requiring a longer including the possibility of loan emphasized its goal of targeting the repayment period for borrowers who forgiveness, mitigate the longer REPAYE plan to the neediest borrowers received loans for graduate or repayment period for these borrowers. and contended that extending the professional study. One commenter We note that the approach described repayment period under the REPAYE contended that the preamble to the in the proposed regulations was plan to 25 years for anyone who NPRM suggested that the Department suggested by non-Federal negotiators received a loan for graduate or and non-Federal negotiators believed during the negotiated rulemaking professional study may harm the that the availability of the Public sessions as an alternative to the neediest borrowers. The commenter Service Loan Forgiveness Program Department’s original proposal, which specifically noted that high-income would provide a recourse to graduate would have set the repayment period at borrowers with graduate loan debt will and professional student borrowers, and 25 years for any borrower with more be able to repay their loans in less than asserted that, because the Public Service than $57,500 in outstanding loan debt. 20 years, while those with graduate loan Loan Forgiveness Program is open to all Although some non-Federal negotiators debt and low earnings will be required Direct Loan borrowers, it is not an expressed concerns about the impact on to make five additional years of appropriate reason to require a longer graduate and professional students of payments. The commenter suggested repayment period for individuals who the approach presented in the proposed that a better way of targeting the benefits obtained loans for graduate or regulations, all of the non-Federal of the REPAYE plan to the neediest professional study. negotiators ultimately supported this borrowers would be to provide a One commenter expressed support for approach, noting that it was simpler maximum 20-year repayment period for the Department’s proposal to provide a than what the Department had all borrowers and continue to cap the maximum 20-year repayment period for originally proposed and avoided the monthly payment amount at 10 percent borrowers with only undergraduate consequence of an additional five years of income, but make certain changes to loans, but also believed that all of repayment for any borrower with the way the monthly payment amount is borrowers, including those who take out even one dollar in loan debt over the calculated so that higher-income loans for graduate study, should have specified threshold. borrowers would be more likely to repay access to income-driven repayment With regard to the suggestions that the their debt in full within 20 years. plans that provide for cancellation of maximum repayment period under the A couple of commenters believed any remaining loan balance after 20 REPAYE plan should in some way be that, if the Department requires a longer years. The commenter noted that many based on the borrower’s age or other life repayment period for certain borrowers critical professions, such as teaching, circumstances at the time they attend under the REPAYE plan, it would be law, and medicine, require graduate graduate school, or should be for a preferable to have a 25-year repayment degrees, and believed that imposing a period of less than 20 years, we note period only for a borrower’s loans that maximum 25-year repayment period on that such approaches would be very were received for graduate or borrowers who received loans for costly to taxpayers. Similarly, the professional study, while any loans graduate study could have a substantial Department previously declined to received for undergraduate study would impact on their financial health. consider the recommendation that the have a 20-year repayment period. One Discussion: We appreciate the repayment period should be 20 years for commenter believed that this approach concerns expressed by the commenters all of a borrower’s loans that were would mitigate the ‘‘cliff effect’’ of the and the suggested alternative obtained for undergraduate study, and proposed regulations that establishes a approaches. However, we continue to 25 years for any loans obtained for 25-year repayment period for all of a believe, as we stated in the preamble to graduate study, noting that we had borrower’s loans if even one loan was the NPRM, that it is important to have determined the costs to taxpayers received for graduate study, and would borrowers with higher loan balances associated with such an approach be less likely to encourage borrowers to make payments over a longer period of would be unacceptably high. rely on private education loans or time before receiving loan forgiveness. In response to the commenter who discourage students from pursuing Providing loan forgiveness after 20 years suggested that the Department’s graduate study. of repayment for all borrowers, proposed approach may harm the One commenter suggested that the regardless of loan debt, would be neediest borrowers by requiring Department may have made an inconsistent with this goal and, equally individuals with graduate loan debt and assumption that borrowers who importantly, would result in significant low earnings to repay for 25 years, while obtained loans for graduate or additional costs to taxpayers. In general, high-income borrowers with graduate professional study will have higher loan borrowers who receive loans for loan debt will be able to repay their balances and therefore should repay graduate or professional study will leave loans in less than 20 years, we note that their loans over a longer period of time, school with a higher total outstanding a lower-income borrower would receive but noted that this is not always the loan balance than borrowers who forgiveness of any remaining loan case. As an example, the commenter received loans only for undergraduate balance after 25 years of repayment, cited the case of a borrower who study. Therefore, we believe it is while a high-income borrower may end received significant scholarship aid for appropriate to provide loan forgiveness up repaying his her loans in full without

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having any amount forgiven. We believe establishing a 25-year repayment period Accordingly, a borrower who is this is consistent with our goal of for borrowers who received any loans repaying only Direct Loans received as targeting the REPAYE plan at the for graduate or professional study. As an undergraduate under the REPAYE neediest borrowers. we explained in the preamble to the plan, but who also has FFEL Program In response to the commenter who NPRM, some of the non-Federal loans received for graduate study, questioned the Department’s negotiators said that the fact that would qualify for loan forgiveness after assumption that borrowers who graduate and professional students 20 years, because the determination of received loans for graduate study will would have the option of pursuing loan the 20- or 25-year period is based only have higher loan balances and therefore forgiveness under the Public Service on the loans that are being repaid under should repay their loans over a longer Loan Forgiveness Program after making the REPAYE plan. FFEL Program loans period, we agree that in some cases a 10 years of qualifying payments are not eligible for repayment under the borrower who received loans for persuaded them to support the REPAYE plan and have no bearing on graduate study may owe less than a Department’s proposed approach. the determination of the 20- or 25-year borrower who received loans only for an Changes: None. period for a borrower who also has undergraduate program. The commenter Comment: Many commenters noted Direct Loans that are being repaid under is correct in noting that in such cases that, under current tax law, any loan the REPAYE plan. the regulations would provide for a 25- amount forgiven under the terms of the However, if the same borrower were year repayment period, despite the fact REPAYE plan or any other IDR plan is to consolidate the FFEL Program loans that the borrower may have smaller loan treated as taxable income, and urged received for graduate study with the balances than other borrowers who that this be changed so that loan Direct Loans received for undergraduate received loans only for undergraduate amounts forgiven under the IDR plans study and then select the REPAYE plan study. However, a graduate student are not counted as income for tax for the new Direct Consolidation Loan, borrower with only a very modest purposes. Commenters noted that the the borrower would qualify for loan amount of loan debt but a relatively consequences of the current tax policy forgiveness after 25 years. This is high income would likely not be in could be significant for many borrowers, because the Direct Consolidation Loan repayment under the REPAYE plan for who may be unable to afford the tax would have repaid loans that the 25 years, but instead would repay his or burden on the forgiven loan amount. borrower received as a graduate or Discussion: The Department shares her loans in full in less than 20 years. professional student. With regard to the comment that the the commenters’ concerns and is Changes: None. regulations do not distinguish between supportive of a change in tax law so that borrowers who receive loans for loan amounts forgiven under the Comment: Several commenters graduate study but are unable to income-driven repayment plans would suggested that the Department expand complete their graduate studies, and no longer be treated as income. the definition of a qualifying payment those graduate student loan borrowers However, such a change would require for purposes of loan forgiveness under who complete their studies and receive action by Congress. the REPAYE plan and other IDR plans graduate degrees, we note that the Changes: None. to include payments previously made regulations make no such distinction for Comment: One commenter asked the under any repayment plan. A few other undergraduate borrowers, either. The Department to clarify whether the commenters said that payments that 20- and 25-year REPAYE plan repayment period for a borrower were not made on time should count repayment periods are based on the type repaying only Direct Loans received for toward IDR plan loan forgiveness, as of study for which the borrower undergraduate study under the REPAYE well as periods when borrowers are received the loan, not on whether the plan would be 20 years or 25 years if the unable to make payments due to borrower obtained a degree. We believe borrower also had FFEL Program loans financial hardship. One commenter that the 20-year repayment period is that he or she had received for graduate recommended that periods when appropriate for undergraduate or professional study. The commenter borrowers are unable to make a payment borrowers, who may not have a also asked what the repayment period due to hardship should also count postsecondary education degree at all, would be if the same borrower were to toward loan forgiveness under the and that the 25-year repayment period consolidate the FFEL Program loans Public Service Loan Forgiveness is appropriate for graduate-level obtained for graduate study into a Direct Program. borrowers who, at the very least, will Consolidation Loan and then choose to Discussion: The statutory provisions have obtained an undergraduate degree. repay the consolidation loan under the that govern the ICR plans (which We do not agree with the suggestion REPAYE plan. include the Pay As You Earn repayment that the 25-year repayment period for Discussion: Under the REPAYE plan plan, the ICR plan, and the REPAYE graduate-level borrowers will lead those regulations in § 685.209(c)(5)(ii)(A) and plan) and the IBR plan specify the types students to take out private loans rather (B), a borrower whose loans being of payments that may be counted than Direct Loans. The Direct Loan repaid under the REPAYE plan include toward loan forgiveness under these Program provides significant benefits to only loans the borrower received as an plans. Generally, qualifying payments borrowers (including deferments, undergraduate student or a are limited to those made under one of forbearances, and the possibility of consolidation loan that repaid only the income-driven repayment plans, the forgiveness) that most private loan loans the borrower received as an standard repayment plan with a 10-year programs do not offer. For most undergraduate student may receive loan repayment period, or any other plan, if borrowers, those benefits will far forgiveness after 20 years, and a the payment amount is not less than the outweigh the costs associated with a 25- borrower whose loans being repaid payment that would be required under year repayment period as opposed to a under the REPAYE plan include a loan the standard repayment plan with a 10- 20-year repayment period. the borrower received as a graduate or year repayment period. See sections Finally, neither the Department nor professional student or a consolidation 455(e)(7)(B) and 493C(b)(7) of the HEA. the non-Federal negotiators cited the loan that repaid a loan received as a The Department does not have the availability of the Public Service Loan graduate or professional student may authority to further expand the Forgiveness Program as justification for qualify for forgiveness after 25 years. definition of a qualifying payment.

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In response to the commenters who Changes: In redesignated paragraph the loans that were consolidated. said that late payments should be § 685.209(b)(3)(iii)(B)(9) of the ICR Similarly, borrowers who consolidate counted, we note that otherwise regulations, we have removed reference Federal Perkins Loans lose eligibility for qualifying monthly payments, as to the date ‘‘October 1, 2007.’’ certain loan cancellation benefits that described in the preceding paragraph, Comment: Many commenters urged are available only in the Perkins Loan do not have to be made on time to count the Department to count otherwise Program. toward loan forgiveness under the IDR qualifying payments made on loans In response to the commenters who plans. However, monthly payments do before the borrower repays those loans stated that there are precedents for have to be made on time to count through a consolidation loan toward tracking pre-consolidation payments, toward public service loan forgiveness. loan forgiveness under the REPAYE we note that the examples cited by the Finally, we remind the commenters plan and the other income-driven commenters represent special that calculated monthly payment repayment plans. The commenters circumstances and do not involve the amounts of $0 under any of the IDR noted that currently, if a borrower same degree of tracking that would be plans, including the REPAYE plan, consolidates loans on which he or she required if we were to track all of a count as qualifying payments toward has made qualifying payments under an borrower’s pre-consolidation qualifying loan forgiveness under those plans, and IDR plan into a Direct Consolidation payments for purposes of loan also count as qualifying payments Loan, the borrower does not receive any forgiveness under the income-driven toward public service loan forgiveness if credit toward loan forgiveness for the repayment plans and the Public Service the borrower is employed full-time by pre-consolidation payments and would Loan Forgiveness Program. In the case an eligible public service organization be required to make an additional 20 or of the three-year interest subsidy period during any month when the borrower’s 25 years of qualifying payments before under the Pay As You Earn and IBR required monthly payment is $0. In receiving loan forgiveness on the new plans, tracking of pre-consolidation addition, any month when a borrower is Direct Consolidation Loan. The periods of repayment under the Pay As not required to make a payment due to commenters argued that it was unfair to You Earn and IBR plans reflects the IBR receiving an economic hardship not give borrowers credit for what could statutory requirement (which was deferment counts as a qualifying potentially be several years of otherwise carried over to the Pay As You Earn payment toward loan forgiveness under qualifying pre-consolidation payments. repayment plan) that limits the subsidy One commenter further urged the all of the IDR plans. period to the borrower’s first three Department to count qualifying pre- consecutive years of repayment, with Changes: None. consolidation payments toward loan only periods of economic hardship Comment: One commenter noted that forgiveness under the Public Service deferment being excluded from the proposed § 685.209(c)(5)(iv)(D) provides Loan Forgiveness Program, as well as three-year period. We have interpreted that any month during which a toward IDR plan loan forgiveness. this to mean that if a borrower borrower was not required to make a Two commenters noted that there are consolidates loans that were being payment due to receiving an economic precedents for tracking payments made repaid under the Pay As You Earn or hardship deferment counts as a on loans that are repaid by a IBR plans, the consecutive three-year qualifying monthly payment toward consolidation loan. As an example, the period carries over to the consolidation loan forgiveness under the REPAYE commenters pointed out that the loan. The loan discharge examples plan, without any restriction on the time Department’s Federal loan servicers involve circumstances where the period during which the borrower already track pre-consolidation Pay As borrower either received no benefit from received the economic hardship You Earn and IBR plan payments on the underlying loan or the underlying deferment. In contrast, the commenter subsidized Stafford loans for purposes loan should not have been made in the pointed out that the corresponding of determining a borrower’s remaining first place. Therefore, it is appropriate to provisions for the Pay As You Earn eligibility for the three-year interest discharge the portion of a consolidation repayment plan and the ICR plan in subsidy under the Pay As You Earn and loan attributable to underlying loans § 685.209(a)(6)(iii)(B)(2) and IBR plans during periods when a that otherwise would have qualified for 685.209(b)(3)(iii)(B)(8), respectively, borrower’s calculated monthly payment discharge. specify that only periods of economic is insufficient to cover all accruing We also note that tracking all of a hardship after October 1, 2007 may be interest on subsidized loans. The borrower’s qualifying pre-consolidation counted toward loan forgiveness. The commenters also noted that the payments toward loan forgiveness under commenter stated that Department tracks pre-consolidation the IDR plans or the Public Service Loan § 685.209(c)(5)(iv)(D) should be revised loans for purposes of determining the Forgiveness Program would require to reflect the same limitation, if that portion of a consolidation loan that much more than what is currently being limitation also applies in the REPAYE qualifies for certain types of loan done in connection with the Pay As You plan. discharges, such as closed school or Earn and IBR plan interest subsidy Discussion: The October 1, 2007 limit false certification discharges. period or loan forgiveness. It would not for periods of economic hardship Discussion: We appreciate the be possible to make the significant deferment is applicable to the Pay As commenters’ concerns. However, a changes to consolidation loan You Earn repayment plan because a consolidation loan is a new debt with its processing that would be required to borrower with loans that were received own terms and conditions, and terms of perform this increased level of tracking prior to that date would not be eligible the loans that were repaid by the in time for the scheduled for the Pay As You Earn repayment consolidation loan generally do not implementation of the REPAYE plan. plan. However, since the REPAYE plan carry over to the new consolidation Further, the Department would not have is available to borrowers regardless of loan. For example, if a borrower the capability to retroactively track the date the loans were received, the consolidates his or her loans, the qualifying pre-consolidation payments October 1, 2007 limitation is not consolidation loan has a new repayment on existing Direct Consolidation Loans. applicable. We have determined that the period (regardless of the repayment plan Finally, we note that counting pre- limitation is also not applicable to the selected by the borrower) that does not consolidation qualifying payments ICR regulations in § 685.209(b). include prior periods of repayment on toward IDR plan or public service loan

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forgiveness would result in significant payments on the loans they plan to income-based payments the following additional costs to taxpayers, as in some consolidate. year. cases this could significantly shorten Changes: None. Discussion: We appreciate the support the period of time required for a Comment: Several commenters asked from commenters for expanding the borrower to qualify for loan forgiveness. the Department to provide loan acceptance of lump sum payments made We note that certain factors may forgiveness to borrowers under other on a borrower’s behalf and applying mitigate the impact of not counting pre- circumstances. The suggestions them as the number of payments they consolidation payments toward IDR included forgiving the remaining loan represent for purposes of the Public plan or public service loan forgiveness. balance for veterans who are unable to Service Loan Forgiveness Program. The Going forward, more and more finish college within 10 years of leaving regulations provide for the treatment of borrowers will have only Direct Loans military service; forgiving the remaining payments made under student loan and, if all of a borrower’s loans are loan balance for borrowers who have repayment programs administered by Direct Loans, loan consolidation already repaid an amount equal to what the DOD in the same manner as lump currently provides no particular benefit they originally borrowed but still have sum payments made by borrowers using to the borrower. Even without outstanding loan debt due to Segal Education Awards after consolidating, Direct Loan borrowers accumulated interest; forgiving all AmeriCorps service or Peace Corps have just one monthly payment for all interest and only requiring repayment of transition payments after Peace Corps of their Direct Loans, and by not principal; forgiving the loans of service. consolidating borrowers preserve the borrowers who have been through One commonality in the programs we qualifying payments made on the bankruptcy several times; and forgiving address in our regulations is that the undergraduate loans. the remaining loan balance for lump sum payments are submitted to borrowers who are able to make a lump We acknowledge that consolidation the Department. In addition, similar to sum payment equal to a specified provides a means for borrowers with borrowers receiving lump sum percentage of the total amount owed. A only FFEL Program loans or with a mix payments associated with service in the number of commenters recommended of FFEL and Direct Loan program loans Peace Corps or AmeriCorps, that loan forgiveness be granted to all to obtain benefits that are only available §§ 682.211(h)(2)(ii)(C) and 685.209(a)(9) borrowers who have reached a certain in the Direct Loan Program, such as the provide that borrowers performing the age, such as age 55 or 60, or who are REPAYE plan and public service loan type of service that would qualify them retired. for a lump sum payment under the forgiveness, and that borrowers who Discussion: We appreciate the consolidate FFEL Program loans will Student Loan Repayment Programs comments. However, the administered by the DOD are entitled to lose credit for any pre-consolidation recommendations for establishing payments they may have made under forbearance in anticipation of that third additional conditions for loan party payment. The Department will the IBR Plan. Such borrowers will need forgiveness are outside the scope of to weigh the potential advantages of explore accepting additional lump sum these regulations. We also note that the payments from other agencies that are consolidating versus keeping their Department does not have the statutory current FFEL Program loans and made directly to the Department. authority to grant loan forgiveness based Changes: None. continuing to make qualifying payments on some of the suggested forgiveness under the IBR Plan. We note that conditions. Executive Orders 12866 and 13563 counting pre-consolidation payments Changes: None. for purposes of public service loan Regulatory Impact Analysis forgiveness would offer no benefit to Public Service Loan Forgiveness Under Executive Order 12866, the borrowers who consolidate FFEL Program Borrower Eligibility Secretary must determine whether this Program loans, since only qualifying (§ 685.219(c)(1)(iii)) regulatory action is ‘‘significant’’ and, payments made on Direct Loan Program Comment: Several commenters therefore, subject to the requirements of loans are counted under the Public expressed support for expanding the the Executive order and subject to Service Loan Forgiveness Program. acceptance of lump sum payments. review by the Office of Management and Borrowers who have both FFEL Program Several commenters also suggested that Budget (OMB). Section 3(f) of Executive loans and Direct Loan Program loans on we not restrict the treatment of lump Order 12866 defines a ‘‘significant which they have made qualifying sum payments to specific programs or regulatory action’’ as an action likely to payments may wish to consider agencies and instead allow lump sum result in a rule that may— consolidating only their FFEL Program payments from any Federal agency to (1) Have an annual effect on the loans so as to avoid losing credit for count as the number of payments they economy of $100 million or more, or qualifying payments made on the Direct represent. One commenter specifically adversely affect a sector of the economy, Loans. suggested that we expand the treatment productivity, competition, jobs, the For the reasons explained above, we of lump sum payments to include environment, public health or safety, or decline to accept the recommendation payments made under the Department State, local, or tribal governments or to count qualifying pre-consolidation of State’s Student Loan Repayment communities in a material way (also loan payments toward loan forgiveness Assistance program. Another referred to as an ‘‘economically under the IDR plans and the Public commenter requested inclusion of lump significant’’ rule); Service Loan Forgiveness Program. sum payments made on behalf of those (2) Create serious inconsistency or However, during the next revision of the employed in health professions. otherwise interfere with an action taken Direct Consolidation Loan Application Multiple commenters also noted the or planned by another agency; and Promissory Note and related negative consequences of receiving a (3) Materially alter the budgetary documents we will make changes to lump sum payment applied to a impacts of entitlement grants, user fees, more prominently explain to borrower’s account when counted as or loan programs or the rights and consolidation loan applicants the one payment. The payment raises a obligations of recipients thereof; or consequences of consolidation for borrower’s income (and tax liability) for (4) Raise novel legal or policy issues borrowers who have made qualifying that year, resulting in higher monthly arising out of legal mandates, the

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President’s priorities, or the principles We are issuing these final regulations basing the determination of whether a stated in the Executive order. only on a reasoned determination that borrower could qualify for loan This final regulatory action will have their benefits justify their costs. In forgiveness after 20 or 25 years on the an annual effect on the economy of choosing among alternative regulatory amount borrowed, the treatment of more than $100 million because the approaches, we selected those married borrowers who file taxes availability of the REPAYE plan is approaches that maximize net benefits. separately, and the appropriate handling estimated to cost approximately $15.4 Based on the analysis that follows, the of borrowers who do not certify their billion over loan cohorts from 1994 to Department believes that these income as required to remain in the 2025. Therefore, this action is regulations are consistent with the REPAYE plan. ‘‘economically significant’’ and subject principles in Executive Order 13563. Finally, the ‘‘Regulatory Flexibility to review by OMB under section 3(f)(1) We also have determined that this Act Certification’’ considers the effect of of Executive Order 12866. regulatory action will not unduly the regulations on small entities. interfere with State, local, and tribal Notwithstanding this determination, we Need for Regulatory Action have assessed the potential costs and governments in the exercise of their benefits, both quantitative and governmental functions. The regulations address several topics qualitative, of this regulatory action and In this regulatory impact analysis we related to the administration of the title determined that the benefits justify the discuss the need for regulatory action, IV, HEA student aid programs and benefits and options for borrowers. The costs. the potential costs and benefits, net changes to the PRI appeals process to We have also reviewed these budget impacts, assumptions, allow more timely challenges and regulations under Executive Order limitations, and data sources, as well as appeals will provide institutions with 13563, which supplements and regulatory alternatives we considered. This regulatory impact analysis is more certainty about whether they will explicitly reaffirms the principles, divided into six sections. The ‘‘Need for be subject to sanctions or the loss of title structures, and definitions governing Regulatory Action’’ section discusses IV aid eligibility as a result of their regulatory review established in why amending the current regulations is CDRs. This increased certainty could Executive Order 12866. To the extent necessary. encourage some institutions, especially permitted by law, Executive Order The ‘‘Summary of Changes from the community colleges with low borrowing 13563 requires that an agency— NPRM’’ section summarizes the most rates, to continue participating in the (1) Propose or adopt regulations only important revisions the Department title IV loan programs. upon a reasoned determination that made in these final regulations since In the regulations the Department their benefits justify their costs publication of the NPRM. These changes seeks to reduce the burden on military (recognizing that some benefits and were informed by the Department’s servicemembers and help ensure that costs are difficult to quantify); consideration of the comments of 2,919 those eligible for an interest rate (2) Tailor its regulations to impose the parties who submitted comments on the reduction receive it. least burden on society, consistent with proposed regulations. The changes are As mentioned in the NPRM, the obtaining regulatory objectives and intended to clarify the regulations and Department has developed these taking into account—among other things benefit the affected borrowers. In these regulations in response to a June 9, and to the extent practicable—the costs final regulations, the Department is 2014, Presidential Memorandum for the of cumulative regulations; making 2 major changes in the proposed Secretary of Treasury and the Secretary (3) In choosing among alternative rules since the NPRM: (1) Using a of Education that instructed the regulatory approaches, select those definition of military service consistent Secretary to develop regulations that approaches that maximize net benefits with the SCRA; and (2) eliminating the will allow additional students who (including potential economic, loss of PFH status as a basis for interest borrowed Federal Direct Loans to cap environmental, public health and safety, capitalization. Additionally, we their Federal student loan payments at and other advantages; distributive clarified that overpayments resulting 10 percent of their income. The impacts; and equity); from the application of the six percent Secretary was instructed to target this (4) To the extent feasible, specify interest rate to borrowers will be option towards borrowers who would performance objectives, rather than the applied to future loan payments and otherwise struggle to repay their loans. behavior or manner of compliance a refunded when all the borrower’s loans In 2012, the Department established a regulated entity must adopt; and are paid in full. new income-contingent repayment plan (5) Identify and assess available The ‘‘Discussion of Costs and called the Pay As You Earn repayment alternatives to direct regulation, Benefits’’ section considers the cost and plan, which limited loan payments to 10 including economic incentives—such as benefit implications of these regulations percent of the borrower’s discretionary user fees or marketable permits—to for student loan borrowers, the public, income and forgave any remaining encourage the desired behavior, or and the Federal Government. balance after 20 years of qualifying provide information that enables the Under ‘‘Net Budget Impacts,’’ the payments for borrowers who first public to make choices. Department presents its estimate that borrowed on or after October 1, 2007, Executive Order 13563 also requires the regulations will have a significant with a loan disbursement made on or an agency ‘‘to use the best available net budget impact on the Federal after October 1, 2011. techniques to quantify anticipated Government of approximately $15.4 However, while the Pay As You Earn present and future benefits and costs as billion, $8.3 billion of which relates to repayment plan offered relief to accurately as possible.’’ The Office of existing loan cohorts from 1994 to 2015 qualifying recent borrowers, it did not Information and Regulatory Affairs of and $7.1 billion relates to loan cohorts help millions of existing borrowers with OMB has emphasized that these from 2016 to 2025 (loans that will be older student loan debt. As the concerns techniques may include ‘‘identifying made in the future). about American student loan debt changing future compliance costs that In ‘‘Alternatives Considered,’’ we burdens continue to build, the might result from technological describe other approaches the Department seeks to offer payment relief innovation or anticipated behavioral Department considered for key to a larger group of borrowers than is changes.’’ provisions of the regulations, including currently possible under the Pay As You

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Earn repayment plan. To achieve that repayment programs administered by Under these regulations, the goal, the Department has created the the DOD can be detrimental to the Department will count lump sum REPAYE plan. This plan will offer overall value of the eligible borrower’s payments made by the DOD under borrowers many of the same benefits as benefits. When such payments are certain loan repayment programs the original Pay As You Earn repayment counted as one single payment in lieu towards public service loan forgiveness. plan, regardless of when they originally of the borrower being given credit for Summary of Changes From the NPRM borrowed. the equivalent number of monthly As noted in the Consumer Finance payments covered by the amount, the Protection Bureau’s 2013 report, ‘‘Public The table below briefly summarizes additional number of payments that Service & Student Debt: Analysis of the major provisions of the proposed would have been made do not count Existing Benefits and Options for Public regulations, including any significant Service Organizations,’’ 2 the current toward the 120 qualifying payments changes from the proposed regulations process of applying ‘‘lump sum required for public service loan in the NPRM. payments’’ made through student loan forgiveness.

TABLE 1—SUMMARY OF FINAL REGULATIONS

Provision Reg Section Description of provision

Participation rate index challenges and §§ 668.16, 668.204, An institution may bring a timely PRI challenge or appeal in any year in which appeals. 668.208, and its draft or official CDR is greater than or equal to 30 percent and less than 668.214. or equal to 40 percent for any of the three most recent fiscal years, not just in the year that the institution faces sanctions. Institutions will not lose eligibility based on three years of official CDRs or be placed on provisional certification based on two years if the timely appeal with respect to any of the relevant rates demonstrates a PRI less than or equal to .0625 percent. As under existing law, a successful PRI challenge will preclude sanctions from being imposed following publication of the cor- responding official rate. However, under the final rule, the successful chal- lenge will also preclude imposition of sanctions in subsequent years based in part on the official rate if the official rate is less than or equal to the draft rate. SCRA ...... §§ 682.202, Loan holders must proactively consult the authoritative DOD DMDC database 682.208, to apply the SCRA interest rate limit of six percent. 682.410, 685.202. Allows borrowers to supply alternative evidence of military service to dem- onstrate eligibility for the SCRA interest rate limit through a form developed by the Secretary when the borrower believes the database is inaccurate or incomplete. Conforms definition of military service with the SCRA. Refunds overpayments resulting from the application of the 6 percent interest rate to borrowers who have paid their loans in full, over the de minimus amount of $25. For borrowers with loans outstanding, overpayments will be applied to future loan payments. Loan rehabilitation ...... § 682.405, Makes changes to reflect a statutory change to the maximum collection costs § 682.410(b)(2). that may be added to the balance of a loan upon rehabilitation from 18.5 percent to 16 percent and to reflect the requirement that guaranty agencies assign a loan to the Secretary if it qualifies for rehabilitation and the guar- anty agency cannot find a buyer. Requires guaranty agencies to provide information to borrowers about their re- payment options during and after loan rehabilitation. Treatment of Department of Defense § 685.219 ...... Lump sum payments made under DOD loan repayment programs would be lump sum payments for public service applied as the number of payments resulting after dividing the amount of the loan forgiveness. lump sum payment by the monthly payment amount the borrower would have otherwise been required to make or twelve payments.

REPAYE Plan

Eligibility ...... § 685.209 ...... Available to all Direct Loan student borrowers. Repayment period ...... § 685.209 ...... For a borrower who has loans for undergraduate education only, the balance of the loans will be forgiven after 20 years of qualifying payments. For a borrower who has at least one loan for graduate study, the balance of the loans will be forgiven after 25 years of qualifying payments. Payments made under the alternative repayment plan would count towards for- giveness under income-driven plans if the borrower returns to such a plan, but not towards public service loan forgiveness. Treatment of married borrowers’ income § 685.209 ...... For married borrowers filing jointly, AGI includes the borrower’s and spouse’s for determining payment. income.

2 http://files.consumerfinance.gov/f/201308_cfpb_ public-service-and-student-debt.pdf.

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TABLE 1—SUMMARY OF FINAL REGULATIONS—Continued

Provision Reg Section Description of provision

For married borrowers filing separately, the spouse’s income would be in- cluded unless the borrower certifies that the borrower is separated from the spouse or is unable to reasonably access the spouse’s income information. In the case of separation or inability to access income information, the family size for the payment calculation would not include the spouse. Treatment of borrowers who do not pro- § 685.209 ...... Borrowers who do not supply income information can choose to leave the vide income documentation annually. REPAYE plan and select another repayment plan for which they are eligible. Borrowers who do not supply income information within 10 days of the dead- line are placed on the alternative repayment plan with the monthly payment equaling the amount necessary to repay the loan in full within 10 years or the end of the 20-year or 25-year period applicable to the borrower under the REPAYE plan, whichever is earlier. The borrower may return to the REPAYE plan if income documentation is pro- vided for the time the borrower was on a different repayment plan. Bor- rowers whose income increased during that period would be required to make an adjusted monthly payment so the difference between what they paid under the other plan and would have paid under the REPAYE plan is paid in full by the end of the 20-year or 25-year period. Interest accrual in periods of negative § 685.209 ...... For borrowers in negative amortization whose payments are not sufficient to amortization. pay the accrued interest in that period, the Department will: • In the first three years of repayment, not charge the remaining interest on Direct Subsidized Loans, with any periods of economic hardship deferment not included in the three year period; and • For Direct Unsubsidized Loans, Direct PLUS loans to graduate or profes- sional students, the unsubsidized portion of Direct Consolidation Loans, Di- rect Subsidized and subsidized portions of Direct Consolidation Loans after the three-year period, charge the borrower 50 percent of the remaining ac- crued interest for the period. Interest Capitalization ...... Eliminates loss of PFH status as a basis for interest capitalization. Capitaliza- tion occurs when a borrower leaves the REPAYE plan or when the borrower leaves a forbearance or a deferment on unsubsidized or PLUS loans.

Discussion of Costs, Benefits, and borrowers another tool to manage their to a REPAYE borrower whose spouse is Transfers loan payments. As detailed in the Net in a non-IDR plan will be lower because These final regulations in large part Budget Impacts section of this the interest is never capitalized, and affect loan repayment options and Regulatory Impact Analysis, we estimate therefore their payments will also be processes, so they would largely affect that two million borrowers will choose lower. student borrowers, the Federal to enroll. Borrowers repaying under the In offering this increased access to the REPAYE plan will also benefit from the government, and loan servicers. The REPAYE plan, while targeting the plan plan’s 50 percent reduction in the changes to the PRI appeal process affect to the neediest borrowers, some features accrual of interest for borrowers in institutions and the Federal were changed from Pay As You Earn negative amortization. This limits the government. The following discussion repayment plan. In particular, there is rate at which loan balances increase and describes the costs and benefits of the no cap on the amount of the borrower’s final regulations by key topic area. the amount ultimately owed. The change from the regulations as proposed payment, so borrowers whose income REPAYE Plan in the NPRM to eliminate loss of PFH results in a payment greater than under The REPAYE plan will make available as a basis for interest capitalization the standard repayment plan would to borrowers an IDR plan with payments could result in certain borrowers have to pay the higher amount to based on 10 percent of discretionary benefitting from a reduced number of maintain eligibility for future loan income and, for borrowers with only payments over the life of their loans. forgiveness. Borrowers who leave the undergraduate loans, a 20-year Those who would have experienced a REPAYE plan because they did not meet repayment period. In contrast, under the capitalization event related to loss of the requirement to annually recertify current regulations, only borrowers who PFH status and would eventually pay their income may reenter the REPAYE received loans during specific time off their loan will have a lower balance plan at any time, but must provide the periods are eligible for an IDR plan with to pay off. The other group that will income documentation for the relevant these benefits, and borrowers who had benefit from the change is married period and make additional payments if loans before FY 2008 cannot take borrowers whose spouses have title IV, they would have paid more under the advantage of those plans. Additionally, HEA student loan debts. Payments for REPAYE plan. the REPAYE plan will not include the these borrowers are based on the To the extent the REPAYE plan PFH requirement that is part of the Pay percentage of the total debt held by the reduces payments collected from As You Earn repayment plan for the IDR borrower. This calculation is just borrowers, there is a cost to the Federal purpose of eligibility, further increasing based on the principal owed and does government. This is described in greater access to IDR plans. The extension of not include accrued interest. The detail in the Net Budget Impacts section the plan to a broader pool of borrowers elimination of capitalization when the would be a primary benefit of the borrower does not have a PFH means of this analysis. REPAYE plan and would give student that the percentage of debt attributable

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Other Provisions Department does not expect that these institutions, juniors/seniors at four-year The regulatory changes to require loan regulations would have a significant net institutions, and graduate students. Risk holders to proactively use the DOD’s budget impact. categories have separate assumptions based on the historical pattern of DMDC database and to allow borrowers Net Budget Impacts to supply alternative evidence of behavior of borrowers in each We estimate that these regulations category—for example, the likelihood of military service through a form will have a net budget impact of $15.4 developed by the Secretary would default or the likelihood to use statutory billion, of which $8.3 billion is a deferment or discharge benefits. benefit borrowers who are or have been modification for existing cohorts from in military service, reducing the burden 1994 to 2015 and $7.1 billion is related REPAYE Plan on military servicemembers in obtaining to future cohorts from 2016 to 2025. The As described in the NPRM, the budget application of the SCRA interest rate change from the $15.3 billion estimated impact associated with these final limit to their Federal student loans. in the NPRM results from the lack of regulations comes from the These changes are intended to ensure interest capitalization based on loss of establishment of the REPAYE plan, the six percent interest rate limit is PFH status. Consistent with the which extends a plan with payments applied for the correct time period and requirements of the Credit Reform Act based on 10 percent of the borrower’s that borrowers receive the benefit to of 1990 (CRA), budget cost estimates for discretionary income to borrowers with which they are entitled. the student loan programs reflect the no restriction on when they borrowed. Similarly, the treatment of lump sum estimated net present value of all future The REPAYE plan will differ from the payments made by the DOD on behalf non-administrative Federal costs existing Pay As You Earn repayment of borrowers as the equivalent monthly associated with a cohort of loans. A plan in several ways to better target the payments for the purpose of public cohort reflects all loans originated in a plan to the neediest borrowers and to service loan forgiveness would ensure given fiscal year. reduce the costs in some areas to allow that borrowers who are otherwise These estimates were developed using for the extension of the plan to entitled to public service loan the OMB’s Credit Subsidy Calculator. additional borrowers. Of the provisions forgiveness do not fail to qualify based The OMB calculator takes projected described in the Summary of the on the way the DOD loan repayment future cash flows from the Department’s Regulations, the lack of a cap on the programs are administered. Based on student loan cost estimation model and borrower’s payment amount, the National Student Loan Data System produces discounted subsidy rates requirement for 25 years of payments to (NSLDS) data, the Department estimates reflecting the net present value of all have loan forgiveness for any borrower that less than one percent of student future Federal costs associated with with debt for graduate education, and loan borrowers are affected by this awards made in a given fiscal year. the treatment of married borrowers who issue. Values are calculated using a ‘‘basket of file taxes separately are important The final regulations requiring zeros’’ methodology under which each provisions to reduce the costs of the guaranty agencies to provide cash flow is discounted using the REPAYE plan, while the reduced information to FFEL Program borrowers interest rate of a zero-coupon Treasury interest accrual for borrowers in transitioning from rehabilitating bond with the same maturity as that negative amortization and opening the defaulted loans to loan repayment cash flow. To ensure comparability plan to all student borrowers are would benefit borrowers who struggle across programs, this methodology is significant drivers of the estimated with repayment and could help to incorporated into the calculator and costs. The availability of the REPAYE prevent those borrowers from defaulting used Government-wide to develop plan, with its extension of reduced again. The final regulations require estimates of the Federal cost of credit income percentage and shorter guaranty agencies to inform borrowers programs. Accordingly, the Department forgiveness period to earlier cohorts of about different repayment plan options believes it is the appropriate borrowers, no standard repayment cap, and how the borrower can choose a methodology to use in developing limited accrual of interest for borrowers plan. This assistance may help estimates for these regulations. In in negative amortization, 20-year borrowers avoid additional negative developing the following Accounting forgiveness period for undergraduate credit events and allow them to enroll Statement, the Department also debt and 25-year forgiveness period for in a repayment plan that supports consulted with OMB on how to graduate debt, a process for handling ongoing repayment of their loans. integrate our discounting methodology borrowers who do not recertify their Finally, the changes to the PRI with the discounting methodology income annually, treatment of married challenges and appeals process would traditionally used in developing borrowers filing separately, and lack of permit some institutions to challenge regulatory impact analyses. interest capitalization for borrowers their rate in any year, not just the one Absent evidence of the impact of without a PFH is estimated to cost $15.4 that could result in a loss of eligibility. these regulations on student behavior, billion. Some non-Federal negotiators and budget cost estimates were based on To establish the baseline and to community college advocates suggested behavior as reflected in various evaluate proposals related to IDR plans, these changes would encourage more Department data sets and longitudinal the Department uses a micro-simulation community colleges to participate in the surveys listed under Assumptions, model consisting of borrower-level data title IV loan programs, thus giving Limitations, and Data Sources. Program obtained by merging data on student students additional options to finance cost estimates were generated by loan borrowers derived from a sample of their education at those institutions. running projected cash flows related to the NSLDS with income tax data from The final regulations would have each provision through the the IRS. Interest and principal payments administrative costs for guaranty Department’s student loan cost are calculated according to the agencies and loan holders that are estimation model. Student loan cost regulations governing the IDR plans, detailed in the Paperwork Reduction estimates are developed across five risk and the payments are adjusted for the Act section of this preamble. As detailed categories: for-profit institutions (less likelihood of deferment or forbearance; in the Net Budget Impacts section of this than two-year), two-year institutions, default and subsequent collection; Regulatory Impact Analysis, the freshmen/sophomores at four-year prepayment through consolidation;

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death, disability, or bankruptcy borrowers in the existing IDR plans payment being two-thirds of the IBR discharges; or public service loan (0.60 million in ICR, 2.33 million in the payment and the 20 instead of 25-year forgiveness. The adjusted payment IBR plan, and 0.53 million in the Pay As forgiveness period for undergraduate flows are aggregated by population and You Earn repayment plan). As discussed borrowers. The commenter concluded cohort and loaded into the Student Loan above, we do not assume borrowers in that this would result in REPAYE Model (SLM). The SLM combines the Pay As You Earn or IBR for new payments being 53 percent of what adjusted payment flows with the borrowers after July 1, 2014 will choose would have been received by the expected volume of loans in income- REPAYE. The commenter argues that Department under IBR. However, the driven repayment to generate estimates those in ICR did not switch to IBR when commenter’s analysis does not account of Federal costs. doing so might reduce their monthly for several factors that reduce the As stated in the NPRM, in evaluating payments, so the Department should not difference between the present value of the costs of the REPAYE plan, the assume they will switch into REPAYE. payments expected to be received under Department assumes that, if possible, The commenter notes that many IBR and REPAYE including increased borrowers will elect the most beneficial borrowers currently in IBR have payments under REPAYE as borrowers’ plan for which they are eligible. One monthly payments of zero, limiting their payments exceed the standard commenter criticized the Department’s incentive to switch. According to the repayment cap. Additionally, many estimate of the number of borrowers commenter, the prospect of a shorter borrowers are not in the plan for the full who will choose the REPAYE plan on time to forgiveness would not be an term as used in the commenter’s the basis that the Department included incentive to switch since the ultimate comparison, and therefore we are borrowers switching from the Pay As forgiveness that may come earlier in collecting smaller payments for a longer You Earn repayment plan and or the IBR REPAYE is taxable and the borrower period of time, reducing the difference plan for new borrowers after July 1, would trade loan debt for tax debt. The in net present value. The difference in 2014 into REPAYE. The commenter commenter estimates that no more than total payments over the life of the loan pointed out that both of these programs one million borrowers would choose is further reduced in any year that REPAYE, half of the Department’s cost borrowers less than REPAYE in borrowers with incomes below 150 almost all scenarios, and borrowers in estimate. The Department recognizes percent of the poverty line have zero those plans would have no incentive to that predicting student borrower payments under both plans. switch to REPAYE. For the purpose of behavior and repayment plan choice is our estimates, we assume that all complicated. The Department’s When the assumption for loan borrowers who are eligible for the Pay estimated number of REPAYE borrowers forgiveness is increased as a result of a As You Earn repayment plan or the IBR includes a number of borrowers who are policy, the cash flow impact is a plan for new borrowers after July 1, not in repayment yet or who have not reduction in principal and interest 2014 select those plans. All borrowers consolidated their loans to take payments. The subsidy cost is derived estimated to choose the REPAYE plan advantage of an IDR plan and who from comparing the baseline payments are borrowers who are ineligible for the therefore would not be in the portfolio to the policy payments (on a net present Pay As You Earn repayment plan or the the commenter evaluated. Additionally, value basis) and comparing the two IBR plan for new borrowers after July 1, as indicated in the NPRM, the resulting subsidy rates. The outlays are 2014. Based on this, the Department Department assumes that borrowers calculated by subtracting the new estimates that for cohorts from 1994 to choose the best plan for them. No subsidy rate with the policy cash flows 2025, approximately six million borrowers with zero payments in IBR from the baseline subsidy rate and borrowers will be eligible for the are assumed to change to REPAYE. multiplying by the volume for the REPAYE plan. We maintain our While it is possible that some students cohort. As stated above, compared to the estimate that approximately two million will not switch into or take their baseline, the availability of the REPAYE borrowers will choose the REPAYE optimal repayment plan, the plan is estimated to cost approximately plan. Borrowers assumed to choose Department believes that the estimate of $15.4 billion, of which $8.3 billion is a REPAYE in future cohorts are those two million borrowers is reasonable and modification for existing cohorts from borrowers who have loans made prior to that assumption provides a conservative 1994 to 2015 and $7.1 billion is related 2008 and who are thus not eligible for estimate of the costs of the regulations. to future cohorts from 2016 to 2025 as the Pay As You Earn repayment plan or Finally, the commenter contended shown in Table 2. The change from the the IBR plan. that, while our estimate of the number estimate of $15.3 in the NPRM results The commenter also indicated that of affected borrowers was, in their from the additional $80 million the estimate of two million borrowers opinion, high, they believe the costs of estimated cost of eliminating who would choose REPAYE was REPAYE are underestimated by tens of capitalization related to partial financial overstated based on the number of billions of dollars based on the REPAYE hardship status.

TABLE 2—ESTIMATED OUTLAYS FOR COHORTS 2015–2025

MOD Cohorts (1994–2015) 2016 2017 2018 2019 2020 2021

Outlays ...... 1,105 1,012 902 785 692 614

Total ...... 8,306 1,105 1,012 902 785 692 614

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Cohorts 2022 2023 2024 2025 Total

Outlays ...... 546 498 481 420 7,055

Total ...... 546 498 481 420 15,361

Other Provisions receive public service loan forgiveness including data from the NSLDS; for military careers is not expected to be operational and financial data from The other provisions of the significant. We believe it is appropriate Department of Education and regulations are not estimated to have a to allow these borrowers to receive significant net budget impact. The Department of the Treasury systems; credit towards months of payments for and data from a range of surveys changes to the SCRA servicing public service loan forgiveness in this requirements so that lenders and loan conducted by the National Center for instance so active duty military Education Statistics such as the 2008 servicers utilize the authoritative DOD members receive the forgiveness to database to ensure the SCRA interest National Postsecondary Student Aid which they are entitled and already Survey and the 2004 Beginning rate limit is applied appropriately and estimated to receive. The PRI challenges Postsecondary Student Survey. Data allowing for alternative evidence will and appeals will expand the number of from other sources, such as the U.S. make it easier for eligible borrowers to such actions the Department will be receive the benefit of the SCRA interest involved with and may result in some Census Bureau, were also used. rate limit. However, it does not extend schools retaining their participation in Accounting Statement eligibility to a new set of borrowers and title IV, HEA programs, but we do not the costs associated with eligible expect this to affect program volumes As required by OMB Circular A–4 borrowers will be in the budget baseline and costs in a significant way. Finally, (available at www.whitehouse.gov/sites/ for the President’s FY 2016 budget. The the requirement that guaranty agencies default/files/omb/assets/omb/circulars/ treatment of lump-sum payments for provide information to assist borrowers a004/a-4.pdf), in the following table we borrowers who qualify for loan in transitioning from rehabilitation of have prepared an accounting statement repayment under DOD loan repayment defaulted loans to loan repayment showing the classification of the programs may allow some additional should benefit borrowers and may result expenditures associated with the borrowers to qualify for public service in improved repayment behavior, but provisions of these final regulations. loan forgiveness. Less than one percent we do not expect this to materially This table provides our best estimate of of borrowers are expected to be affected affect the amount collected from the changes in annual monetized by this change, and the lump sum borrowers. payment must equal the amount owed transfers as a result of these regulations. by the borrower for however many Assumptions, Limitations and Data Expenditures are classified as transfers months for which the borrower receives Sources from the Federal government to affected credit toward forgiveness, so the change In developing these estimates, a wide student loan borrowers. in cash flows from those estimated to range of data sources were used,

7% 3%

Category Benefits

Creation of income-driven repayment plan with payment based on 10 percent of income and a 20/25-year repayment and available to all cohorts of borrowers. Not Quantified Transition assistance for borrowers rehabilitating loans. Easier access for military borrowers to SCRA and public service loan forgiveness benefits.

Category Costs

Costs of compliance with paperwork requirements ...... $5.95 $5.99

Category Transfers

Reduced payments collected from some borrowers who choose the REPAYE plan ...... $1,854 $1,670

Alternatives Considered qualifying payments for IDR plan of lump sum payments for PSLF beyond In the NPRM, we discussed the forgiveness, not using the spouse’s AGI DOD, Peace Corps, and AmeriCorps and regulatory alternatives that were for married borrowers filing separately, accelerating the implementation data for considered. Further, as discussed in the and eliminating interest capitalization PRI challenges and appeals. We also Analysis of Comments and Changes based on the loss of PFH status. Issues clarified the discussion of several other section of this document, we received raised with respect to the SCRA issues to address some of the concerns comments from 2,919 parties during the provisions included using a definition expressed by commenters. comment period following publication of military service consistent with the Final Regulatory Flexibility Analysis of the NPRM. These comments covered SCRA, refunding of overpayments, the a range of issues, including providing treatment of consolidation loans, and The Secretary certifies that these forgiveness to all REPAYE borrowers additional options for evidence of regulations will not have a significant after 20 years of payments, including military service. Other issues that were economic impact on a substantial payments made before consolidation as raised were expanding the application number of small entities. These

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regulations concern the relationship that the institution has not brought a guaranty agency, must match between certain Federal student loan PRI challenge or appeal from that rate information in its servicing system, borrowers and the Federal government, before, and that the institution has not including the identifiers of borrowers with some of the provisions modifying previously lost eligibility or been placed and endorsers, against the DOD’s DMDC the servicing and collection activities of on provisional certification based on database to determine whether guaranty agencies and other parties. The that rate. In addition, if the institution borrowers are eligible to receive an Department believes that the entities brought a successful PRI challenge with interest rate reduction under the SCRA. affected by these regulations do not fall respect to a draft CDR that was less than Under § 682.208(j)(5), any FFEL within the definition of a small entity. or equal to the corresponding official Program loan holder, including a Additionally, the changes to the PRI CDR, this will preclude provisional guaranty agency, must notify a borrower challenges and appeals process may certification and loss of eligibility from if an interest rate reduction under the affect a small number of institutions that being imposed based on the official SCRA is applied as a result of the loan will qualify as small entities and CDR, without the institution needing to holder having received evidence of the potentially allow some to continue bring a PRI appeal in later years. borrower’s or endorser’s qualifying participating in title IV programs, but Burden Calculation: Because the status having begun within 30 days of we do not expect the effect to be regulations will not fundamentally the date that the loan holder applies the economically significant for a change an institution’s basis for interest rate reduction. substantial number of small entities. challenging or appealing its CDR, and Under § 682.208(j)(8), any FFEL The U.S. Small Business Administration will only alter the timeline in which an Program loan holder, including a Size Standards define ‘‘for-profit institution may submit its challenge or guaranty agency, must refund institutions’’ as ‘‘small businesses’’ if appeal, we do not believe that these overpayments resulting from the they are independently owned and regulations will significantly alter the application of the SCRA interest rate operated and not dominant in their field burden on institutions. However, they reduction to a loan that was in the of operation with total annual revenue will prevent a school from needing to process of being paid in full through below $7,000,000, and defines ‘‘non- appeal a final CDR on the basis of its loan consolidation at the time the profit institutions’’ as small PRI if the final CDR is less than or equal interest rate reduction was applied by organizations if they are independently to the draft CDR on which a PRI returning the overpayment to the holder owned and operated and not dominant challenge was successful. of the consolidation loan. in their field of operation, or as small We estimate that the change in the Under § 682.208(j)(9), any FFEL entities if they are institutions need to appeal a final CDR on the basis Program loan holder, including a controlled by governmental entities of PRI when a challenge to a comparable guaranty agency, must refund with populations below 50,000. rate on the same basis was successful overpayments resulting from the will prevent 50 appeals per year—15 application of the SCRA interest rate Paperwork Reduction Act of 1995 from public institutions, 10 from not- reduction by returning the overpayment The Paperwork Reduction Act of 1995 for-profit institutions, and 25 from to the borrower. does not require you to respond to a proprietary institutions. We have Burden Calculation: There are collection of information unless it previously estimated that an appeal approximately 53 public loan holders displays a valid OMB control number. takes each institution 1.5 hours per that hold loans for approximately We display the valid OMB control response. 557,341 borrowers, 151 not-for-profit numbers assigned to the collections of Under §§ 668.16, 668.204, 668.208, loan holders that hold loans for information in these regulations at the and 668.214, therefore, for public approximately 2,738,171 borrowers, and end of the affected sections of the institutions, we estimate burden will 3,204 proprietary loan holders that hold regulations. decrease by 23 hours per year (15 public loans for approximately 10,524,463 Sections 668.16, 668.204, 668.208, institutions multiplied by 1 appeal borrowers. We estimate that one percent 668.214, 682.202, 682.208, 682.405, multiplied by 1.5 hours per appeal). For of borrowers are actually eligible for the 685.208, and 682.209 contain not-for-profit institutions, we estimate SCRA interest rate limit. information collection requirements. burden will decrease by 15 hours per Section 682.208(j) will result in a shift Under the PRA, the Department has year (10 not-for-profit institutions in burden from borrowers to loan submitted a copy of these sections, multiplied by 1 appeal multiplied by 1.5 holders. Under the current regulations, related forms, and Information hours per appeal). For proprietary a borrower is required to submit a Collection Requests to OMB for its institutions, we estimate that burden written request for his or her loan review. will decrease by 38 hours per year (25 holder to apply the SCRA interest rate limit and a copy of his or her military Sections 668.16, 668.204, 668.208, and proprietary institutions multiplied by 1 appeal multiplied by 1.5 hours per orders to support the request. Because, 668.214—Participation Rate Index under the regulations, a borrower will Challenges and Appeals appeal). Collectively, the total decrease in no longer be required to submit a Requirements: Timelines for burden under §§ 668.16, 668.204, written request or a copy of his or her submitting a challenge or appeal to the 668.208, and 668.214 will be 76 hours military orders, the burden on potential consequences of an under OMB Control Number 1845–0022. borrowers will be almost completely institution’s CDR on the basis of its PRI. eliminated. While borrowers will still be The regulations will permit an Sections 682.202, 682.208, and able to submit other evidence that they institution to bring a timely PRI 682.410—Servicemembers Civil Relief qualify for the SCRA interest rate limit challenge or appeal in any year the Act in the FFEL Program and loan holders will be required to institution’s draft or official CDR is less Requirements: Matching borrower evaluate that evidence, the Department than or equal to 40 percent, but greater identifiers in a loan holder’s servicing has no data on the likelihood that than or equal to 30 percent, for any of system against the DOD’s DMDC erroneous or missing data in the DMDC the three most recently calculated fiscal database. database will give rise to the need for a years (for challenges, counting the draft Under § 682.208(j)(1), (6), and (7), a borrower to submit alternative evidence rate as the most recent rate), provided FFEL Program loan holder, including a of his or her military service. However,

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anecdotal accounts suggest that the error will require a loan holder to issue a the form (20 hours) will be associated rate of the DMDC database is de refund to the holder of the consolidation with OMB Control Number 1845–0135. minimus. Therefore, the regulations will loan. Section 682.405—Loan Rehabilitation eliminate all but 20 hours of burden on Under § 682.208(j)(8), therefore, for Agreement borrowers associated with the current public loan holders, we estimate that regulation. this regulation will increase burden by Requirements: Providing information However, because the Department 4 hours per year (557,341 borrowers to borrowers about repayment options. plans to create a form for borrowers to with loans held by public loan holders Under § 682.405(b)(1)(xi) and (c), use to certify their military service in multiplied by 1 percent of borrowers guaranty agencies will be required to cases in which the borrower believes who are eligible for the SCRA interest provide information to borrowers with that the information in the DMDC rate limit multiplied by 69 percent of whom they have entered into a loan database is incorrect, we estimate that borrowers who have consolidated rehabilitation agreement to inform them 59 FFEL Program borrowers will submit multiplied by 0.1 percent). For not-for- of the repayment options available to such a form, and that it will take a profit loan holders, we estimate that this them upon successfully completing borrower 20 minutes (0.33 hours) per regulation will increase burden by 19 their loan rehabilitation. response. We estimate that this form hours per year (2,738,171 borrowers Burden Calculation: There are will increase burden by 20 hours (59 with loans held by not-for-profit loan approximately 2,611,504 borrowers of borrowers multiplied by 0.33 hours per holders multiplied by 1 percent of FFEL Program loans who are in default, response). borrowers who are eligible for the SCRA of which 799,904 have loans held by For § 682.208(j)(1), (6), and (7), we interest rate limit multiplied by 69 public guaranty agencies and 1,811,600 estimate that it will take each loan percent of borrowers who have have loans held by not-for-profit holder approximately three hours per consolidated multiplied by 0.1 percent). guaranty agencies. Approximately 4.79 month to extract applicable data from For proprietary loan holders, we percent of those borrowers have entered their servicing system, format it to estimate that this regulation will into a loan rehabilitation agreement conform to the DMDC database file increase burden by 73 hours per year with a guaranty agency to rehabilitate layout, perform quality assurance, (10,524,463 borrowers with loans held their defaulted FFEL Program loans. submit the file to the DMDC database, by proprietary loan holders multiplied Therefore, public guaranty agencies retrieve the result, import it back into by 1 percent of borrowers who are administer loan rehabilitation their systems, perform quality eligible for the SCRA interest rate limit agreements with approximately 38,315 assurance, and then, to the extent that multiplied by 69 percent of borrowers borrowers and not-for-profit guaranty a borrower or endorser is or was who have consolidated multiplied by agencies administer loan rehabilitation engaged in qualifying military service, 0.1 percent). agreements with approximately 86,776 apply, extend, or end the SCRA interest For § 682.208(j)(9), we estimate that it borrowers. rate limitation. will take each loan holder one hour per We estimate that it will take a Under § 682.208(j)(1), (6), and (7), borrower to refund overpayments for guaranty agency 10 minutes (0.17 hours) therefore, for public loan holders, we borrowers for whom the application of per borrower to send the required estimate that this regulation will the SCRA interest rate limit caused their communication to a borrower and increase burden by 1,908 hours per year loan to be overpaid. We estimate that an respond to borrower inquiries generated (53 public loan holders multiplied by 3 overpayment will result for 0.05 percent by the communication. hours per month multiplied by 12 of borrowers who have the SCRA Under § 682.405(c), therefore, for months). For not-for-profit loan holders, interest rate limit applied. public guaranty agencies, we estimate we estimate that this regulation will Under § 682.208(j)(9), therefore, for that this regulation will increase burden increase burden by 5,436 hours per year public loan holders, we estimate that by 6,514 hours per year (38,315 (151 not-for-profit loan holders this regulation will increase burden by borrowers multiplied by 0.17 hours per multiplied by 3 hours per month 3 hours per year (557,341 borrowers borrower). For not-for-profit guaranty multiplied by 12 months). For with loans held by public loan holders agencies, we estimate that this proprietary loan holders, we estimate multiplied by 1 percent of borrowers regulation will increase burden by that this regulation will increase burden who are eligible for the SCRA interest 14,752 hours per year (86,776 borrowers by 115,344 hours per year (3,204 rate limit multiplied by 0.05 percent). multiplied by 0.17 hours per borrower). proprietary loan holders multiplied by 3 For not-for-profit loan holders, we Collectively, the total increase in hours per month multiplied by 12 estimate that this regulation will burden under § 682.405 will be 21,266 months). increase burden by 14 hours per year hours under OMB Control Number For § 682.208(j)(8), if the application (2,738,171 borrowers with loans held by 1845–0020. of the SCRA interest rate limit of six not-for-profit loan holders multiplied by percent results in an overpayment on a 1 percent of borrowers who are eligible Section 685.202—Servicemembers Civil loan that is subsequently paid in full for the SCRA interest rate limit Relief Act in the Direct Loan Program through consolidation, the underlying multiplied by 0.05 percent). For Requirements: Borrowers will no loan holder must return the proprietary loan holders, we estimate longer be required to submit a written overpayment to the holder of the that this regulation will increase burden request and a copy of their military consolidation loan. We estimate that it by 53 hours per year (10,524,463 orders to receive an interest rate will take each loan holder one hour per borrowers with loans held by reduction under the SCRA; instead, the borrower to refund overpayments in this proprietary loan holders multiplied by 1 Department will, like loan holders in circumstance. We estimate that, over the percent of borrowers who are eligible for the FFEL Program, query the DMDC past six months, 69 percent of the the SCRA interest rate limit multiplied database to determine whether a borrowers who consolidated loans by 0.05 percent). borrower is eligible. included a loan with an interest rate in Collectively, the total increase in Section 685.202(a)(11) will shift the excess of 6 percent. We further estimate burden under § 682.405 will be 122,873 burden from borrowers to the Secretary. that 0.1 percent of those consolidation hours under OMB Control Number Under the current regulations, loans will create an overpayment that 1845–0093. The burden associated with borrowers are required to submit a

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written request for the Secretary to Sections 685.208 and 685.209—Revised who complete the form increases that apply the SCRA interest rate limit and Pay As You Earn Repayment Plan number from 3,159,132 borrowers to a copy of their military orders to Requirements: Application, 4,840,000 borrowers. However, because support the request. Because, under the recertification, documentation of the REPAYE plan will be available to all regulations, borrowers will no longer be income, and certification of family size. Direct Loan borrowers, regardless of required to submit a written request or Under § 685.209(c)(4), a borrower when the borrowers took out their loans, a copy of their military orders, the selecting the REPAYE plan will apply and because there will be no burden on borrowers will be eliminated. for the plan, provide documentation of requirement for the borrowers to While borrowers will still be permitted his or her income and, as applicable, his demonstrate PFH to enroll in the to submit other evidence that they or her spouse’s income, and provide a REPAYE plan, we estimate that the qualify for the SCRA interest rate limit, certification of family size. The number of respondents will increase by and the Secretary will evaluate it, the borrower must provide this information 1,250,000 borrowers. This will bring the total number of respondents to Department has no data on the annually. If a borrower who repays his 6,090,000 borrowers, of which only likelihood that erroneous or missing or her Direct Loans under the REPAYE 1,250,000 of the increase will be data in the DMDC database will give rise plan leaves the plan and subsequently wishes to return to the REPAYE plan, attributable to the REPAYE plan. to a borrower needing to submit the borrower must provide income Collectively, the total increase in alternative evidence of his or her documentation and family size burden for §§ 685.208 and 685.209 will military service, but anecdotal accounts certifications for each year in which the be 967,186 hours (2,930,868 additional suggest that the error rate of the DMDC borrower was not repaying his or her borrowers multiplied by 0.33 hours per database is de minimis. Therefore, the loans under the REPAYE plan after response), of which 412,500 hours regulations will eliminate all but five having left the plan before being (1,250,000 additional borrowers hours of burden on borrowers that are allowed to re-enter the REPAYE plan. multiplied by 0.33 hours per response) associated with the current regulation. Burden Calculation: These will be attributable to the REPAYE plan However, because the Department has information collection requirements are under OMB Control Number 1845–0102. created a form for borrowers to provide calculated as part of the Income-Driven Collectively, the total increase in burden a certification of the borrower’s Repayment Plan Request, under OMB under §§ 685.208 and 685.209 under authorized official in cases where the Control Number 1845–0102. This OMB Control Number 1845–0021 will borrower believes the DMDC database is collection is associated with this be 967,186 hours. inaccurate or incomplete, we estimate rulemaking because the regulations Consistent with the discussion above, that 141 Direct Loan borrowers will require that the collection be modified the following chart describes the sections of the regulations involving submit such a form, and that it will take to encompass the REPAYE plan. Currently, we estimate that it takes 20 information collections, the information a borrower 20 minutes (0.33 hours) per minutes (0.33 hours) to complete the being collected, and the collections that response. We estimate that this form Income-Driven Repayment Plan Request the Department will submit to OMB for will increase burden by 47 hours (141 and that 3,159,132 Direct Loan and approval and public comment under the borrowers multiplied by 0.33 hours per FFEL Program borrowers complete the PRA, and the estimated costs associated response). form. Even though this form will be with the information collections. The Collectively, the total decrease in revised to include the REPAYE plan, we monetized net costs of the increased burden for § 685.202 will be 681 hours do not believe that it will take any burden on institutions, lenders, under OMB Control Number 1845–0094. additional time for a borrower to guaranty agencies, and borrowers, using This will eliminate all but 47 hours of complete it. Therefore, we expect the wage data developed using U.S. Bureau burden in OMB Control Number 1845– burden hours per response to remain 20 of Labor Statistics data, available at 0094. The burden associated with the minutes (0.33 hours). However, we are www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is form (47 hours) will be associated with making an adjustment to the number of $11,969,649 as shown in the chart OMB Control Number 1845–0135. borrowers who complete the form based below. This cost was based on an hourly on new data and an overall increase in rate of $36.55 for institutions, lenders, the borrower population. The and guaranty agencies and $16.30 for adjustment to the number of borrowers borrowers.

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COLLECTION OF INFORMATION

OMB Control No. and Regulatory Information collection estimated burden Estimated costs section [change in burden]

668.16, 668.204, 668.208, This regulation will permit an insti- OMB 1845–0022 This will be a $¥2,778 668.214–PRI challenge and ap- tution to bring a timely PRI revised collection. We estimate peal. challenge in any year the insti- that burden on institutions will tution’s draft or official CDR is decrease by 76 hours. less than or equal to 40 per- cent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years (for challenges, counting the draft rate as the most recent rate), provided that the institution has not brought a PRI challenge or appeal with respect to that rate before, and that the institution has not pre- viously lost eligibility or been placed on provisional certifi- cation based on that rate. Insti- tutions will not lose eligibility based on three years of official CDRs or be placed on provi- sional certification based on two years if the timely appeal with respect to any of the relevant rates demonstrates a PRI less than or equal to .0625 percent. As under existing law, a suc- cessful PRI challenge will pre- clude sanctions from being im- posed following publication of the corresponding official rate. However, under the final rule, the successful challenge will also preclude imposition of sanctions in subsequent years based in part on the official rate if the official rate is less than or equal to the draft rate. 682.202 and 682.208–SCRA in the Will revise current regulations to OMB 1845–0093 This will be a $4,480,876 FFEL Program. require loan holders to deter- revised collection. We estimate mine a borrower’s military sta- that burden on loan holders will tus for application of the SCRA increase by 122,873 hours and maximum interest rate based that all except 20 hours of bur- on information from the authori- den on borrowers will be elimi- tative electronic database main- nated. tained by the DOD. OMB 1845–0135 This will be a new collection. We estimate that burden on borrowers will increase by 20 hours. 682.405–Loan rehabilitation ...... This change will require a guar- OMB 1845–0020 This will be a $777,272 anty agency to provide informa- revised collection. We estimate tion to a FFEL Program bor- that burden on guaranty agen- rower with whom it has entered cies will increase by 21,266 into an agreement to rehabili- hours. tate a defaulted FFEL Program loan. 685.202 ...... Will modify current regulations to OMB 1845–0094 This collection ¥$9,471 require the Department to de- will be revised. We estimate termine a borrower’s military that all but 47 hours of burden status for application of the on borrowers will be eliminated.. SCRA maximum interest rate OMB 1845–0135 This will be a based on information from the new collection. We estimate authoritative electronic data- that burden on borrowers will base maintained by the DOD. increase by 47 hours.

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COLLECTION OF INFORMATION—Continued

OMB Control No. and Regulatory Information collection estimated burden Estimated costs section [change in burden]

685.208 and 685.209–REPAYE Will add a new income-contingent OMB 1845–0021 This collection $15,764,838, of which $6,723,750 plan. repayment plan, called the Re- will not change because all bur- will be attributable to the regu- vised Pay As You Earn repay- den associated with the collec- lation. ment plan (REPAYE plan), to tion requirements is contained § 685.209 of the Direct Loan in 1845–0102.. Regulations. The REPAYE plan OMB 1845–0102 This will be a is modeled on the Pay as You revised collection. We estimate Earn repayment plan, and will that burden will increase on be available to all Direct Loan borrowers by 967,186 hours, of student borrowers regardless of which 412,500 hours will be at- when the student borrowers re- tributable to the regulation. ceived their Direct Loans. 685.219–Public Service Loan For- Will permit lump sum payments OMB 1845–0021 This provision $0 giveness. made on a borrower’s behalf by contains no collection require- the DOD to be treated like cer- ments. tain other payments made on behalf of borrowers who have served in AmeriCorps or the Peace Corps.

The total burden hours and change in Control number affected by the burden hours associated with each OMB regulations follows:

Total burden Change in Control number hours burden hours

1845–0020 ...... 8,241,898 + 21,266 1845–0022 ...... 2,216,044 ¥ 76 1845–0093 ...... 122,873 + 122,275 1845–0094 ...... 47 ¥ 634 1845–0102 ...... 2,009,700 + 967,186 1845–0135 ...... 67 + 67

Total ...... 12,590,630 = 1,110,086

Assessment of Educational Impact at: www.gpo.gov/fdsys. At this site you Service System, Student aid, Vocational In the NPRM we requested comments can view this document, as well as all education. other documents of this Department on whether the proposed regulations 34 CFR Parts 682 and 685 published in the Federal Register, in would require transmission of Administrative practice and information that any other agency or text or Adobe Portable Document Format (PDF). To use PDF you must procedure, Colleges and universities, authority of the United States gathers or Loan programs-education, Reporting makes available. have Adobe Acrobat Reader, which is available free at the site. and recordkeeping requirements, Based on the response to the NPRM Student aid, Vocational education. and on our review, we have determined You may also access documents of the that these final regulations do not Department published in the Federal Dated: October 21, 2015. require transmission of information that Register by using the article search Arne Duncan, any other agency or authority of the feature at: www.federalregister.gov. Secretary of Education. United States gathers or makes Specifically, through the advanced For the reasons discussed in the available. search feature at this site, you can limit preamble, the Secretary of Education Accessible Format: Individuals with your search to documents published by amends parts 668, 682, and 685 of title disabilities can obtain this document in the Department. (Catalog of Federal 34 of the Code of Federal Regulations as an accessible format (e.g., braille, large Domestic Assistance Number does not follows: print, audiotape, or compact disc) on apply.) request to the program contact person PART 668—STUDENT ASSISTANCE listed under FOR FURTHER INFORMATION List of Subjects GENERAL PROVISIONS CONTACT. 34 CFR Part 668 Electronic Access to This Document: ■ 1. The authority citation for part 668 The official version of this document is Administrative practice and continues to read as follows: the document published in the Federal procedure, Aliens, Colleges and Authority: 20 U.S.C. 1001–1003, 1070g, Register. Free Internet access to the universities, Consumer protection, 1085, 1088, 1091, 1092, 1094, 1099c, and official edition of the Federal Register Grant programs-education, Loan 1099c–1, unless otherwise noted. and the Code of Federal Regulations is programs-education, Reporting and ■ 2. Section 668.16 is amended by: available via the Federal Digital System recordkeeping requirements, Selective ■ a. Revising paragraph (m)(2)(ii)(B).

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■ b. Adding paragraph (m)(2)(ii)(C). participation rate index is equal to or ■ 5. Section 668.214 is amended by ■ c. Revising paragraphs (m)(2)(iv) and less than 0.0625 for that cohort’s fiscal revising paragraphs (a) and (c)(2) to read (v). year. as follows: The revisions and addition read as * * * * * follows: § 668.214 Participation rate index appeals. (5) If we determine that you qualify (a) Eligibility. (1) You do not lose § 668.16 Standards of administrative for continued eligibility or full eligibility under § 668.206(a)(1), based capability. certification based on your participation on one cohort default rate over 40 * * * * * rate index challenge, you will not lose percent, if you bring an appeal in (m) * * * eligibility under § 668.206 or be placed accordance with this section that (2) * * * on provisional certification under demonstrates that your participation (ii) * * * § 668.16(m)(2)(i) when your next official rate index for that cohort’s fiscal year is (B) If it has timely filed an appeal cohort default rate is published. Unless equal to or less than 0.0832. under § 668.213 after receiving the that next official cohort default rate is (2) Subject to § 668.208(b), you do not second such rate, and the appeal is less than or equal to your draft cohort lose eligibility under § 668.206(a)(2) if either pending or successful; or default rate, a successful challenge that you bring an appeal in accordance with (C)(1) If it has timely filed a is based on your draft cohort default rate this section that demonstrates that your participation rate index challenge or does not excuse you from any other loss participation rate index for any of the appeal under § 668.204(c) or § 668.214 of eligibility or placement on three most recent cohorts’ fiscal years is from either or both of the two rates, and provisional certification. However, if equal to or less than 0.0625. the challenge or appeal is either your successful challenge under (3) Subject to § 668.208(b), you are not pending or successful; or paragraph (c)(1)(ii) or (iii) of this section placed on provisional certification (2) If the second rate is the most is based on a prior, official cohort under § 668.16(m)(2)(i) based on two recent draft rate, and the institution has default rate, and not on your draft cohort default rates that fail to satisfy timely filed a participation rate cohort default rate, or if the next official the standard of administrative capability challenge to that draft rate that is either cohort default rate published is less in § 668.16(m)(1)(ii) if you bring an pending or successful. than or equal to the draft rate you appeal in accordance with this section * * * * * successfully challenged, we also excuse that demonstrates that your (iv) If the institution has 30 or fewer you from any subsequent loss of participation rate index for either of borrowers in the three most recent eligibility, under § 668.206(a)(2), or those two cohorts’ fiscal years is equal cohorts of borrowers used to calculate placement on provisional certification, to or less than 0.0625. its cohort default rate under subpart N under § 668.16(m)(2)(i), that would be * * * * * of this part, we will not provisionally based on that official cohort default rate. (c) * * * certify it solely based on cohort default * * * * * (2) Notice under § 668.205 of a cohort rates; default rate that equals or exceeds 30 ■ 4. Section 668.208 is amended by (v) If a rate that would otherwise percent but is less than or equal to 40 revising paragraphs (a)(2)(ii) and (b)(2) potentially subject the institution to percent. and (3) to read as follows: provisional certification under * * * * * paragraphs (m)(1)(ii) and (m)(2)(i) of this § 668.208 General requirements for section is calculated as an average rate, adjusting official cohort default rates and PART 682—FEDERAL FAMILY we will not provisionally certify it for challenging or appealing their EDUCATION LOAN (FFEL) PROGRAM solely based on cohort default rates; consequences. ■ 6. The authority citation for part 682 * * * * * (a) * * * continues to read as follows: ■ 3. Section 668.204 is amended by (2) * * * revising paragraphs (c)(1)(ii) and (iii) Authority: 20 U.S.C. 1071—1087–4, unless (ii) A participation rate index otherwise noted. and (c)(5) to read as follows: challenge or appeal submitted under ■ 7. Section 682.202 is amended by this section and § 668.204 or § 668.214; § 668.204 Draft cohort default rates and revising paragraph (a)(8) to read as your ability to challenge before official * * * * * follows: cohort default rates are issued. (b) * * * § 682.202 Permissible charges by lenders * * * * * (2) You may not challenge, request an (c) * * * to borrowers. adjustment to, or appeal a draft or (1)(i) * * * official cohort default rate, under * * * * * (ii) Subject to § 668.208(b), you may (a) * * * § 668.204, § 668.209, § 668.210, challenge a potential loss of eligibility (8) Applicability of the § 668.211, § 668.212, or § 668.214, more under § 668.206(a)(2), based on any Servicemembers Civil Relief Act (SCRA) than once on that cohort default rate. cohort default rate that is less than or (50 U.S.C. 527, App. sec. 207). equal to 40 percent, but greater than or (3) You may not challenge, request an Notwithstanding paragraphs (a)(1) equal to 30 percent, for any of the three adjustment to, or appeal a draft or through (4) of this section, a loan holder most recently calculated fiscal years, if official cohort default rate, under must use the official electronic database your participation rate index is equal to § 668.204, § 668.209, § 668.210, maintained by the Department of or less than 0.0625 for that cohort’s § 668.211, § 668.212, or § 668.214, if you Defense to identify all borrowers with fiscal year. previously lost your eligibility to an outstanding loan who are members of (iii) You may challenge a potential participate in a Title IV, HEA program, the military service, as defined in placement on provisional certification under § 668.206, or were placed on § 682.208(j)(10) and ensure the interest under § 668.16(m)(2)(i), based on any provisional certification under rate on a borrower’s qualified loans with cohort default rate that fails to satisfy § 668.16(m)(2)(i), based entirely or an outstanding balance does not exceed the standard of administrative capability partially on that cohort default rate. the six percent maximum interest rate in § 668.16(m)(1)(ii), if your * * * * * under 50 U.S.C. 527, App. section

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207(a) on FFEL Program loans made (5) When the loan holder applies the Secretary of the military department prior to the borrower entering military SCRA interest rate limit of six percent concerned. Such term does not include service status. For purposes of this to a borrower’s loan, it must notify the full-time National Guard duty. paragraph (a)(8), the interest rate borrower in writing within 30 days that (B) In the case of a member of the includes any other charges or fees the interest rate on the loan has been National Guard, including service under applied to the loan. reduced to six percent during the a call to active service, which means * * * * * borrower’s period of military service. service on active duty or full-time ■ (6)(i) For PLUS loans with an National Guard duty, authorized by the 8. Section 682.208 is amended by endorser, the loan holder must use the adding paragraph (j) to read as follows: President or the Secretary of Defense for official electronic database to begin, a period of more than 30 consecutive § 682.208 Due diligence in servicing a extend, or end, as applicable, the SCRA days for purposes of responding to a loan. interest rate limit of six percent on the national emergency declared by the * * * * * loan based on the borrower’s or President and supported by Federal (j)(1) Effective July 1, 2016, a loan endorser’s military service status, funds; holder is required to use the official regardless of whether the loan holder is (ii) In the case of a servicemember electronic database maintained by the currently pursuing the endorser for who is a commissioned officer of the Department of Defense, to— repayment of the loan. Public Health Service or the National (i) Identify all borrowers who are (ii) If both the borrower and the Oceanic and Atmospheric military servicemembers and who are endorser are eligible for the SCRA Administration, active service; and eligible under § 682.202(a)(8); and interest rate limit of six percent on a (iii) Any period during which a (ii) Confirm the dates of the loan, the loan holder must use the servicemember is absent from duty on borrower’s military service status and earliest military service start date of account of sickness, wounds, leave, or begin, extend, or end, as applicable, the either party and the latest military other lawful cause. use of the SCRA interest rate limit of six service end date of either party to begin, * * * * * extend, or end, as applicable, the SCRA percent. ■ 9. Section 682.405 is amended: (2) The loan holder must compare its interest rate limit. (7)(i) For joint consolidation loans, ■ a. In paragraph (a)(2)(ii), by adding the list of borrowers against the database the loan holder must use the official words ‘‘or assigned to the Secretary’’ maintained by the Department of electronic database to begin, extend, or after the word ‘‘lender’’. Defense at least monthly to identify end, as applicable, the SCRA interest ■ b. In paragraph (b)(1)(vi), by adding servicemembers who are in military rate limit of six percent on the loan if the words ‘‘or assignment to the service status for the purpose of either of the borrowers is eligible for the Secretary’’ after the words ‘‘repurchase determining eligibility under SCRA interest rate limit under by an eligible lender’’ and removing the § 682.202(a)(8). § 682.202(a)(8). word ‘‘other’’ after the words ‘‘The (3) A borrower may provide the loan (ii) If both borrowers on a joint agency may not impose any’’. holder with alternative evidence of consolidation loan are eligible for the ■ c. By revising paragraph (b)(1)(vi)(B). military service status to demonstrate SCRA interest rate limit of six percent ■ d. In paragraph (b)(1)(xi), by removing eligibility if the borrower believes that on a loan, the loan holder must use the the word ‘‘During’’, and adding, in its the information contained in the earliest military service start date of place, the words ‘‘Except as provided in Department of Defense database is either party and the latest military paragraph (c) of this section, during’’. inaccurate or incomplete. Acceptable service end date of either party to begin, ■ e. By redesignating paragraph (b)(2) as alternative evidence includes— extend, or end, as applicable, the SCRA paragraph (b)(2)(i). (i) A copy of the borrower’s military interest rate limit. ■ f. By adding paragraph (b)(2)(ii). orders; or (8) If the application of the SCRA ■ g. In paragraph (b)(3) introductory (ii) The certification of the borrower’s interest rate limit of six percent results text, by adding the words ‘‘or military service from an authorized in an overpayment on a loan that is assignment to the Secretary’’ after the official using a form approved by the subsequently paid in full through words ‘‘to an eligible lender’’. Secretary. consolidation, the underlying loan ■ h. In paragraph (b)(3)(i), by adding the (4)(i) When the loan holder holder must return the overpayment to words ‘‘or assignment’’ after the words determines that the borrower is eligible the holder of the consolidation loan. ‘‘of the sale’’. under § 682.202(a)(8), the loan holder (9) For any other circumstances where ■ i. In paragraph (b)(3)(i)(A), by adding must ensure the interest rate on the application of the SCRA interest rate the words ‘‘or assignment’’ after the borrower’s loan does not exceed the limit of six percent results in an words ‘‘such sale’’. SCRA interest rate limit of six percent. overpayment of the remaining balance ■ j. In paragraph (b)(4), by removing the (ii) The loan holder must apply the on the loan, the loan holder must refund citation ‘‘§ 682.209(a) or (h)’’, and SCRA interest rate limit of six percent the amount of that overpayment to the adding, in its place, the citation for the longest eligible period verified borrower. ‘‘§ 682.209(a) or (e)’’. with the official electronic database, or (10) For purposes of this section, the ■ k. By revising paragraph (c). alternative evidence of military service term ‘‘military service’’ means— The addition and revisions reads as status received under paragraph (j)(3) of (i) In the case of a servicemember who follows: this section, using the combination of is a member of the Army, Navy, Air evidence that provides the borrower Force, Marine Corps, or Coast Guard— § 682.405 Loan rehabilitation agreement. with the earliest military service start (A) Active duty, meaning full-time * * * * * date and the latest military service end duty in the active military service of the (b) * * * date. United States. Such term includes full- (1) * * * (iii) In the case of a reservist, the loan time training duty, annual training duty, (vi) * * * holder must use the reservist’s and attendance, while in the active (B) Of the amount of any collection notification date as the start date of the military service, at a school designated costs to be added to the unpaid military service period. as a service school by law or by the principal of the loan when the loan is

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sold to an eligible lender or assigned to ■ 12. Section 685.202 is amended by ■ d. By redesignating paragraphs (k)(3) the Secretary, which may not exceed 16 revising paragraph (a)(11) to read as and (4) as paragraphs (k)(4) and (5), percent of the unpaid principal and follows: respectively. accrued interest on the loan at the time ■ e. By adding paragraph (k)(3). of the sale or assignment; and § 685.202 Charges for which Direct Loan The revision and addition read as Program borrowers are responsible. * * * * * follows: (a) * * * (2) * * * (11) Applicability of the § 685.208 Repayment plans. (ii) If the guaranty agency has been Servicemembers Civil Relief Act (a) * * * unable to sell the loan, the guaranty (SCRA)(50 U.S.C. 527, App. sec. 207). (1) * * * agency must assign the loan to the Notwithstanding paragraphs (a)(1) (i) * * * Secretary. through (10) of this section, upon the (D) The income-contingent repayment * * * * * Secretary’s receipt of evidence of the plans in accordance with paragraph (c) A guaranty agency must make borrower’s military service, the (k)(2) or (3) of this section; or available to the borrower— maximum interest rate under 50 U.S.C. * * * * * (1) During the loan rehabilitation 527, App. section 207(a), on Direct Loan (k) * * * period, information about repayment Program loans made prior to the (3) Under the income-contingent plans, including the income-based borrower entering military service status repayment plan described in repayment plan, that may be available to is six percent while the borrower is in § 685.209(c), a borrower’s required the borrower upon rehabilitating the military service. For purposes of this monthly payment is limited to no more defaulted loan and how the borrower paragraph, the interest rate includes any than 10 percent of the amount by which can select a repayment plan after the other charges or fees applied to the loan. the borrower’s AGI exceeds 150 percent loan is purchased by an eligible lender For purposes of this paragraph (a)(11), of the poverty guideline applicable to or assigned to the Secretary; and the term ‘‘military service’’ means— the borrower’s family size, divided by (2) After the successful completion of (i) In the case of a servicemember who 12, unless the borrower’s monthly the loan rehabilitation period, financial is a member of the Army, Navy, Air payment amount is adjusted in and economic education materials, Force, Marine Corps, or Coast Guard— accordance with § 685.209(c)(4)(vi)(E). including debt management (A) Active duty, meaning full-time * * * * * information. duty in the active military service of the ■ United States. Such term includes full- 14. Section 685.209 is amended: * * * * * ■ a. By revising the introductory text of ■ 10. Section 682.410 is amended by time training duty, annual training duty, and attendance, while in the active paragraph (a)(1). revising paragraph (b)(3) to read as ■ b. In paragraph (a)(1)(iii)(A), by follows: military service, at a school designated as a service school by law or by the removing the words ‘‘Direct Loan Program Loan’’ and adding, in their § 682.410 Fiscal, administrative, and Secretary of the military department enforcement requirements. concerned. Such term does not include place, the words ‘‘Direct Loan Program full-time National Guard duty. loan’’. * * * * * ■ c. In the second sentence of paragraph (B) In the case of a member of the (b) * * * (a)(2)(iii), by adding the words ‘‘or the National Guard, including service under (3) Interest charged by guaranty Revised Pay As You Earn repayment a call to active service, which means agencies. (i) Except as provided in plan’’ immediately after the words ‘‘the service on active duty or full-time paragraph (b)(3)(ii) of this section, the income-based repayment plan’’. National Guard duty, authorized by the guaranty agency shall charge the ■ d. In paragraph (a)(6)(i)(E), by adding President or the Secretary of Defense for borrower interest on the amount owed the punctuation and words ‘‘, the a period of more than 30 consecutive by the borrower after the capitalization Revised Pay As You Earn repayment days for purposes of responding to a required under paragraph (b)(4) of this plan described in paragraph (c) of this national emergency declared by the section has occurred at a rate that is the section,’’ immediately after the words President and supported by Federal greater of— ‘‘this section’’. funds; (A) The rate established by the terms ■ e. By redesignating paragraph (ii) In the case of a servicemember of the borrower’s original promissory (a)(6)(i)(F) as paragraph (a)(6)(i)(G). who is a commissioned officer of the note; or ■ f. By adding paragraph (a)(6)(i)(F). Public Health Service or the National (B) In the case of a loan for which a ■ g. In paragraphs (a)(6)(iii)(A) and (B) Oceanic and Atmospheric judgment has been obtained, the rate introductory text, by adding the Administration, active service; and provided for by State law. punctuation and words ‘‘, the Revised (iii) Any period during which a (ii) If the guaranty agency determines Pay As You Earn repayment plan servicemember is absent from duty on that the borrower is eligible for the described in paragraph (c) of this account of sickness, wounds, leave, or interest rate limit of six percent under section,’’ immediately after the words other lawful cause. § 682.202(a)(8), the interest rate ‘‘this section’’. described in paragraph (b)(3)(i) shall not * * * * * ■ h. In paragraph (b)(3)(iii)(B)(3), by exceed six percent. ■ 13. Section 685.208 is amended: adding the words ‘‘or the Revised Pay * * * * * ■ a. By revising paragraph (a)(1)(i)(D). As You Earn repayment plan’’ after the ■ b. In paragraph (a)(4)(i), by removing words ‘‘repayment plan’’. PART 685—WILLIAM D. FORD the word ‘‘the’’ before the words ■ i. By redesignating paragraphs FEDERAL DIRECT LOAN PROGRAM ‘‘income-contingent’’ and adding, in its (b)(3)(iii)(B)(4) through (8) as paragraphs place, the word ‘‘an’’. (b)(3)(iii)(B)(5) through (9), respectively. ■ 11. The authority citation for part 685 ■ c. In paragraph (a)(5), by removing the ■ j. By adding paragraph (b)(3)(iii)(B)(4). continues to read as follows: word ‘‘or’’ after the words ‘‘income- ■ k. In newly redesignated paragraph Authority: 20 U.S.C 1070g, 1087a, et seq., contingent’’ and adding, in its place, the (b)(3)(iii)(B)(9), by removing the words unless otherwise noted. words ‘‘repayment plans and the’’. ‘‘after October 1, 2007’’.

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■ l. By adding paragraph (c). a Direct PLUS Loan or Federal PLUS (2) The adjusted monthly payment for The revision and additions read as Loan made to a parent borrower; each borrower by multiplying the follows: (iii) Family size means the number calculated payment by the percentage that is determined by counting the determined in paragraph (c)(2)(ii)(B)(1) § 685.209 Income-contingent repayment borrower, the borrower’s spouse, and of this section; and plans. the borrower’s children, including (3) If the borrower’s loans are held by (a) * * * unborn children who will be born multiple holders, the borrower’s (1) Definitions. As used in this during the year the borrower certifies adjusted monthly Direct Loan payment section, other than as expressly family size, if the children receive more by multiplying the payment determined provided for in paragraph (c) of this than half their support from the in paragraph (c)(2)(ii)(B)(2) of this section— borrower. Family size does not include section by the percentage of the total * * * * * the borrower’s spouse if the borrower is outstanding principal amount of the (6) * * * separated from his or her spouse, or if borrower’s eligible loans that are Direct (i) * * * the borrower is filing separately and is Loans; (F) Made monthly payments under unable to reasonably access the spouse’s (C) The calculated amount under the alternative repayment plan income information. A borrower’s paragraph (c)(2)(i) or (c)(2)(ii)(A) or (B) described in paragraph (c)(4)(v) of this family size includes other individuals if, of this section is less than $5.00, in section prior to changing to a repayment at the time the borrower certifies family which case the borrower’s monthly plan described under this section or size, the other individuals— payment is $0.00; or § 685.221; (A) Live with the borrower; and (D) The calculated amount under * * * * * (B) Receive more than half their paragraph (c)(2)(i) or (c)(2)(ii)(A) or (B) (b) * * * support from the borrower and will of this section is equal to or greater than (3) * * * continue to receive this support from $5.00 but less than $10.00, in which (iii) * * * the borrower for the year the borrower case the borrower’s monthly payment is (B) * * * certifies family size. Support includes $10.00. (4) Periods in which the borrower money, gifts, loans, housing, food, (iii) If the borrower’s monthly made monthly payments under the clothes, car, medical and dental care, payment amount is not sufficient to pay alternative repayment plan described in and payment of college costs; and the accrued interest on the borrower’s (iv) Poverty guideline refers to the paragraph (c)(4)(v) of this section prior loan— income categorized by State and family to changing to a repayment plan (A) Except as provided in paragraph size in the poverty guidelines published described under this section or (c)(2)(iii)(B) of this section, for a Direct annually by the United States § 685.221; Subsidized Loan or the subsidized Department of Health and Human portion of a Direct Consolidation Loan, * * * * * Services pursuant to 42 U.S.C. 9902(2). the Secretary does not charge the (c) Revised Pay As You Earn If a borrower is not a resident of a State borrower the remaining accrued interest repayment plan. The Revised Pay As identified in the poverty guidelines, the for a period not to exceed three You Earn repayment plan (REPAYE poverty guideline to be used for the consecutive years from the established plan) is an income-contingent borrower is the poverty guideline (for repayment period start date on that loan repayment plan under which a the relevant family size) used for the 48 under the REPAYE plan. Following this borrower’s monthly payment amount is contiguous States. based on the borrower’s AGI and family (2) Terms of the Revised Pay As You three-year period, the Secretary charges size. Earn repayment plan. (i) The aggregate the borrower 50 percent of the (1) Definitions. As used in this monthly loan payments of a borrower remaining accrued interest on the Direct paragraph (c)— who selects the REPAYE plan are Subsidized Loan or the subsidized (i) Adjusted gross income (AGI) means limited to no more than 10 percent of portion of a Direct Consolidation Loan. the borrower’s adjusted gross income as the amount by which the borrower’s (B) For a Direct Unsubsidized Loan, a reported to the Internal Revenue AGI exceeds 150 percent of the poverty Direct PLUS Loan made to a graduate or Service. For a married borrower filing guideline applicable to the borrower’s professional student, the unsubsidized jointly, AGI includes both the family size, divided by 12, unless the portion of a Direct Consolidation Loan, borrower’s and spouse’s income and is borrower’s monthly payment amount is or for a Direct Subsidized Loan or the used to calculate the monthly payment adjusted in accordance with paragraph subsidized portion of a Direct amount. For a married borrower filing (c)(4)(vi)(E) of this section. Consolidation Loan for which the separately, the AGI for each spouse is (ii) The Secretary adjusts the borrower has become responsible for combined to calculate the monthly calculated monthly payment if— accruing interest in accordance with payment amount, unless the borrower (A) Except for borrowers provided for § 685.200(f)(3), the Secretary charges the certifies, on a form approved by the in paragraph (c)(2)(ii)(B) of this section, borrower 50 percent of the remaining Secretary, that the borrower is— the borrower’s eligible loans are not accrued interest. (A) Separated from his or her spouse; solely Direct Loans, in which case the (C) The three-year period described in or Secretary determines the borrower’s paragraph (c)(2)(iii)(A) of this section— (B) Unable to reasonably access the adjusted monthly payment by (1) Does not include any period income information of his or her spouse. multiplying the calculated payment by during which the borrower receives an (ii) Eligible loan means any the percentage of the total outstanding economic hardship deferment; outstanding loan made to a borrower principal amount of the borrower’s (2) Includes any prior period of under the Direct Loan Program or the eligible loans that are Direct Loans; repayment under the income-based FFEL Program except for a defaulted (B) Both the borrower and borrower’s repayment plan or the Pay As You Earn loan, a Direct PLUS Loan or Federal spouse have eligible loans, in which repayment plan; and PLUS Loan made to a parent borrower, case the Secretary determines— (3) For a Direct Consolidation Loan, or a Direct Consolidation Loan or (1) Each borrower’s percentage of the includes any period in which the Federal Consolidation Loan that repaid couple’s total eligible loan debt; underlying loans were repaid under the

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income-based repayment plan or the (C) Unless otherwise directed by the described in paragraph (c)(4)(i) of this Pay As You Earn repayment plan. Secretary, the borrower must annually section (annual deadline); and (iv) Any unpaid accrued interest is certify the borrower’s family size. If the (B) The consequences if the Secretary capitalized at the time a borrower leaves borrower fails to certify family size, the does not receive the information within the REPAYE plan. Secretary assumes a family size of one 10 days following the annual deadline (v) If the borrower’s monthly payment for that year. specified in the notice, as described in amount is not sufficient to pay any of (ii) After making the determination paragraphs (c)(2)(iv), (c)(4)(v), and the principal due, the payment of that described in paragraph (c)(4)(i)(A) of (c)(4)(vi) of this section. principal is postponed until the this section for the initial year that the (iv) If a borrower who is currently borrower leaves the REPAYE plan or the borrower selects the REPAYE plan and repaying under another repayment plan Secretary determines the borrower does for each subsequent year that the selects the REPAYE plan but does not not have a partial financial hardship. borrower remains on the plan, the provide the documentation described in (vi) A borrower who no longer wishes Secretary sends the borrower a written paragraph (c)(4)(i)(A) or (B) of this to repay under the REPAYE plan may notification that provides the borrower section, the borrower remains on his or change to a different repayment plan in with— her current repayment plan. accordance with § 685.210(b). A (A) The borrower’s scheduled (v) Except as provided in paragraph borrower who changes to a different monthly payment amount, as calculated (c)(4)(vii) of this section, if a borrower repayment plan in accordance with this under paragraph (c)(2) of this section, who is currently repaying under the paragraph or paragraph (c)(4)(vi)(C) of and the time period during which this REPAYE plan remains on the plan for a this section may return to the REPAYE scheduled monthly payment amount subsequent year but the Secretary does plan pursuant to the requirements in will apply (annual payment period); not receive the documentation paragraphs (c)(4)(vi)(D) and (E) of this (B) Information about the requirement described in paragraph (c)(4)(i)(A) or (B) section. for the borrower to annually provide the of this section within 10 days of the (3) Payment application and information described in paragraph specified annual deadline, the Secretary prepayment. (i) The Secretary applies (c)(4)(i) of this section, if the borrower removes the borrower from the REPAYE any payment made under the REPAYE chooses to remain on the REPAYE plan plan and places the borrower on an plan in the following order: after the initial year on the plan, and an alternative repayment plan under which (A) Accrued interest. explanation that the borrower will be the borrower’s required monthly (B) Collection costs. notified in advance of the date by which payment is the amount necessary to (C) Late charges. the Secretary must receive this repay the borrower’s loan in full within (D) Loan principal. information; the earlier of— (A) Ten years from the date the (ii) The borrower may prepay all or (C) An explanation of the borrower begins repayment under the part of a loan at any time without consequences, as described in paragraphs (c)(4)(i)(C) and (c)(4)(v) and alternative repayment plan; or penalty, as provided under (B) The ending date of the 20- or 25- (vi) of this section, if the borrower does § 685.211(a)(2). year period as described in paragraphs not provide the required information; (iii) If the prepayment amount equals (c)(5)(i) and (ii) of this section. or exceeds a monthly payment amount and (vi) If the Secretary places the of $10.00 or more under the repayment (D) Information about the borrower’s borrower on an alternative repayment schedule established for the loan, the option to request, at any time during the plan in accordance with paragraph Secretary applies the prepayment borrower’s current annual payment (c)(4)(v) of this section, the Secretary consistent with the requirements of period, that the Secretary recalculate the sends the borrower a written § 685.211(a)(3). borrower’s monthly payment amount if notification containing the borrower’s (iv) If the prepayment amount exceeds the borrower’s financial circumstances new monthly payment amount and a monthly payment amount of $0.00 have changed and the income amount informing the borrower that— under the repayment schedule that was used to calculate the (A) The borrower has been placed on established for the loan, the Secretary borrower’s current monthly payment no an alternative repayment plan; applies the prepayment consistent with longer reflects the borrower’s current (B) The borrower’s monthly payment the requirements of paragraph (c)(3)(i) of income. If the Secretary recalculates the amount has been recalculated in this section. borrower’s monthly payment amount accordance with paragraph (c)(4)(v) of (4) Eligibility documentation, based on the borrower’s request, the this section; verification, and notifications. (i)(A) For Secretary sends the borrower a written (C) The borrower may change to the year the borrower initially selects notification that includes the another repayment plan in accordance the REPAYE plan and for each information described in paragraphs with § 685.210(b); subsequent year that the borrower (c)(4)(ii)(A) through (D) of this section. (D) The borrower may return to the remains on the plan, the Secretary (iii) For each subsequent year that a REPAYE plan if he or she provides the determines the borrower’s monthly borrower remains on the REPAYE plan, documentation, as described in payment amount for that year. To make the Secretary notifies the borrower in paragraph (c)(4)(i)(A) or (B) of this this determination, the Secretary writing of the requirements in paragraph section, necessary for the Secretary to requires the borrower to provide (c)(4)(i) of this section no later than 60 calculate the borrower’s current documentation, acceptable to the days and no earlier than 90 days prior REPAYE plan monthly payment amount Secretary, of the borrower’s AGI. to the date specified in paragraph and the monthly amount the borrower (B) If the borrower’s AGI is not (c)(4)(iii)(A) of this section. The would have been required to pay under available, or if the Secretary believes notification provides the borrower the REPAYE plan during the period that the borrower’s reported AGI does with— when the borrower was on the not reasonably reflect the borrower’s (A) The date, no earlier than 35 days alternative repayment plan or any other current income, the borrower must before the end of the borrower’s annual repayment plan; provide other documentation to verify payment period, by which the Secretary (E) If the Secretary determines that the income. must receive all of the documentation total amount of the payments the

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borrower was required to make while on the Secretary applies the excess payment amount of $0.00, as provided the alternative repayment plan or any payment amounts made after the end of under paragraph (c)(2)(ii)(C) of this other repayment plan is less than the the most recent annual payment period section; total amount the borrower would have in accordance with the requirements of (B) A monthly payment under the Pay been required to make under the paragraph (c)(3)(i) of this section. As You Earn repayment plan described REPAYE plan during that period, the (2) If the new monthly payment in paragraph (a) of this section, the Secretary will adjust the borrower’s amount is equal to or greater than the income-contingent repayment plan monthly REPAYE plan payment amount borrower’s previously calculated described in paragraph (b) of this to ensure that the difference between REPAYE plan monthly payment section, or the income-based repayment the two amounts is paid in full by the amount, and the borrower made plan described in § 685.221, including a end of the 20- or 25-year period payments at the previously calculated monthly payment amount of $0.00; described in paragraphs (c)(5)(i) and (ii) payment amount after the end of the (C) A monthly payment made under— of this section; most recent annual payment period, the (1) The Direct Loan standard (F) If the borrower returns to the Secretary does not make any adjustment repayment plan described in REPAYE plan or changes to the Pay As to the borrower’s account. § 685.208(b); You Earn repayment plan described in (3) Any payments that the borrower (2) The alternative repayment plan paragraph (a) of this section, the continued to make at the previously described in paragraphs (c)(4)(v) of this income-contingent repayment plan calculated payment amount after the section prior to changing to a repayment described in paragraph (b) of this end of the prior annual payment period plan described in paragraph (a), (b), or section, or the income-based repayment and before the new monthly payment (c) of this section or § 685.221; plan described in § 685.221, any amount is calculated are considered to (3) Any other Direct Loan repayment payments that the borrower made under be qualifying payments for purposes of plan, if the amount of the payment was the alternative repayment plan after the § 685.219, provided that the payments not less than the amount required under borrower was removed from the otherwise meet the requirements the Direct Loan standard repayment REPAYE plan will count toward described in § 685.219(c)(1). plan described in § 685.208(b); or forgiveness under the REPAYE plan or (B) The new annual payment period (D) A month during which the the other repayment plans under begins on the day after the end of the borrower was not required to make a paragraph (a) or (b) of this section or most recent annual payment period. payment due to receiving an economic § 685.221; and (5) Loan forgiveness. (i) A borrower hardship deferment on his or her (G) Payments made under the who meets the requirements specified in eligible Direct Loans. alternative repayment plan described in paragraph (c)(5)(iii) of this section may paragraph (c)(4)(v) of this section will (v) For a borrower who makes qualify for loan forgiveness after 20 or payments under the REPAYE plan, the not count toward public service loan 25 years, as determined in accordance forgiveness under § 685.219. beginning date for the 20-year or 25-year with paragraph (c)(5)(ii) of this section. repayment period is— (vii) The Secretary does not take the (ii)(A) A borrower whose loans being (A) If the borrower made payments action described in paragraph (c)(4)(v) repaid under the REPAYE plan include under the Pay As You Earn repayment of this section if the Secretary receives only loans the borrower received as an plan described in paragraph (a) of this the documentation described in undergraduate student or a section, the income-contingent paragraph (c)(4)(i)(A) or (B) of this consolidation loan that repaid only repayment plan described in paragraph section more than 10 days after the loans the borrower received as an (b) of this section, or the income-based specified annual deadline, but is able to undergraduate student may qualify for repayment plan described in § 685.221, determine the borrower’s new monthly forgiveness after 20 years. payment amount before the end of the (B) A borrower whose loans being the earliest date the borrower made a borrower’s current annual payment repaid under the REPAYE plan include payment on the loan under one of those period. a loan the borrower received as a plans; or (viii) If the Secretary receives the graduate or professional student or a (B) If the borrower did not make documentation described in paragraph consolidation loan that repaid a loan payments under the Pay As You Earn (c)(4)(i)(A) or (B) of this section within received as a graduate or professional repayment plan described in paragraph 10 days of the specified annual student may qualify for forgiveness after (a) of this section, the income- deadline— 25 years. contingent repayment plan described in (A) The Secretary promptly (iii) The Secretary cancels any paragraph (b) of this section, or the determines the borrower’s new remaining outstanding balance of income-based repayment plan described scheduled monthly payment amount principal and accrued interest on a in § 685.221— and maintains the borrower’s current borrower’s Direct Loans that are being (1) For a borrower who has an eligible scheduled monthly payment amount repaid under the REPAYE plan after— Direct Consolidation Loan, the date the until the new scheduled monthly (A) The borrower has made the borrower made a qualifying monthly payment amount is determined. equivalent of 240 or 300, as applicable, payment on the consolidation loan, (1) If the new monthly payment qualifying monthly payments as defined before the date the borrower began amount is less than the borrower’s in paragraph (c)(5)(iv) of this section; repayment under the REPAYE plan; previously calculated REPAYE plan and (2) For a borrower who has one or monthly payment amount, and the (B) Twenty or 25 years, as applicable, more other eligible Direct Loans, the borrower made payments at the have elapsed, beginning on the date date the borrower made a qualifying previously calculated amount after the determined in accordance with monthly payment on that loan, before end of the most recent annual payment paragraph (c)(5)(v) of this section. the date the borrower began repayment period, the Secretary makes the (iv) For the purpose of paragraph under the REPAYE plan; appropriate adjustment to the (c)(5)(iii)(A) of this section, a qualifying (3) For a borrower who did not make borrower’s account. Notwithstanding monthly payment is— a qualifying monthly payment on the the requirements of § 685.211(a)(3), (A) A monthly payment under the loan under paragraph (c)(5)(v)(B)(1) or unless the borrower requests otherwise, REPAYE plan, including a monthly (2) of this section, the date the borrower

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made a payment on the loan under the (3) Returns to the sender any payment the Department of Defense,’’ after the REPAYE plan; received on a loan after loan forgiveness words ‘‘leaving the Peace Corps’’. (4) If the borrower consolidates his or has been granted. ■ d. By adding paragraph (c)(3). her eligible loans, the date the borrower ■ The addition reads as follows: made a qualifying monthly payment on 15. Section 685.210 is amended by the Direct Consolidation Loan; or revising paragraph (b)(2)(ii) to read as § 685.219 Public Service Loan Forgiveness (5) If the borrower did not make a follows: Program. qualifying monthly payment on the loan § 685.210 Choice of repayment plan. * * * * * (c) * * * under paragraph (c)(5)(v)(A) or (B) of * * * * * this section, the date the borrower made (3) The Secretary considers lump sum (b) * * * a payment on the loan under the payments made on behalf of the REPAYE plan. (2) * * * borrower through the student loan (vi) Any payments made on a (ii) If a borrower changes repayment repayment programs under 10 U.S.C. defaulted loan are not qualifying plans, the repayment period is the 2171, 2173, 2174, or any other student monthly payments and are not counted period provided under the borrower’s loan repayment programs administered toward the 20-year or 25-year new repayment plan, calculated from by the Department of Defense, to be forgiveness period. the date the loan initially entered qualifying payments in accordance with (vii)(A) When the Secretary repayment. However, if a borrower paragraph (c)(2) of this section for each determines that a borrower has satisfied changes to the income-contingent year that a lump sum payment is made. the loan forgiveness requirements under repayment plan under § 685.209(a), the * * * * * income-contingent repayment plan paragraph (c)(5) of this section on an ■ 17. Section 685.221 is amended: under § 685.209(b), the income- eligible loan, the Secretary cancels the ■ a. In the second sentence of paragraph contingent repayment plan under outstanding balance and accrued (b)(3), by adding the words ‘‘or the § 685.209(c), or the income-based interest on that loan. No later than six Revised Pay As You Earn repayment repayment plan under § 685.221, the months prior to the anticipated date that plan’’ immediately after the words ‘‘the repayment period is calculated as the borrower will meet the forgiveness Pay As You Earn repayment plan’’. described in § 685.209(a)(6)(iii), requirements, the Secretary sends the ■ b. By redesignating paragraph (f)(1)(vi) § 685.209(b)(3)(iii), § 685.209(c)(5)(v), or borrower a written notice that as paragraph (f)(1)(vii). § 685.221(f)(3), respectively. includes— ■ c. By adding paragraph (f)(1)(vi). (1) An explanation that the borrower * * * * * ■ d. In paragraph (f)(3)(i), by adding the is approaching the date that he or she ■ 16. Section 685.219 is amended: punctuation and words ‘‘, the Pay As is expected to meet the requirements to ■ a. In paragraph (c)(1)(iii), by adding You Earn repayment plan, or the receive loan forgiveness; Revised Pay As You Earn repayment (2) A reminder that the borrower must the words and punctuation ‘‘or who plan,’’ immediately after the words continue to make the borrower’s qualifies for partial repayment of his or ‘‘repayment plan’’. scheduled monthly payments; and her loans under the student loan ■ e. In paragraph (f)(3)(ii) introductory (3) General information on the current repayment programs under 10 U.S.C. text, by removing the words ‘‘the treatment of the forgiveness amount for 2171, 2173, 2174, or any other student income-contingent repayment plan’’ and tax purposes, and instructions for the loan repayment programs administered adding, in their place, the words ‘‘one borrower to contact the Internal by the Department of Defense,’’ after of the repayment plans described in Revenue Service for more information. ‘‘Peace Corps position’’. (B) The Secretary determines when a ■ b. In paragraph (c)(1)(iv)(D), by paragraph (f)(3)(i) of this section’’. borrower has met the loan forgiveness removing the word ‘‘Any’’ and adding, The addition reads as follows: requirements in paragraph (c)(5) of this in its place, the words ‘‘Except for the § 685.221 Income-based repayment plan. section and does not require the alternative repayment plan, any’’ and removing the word ‘‘paid’’ immediately * * * * * borrower to submit a request for loan (f) * * * forgiveness. after the words ‘‘monthly payment amount’’. (1) * * * (C) After determining that a borrower (vi) Made monthly payments under ■ c. In paragraph (c)(2) introductory has satisfied the loan forgiveness the alternative repayment plan text, by adding the words and requirements, the Secretary— described in § 685.209(c)(4)(v) prior to (1) Notifies the borrower that the punctuation ‘‘or if a lump sum payment changing to a repayment plan described borrower’s obligation on the loans is is made on behalf of the borrower under § 685.209 or this section; satisfied; through the student loan repayment (2) Provides the borrower with the programs under 10 U.S.C. 2171, 2173, * * * * * information described in paragraph 2174, or any other student loan [FR Doc. 2015–27143 Filed 10–29–15; 8:45 am] (c)(5)(vii)(A)(3) of this section; and repayment programs administered by BILLING CODE 4000–01–P

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