Annual Updates to the Income Contingent Repayment (ICR) Plan Formula for 2014-William D. Ford Federal Direct Loan Program, 22107-22114 [2014-08966]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 79, Number 76 (Monday, April 21, 2014)]
[Notices]
[Pages 22107-22114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08966]


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DEPARTMENT OF EDUCATION

[Catalog of Federal Domestic Assistance (CFDA) Number: 84.063]


Annual Updates to the Income Contingent Repayment (ICR) Plan 
Formula for 2014--William D. Ford Federal Direct Loan Program

AGENCY: Federal Student Aid, Department of Education.

ACTION: Notice.

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SUMMARY: The Secretary announces the annual updates to the ICR plan 
formula for 2014, as required by 34 CFR 685.209(a)(8), to give notice 
to Direct Loan borrowers and the public regarding how monthly ICR 
payment amounts will be calculated for the 2014-2015 year.

DATES: The adjustments to the income percentage factors for the ICR 
plan formula contained in this notice are effective from July 1, 2014, 
to June 30, 2015, for any borrower who enters the ICR plan or has his 
or her monthly payment amount recalculated under the ICR plan during 
that period.

FOR FURTHER INFORMATION CONTACT: Ian Foss, U.S. Department of 
Education, 830 First Street NE., Room 113H2, Washington, DC 20202. 
Telephone: (202) 377-3681 or by email: ian.foss@ed.gov.
    If you use a telecommunications device for the deaf (TDD) or a text

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telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: Under the William D. Ford Federal Direct 
Loan (Direct Loan) Program, borrowers may choose to repay their loans 
(Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans 
made to graduate or professional students, and Direct Consolidation 
Loans) under the ICR plan. The ICR plan bases the borrower's repayment 
amount on the borrower's income, family size, loan amount, and the 
interest rate applicable to each of the borrower's loans.
    A Direct Loan borrower who repays his or her loans under the ICR 
plan pays the lesser of: (1) The amount that he or she would pay over 
12 years with fixed payments multiplied by an income percentage factor 
or (2) 20 percent of discretionary income.
    Each year, to reflect changes in inflation, we adjust the income 
percentage factor used to calculate a borrower's ICR payment. We use 
the adjusted income percentage factors to calculate a borrower's 
monthly ICR payment amount when the borrower initially applies for the 
ICR plan or when the borrower submits his or her annual income 
documentation, as required under the ICR plan. This notice contains the 
adjusted income percentage factors for 2014, examples of how the 
monthly payment amount in ICR is calculated, and charts showing sample 
repayment amounts based on the adjusted ICR plan formula. This 
information is included in the following three attachments:

 Attachment 1--Income Percentage Factors for 2014
 Attachment 2--Examples of the Calculations of Monthly 
Repayment Amounts
 Attachment 3--Charts Showing Sample Repayment Amounts for 
Single and Married Borrowers

    In Attachment 1, to reflect changes in inflation, we have updated 
the income percentage factors that were published in the Federal 
Register on June 4, 2013 (78 FR 33395). Specifically we have revised 
the table of income percentage factors by changing the dollar amounts 
of the incomes shown by a percentage equal to the estimated percentage 
change between the not-seasonally-adjusted Consumer Price Index for all 
urban consumers for December 2013 and December 2014.
    The income percentage factors reflected in Attachment 1 may cause a 
borrower's payments to be lower than they were in prior years, even if 
the borrower's income is the same as in the prior year. However, the 
revised repayment amount more accurately reflects the impact of 
inflation on the borrower's current ability to repay.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the contact person listed 
under FOR FURTHER INFORMATION CONTACT in this section of the notice.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site, you can view this document, as 
well as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

    Program Authority: 20 U.S.C. 1087 et seq.

    Dated: April 15, 2014.
James W. Runcie,
Chief Operating Officer, Federal Student Aid.

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Attachment 2--Examples of the Calculations of Monthly Repayment Amounts

    General notes about the examples in this attachment:
     We have a calculator that borrowers can use to estimate 
what their payment amount would be under the ICR plan. The calculator 
is called the ``Repayment Estimator'' and is available at 
StudentAid.gov/repayment-estimator. This calculator provides a 
detailed, individualized assessment of a borrower's loans and repayment 
plan options, including the ICR plan.
     The interest rates used in the examples are for 
illustration only. The actual interest rates on an individual 
borrower's Direct Loans depend on the loan type and when the 
postsecondary institution first disbursed the Direct Loan to the 
borrower.
     The Poverty Guideline amounts used in the examples are 
from the 2014 U.S. Department of Health and Human Services (HHS) 
Poverty Guidelines for the 48 contiguous States and the District of 
Columbia. Different Poverty Guidelines apply to residents of Alaska and 
Hawaii. The Poverty Guidelines for 2014 were published in the Federal 
Register on January 22, 2014 (79 FR 3593).
     All of the examples use an income percentage factor 
corresponding to an adjusted gross income (AGI) in the table in 
Attachment 1. If your AGI is not listed in the income percentage 
factors table in Attachment 1, calculate the applicable income 
percentage by following the instructions under the heading later in 
this attachment.
     Married borrowers may repay their Direct Loans jointly 
under the ICR plan. If a married couple elects this option, we add the 
outstanding balance on the Direct Loans of each borrower and we add 
together both borrowers' AGIs to determine a joint ICR payment amount. 
We then prorate the joint payment amount for each borrower based on the 
proportion of that borrower's debt to the total outstanding balance. We 
bill each borrower separately.
     For example, if a married couple, John and Sally, has a 
total outstanding Direct Loan debt of $60,000, of which $40,000 belongs 
to John and $20,000 to Sally, we would apportion 67 percent of the 
monthly ICR payment to John and the remaining 33 percent to Sally. To 
take advantage of a joint ICR payment, married couples need not file 
taxes jointly; they may file separately and subsequently provide the 
other spouse's tax information to the borrower's Federal loan servicer.

Calculating the Monthly Payment Amount Using a Standard Amortization 
and a 12-Year Repayment Period.

    The formula to amortize a loan with a standard schedule (in which 
each payment is the same over the course of the repayment period) is as 
follows:

M = P x <(I / 12) / [1- {1 + (I / 12){time} --N]>

    In the formula--
     M is the monthly payment amount;
     P is the outstanding principal balance of the loan at the 
time the calculation is performed;
     I is the annual interest rate on the loan, expressed as a 
decimal (for example, for a loan with an interest rate of 6.8 percent, 
0.068); and
     N is the total number of months in the repayment period 
(for example, for a loan with a 12-year repayment period, 144 months).
    For example, assume that Billy has a $10,000 Direct Unsubsidized 
Loan with an interest rate of 6.8 percent.
    Step 1: To solve for M, first simplify the numerator of the 
fraction by which we multiply P, the outstanding principal balance. To 
do this divide I, the interest rate, as a decimal, by 12. In this 
example, Billy's interest rate is 6.8 percent. As a decimal, 6.8 
percent is 0.068.

 0.068 / 12 = 0.005667


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    Step 2: Next, simplify the denominator of the fraction by which we 
multiply P. To do this divide I, the interest rate, as a decimal, by 
12. Then, add one. Next, raise the sum of the two figures to the 
negative power that corresponds to the length of the repayment period 
in months. In this example, because we are amortizing a loan to 
calculate the monthly payment amount under the ICR plan, the applicable 
figure is 12 years, which is 144 months. Finally, subtract one from the 
result.

 0.068 / 12 = 0.005667
 1 + 0.005667 = 1.005667
 1.005667 [caret] -144 = 0.44319544
 1 - 0.44319554 = 0.55680456

    Step 3: Next, resolve the fraction by dividing the result from step 
one by the result from step two.

 0.005667 / 0.55680456 = 0.01017772

    Step 4: Finally, solve for M, the monthly payment amount, by 
multiplying the outstanding principal balance of the loan by the result 
of step 3.

 $10,000 x 0.01017772 = $101.78

    The remainder of the examples in this attachment will only show the 
results of the formula.
    Example 1. Brenda is single with no dependents and has $15,000 in 
Direct Subsidized and Unsubsidized Loans. The interest rate on Brenda's 
loans is 6.80 percent, and she has an AGI of $27,838.
    Step 1: Determine the total monthly payment amount based on what 
Brenda would pay over 12 years using standard amortization. To do this, 
use the formula that precedes Example 1. In this example, the monthly 
payment amount would be $152.67.
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table (see Attachment 1 
to this notice) that corresponds to Brenda's AGI. In this example, an 
AGI of $27,838 corresponds to an income percentage factor of 71.89 
percent.

 0.7189 x $152.66 = $109.75

    Step 3: Determine 20 percent of Brenda's discretionary income and 
divide by 12 (discretionary income is AGI minus the HHS Poverty 
Guideline amount for a borrower's family size and State of residence). 
For Brenda, subtract the Poverty Guideline amount for a family of one 
from her AGI, multiply the result by 20 percent, and then divide by 12:

 $27,838 - $11,670 = $16,168
 $16,168 x 0.20 = $3,233.60
 $3,233.60 / 12 = $269.47

    Step 4: Compare the amount from Step 2 with the amount from Step 3. 
The lower of the two will be the monthly ICR payment amount. In this 
example, Brenda will be paying the amount calculated under Step 2 
($109.75).
    Example 2. Joseph is married to Susan and has no dependents. Joseph 
has a Direct Loan balance of $10,000, and Susan has a Direct Loan 
balance of $15,000. The interest rate on all of the loans is 6.80 
percent.
    Joseph and Susan have a combined AGI of $78,622 and are repaying 
their loans jointly under the ICR plan (for general information 
regarding joint ICR payments for married couples, see the fifth and 
sixth bullets under the heading ``General notes about the examples in 
this attachment'').
    Step 1: Add Joseph's and Susan's Direct Loan balances to determine 
their combined aggregate loan balance:

 $10,000 + $15,000 = $25,000

    Step 2: Determine the combined monthly payment amount for Joseph 
and Susan based on what both borrowers would pay over 12 years using 
standard amortization. To do this, use the formula that precedes 
Example 1. In this example, the combined monthly payment amount would 
be $254.44.
    Step 3: Multiply the result of Step 2 by the income percentage 
factor shown in the income percentage factors table (see Attachment 1 
to this notice) that corresponds to Joseph and Susan's combined AGI. In 
this example, the combined AGI of $78,622 corresponds to an income 
percentage factor of 109.40 percent.

 1.094 x $254.44 = $278.36

    Step 4: Determine 20 percent of Joseph and Susan's combined 
discretionary income (discretionary income is AGI minus the HHS Poverty 
Guideline amount for a borrower's family size and State of residence). 
To do this subtract the Poverty Guideline amount for a family of two 
from the combined AGI, multiply the result by 20 percent, and divide by 
12:

 $78,622 - $15,730 = $62,892
 $62,892 x 0.20 = $12,578.40
 $12,578.40 / 12 = $1,048.20

    Step 5: Compare the amount from Step 3 with the amount from Step 4. 
The lower of the two will be Joseph and Susan's joint monthly payment 
amount. Joseph and Susan will jointly pay the amount calculated under 
Step 3 ($278.36).
    Step 6: Because Joseph and Susan are jointly repaying their Direct 
Loans under the ICR plan, the monthly payment amount calculated under 
Step 4 applies to both Joseph and Susan's loans. To determine the 
amount for which each borrower will be responsible, prorate the amount 
calculated under Step 4 by each spouse's share of the combined Direct 
Loan debt. Joseph has a Direct Loan debt of $10,000 and Susan has a 
Direct Loan Debt of $15,000. For Joseph, the monthly payment amount 
will be:

 $10,000 / ($10,000 + $15,000) = 40 percent
 0.40 x $278.36 = $111.34

    For Susan, the monthly payment amount will be:

 $15,000 / ($10,000 + $15,000) = 60 percent
 0.60 x $278.36 = $167.02

    Example 3. David is single with no dependents and has $60,000 in 
Direct Subsidized and Unsubsidized Loans. The interest rate on all of 
the loans is 6.80 percent, and David's AGI is $33,123.
    Step 1: Determine the total monthly payment amount based on what 
David would pay over 12 years using standard amortization. To do this, 
use the formula that precedes Example 1. In this example, the monthly 
payment amount would be $610.66.
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table (see Attachment 1 
to this notice) that corresponds to David's AGI. In this example, an 
AGI of $32,552 corresponds to an income percentage factor of 80.33 
percent.

 0.8033 x $610.66 = $490.54

    Step 3: Determine 20 percent of David's discretionary income and 
divide by 12 (discretionary income is AGI minus the HHS Poverty 
Guideline amount for a borrower's family size and State of residence). 
To do this subtract the Poverty Guideline amount for a family of one 
from David's AGI, multiply the result by 20 percent, then divide by 12:

 $33,123 - $11,670 = $21,453
 $21,453 x 0.20 = $4,290.60
 $4,290.60 / 12 = $357.55

    Step 4: Compare the amount from Step 2 with the amount from Step 3. 
The lower of the two will be David's monthly payment amount. In this 
example, David will be paying the amount calculated under Step 3 
($357.55).
    Interpolation. If an income is not included on the income 
percentage factor table, calculate the income percentage factor through 
linear interpolation. For example, assume that Joan is single with an 
income of $50,000.
    Step 1: Find the closest income listed that is less than Joan's 
income ($50,000)

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and the closest income listed that is greater than Joan's income 
($50,000).
    Step 2: Subtract the lower amount from the higher amount (for this 
discussion we will call the result the ``income interval''):

 $52,178 - $41,604 = $10,574

    Step 3: Determine the difference between the two income percentage 
factors that correspond to the incomes used in Step 2 (for this 
discussion, we will call the result the ``income percentage factor 
interval''):

 100.00 percent - 88.77 percent = 11.23 percent

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

 $50,000 - $41,604 = $8,396

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

 $8,396 / $10,574 = 79.40 percent

    Step 6: Multiply the result of Step 5 by the income percentage 
factor interval:

 11.23 percent x 79.40 percent = 8.917 percent

    Step 7: Add the result of Step 6 to the lower of the two income 
percentage factors used in Step 3 to calculate the income percentage 
factor interval for $50,000 in income:

 8.917 percent + 88.77 percent = 97.69 percent (rounded to the 
nearest hundredth)

    The result is the income percentage factor that we will use to 
calculate Joan's monthly repayment amount under the ICR plan.

Attachment 3--Charts Showing Sample Repayment Amounts for Single and 
Married Borrowers

BILLING CODE 4000-01-P

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[FR Doc. 2014-08966 Filed 4-18-14; 8:45 am]
BILLING CODE 4000-01-C