Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 66087-66147 [2012-26348]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 77, Number 212 (Thursday, November 1, 2012)]
[Rules and Regulations]
[Pages 66087-66147]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26348]



[[Page 66087]]

Vol. 77

Thursday,

No. 212

November 1, 2012

Part II





Department of Education





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34 CFR Parts 674, 682, and 685





Federal Perkins Loan Program, Federal Family Education Loan Program, 
and William D. Ford Federal Direct Loan Program; Final Rule

Federal Register / Vol. 77 , No. 212 / Thursday, November 1, 2012 / 
Rules and Regulations

[[Page 66088]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

RIN 1840-AD05
[Docket ID ED-2012-OPE-0010]


Federal Perkins Loan Program, Federal Family Education Loan 
Program, and William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Federal Perkins Loan (Perkins Loan) 
program, Federal Family Education Loan (FFEL) program, and William D. 
Ford Federal Direct Loan (Direct Loan) program regulations. These final 
regulations implement a new Income-Contingent Repayment (ICR) plan in 
the Direct Loan program based on the President's ``Pay As You Earn'' 
repayment initiative, incorporate recent statutory changes to the 
Income-Based Repayment (IBR) plan in the Direct Loan and FFEL programs, 
and streamline and add clarity to the total and permanent disability 
(TPD) discharge process for borrowers in loan programs under title IV 
of the Higher Education Act of 1965, as amended (HEA). These final 
regulations implementing a new ICR plan and the statutory changes to 
the IBR plan will assist borrowers in repaying their loans while the 
changes to the TPD discharge process will reduce burden for borrowers 
who are disabled and seeking a discharge of their title IV debt.

DATES: Effective date: These regulations are effective July 1, 2013.
    Implementation dates: For implementation dates, see the 
Implementation Date of These Regulations section of the Supplementary 
Information.

FOR FURTHER INFORMATION CONTACT: For further information related to the 
Pay As You Earn repayment plan, and the IBR and ICR plans, Pamela Moran 
or Jon Utz at (202) 502-7732 or (202) 377-4040 or by email at: 
Pamela.Moran@ed.gov or Jon.Utz@ed.gov. For information related to Total 
and Permanent Disability Discharge, Gail McLarnon or Brian Smith at 
(202) 219-7048 or (202) 502-7551 or by email at Gail.McLarnon@ed.gov or 
Brian.Smith@ed.gov. If you use a telecommunications device for the deaf 
(TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), 
toll free, at 1-800-877-8339.
    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.

SUPPLEMENTARY INFORMATION: 

Executive Summary

    Purpose of This Regulatory Action: The combination of increased 
enrollment and rising tuition has contributed to a significant increase 
in student loan debt among Americans. The ability of recent college 
graduates to find immediate employment with wages adequate enough to 
repay this debt has been challenging.
    For Federal student loan borrowers who suffer from a total and 
permanent disability, the Department's current TPD discharge process 
has led to inconsistencies in determining their eligibility for 
discharge and created undue hardship.
    Based on the results of the negotiated rulemaking process and the 
advice and recommendations submitted by individuals and organizations 
in public hearing testimony and in written comments submitted to the 
Department, the final regulations will create a new Income-Contingent 
Repayment (ICR) plan in the Direct Loan program based on the 
President's ``Pay As You Earn'' repayment initiative, incorporate 
recent statutory changes to the Income-Based Repayment (IBR) plan in 
the Direct Loan and FFEL programs, and streamline and add clarity to 
the TPD discharge process for borrowers in the title IV, HEA loan 
programs.
    Summary of the Major Provisions of This Regulatory Action: The 
final regulations will--
     Create a new ICR plan (the Pay As You Earn repayment plan) 
in the Direct Loan program based on the President's Pay As You Earn 
repayment initiative. The regulations support the administration's goal 
of making the statutory improvements made by the SAFRA Act included in 
the Health Care and Reconciliation Act of 2010 (Pub. L. 111-152) to the 
IBR plan available to some borrowers earlier than July 1, 2014, and 
make technical corrections and minor changes to the current ICR plan 
regulations, including the addition of provisions related to 
notification of income documentation requirements and the ICR loan 
forgiveness process.
     Amend the regulations governing the IBR plan to 
incorporate statutory changes made by the SAFRA Act and add new 
provisions related to notification of income documentation 
requirements, repayment options after leaving the IBR plan, and the IBR 
loan forgiveness process.
     Revise the Perkins Loan and FFEL program regulations to 
permit borrowers to apply directly to the Department for a TPD 
discharge. In the Direct Loan program, borrowers would continue to 
apply directly to the Department for TPD discharges, as they do under 
the current Direct Loan regulations.
     Revise the Perkins, FFEL, and Direct Loan program 
regulations to permit a TPD discharge based on a borrower's Social 
Security Administration (SSA) notice of award for Social Security 
Disability Insurance (SSDI) benefits or Supplemental Security Income 
(SSI) benefits indicating that the borrower's eligibility for 
disability benefits will be reviewed on a five- to seven-year schedule. 
This five- to seven-year review schedule classifies the borrower as 
permanently impaired--medical improvement not expected. Borrowers will 
still be subject to the three-year discharge review that is currently 
in place.
     Make conforming changes throughout the Perkins, FFEL, and 
Direct Loan program regulations referencing the use of an SSA 
disability notice of award in the TPD process.
     Reinstate a title IV loan discharged based on the 
borrower's TPD if the borrower receives a notice from the SSA 
indicating that the borrower is no longer disabled or the borrower's 
continuing disability review will no longer be the five- to seven-year 
period indicated in the SSA disability notice of award.
     Require a Perkins, FFEL, or Direct Loan borrower to notify 
the Secretary, during the three-year period following a TPD discharge, 
if the borrower has been notified by the SSA that the borrower is no 
longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period indicated in the SSA 
disability notice of award.
     Modify regulations in the Perkins Loan, FFEL, and Direct 
Loan programs to provide more detailed information to borrowers in 
letters explaining why a disability discharge has been denied.
     Define the term ``borrower's representative'' for purposes 
of the disability discharge application process and state that 
references to a borrower or a veteran in the TPD discharge regulations 
include a borrower's representative or a veteran's representative.
     Specify that the Department will deny a disability 
discharge application and collection will resume on the borrower's 
loans if the borrower receives a disbursement of a new title IV loan or 
receives a new grant under the Teacher Education Assistance for College 
and Higher Education (TEACH)

[[Page 66089]]

grant program made on or after the date the physician certified the 
borrower's disability discharge application or on or after the date the 
Secretary receives the borrower's SSA disability notice of award and 
before the date the Department makes a decision on the borrower's 
application for a TPD discharge.
     Specify that if a borrower's Perkins, FFEL, or Direct Loan 
program loan is reinstated, it returns to the status that it would have 
had if the TPD discharge application had not been received.
     Make corresponding changes to the TPD application process 
based on a certification from the Department of Veterans Affairs.
    Chart 1 summarizes the final regulations and related benefits, 
costs, and transfers that are discussed in more detail in the 
Regulatory Impact Analysis of this preamble. The Department estimates 
that approximately 1.6 million borrowers could take advantage of the 
Pay As You Earn repayment plan with another million borrowers being 
affected by the statutory changes to the IBR plan reflected in these 
regulations. Significant benefits of these final regulations include a 
streamlined process for TPD discharges, enhanced notifications related 
to TPD, IBR, and ICR application and servicing processes, and reduced 
monthly payments for borrowers in partial financial hardship (PFH) 
status as a result of using a lower PFH threshold of 10 percent. The 
net budget impact of the regulations is $2.1 billion over the 2012 to 
2021 loan cohorts.


                                  Chart 1--Summary of the Proposed Regulations
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         Issue and key features                   Benefits                          Cost/transfers
----------------------------------------------------------------------------------------------------------------
Income-Contingent Repayment (34 CFR
 part 685):
    Establishes the Pay As You Earn      Enhanced cash management    Estimated net budget impact of $2.1 billion
     repayment plan with features of      option for borrowers.       over the 2012-2021 loan cohorts.
     IBR as revised by SAFRA for new
     borrowers on or after 10/1/2007
     with a loan disbursement made on
     or after 10/1/2011. The Pay As You
     Earn repayment plan retains a cap
     on interest capitalization from
     current ICR.
    Establishes threshold for PFH at 10  Reduced payments and
     percent for Pay As You Earn          shorter forgiveness
     repayment plan borrowers.            period may encourage
                                          acknowledgement and
                                          payment of debt.
    Loan forgiveness after 20 years of   Reduced monthly payments
     qualifying payments compared to 25   may allow greater
     years under current regulations.     participation in the
                                          economy.
    Retains current ICR program as ICR.  An income-driven repayment
                                          option remains available
                                          to all borrowers.
    Establishes process for borrower
     notification and processing of
     loan forgiveness by loan holders.
Income-Based Repayment (34 CFR part
 685):
    Incorporates statutory changes from  Benefits mirror those
     SAFRA.                               associated with proposed
                                          ICR changes.
    Threshold for PFH reduced from 15
     percent to 10 percent for new
     borrowers after 7/1/2014.
    Loan forgiveness after 20 years of
     qualifying payments compared to 25
     years under current regulations.
Income-Based Repayment (34 CFR part
 685, 34 CFR part 682):
    A smaller payment amount made under  Improved notifications      No net budget impact from proposed
     a forbearance can qualify as the     around annual               regulations.
     single payment made in standard      recertification of income
     repayment plan for borrower          may reduce number of
     leaving IBR to select another        borrowers removed from
     repayment plan.                      PFH for paperwork reasons.
    Modified notification and income                                 Estimated paperwork compliance costs of
     documentation requirements for                                   approximately $570,000 annually.
     borrowers in IBR.
    Establishes process for borrower
     notification and processing of
     loan forgiveness by loan holders.
Total and Permanent Disability (34 CFR
 674.61; 34 CFR 682.402; 34 CFR
 685.213):
    Creates single discharge             Simplifies process for      Estimated paperwork compliance burden of
     application process through the      borrowers.                  approximately $725,000.
     Department for all of a borrower's
     FFEL, Direct, and Perkins loans.
    Specifies that borrower's            Departmental processing
     representative will receive all      should increase
     notifications and can be involved    consistency of TPD
     in all aspects of the process.       determinations.
    Enhanced notifications, including    Process changes could
     more detailed reasons for denials    reduce reinstatements for
     and information about options for    paperwork reasons.
     reapplying.
    Revised treatment of payments made   Simplifies application
     following a TPD discharge.           process for borrowers and
                                          the Department.
    Creation of standard form for
     reporting income during 3-year
     post-discharge monitoring period.

[[Page 66090]]

 
    Allows for acceptance of an SSA
     disability notice of award for
     Social Security Disability
     Insurance or Supplemental Security
     Income benefits as proof of a
     borrower's TPD if the notice
     indicates that the SSA will review
     the borrower's continuing
     eligibility for benefits once
     every five to seven years, thus
     indicating that the borrower's
     disability is in the medical
     improvement not expected category.
     The borrower would still be
     subject to the three-year post
     discharge monitoring period.
----------------------------------------------------------------------------------------------------------------

    On July 17, 2012 the Secretary published a notice of proposed 
rulemaking (NPRM) for these programs in the Federal Register (77 FR 
42086). The final regulations contain several changes from the NPRM. We 
fully explain the changes in the Analysis of Comments and Changes 
section of the preamble that follows.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulations may 
choose to implement earlier and the conditions for early 
implementation.
    Consistent with the Department's objective to provide critical 
information to and improve servicing processes for borrowers who repay 
under the IBR plan, the Secretary is exercising his authority under 
section 482(c) to designate the following new and amended regulations 
included in this document for early implementation beginning on 
November 1, 2012 at the discretion of each loan holder, as appropriate:
    (1) Section 682.209(a)(6)(v)(C).
    (2) Section 682.211(f)(16).
    (3) Section 682.215(d).
    (4) Section 682.215(e).
    The Secretary intends to implement the regulations governing the 
Pay As You Earn repayment plan as soon as possible. We will publish a 
separate Federal Register notice to announce when the plan becomes 
available to borrowers.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, 2,892 
parties submitted comments on the proposed regulations. An analysis of 
the comments and of the changes in the regulations since publication of 
the NPRM follows.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses. We discuss other 
substantive issues under the sections of the proposed regulations to 
which they pertain. Generally, we do not address technical and other 
minor changes.

Total and Permanent Disability Discharge

General Comments
    Comments: Many commenters supported the Department's proposed rules 
that allow a borrower to submit one application directly to the 
Department for a TPD discharge on all of the borrower's loans rather 
than to submit an application to each loan holder. The commenters also 
stated that the proposed changes to the discharge process would make it 
easier for disabled borrowers to provide the Department information 
necessary to make a loan discharge determination.
    Discussion: The Department appreciates the commenters' support.
    Changes: None.
    Comments: Many individual commenters suggested a range of 
modifications to the proposed TPD regulations that would require 
statutory change. Some commenters suggested that private student loans 
should be discharged if the borrower is determined to be TPD. Other 
suggestions were:
     Eliminate the post-discharge monitoring period of a 
borrower's income following a TPD discharge;
     Do not treat loan amounts discharged based on the 
borrower's permanent and total disability as income for Federal tax 
purposes;
     Do not reinstate a title IV loan that was discharged due 
to TPD if the borrower has annual earnings from employment that exceed 
the poverty line if the earnings are not related to the degree financed 
by the discharged loan; and
     Require credit reporting agencies to remove references to 
TPD discharges from a borrower's credit report.
    Discussion: We appreciate the commenters' suggestions; however, 
absent congressional action to amend the HEA or other pertinent laws, 
the Department generally does not have the authority to make these 
changes. The Federal Government does not have authority to require the 
discharge of a private student loan.
    The post-discharge monitoring of a borrower's earned income is 
required under section 437(a)(1)(A)(ii) of the HEA when FFEL and, by 
extension, Direct Loans are discharged due to the borrower's TPD. Since 
the standard for TPD discharges is the same in all of the title IV loan 
programs, we believe that it is appropriate to require that the income 
of Perkins Loan borrowers be monitored and that the Perkins Loan be 
reinstated if the borrower's income exceeds the poverty line in the 
same manner as Direct Loan and FFEL program loans.
    The treatment of loan amounts discharged based on the borrower's 
TPD as income for Federal tax purposes is governed by the Federal tax 
code, not the HEA.
    Section 437(a)(1)(A)(ii) of the HEA requires reinstatement of a 
FFEL or Direct Loan discharged due to the borrower's TPD if the 
borrower's earned income exceeds the poverty line. The HEA does not 
distinguish between how the income is earned.
    Finally, sections 430A(a)(5) and 463(c)(2)(C) of the HEA require 
FFEL and Perkins Loan holders, respectively, to report to credit 
reporting agencies when a FFEL or Perkins Loan is discharged due to 
TPD. This requirement applies to Direct Loans in accordance with 
section 455(a)(1) of the HEA. Section 605(a)(4) of the Fair Credit 
Reporting Act requires credit reporting agencies to report the 
disability discharge on the borrower's credit report for seven years.
    Changes: None.
    Comments: Many commenters indicated that they believed that the 
statutory definition of TPD added to the HEA by the Higher Education 
Opportunity Act of 2008 (HEOA) (Pub.

[[Page 66091]]

L. 110-315) is very similar to the definition used in the disability 
benefit programs administered by the Social Security Administration 
(SSA). The commenters expressed the belief that, by including a similar 
definition of the term ``total and permanent disability'' in the HEA, 
Congress showed that it intended for the Department to align its TPD 
determinations more closely with the SSA's determinations of permanent 
disability status to reduce the TPD application burden on borrowers 
already determined to be permanently disabled by the SSA. The 
commenters requested that the Department accept existing SSA disability 
determinations when making a determination that a borrower is TPD for 
title IV loan discharge purposes. The commenters stated that using SSA 
disability determinations, along with the proposed rule to allow 
borrowers to submit a single TPD application to the Department rather 
than submit separate discharge applications to each of their lenders, 
would further streamline the Department's TPD discharge process and 
reduce burden on borrowers, the Department, and loan holders.
    One commenter urged the Department to consider borrowers eligible 
for a TPD discharge if the borrower, at a minimum, met the SSA 
definition of ``Medical Improvement Not Expected'' or ``Medical 
Improvement Possible'' after a period of at least 60 months. Another 
commenter noted that when the Department transitioned to a single 
servicer for TPD application purposes and before the Department adopted 
the current TPD discharge process, the Department considered, but 
decided against, adopting a TPD process under which borrowers could 
provide proof of an SSA disability determination in the form of an SSA 
disability notice of award indicating when the borrower's next SSA 
medical review would occur as evidence that the borrower was totally 
and permanently disabled for title IV loan discharge purposes. The 
commenter urged the Department to reconsider this decision.
    Finally, several commenters noted that the Department already 
accepts disability determinations from the Department of Veterans 
Affairs (VA) when making the determination that a title IV borrower is 
eligible for a TPD discharge and urged the Department to do the same 
with SSA disability determinations.
    Discussion: Upon consideration of these comments and internal 
deliberations, we have determined that we will accept the specific SSA 
notice of award for Social Security Disability Insurance (SSDI) 
benefits or Supplemental Security Income (SSI) benefits as proof of a 
borrower's TPD if the notice indicates that the SSA will review the 
borrower's continuing eligibility for SSDI or SSI benefits once every 
five to seven years. Sections 437(a) and 464(c)(1)(F) of the HEA 
provide for the discharge of a borrower's title IV loans if the 
borrower becomes totally and permanently disabled in accordance with 
the Secretary's regulations, or if the borrower is unable to engage in 
any substantial gainful activity by reason of any medically 
determinable physical or mental impairment that can be expected to 
result in death, has lasted for a continuous period of not less than 60 
months (five years), or can be expected to last for a continuous period 
of not less than 60 months (five years). In two related final 
regulations published in the Federal Register on October 28, 2009 (74 
FR 55626), and on October 29, 2009 (74 FR 55972), we included the 
specific statutory substantial gainful activity standard in our 
regulations at Sec. Sec.  674.51(aa) and 682.200(b). Section 674.51(x) 
of the Department's October 28, 2009, final regulations and Sec.  
682.200(b) of the Department's October 29, 2009, final regulations both 
defined ``substantial gainful activity'' to mean a level of work 
performed for pay or profit that involves doing significant physical or 
mental activities, or a combination of both. We do not use an earnings 
standard to determine substantial gainful activity. However, if a title 
IV borrower has received a TPD discharge and, within three years after 
the loan is discharged, the borrower earns income from employment that 
exceeds 100 percent of the poverty guideline for a family of two 
($1,275 per month in the 48 contiguous states, $1,577 per month in 
Alaska, and $1,451 per month in Hawaii) in a year, the borrower is not 
considered to have been disabled and the loan repayment obligation is 
reinstated.
    The SSA defines the term ``disability'' to mean the inability of an 
individual to engage in any substantial gainful activity by reason of 
any medically determinable physical or mental impairment that can be 
expected to result in death or that has lasted or can be expected to 
last for a continuous period of not less than 12 months (42 U.S.C. 
423). Upon making a disability determination based on this standard, 
the SSA is required by law to conduct disability reviews to determine 
the continuing eligibility of an individual for SSDI or SSI benefits 
where a finding has been made that such disability is permanent at such 
times as the Commissioner of Social Security determines to be 
appropriate (42 U.S.C. 421). The SSA has promulgated regulations to 
meet this statutory requirement under 20 CFR 404.1590 and 20 CFR 
416.990. (20 CFR Part 404 and 20 CFR Part 416 govern the SSDI and SSI 
programs, respectively). Specifically, under 20 CFR 404.1590(d) and 20 
CFR 416.990(d) of the SSA regulations, if an individual's impairment is 
expected to improve, generally the SSA reviews the individual's 
eligibility for disability benefits at intervals from six to 18 months 
following its most recent decision. This status is referred to as 
``medical improvement expected diary'' under 20 CFR 404.1590(c) and 20 
CFR 416.990(c) of the SSA regulations. If an individual's disability is 
not considered permanent but is such that any medical improvement is 
possible, the SSA reviews the individual's continuing eligibility for 
disability benefits at least once every three years under 20 CFR 
404.1590(d) and 20 CFR 416.990(d), unless SSA determines the 
requirement should be waived under 20 CFR 404.1590(g) or 20 CFR 
416.990(g). This type of disability is considered a ``nonpermanent 
impairment'' under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of SSA 
regulations. Finally, if an individual's disability is considered a 
``permanent impairment,'' the SSA reviews an individual's eligibility 
for benefits no less frequently than once every seven years, but no 
more frequently than once every five years under Sec.  404.1590(d) and 
Sec.  416.990(d). SSA regulations at 20 CFR 404.1590(c) and 20 CFR 
416.990(c) use the term ``permanent impairment'' to refer to a case in 
which any medical improvement in an individual's impairment is not 
expected. The SSA uses the term ``permanent impairment'' to mean an 
extremely severe condition determined on the basis of the SSA's 
experience in administering the disability programs to be at least 
static, but more likely to be progressively disabling either by itself 
or by reason of impairment complications and unlikely to improve so as 
to permit the individual to engage in substantial gainful activity. SSA 
may also consider the interaction of the individual's age, impairment 
consequences and lack of recent attachment to the labor market in 
determining whether an impairment is permanent. Regardless of an 
individual's classification, the SSA will conduct an immediate 
continuing disability review if a question of continuing disability is 
raised that meets any of the provisions of 20 CFR

[[Page 66092]]

404.1590(b) or 20 CFR 416.990(b). When the SSA notifies an individual 
that he or she is eligible for disability benefits, the notice also 
tells the individual when he or she can expect the first continuing 
disability review.
    The SSA regulations, at 20 CFR 404.1572 and 20 CFR 416.910, use the 
term ``substantial gainful activity'' to describe a level of work 
activity and earnings. ``Substantial work activity'' involves doing 
significant physical or mental activities. ``Gainful work activity'' is 
either work performed for pay or profit or work of a nature generally 
performed for pay or profit. Substantial gainful activity is also 
indicated by earnings averaging over $1,010 per month (for the year 
2012) for individuals whose impairment is anything other than 
blindness. The formula for determining substantial gainful activity for 
individuals who are blind is set forth in 42 U.S.C. 423, see also 20 
CFR 404.1584, Social Security Ruling 12-1p. The formula for determining 
substantial gainful activity for individuals who are not blind is 
similar to that used for individuals who are blind and is provided in 
20 CFR 404.1574 and 20 CFR 404.1575.
    Although the Department's definition of ``substantial gainful 
activity'' does not precisely mirror the SSA's definition, we agree 
that they are substantially similar. For example, both agencies require 
that an individual must be unable to engage in any substantial gainful 
activity by reason of a medically determinable physical or mental 
impairment in order to be determined disabled. Both agencies also 
define substantial gainful activity to mean a level of work performed 
for pay or profit that involves doing significant physical or mental 
activities or a combination of both. Both agencies allow an individual 
to engage in minimal levels of employment after receiving a disability 
determination as long as such employment does not exceed a specified 
dollar amount. And while it is unclear whether Congress intended for 
the Department to align its TPD determinations with the determination 
of permanent disability made by the SSA, we acknowledge that the 
standard a borrower must meet to establish eligibility for a title IV 
TPD discharge under section 437(a)(1) is substantially similar to the 
SSA's regulatory scheme governing a ``permanent impairment'' in 20 CFR 
404.1590 and 20 CFR 416.990.
    Section 437(a)(3) of the HEA explicitly provides the Secretary with 
the authority to provide the appropriate safeguards with regard to TPD. 
In light of this authority, the substantial similarity between the SSA 
and TPD statutory standards, and the burden reduction for applicants 
that will result from making this change, we have decided to allow a 
borrower to submit, as proof of the borrower's TPD, an SSA 
determination of permanent impairment-medical improvement not expected 
in the form of a SSDI or SSI notice of award that informs a borrower 
that his or her eligibility for SSA disability benefits will be 
reviewed no less frequently than once every seven years and no more 
frequently than once every five years (the five/seven year category).
    We chose to accept only the five/seven year category as proof of 
TPD as opposed to the SSA's continuing disability review standard of 
every six- to 18-months or every three years to meet the Department's 
standard for TPD discharge purposes because the latter two standards 
indicate medical improvement expected or that medical improvement is 
possible, respectively, under 20 CFR 404.1590(c) and 20 CFR 416.990 of 
SSA's regulations. Medical improvement is expected in cases where a 
borrower's impairment can be treated and recovery can be anticipated. 
Medical improvement is possible where a borrower's impairment does not 
rise to the level of severity of an impairment that is considered 
permanent.
    These regulations, along with regulations to allow borrowers to 
submit a single TPD application to the Department rather than separate 
discharge applications to each of their lenders, will further 
streamline the Department's TPD process and reduce burden on the 
Department as well as on borrowers who have already obtained such SSA 
documentation. Specifically, if we review the borrower's TPD 
application and the SSA notice of award for SSDI or SSI benefits 
specifies that the borrower will be reviewed no less frequently than 
once every seven years and no more frequently than once every five 
years for the purpose of establishing the borrower's continued 
eligibility for SSDI or SSI benefits, we will consider the borrower's 
title IV loans discharged as of the date we receive the SSA notice of 
award. The borrower would not be required to submit a certification by 
a physician that the borrower is TPD; the SSA notice of award for SSDI 
or SSI benefits alone will suffice as proof of the borrower's TPD.
    We use the date the Secretary receives the borrower's SSA notice of 
award for SSDI or SSI benefits to ensure, for the program integrity 
purposes described below, that a borrower who receives a discharge 
based on an application supported by an SSA notice of award for SSDI or 
SSI benefits would still be subject to the three-year post-discharge 
monitoring period and the borrower responsibilities after discharge. 
Also, because a borrower who submits such a notice of award is not 
required to obtain a physician's certification (the date of which is 
used as the date of discharge), the date we receive an SSA notice of 
award for SSDI or SSI benefits is the earliest possible date we can use 
to discharge a borrower's loan without the benefit of the physician's 
certification date that is contained in the borrower's TPD application 
under the current process and which we use as the official TPD 
discharge date if the Secretary approves the borrower's application. We 
are making conforming changes throughout the Perkins, FFEL, and Direct 
Loan regulations to reflect the use of the SSA notice of award for SSDI 
or SSI benefits in the process.
    In accepting the SSA notice of award for SSDI or SSI benefits, we 
must also preserve the integrity of the TPD process. In the past, we 
have not used the SSA's SSDI and SSI disability determinations in the 
TPD discharge process because the SSA's decisions on whether to do a 
disability review are not binding on the agency. As stated above, the 
SSA, with some exceptions, conducts an immediate continuing disability 
review if there is any evidence that raises a question as to whether an 
individual's disability continues. These exceptions, in 20 CFR 
404.1590(h) and (i) and 20 CFR 416.990(h) and (i), are crafted 
narrowly--for example, if an individual is working and has received 
SSDI benefits for at least 24 months, the SSA will not start a 
continuing disability review based solely on an individual's activity 
if he or she is currently entitled to widow's or widower's insurance 
benefits based on disability. To maintain the integrity of the TPD 
process when accepting an SSA notice of award for SSDI or SSI benefits 
indicating that a borrower's medical review will be conducted in five 
to seven years as proof of a borrower's disability for title IV 
discharge purposes, we are adding a provision to the Perkins, FFEL, and 
Direct Loan program regulations requiring the reinstatement of a 
borrower's obligation to repay a loan that was discharged due to TPD 
if, within three years after the date the discharge was granted, the 
borrower receives a notice from the SSA indicating that the borrower is 
no longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period contained in the SSA 
notice of award for SSDI or SSI benefits. This reflects the fact that 
any continuing disability

[[Page 66093]]

review done less frequently than five to seven years indicates a change 
in the borrower's permanent disability status. We are also adding 
Sec. Sec.  674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require 
borrowers, during the three-year monitoring period following the date 
the borrower's loan is discharged, to promptly notify the Secretary if 
the borrower receives a notice from the SSA indicating that the 
borrower is no longer disabled or that the borrower's continuing 
disability review will no longer be the five- to seven-year period 
contained in the SSA notice of award for SSDI or SSI benefits. Again, 
this would indicate that the SSA has changed the borrower's 
classification of impairment from permanent impairment-medical 
improvement not expected to another status.
    We do not agree with the commenter who recommended that the 
Department consider borrowers eligible for a TPD discharge if the 
borrower was determined by the SSA to be eligible for disability 
benefits with a continuing disability review schedule of every three 
years. This review schedule represents the status of nonpermanent 
impairment under which medical improvement is possible. We do not 
believe this SSA status rises to the level of severity required to meet 
the Department's definition of total and permanent disability because 
this status does not result in death or meet the disability longevity 
standards in the HEA. If, however, a borrower can provide documentation 
proving that he or she has been in this nonpermanent impairment status 
for at least five years, we will consider such evidence in determining 
whether the borrower has engaged in any substantial gainful activity 
for a period of at least 60 months (five years) under our current TPD 
standards. Of course, we will continue to accept TPD applications from 
borrowers under our current process that requires the borrower's 
application to contain a certification by a physician, who is a doctor 
of medicine or osteopathy legally authorized to practice in a State, 
that the borrower is TPD as defined in Department of Education 
regulations. Thus, a borrower who has not received an SSA notice of 
award for SSDI or SSI benefits may still be eligible for a TPD under 
other provisions of these final regulations.
    Lastly, sections 437(a)(2) and 464(c)(1)(F)(iv) of the HEA 
authorize the Department to accept disability determinations from the 
VA when making the determination that a title IV borrower is eligible 
for a TPD discharge. The HEA does not specifically authorize the 
Department to accept SSA disability determinations but rather gives the 
Secretary the authority to provide the appropriate safeguards with 
regard to TPD. We believe that allowing borrowers to submit an SSA 
notice of award for SSDI or SSI benefits indicating a five- to seven-
year review period as proof of the borrower's TPD in conjunction with 
other applicable Department regulations provides these safeguards, and, 
for the reasons explained in this section, is consistent and aligns 
with the statutory language in the HEA. This change with regard to SSA 
determinations will further streamline and simplify the TPD process and 
ease regulatory burden for both applicants and the Department.
    Changes: We are making conforming amendatory changes throughout the 
Perkins, FFEL, and Direct Loan final regulations to incorporate the use 
of an SSA notice of award for SSDI or SSI benefits in the process of 
determining whether borrowers have a TPD for the purposes of the 
discharge of their title IV loans. Specifically, we are providing in 
Sec. Sec.  674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2) that 
a borrower may submit an SSA notice of award for SSDI or SSI benefits 
indicating that the borrower's next scheduled disability review will be 
within five to seven years as proof of the borrower's TPD.
    We are also providing in Sec. Sec.  674.61(b)(3)(i), 
682.402(c)(3)(i), and 685.213(b)(4)(i) that if, after reviewing a 
borrower's completed application, the Secretary finds that the SSA 
notice of award for SSDI or SSI benefits indicates that the borrower 
has a permanent disability, the borrower is considered TPD as of the 
date the Secretary received the SSA disability notice of award. Final 
Sec. Sec.  674.61(b)(3)(iii) and 682.402(c)(3)(iii) provide that in 
notifying the borrower's lenders that the borrower has been approved 
for a TPD discharge, the Secretary includes the date the Secretary 
received the SSA notice of award for SSDI or SSI benefits. Final 
Sec. Sec.  674.61(b)(3)(v), 682.402(c)(3)(iii), and 685.213(b)(4)(iii) 
provide that any payments on a loan received after the date the 
Secretary received the SSA notice of award for SSDI or SSI benefits are 
returned to the person who made them. Final Sec. Sec.  
674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) state that if 
the SSA notice of award for SSDI or SSI benefits provided by the 
borrower does not support the conclusion that the borrower is TPD, the 
Secretary notifies the borrower and the lender that the discharge has 
been denied. We are amending Sec. Sec.  674.61(b)(4), 682.402(c)(4), 
and 685.213(b)(5) to provide that if a borrower received a title IV 
loan or TEACH grant before the date the Secretary received the SSA 
notice of award for SSDI or SSI benefits and a disbursement of that 
loan or grant is made during the period from the date the Secretary 
received the SSA notice of award until the date the Secretary grants a 
TPD discharge, the processing of the discharge application will be 
suspended until the borrower returns the disbursement. We are amending 
Sec. Sec.  674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) to provide 
that if a borrower receives a disbursement of a new title IV loan or 
receives a new TEACH grant made on or after the date the Secretary 
received the SSA notice of award for SSDI or SSI benefits and before 
the date the Secretary grants a discharge, the Secretary denies the 
discharge application and collection resumes on the loans. We are 
amending Sec. Sec.  674.61(b)(7), 682.402(c)(6), and 685.213(b)(7) to 
provide that the Secretary reinstates a borrower's obligation to repay 
a loan that was discharged due to TPD if, within three years after the 
date the discharge was granted, the borrower receives a notice from the 
SSA indicating that the borrower is no longer disabled or the 
borrower's continuing disability review will no longer be the five- to 
seven-year period contained in the SSA notice of award for SSDI or SSI 
benefits. We are amending Sec. Sec.  674.61(b)(7), 682.402(c)(7), and 
685.213(b)(8) to require borrowers, during the three-year monitoring 
period following the date the borrower's loan is discharged, to 
promptly notify the Secretary if the borrower received a notice from 
the SSA indicating that the borrower is no longer disabled or the 
borrower's continuing disability review will no longer be the five- to 
seven-year period contained in the SSA notice of award for SSDI or SSI 
benefits. Lastly, we are amending Sec.  682.402(c)(8) to require that 
once the Secretary approves the borrower's TPD application, and the 
lender receives a claim payment from the guaranty agency, the lender 
must return to the sender any payments received by the lender after the 
date the Secretary received the SSA notice of award for SSDI or SSI 
benefits.
Borrower Representatives (34 CFR 674.61(b)(1), 682.402(c)(1), and 
685.213(a)(4))
    Comments: One commenter expressed support for the regulations in 
Sec. Sec.  674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), and 685.213(a)(4) 
that provide for a borrower's or veteran's representative to act on 
behalf of the borrower or veteran, but noted that the regulations refer 
to a representative as an ``individual.'' The commenter asked if the 
representative

[[Page 66094]]

could be a law firm or a legal aid society rather than an individual. 
The commenter noted that personnel at law firms or legal aid societies 
change, and it would reduce burden on the borrower if the borrower or 
veteran did not have to authorize a different individual as a 
representative as a result of a personnel change at a law firm or legal 
aid society.
    Another commenter asked whether the authorization of a 
representative had to come from the borrower or veteran. This commenter 
asked whether a court could authorize a representative to act on behalf 
of the borrower or veteran.
    A third commenter expressed concerns over the Department's current 
process for sending notices to borrowers' representatives. In this 
commenter's experience, the Department does not consistently send 
notices to borrower's representatives. The commenter urged the 
Department to improve the process for sending such notices as soon as 
possible.
    Discussion: Under the regulations as proposed and finalized, an 
``individual'' could include a law firm or legal aid society authorized 
to act on the borrower's or veteran's behalf without identifying a 
specific individual within that law firm or legal aid society as the 
representative. We agree that the authorization could be provided 
through such means as a Power of Attorney or a court order. The 
Department will review the validity of such authorizations on a case-
by-case basis to determine if the authorization meets applicable legal 
requirements.
    Since October 1, 2010, the Department has taken steps to identify 
TPD discharge requests in which the borrower listed a representative. 
When the borrower lists a representative, we send notices related to 
the TPD discharge application to those borrower representatives, as 
well as to the borrowers. The Department will continue to do so under 
the new TPD discharge process. Borrowers who submitted TPD applications 
prior to October 1, 2010, may request that a borrower representative be 
added to their account at any time.
    Changes: None.
Disability Discharge Application Process (34 CFR 674.61(b)(2), 
682.402(c)(2), and 685.213(b))
    Comments: One commenter recommended that all of a borrower's loan 
holders be notified of a borrower's request for a TPD discharge after 
the borrower submits a single TPD discharge application.
    Another commenter recommended that if one lender discharges a 
borrower's loans due to TPD, all of the borrower's other title IV loans 
should be automatically discharged.
    One commenter recommended that we streamline what the commenter 
described as an ``extremely daunting'' application process for TPD 
discharges. Similarly, another commenter requested that the Department 
make it easier for borrowers with disabilities to seek TPD discharges.
    Discussion: The Department appreciates the concerns expressed by 
the commenters regarding the current TPD discharge process. Consistent 
with the NPRM, these final regulations reflect the recommendations made 
by the commenters. Sections 674.61(b)(2), 682.402(c)(2), and 685.213(b) 
establish a single application process in which the borrower will 
submit one TPD discharge application to the Department. The Department 
has one contractor employed to handle TPD discharges and that servicer 
will be the sole office receiving these TPD discharge applications. 
Once the Department is notified that the borrower intends to apply for 
a TPD discharge, we will notify all of the borrower's title IV loan 
holders and instruct them to suspend collection activity on the 
borrower's loans for 120 days. If the Department determines that the 
borrower qualifies for a TPD discharge, the Department will notify all 
of the borrower's title IV loan holders and instruct them to assign the 
borrower's loans to the Department. After the Department accepts the 
loan assignments, the Department will discharge the loans unless the 
processing of the discharge request is suspended or denied under Sec.  
674.61(b)(4), 674.61(b)(5), 682.402(c)(4), 682.402(c)(5), 
685.213(b)(5), or 685.213(b)(6). We believe that the streamlined 
disability discharge application process will alleviate many of the 
difficulties borrowers have encountered in applying for TPD discharges.
    Changes: None.
    Comments: Sections 674.61(b)(2)(ii) and 682.402(c)(2)(ii) of the 
Perkins and FFEL regulations specify that if a borrower notifies the 
Secretary that the borrower intends to apply for a TPD discharge, the 
Secretary provides the borrower with the information needed to apply 
for the discharge and informs the borrower that the suspension of 
collection activity will end after 120 days if the borrower does not 
submit the TPD discharge application within that timeframe. One 
commenter noted that these requirements were not included in proposed 
Sec.  685.213(b)(1), the comparable section of the Direct Loan 
regulations, and asked if there was a specific reason for the 
difference.
    Discussion: The Department will provide the same information and 
notifications required under the Perkins and FFEL regulations to Direct 
Loan borrowers. We agree that to provide consistency with the Perkins 
and FFEL regulations these requirements should be included in the 
Direct Loan regulations as well.
    Changes: We have revised Sec.  685.213(b)(1) of the Direct Loan 
regulations to state that the Secretary will provide borrowers with the 
information needed to apply for a TPD discharge and inform the borrower 
that collection will resume on the borrower's loan after 120 days if 
the borrower does not submit a TPD discharge application.
    Comments: One commenter recommended that the Department grant TPD 
discharges retroactively as of the application date, so that both 
voluntary and involuntary payments made after that date would be 
refunded to the borrower.
    Discussion: Sections 674.61(b)(3)(i)(A), 682.402(c)(3)(i)(A), and 
685.213(b)(4)(i)(A) specify that if the Department determines that the 
borrower is totally and permanently disabled, the borrower is 
considered totally and permanently disabled ``as of the date the 
physician certified the borrower's application.'' It is more beneficial 
to the borrower to use the physician certification date than the 
application date, because the physician certification date is earlier 
than the application date.
    Changes: None.
Suspension of Collection Activity (34 CFR 674.61(b)(2)(ii)(C), 
674.61(b)(2)(vi), 682.402(c)(2)(ii)(C), 682.402(c)(2)(vi), 
685.213(b)(1) and 685.213(b)(3)(i))
    Comments: One commenter recommended that the Department cease 
collection on a borrower's title IV loans upon receipt of a TPD 
discharge application. Another commenter recommended that the 
Department confirm that the indefinite suspension of collection 
activity--which occurs after the Secretary receives the borrower's TPD 
discharge application--is not dependent on whether the application is 
complete. A similar comment stated that it is not clear how incomplete 
applications received after the 120-day suspension of the collection 
period are treated. This commenter gave an example in which a borrower 
submits an incomplete application on day 119 of the suspension of 
collection activity, but does not file the complete application until 
day 130. The commenter asked if, under those circumstances, collection 
activity would resume on day 121, or if the incomplete

[[Page 66095]]

application would be sufficient to keep the suspension of collection in 
place.
    One commenter also noted that Sec. Sec.  674.61(b)(2)(ix), 
682.402(c)(2)(ix), and 685.213(b)(3) describe the contents of the 
notice that the Department sends to the borrower upon receipt of the 
disability discharge application. This commenter asked if this notice 
is sent for incomplete applications, or if it is only sent once the 
borrower has submitted a completed application.
    In addition, some commenters recommended that Treasury Offset 
Program (TOP) offsets and administrative wage garnishment (AWG) 
collection activity on the loan cease during the suspension of 
collection activity.
    Discussion: The final regulations in Sec. Sec.  
674.61(b)(2)(ii)(C), 682.402(c)(2)(ii)(C), and 685.213(b)(1) provide 
that the 120-day suspension of collection begins on the date the 
borrower notifies the Secretary of the borrower's intent to apply for a 
TPD discharge. Collection ceases based on a borrower's notification to 
the Secretary--which could be a verbal notification--and does not 
require submission of an application.
    The Secretary notifies the lenders of the second, indefinite period 
of suspension of collection activity after the Secretary receives the 
TPD discharge application, as specified in Sec. Sec.  674.61(b)(2)(vi), 
682.402(c)(2)(vi), and 685.213(b)(3)(i). If the application is 
incomplete, the Secretary contacts the borrower, or the physician who 
certified the application, and asks for the missing information, as 
provided by Sec. Sec.  674.61(b)(2)(vii), 682.402(c)(2)(vii), and 
685.213(b)(3)(ii). The second, indefinite suspension of a collection 
activity is not dependent on the TPD discharge application containing 
all of the information needed for the Secretary to conduct the 
eligibility review, as more detailed medical information regarding the 
borrower's disability may be collected during the period of suspension 
of collection activity. However, the application must contain 
sufficient information for the Secretary to begin review of the 
application, such as the borrower's identifying information, 
physician's contact information, and the physician certification 
required under Sec. Sec.  674.61(b)(2)(iv), 682.402(c)(2)(iv), and 
685.213(b)(2)(i). The application must be provided to the Secretary 
within 90 days of the date the physician certifies the application 
under Sec. Sec.  674.61(b)(2)(v), 682.402(c)(2)(v), and 685.213(b)(3). 
If the application arrives without the physician certification or 
certification date, the Secretary cannot determine if the 90-day 
requirement has been met. An application missing this information would 
not meet the requirements of Sec. Sec.  674.61(b)(2)(vi), 
682.402(c)(2)(vi), or 685.213(b)(3).
    Borrowers who file a TPD discharge application will receive a 
different notice depending on whether collection activity is suspended. 
Thus, if the application does not meet the basic requirement of 
including a physician certification and certification date (unless the 
borrower submits an application that includes acceptable VA or SSA 
documentation as proof of the borrower's TPD), the borrower would 
receive a notice informing the borrower that suspension of collection 
will not continue. The borrower would receive a notice requesting the 
missing information, and notifying the borrower that collection 
activity will resume on the loan if the information is not provided 
before the end of the 120-day period of suspension.
    We discussed the effect of the suspension of collection activity on 
payments collected through AWG and TOP in the NPRM. The Department 
disagrees with the recommendation that AWG and TOP payments be included 
in the suspension of collection activity. Borrowers who apply for a TPD 
discharge must, by definition, be unable to engage in substantial 
gainful activity. Thus, these borrowers would not be earning wages and 
would not generally be subject to AWG. With regard to TOP, given the 
administrative effort and timing issues associated with suspending TOP, 
we do not believe it is in the best interests of the taxpayers to 
suspend TOP based solely on the filing of the TPD discharge 
application. Notifying the Department of the intent to file a TPD 
discharge request does not necessarily demonstrate that a borrower is 
TPD. Suspending TOP based on such a notification might encourage 
frivolous TPD discharge requests submitted solely to suspend TOP. If a 
borrower's loan account has been certified for TOP, the Secretary or 
the guaranty agency is not required to stop TOP offsets while the 
borrower is preparing to submit the TPD discharge application or during 
the Secretary's review of the TPD discharge request. The Secretary or 
the guaranty agency may, however, stop or reduce TOP offsets during 
this period if it believes such action is warranted under the 
borrower's circumstances.
    Changes: None.
    Comments: One commenter expressed concern that the notice of 
suspension of collection activity from the Department might not reach 
the appropriate office in the case of a multi-campus system with a 
central collection office. If the notice of suspension is sent to the 
specific campus, rather than to the central collection office for all 
of the campuses, the collection office would not know to suspend 
collection for a borrower who obtained a Perkins Loan for attendance at 
the school. The commenter noted that the National Student Loan Data 
System (NSLDS) listing for such a borrower would show the specific 
campus as the loan holder, not the central collection office.
    Discussion: The Department is aware of the issues that may arise 
with multi-campus systems with a centralized collection office. Under 
the new TPD discharge process, if a borrower notifies us of the intent 
to apply for a TPD discharge, we will contact the borrower's title IV 
loan holders listed on the NSLDS. Unless the loan has been assigned to 
the Department, the holder of a Perkins Loan is always the school that 
awarded the loan to the borrower.
    As we implement the new streamlined TPD discharge process, the 
Department will work with multi-campus systems that have centralized 
collection offices to find strategies to address this problem.
    Changes: None.
    Comments: One commenter stated that during the negotiated 
rulemaking sessions non-Federal negotiators proposed modifying the 
administrative forbearance regulations for the FFEL program to allow 
guaranty agencies to retroactively grant administrative forbearances to 
borrowers. This would eliminate delinquencies occurring before the 
borrower notified the Department of the intent to apply for a TPD 
discharge. When the Department decided to split the proposed 
regulations into two separate regulatory packages, the administrative 
forbearance provision was not included in the NPRM to these final 
regulations. The commenter noted that including the administrative 
forbearance provision in a subsequent rulemaking will create a period 
of time where guaranty agencies will not be able to eliminate a prior 
delinquency with an administrative forbearance. Delinquent borrowers 
whose 120-day suspension period expires, or whose TPD discharge 
application is denied before the effective date of the second set of 
regulations resulting from these negotiations, will resume repayment 
after the suspension periods at the same delinquency status. This 
commenter recommended that the Department provide clear guidance that 
would allow a borrower to exit a TPD suspension period in a 
nondelinquent status, regardless of the status of the loan at the time 
the suspension of collection

[[Page 66096]]

activity began, until the changes to the administrative forbearance 
regulations are published and are in effect.
    Discussion: The NPRM that would contain this revision to the 
administrative forbearance provisions has not yet been published. 
Consequently, there has been no opportunity for public comment on an 
NPRM that includes this revision. The Department believes that it would 
be inappropriate to establish such an administrative forbearance 
through subregulatory guidance prior to publication of the proposed 
regulatory change in an NPRM, receipt of public comment, and 
publication of a final regulation. In addition, we have no evidence 
that this has created a significant problem for borrowers seeking TPD 
discharges under our current regulations.
    Changes: None.
TPD Discharge Application Denial and Re-evaluation (34 CFR 
674.61(b)(3)(vi), 674.61(b)(3)(vii), 682.402(c)(3)(v), 
682.402(c)(3)(vi), 685.213(b)(4)(iv), and 685.213(b)(4)(v))
    Comments: One commenter asked if the references in proposed 
Sec. Sec.  674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) to 
the ``certification provided by the borrower'' meant the physician's 
certification on the TPD application form. If so, the commenter asked 
us to change the reference to the ``physician's certification.'' The 
commenter also asked us to make the same change in the corresponding 
regulations for the veteran's disability discharge process.
    Discussion: The references to a ``certification provided by the 
borrower'' in proposed Sec. Sec.  674.61(b)(3)(vi), 682.402(c)(3)(v), 
and 685.213(b)(4)(iv) do refer to the physician certification. We agree 
with the commenter and have revised these provisions in the final 
regulations to make this explicit. However, the corresponding language 
in Sec. Sec.  674.61(c), 682.402(c)(9), and 685.213(c) covering the 
veteran's disability discharge process refers to documentation from the 
Department of Veteran's Affairs not to a physician's certification, and 
does not need to be revised.
    Changes: We have replaced ``certification provided by the 
borrower'' with ``physician's certification'' in Sec. Sec.  
674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv).
    Comments: The proposed regulations in Sec. Sec.  674.61(b)(3)(vii), 
682.402(c)(3)(vi), and 685.213(b)(4)(v) would allow a borrower to 
request a re-evaluation of the borrower's TPD discharge application 
within 12 months of receiving the Secretary's decision denying the 
application. The proposed rules specified that the request for a re-
evaluation must include information that was not available at the time 
of the borrower's prior application. One commenter noted, however, that 
the information might have been available at the time of the prior 
application but might not have been included in the application for any 
number of reasons. The commenter recommended replacing the words ``not 
available'' with ``not included'' for these regulatory provisions.
    In addition, commenters asked the Department to confirm that a FFEL 
or Perkins loan holder will not provide a new period of suspension of 
collection activity during the re-evaluation period, unless advised 
otherwise by the Department.
    Discussion: We agree with the recommendation to revise the 
language, although, since detailed information is not included in the 
TPD discharge application itself, we have revised the new language.
    In response to the second comment noted above, we confirm that the 
borrower does not receive a second period of suspension when a TPD 
discharge is being re-evaluated.
    Changes: We have replaced ``not available'' with ``not provided to 
the Secretary in connection with the prior application'' in Sec. Sec.  
674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) of the final 
regulations.
Treatment of Disbursements of Title IV Loans and TEACH Grants or 
Receipt of New Title IV Loans and TEACH Grants After Date of 
Physician's Certification (34 CFR 674.61(b)(4) and (b)(5), 
682.402(c)(4) and (c)(5), and 685.213(b)(5) and (b)(6))
    Comments: The proposed regulations in Sec. Sec.  674.61(b)(4), 
682.402(c)(4), and 685.213(b)(5) stipulated that if a borrower receives 
a title IV loan or TEACH grant before the date the physician certified 
the TPD discharge application, and disbursement of the loan or grant is 
made after the date of the physician's certification and before the 
date the loan is discharged, the processing of the discharge request is 
suspended until the borrower returns the disbursement. One commenter 
noted that this regulatory requirement could be easily misunderstood. 
The commenter asked the Department to clarify what it means by a 
borrower ``receiving'' a loan or grant prior to the loan or grant being 
disbursed. The commenter asked if this requirement refers to a loan 
that is partially disbursed before the physician's certification, and a 
subsequent disbursement is made after the date of the certification. 
Alternatively, the commenter asked if by ``received'' the Department 
means originated or awarded.
    Discussion: The commenter's second interpretation is correct. In 
the context of these regulations, we are referring to a situation in 
which the loan or grant has been originated or awarded prior to the 
physician certification date. The provision is intended to apply to 
situations in which a student has established eligibility for a title 
IV loan or TEACH grant, the loan or grant is approved, and the process 
for disbursing the funds has started. The Department believes that a 
student in this situation should not be denied the TPD discharge. 
However, the student must return the disbursed funds before the TPD 
discharge may be granted.
    Changes: None.
    Comments: The proposed regulations in Sec. Sec.  674.61(b)(5), 
682.402(c)(5), and 685.213(b)(6) provided that if a borrower receives a 
disbursement of a new title IV loan or receives a TEACH grant made on 
or after the date the physician certified the TPD discharge 
application, the Department denies the TPD discharge application and 
collection resumes on the borrower's loans. One commenter asked if this 
refers to situations in which a title IV loan or TEACH grant was 
originated or awarded on or after the date of the physician's 
certification and is disbursed before the date the discharge is 
granted.
    Discussion: The commenter's understanding of the provision is 
correct. This provision is intended to address borrowers who actively 
request or apply for a new title IV loan or TEACH grant after the date 
of the physician's certification. In applying for a loan or requesting 
a TEACH grant the student commits to repay the loan or perform the 
required teaching service. This commitment contradicts the borrower's 
claim in the TPD discharge application that the borrower is too 
disabled to work. Borrowers seeking a discharge on existing loans while 
taking out new loans should not receive the benefit of a TPD discharge.
    Changes: None.
Conditions for Reinstatement of a Loan and Borrower's Responsibilities 
After a Total and Permanent Disability Discharge (34 CFR 674.61(b)(6), 
674.61(b)(7), 682.402(c)(6), 682.402(c)(7), 685.213(b)(7), and 
685.213(b)(8))
    Comments: The regulations in Sec. Sec.  674.61(b)(6)(i)(A), 
682.402(c)(6)(i)(A),

[[Page 66097]]

and 685.213(b)(7)(i)(A) provide that a loan that has been discharged 
based on the borrower's TPD is reinstated if, within three years after 
the discharge date, the borrower has annual earnings from employment 
that exceed 100 percent of the poverty guideline for a family of two. 
One commenter recommended that, in some cases, the Department should 
examine a borrower's income for the three years prior to the TPD 
discharge, rather than the three years after the discharge.
    Another commenter recommended that the Department allow part-time 
work for disability discharge recipients. A third commenter echoed this 
comment, and added that full-time work on a short-term basis should 
also be allowed.
    In addition, the proposed regulations in Sec. Sec.  674.61(b)(7), 
682.402(c)(7), and 685.213(b)(8) provided that, for a three-year period 
after the borrower receives a TPD discharge, the borrower must: notify 
the Department of any changes in address or telephone number; notify 
the Department if the borrower's annual earnings exceed the poverty 
level; and provide the Department, upon request, with documentation of 
the borrower's earnings. One commenter asked what the consequences are 
for a borrower who does not provide the requested documentation.
    Discussion: Under both the current and proposed TPD discharge 
regulations and these final regulations, the monitoring of the 
borrower's income only occurs after the discharge has been granted. The 
post-discharge monitoring of a borrower's earned income is required by 
section 437 of the HEA.
    The proposed and final regulations in Sec. Sec.  674.61(b)(6), 
682.402(c)(6), and 685.213(b)(7) treat earnings during the three-year 
post-discharge monitoring period as an indicator that a borrower is no 
longer TPD. A borrower's loans are reinstated if the borrower's annual 
earnings are greater than 100 percent of the poverty line for a family 
of two, as published annually by the Department of Health and Human 
Services. This standard allows the borrower to attempt part-time or 
short-term full-time work without raising a question about the 
borrower's disability, if the earnings from such work for the year do 
not exceed the threshold. Earnings in excess of these amounts indicate 
that the borrower is sufficiently able to engage in substantial gainful 
activity, and does not meet the definition of ``totally and permanently 
disabled.''
    A borrower who does not provide the required documentation 
(particularly income documentation) will have his or her loans 
reinstated and will be required to resume payment on the loan.
    Changes: None.
FFEL Lender and Guaranty Agency Actions (34 CFR 682.402(c)(8), 
682.402(g)(2), and 682.402(k)(2))
    Comments: Several commenters requested that the Department state in 
this preamble to the final regulations that the guarantor of the loans 
for which the borrower has submitted a TPD discharge application may 
request and receive from the Department, on a case-by-case basis, any 
information that may be needed to assist the borrower during the TPD 
discharge process. These commenters noted that the guaranty agency may 
be a trusted contact for a disabled borrower, and may have worked with 
the borrower in the past with respect to default prevention activities 
or ombudsman interactions.
    Discussion: These regulations are intended to centralize the TPD 
discharge process and to enable borrowers to receive TPD discharges 
more easily. One way that the regulations accomplish this is by 
minimizing the role of guaranty agencies and loan holders in the TPD 
discharge process. We do not envision guaranty agencies or lenders 
having a significant role in the processing of TPD discharge requests 
under the new process. Because the role of guaranty agencies will be 
limited, we do not believe that it is necessary for guaranty agencies 
to receive information from the Department regarding specific TPD 
discharge requests beyond the documentation already specified in the 
regulations.
    We note that an individual borrower who considers a guaranty agency 
to be a trusted contact may choose to provide a copy of the TPD 
discharge application or any communications that the borrower receives 
from the Department to the guaranty agency.
    Changes: None.
    Comments: Some commenters noted that the regulatory language agreed 
to during the negotiated rulemaking process would modify the current 
requirements for a guaranty agency to file a disability claim. 
Currently, Sec.  682.402(g)(1)(iv) requires a guaranty agency to 
include a copy of the certified TPD discharge application with the 
disability claim. Under the new TPD discharge process in this final 
rule, the guaranty agency will not receive a copy of the TPD discharge 
application. Under final Sec.  682.402(g)(1)(iv), the guaranty agency 
will only receive the notice from the Department informing the lender 
that the borrower is eligible for a TPD discharge. The commenters noted 
that the regulatory language approved during the negotiated rulemaking 
process would replace the reference to the TPD discharge form. The 
commenters stated that proposed Sec.  682.402(g)(1)(iv) incorrectly 
retained the requirement that the TPD discharge application be 
submitted with the disability claim. The commenters requested that the 
final regulations be modified to conform to the agreement reached 
during negotiations.
    These commenters also requested that the final regulations modify 
Appendix D of 34 CFR Part 682 to remove language stating that the 
Department does not reimburse a guaranty agency for a disability claim 
if the lender has violated due diligence or timely filing requirements. 
The commenters viewed this as a conforming change to the proposed 
regulations.
    Some commenters recommended that the Department revise proposed 
Sec.  682.402(c)(8)(i)(E) that established assignment deadlines for 
loans held by the guaranty agency at the time the borrower applies for 
a disability discharge. The NPRM proposed to require the guaranty 
agency to assign the loan to the Secretary within 45 days of the date 
that the guaranty agency receives notice that the borrower qualifies 
for a TPD discharge. The commenters recommended that the loan be 
assigned within 45 days of the date the Secretary pays the remaining 
disability claim amount to the guaranty agency.
    Discussion: The language approved by the negotiating committee and 
referenced by the commenters was included in the NPRM. However, in 
finalizing the NPRM, we did not replace Sec.  682.402(g)(1)(iv) in its 
entirety. Instead, we amended that section through an instruction. The 
revision is reflected as instruction 6.B at 77 FR 42133. The 
instruction that was included in the NPRM, and is included in these 
final regulations, does not need to be modified.
    During the negotiated rulemaking process, non-Federal negotiators 
did not suggest that the Department waive the due diligence 
requirements for disability discharge claims under the new process for 
TPD discharges. This change was not discussed during the negotiated 
rulemaking process or agreed to by the Department. Further, the NPRM 
did not propose changing the current regulatory language in Sec.  
682.402(k)(2) stating that the Department only pays a disability claim 
to a guaranty agency ``after the agency has paid a default claim to the 
lender thereon and received payment under its reinsurance agreement'' 
or the current

[[Page 66098]]

requirement in Sec.  682.402(k)(2)(v) that the Department only 
reimburses a guaranty agency on a disability claim if ``the guaranty 
agency has exercised due diligence in the collection of the loan.'' Nor 
did the NPRM propose changes to current Sec.  682.406(a), which 
specifies that a guaranty agency only receives a reinsurance payment 
from the Department on a loan ``if the lender exercised due diligence 
in making, disbursing, and servicing the loan as prescribed by the 
rules of the agency.'' The changes to Appendix D that the commenters 
request as a conforming change with the NPRM would actually be 
inconsistent with the proposed and final regulations.
    In these final regulations, Sec.  682.402(c)(3)(iii) states that, 
after the Department determines that a borrower is totally and 
permanently disabled, the Department ``directs each lender to submit a 
disability claim to the guaranty agency * * * .'' Section 
682.402(c)(8)(i)(B) requires a guaranty agency to pay the claim ``if 
the claim satisfies the requirements of Sec.  682.402(g)(1).'' To 
clarify that the disability claim must meet all of the due diligence 
requirements, we have modified this language to specify that the claim 
must meet the requirements of Sec.  682.406 as well.
    The purpose of these regulations is to streamline and speed up the 
process for granting TPD discharges as much as possible. Therefore, we 
decline the recommendation from the guaranty agencies that they not be 
required to assign a TPD claim to the Department until the remaining 
reinsurance claim amount has been paid by the Department. The 
borrower's discharge should not be delayed while the Department and the 
guaranty agencies complete their financial transactions. We note that, 
under the final regulations, the guaranty agency would have 45 days to 
submit a claim to the Department for reimbursement before it is 
required to assign the loan to the Department.
    Changes: We have revised Sec. Sec.  682.402(c)(8)(i)(B) and 
682.402(c)(9)(xii)(B) to state that a guaranty agency must pay a 
disability claim if the claim satisfies the requirements of Sec. Sec.  
682.402(g)(1) and 682.406.
Implementation and Forms Development
    Comments: Some commenters urged the Department to implement the 
proposed reforms to the TPD discharge process earlier than the July 1, 
2013, effective date of the regulations, to the extent possible.
    Conversely, another commenter recommended that the revised TPD 
discharge application not be made available to borrowers before the 
July 1, 2013, effective date to minimize borrower confusion and ensure 
an orderly transition to the new discharge process. In addition, the 
latter commenter recommended that the Department be prepared to accept 
both versions of the TPD discharge application--the current version and 
the revised version--as of the July 1, 2013, effective date, so that 
borrowers who have completed the current version of the TPD discharge 
application may also benefit from the streamlined TPD discharge 
process.
    One commenter recommended that the Department implement the third-
party release form that borrowers would use to identify borrower 
representatives as soon as possible.
    Discussion: Due to the complexity of the changes made by these 
final regulations, the Department has determined that implementation of 
the new TPD discharge process before the July 1, 2013, effective date 
is not feasible. The new process will require extensive systems and 
process changes by the Department, guaranty agencies, and loan holders 
and servicers before the new TPD discharge process can be implemented.
    The Department does not address implementation of forms in final 
regulations. Forms developed or revised as a result of these final 
regulations will be made available for public comment through the 
Paperwork Reduction Act forms clearance process. After the forms have 
been approved by OMB, the forms will be made available to program 
participants through Dear Colleague Letters or Electronic 
Announcements. Deadline dates for forms implementation, and any 
transition period between the current TPD discharge application and the 
new TPD discharge application, will be announced in the Dear Colleague 
Letter or Electronic Announcement implementing the new and revised TPD 
discharge forms.
    Changes: None.
Additional Comments
    Comments: Several commenters stated that navigating the TPD 
discharge process is stressful and urged the Department to streamline 
the process by providing a one-stop Web site where borrowers can get 
information about the process.
    One commenter recommended that the Department forgive loans of 
individuals caring for permanently disabled veterans and to accept the 
VA's determination of permanent disability.
    One commenter asked the Department to allow borrowers who are 
experiencing dire economic hardship because of health and disability 
issues to modify their loan terms or restructure their loans to ease 
the burden of repayment.
    Discussion: The Department maintains a TPD discharge Web site at 
the following link: https://www.disabilitydischarge.com/Pages/General.aspx?id=80
    The Web site provides information on the TPD discharge process for 
borrowers, loan holders, physicians, and veterans. The Web site allows 
individuals to set up user accounts and can be used to help borrowers, 
loan holders, and physicians navigate the TPD discharge process. The 
Web site will be updated with new information, revised forms, and other 
information that will be helpful to borrowers as the new streamlined 
process is implemented.
    The recommendations that the Department forgive loans for 
individuals caring for disabled veterans and allow borrowers who are 
experiencing financial hardship due to health or disability issues to 
modify or restructure their title IV loans are outside the Department's 
statutory authority. However, we note that there are other avenues for 
borrowers who are experiencing dire economic circumstances due to 
health issues or disabilities. Economic hardship deferments, 
unemployment deferments, and forbearances are generally available to 
borrowers in the Perkins, FFEL, and Direct Loan programs. In addition, 
Direct Loan and FFEL borrowers can use the income-based or income-
contingent repayment plans discussed elsewhere in this preamble.
    Changes: None.
Income-Based and Income-Contingent Repayment Plans: General Comments
    Comments: One commenter suggested that we adopt more consumer-
friendly names for the two income-contingent repayment plans designated 
as ``ICR-A'' and ``ICR-B'' in proposed Sec.  685.209. In light of the 
fact that the President's ``Pay As You Earn'' repayment initiative has 
been widely publicized, the commenter suggested that it may be helpful 
to clarify for borrowers that the ICR-A repayment plan is in fact the 
Pay As You Earn initiative.
    Another commenter strongly urged the Department to consider using a 
more descriptive and less confusing name than ICR-A and suggested ``Pay 
As You Earn'' as an appropriate alternative. This

[[Page 66099]]

commenter believed that borrowers will have difficulty understanding 
the differences between the similarly named income-driven repayment 
plans and noted that the proposed ICR-A plan is much more like the 
current IBR plan than the proposed ICR-B plan.
    The majority of commenters expressed strong support for the 
Secretary's proposed regulations, especially the proposed 
implementation of the President's ``Pay As You Earn'' repayment 
initiative as a new type of income-contingent repayment plan, in light 
of rising student loan debt and the difficulty some borrowers 
experience repaying their student loans. Many of the commenters noted 
that the proposed regulations would make it easier and more affordable 
for Federal student loan borrowers to repay their loans. A few 
commenters stated that all of the income-driven repayment plans should 
be discontinued because they believed that these plans are a poor use 
of taxpayer funds, encourage students to enroll in substandard 
educational programs, encourage students to borrow more than necessary, 
and absolve borrowers of their responsibility to repay their student 
loans in full.
    Discussion: During the negotiated rulemaking sessions we invited 
suggestions for naming the two income-contingent repayment plans 
described in proposed Sec.  685.209, but did not receive any 
recommendations at that time. We explained in the NPRM that the 
proposed regulations would create a new income-contingent repayment 
plan based on the President's Pay As You Earn initiative that would be 
called the ICR-A plan, and that the existing income-contingent 
repayment plan would be retained, with certain changes, as the ICR-B 
plan. We agree with the commenters' recommendation that we adopt more 
descriptive and consumer-friendly names for these repayment plans and 
believe the most appropriate approach would be to use a distinctive 
name for the new plan that is based on the Pay As You Earn initiative 
and leave the name of the current income-contingent repayment plan 
unchanged.
    The Department appreciates the numerous comments we received in 
support of the proposed regulations. With regard to the comments 
recommending that the income-driven repayment plans be discontinued, we 
note that the IBR and ICR plans were established by Congress to assist 
borrowers in repaying their student loan debt, and the Pay As You Earn 
repayment plan is based on a presidential initiative to help borrowers 
reduce their monthly student loan payments. We believe these repayment 
options provide a significant benefit to borrowers and taxpayers by 
helping borrowers better manage their student loan debt and avoid 
default.
    Changes: We have revised Sec.  685.209 by redesignating the plan 
called ``ICR-A'' in the NPRM as the ``Pay As You Earn repayment plan,'' 
and by redesignating the plan called ``ICR-B'' in the NPRM as the 
``income-contingent repayment (ICR) plan.'' References to the ``income-
contingent repayment plans'' in other sections of the Direct Loan 
program regulations may mean either the Pay As You Earn repayment plan 
or the ICR plan, since both plans are presented in Sec.  685.209 as 
income-contingent repayment plans. Where it is necessary to distinguish 
between the two plans in other sections of the Direct Loan program 
regulations, the regulations refer to the income-contingent repayment 
plan described in Sec.  685.209(a) (the Pay As You Earn repayment plan) 
or the income-contingent repayment plan described in Sec.  685.209(b) 
(the ICR plan).
    Comments: Many individual commenters suggested various changes to 
the proposed regulations that would require amendments to the HEA. 
These recommended changes included--
    (1) Allowing private education loans to be repaid under the IBR and 
ICR plans;
    (2) Allowing private education loans to be consolidated together 
with Federal student loans;
    (3) Allowing parent PLUS loan borrowers to repay their loans under 
the IBR and ICR plans;
    (4) Making changes to the IBR plan that will be available to new 
borrowers on or after July 1, 2014, available to all borrowers;
    (5) Not taxing loan amounts forgiven under the IBR and ICR plans;
    (6) Extending the length of time that borrowers with disabilities 
are eligible for the interest subsidy provided in the IBR and proposed 
Pay As You Earn repayment plans;
    (7) Reducing the maximum IBR payment amount to five percent of 
adjusted gross income (AGI);
    (8) Counting payments made prior to entering IBR toward the 25-year 
IBR loan forgiveness period;
    (9) Allowing borrowers to separate joint consolidation loans in 
cases of divorce, separation, spousal abandonment, or remarriage;
    (10) Allowing defaulted borrowers to repay under IBR;
    (11) Providing restructured loans for disabled borrowers and for 
borrowers that meet other criteria;
    (12) Reducing the interest rates charged on Federal student loans, 
or charging no interest; and
    (13) Basing the determination of PFH for IBR eligibility purposes 
on factors other than eligible loan debt, AGI, and family size; some of 
the suggested factors that commenters recommended for consideration in 
determining whether a borrower has a PFH and other suggested changes 
were--
     Each borrower's unique individual expenses;
     Regional cost-of-living differences;
     Use of net pay or net taxable income, rather than AGI;
     Modification of the poverty guidelines currently in use;
     Adjustment of PFH determinations based on whether the 
borrower is listed as the ``head of household'' on his or her income 
tax return;
     Inclusion of private student loan debt; and
     Lower-income qualifications for PFH status.
    Discussion: We appreciate the many comments we received 
recommending changes that the commenters believe would benefit 
borrowers and improve the administration of the title IV loan programs. 
However, the suggested changes would require Congress to make changes 
to the HEA or other laws. The following paragraphs identify the 
statutory provisions that limit the Department's ability to adopt the 
recommended changes in items (1) through (13).
    With respect to items (1) and (2), the HEA does not govern the 
terms and conditions of private education loans. Congress could not 
legally require that the IBR or ICR plans be made available for private 
education loans or provide for the consolidation of such loans into a 
Direct Consolidation Loan because it cannot change the terms of private 
contracts.
    With respect to item (3), section 493C(b)(1) of the HEA limits 
eligibility for IBR to ``a borrower of any loan made, insured, or 
guaranteed under part B or D (other than an excepted PLUS loan or 
excepted consolidation loan).'' Sections 493C(a)(1) and (a)(2) of the 
HEA define ``excepted PLUS loan'' and ``excepted consolidation loan,'' 
respectively, as a PLUS loan made to a parent on behalf of a dependent 
student, or a consolidation loan that repays a PLUS loan made to a 
parent on behalf of a dependent student. The Pay As You Earn repayment 
plan is based on the IBR plan and includes the same restrictions on the 
types of loans that may be repaid under the plan. Section 455(d)(1)(D) 
of the HEA provides that the income-contingent repayment plan is not

[[Page 66100]]

available to borrowers of Direct PLUS Loans made on behalf of dependent 
students. Therefore, the HEA does not permit repayment of PLUS loans 
made to parent borrowers through the IBR or ICR plans.
    With respect to item (4), section 493C(e) of the HEA provides that 
the changes to the IBR plan that reduce the maximum repayment timeframe 
from 25 years to 20 years and the maximum income-based payment amount 
from 15 percent of discretionary income to 10 percent of discretionary 
income are only available to ``new borrowers on and after July 1, 
2014.''
    With respect to item (5), 26 U.S.C. 108(f) provides that an 
individual's gross income for tax purposes does not include loan 
amounts forgiven under certain types of loan discharge programs if the 
loan amount was discharged on the basis that the borrower ``worked for 
a certain period of time in certain professions.'' Based on the 
Internal Revenue Service's (IRS) interpretation of this statutory 
provision, loan amounts forgiven under the IBR, ICR, and Pay As You 
Earn repayment plans must be treated as taxable income. The tax 
implications of loan forgiveness are addressed in the Internal Revenue 
Code and the regulations of the IRS, and the Department has no 
authority to address this issue.
    With respect to item (6), section 493C(b)(3) of the HEA provides 
that if the calculated income-based payment for a borrower repaying 
under the IBR plan does not cover all of the monthly interest that 
accrues, the Secretary pays the remaining interest on the borrower's 
subsidized loans for a period not to exceed three years from the date 
the borrower entered repayment under the IBR plan, excluding periods of 
economic hardship deferment. The Department does not have the authority 
under the HEA to extend this maximum three-year interest subsidy 
period.
    With respect to item (7), section 493C(a)(3)(B) of the HEA provides 
that a PFH exists when the annual amount due on a borrower's total 
outstanding eligible loan debt, as calculated under a standard 
repayment plan with a 10-year repayment period, exceeds 15 percent of 
the difference between the borrower's, and the borrower's spouse's (if 
applicable), AGI and 150 percent of the poverty line applicable to the 
borrower's family size. The Department does not have the authority to 
change this statutory provision.
    With respect to item (8), section 493C(b)(7)(B) of the HEA 
specifies the types of qualifying payments that are counted toward the 
maximum 25-year IBR repayment period. Payments made prior to entering 
the IBR repayment plan are not included. The Secretary does not have 
the authority under the law to count other types of payments toward the 
IBR repayment period.
    With respect to item (9), section 428C(a)(3)(C) of the HEA provided 
that married borrowers are jointly and severally liable for the 
repayment of a joint consolidation loan ``without regard to any 
subsequent change that may occur in the couple's marital status.'' As 
part of the Higher Education Reconciliation Act of 2005 (Pub. L. 109-
171), Congress prohibited the origination of any new joint 
consolidation loans, and as a consequence of this action, section 
428C(a)(3)(C) was removed from the HEA. However, for those joint 
consolidation loans that are still in repayment, this statutory 
provision continues to apply. Without a statutory change, the 
Department cannot permit the separation of a joint consolidation loan 
for the reasons suggested by the commenter.
    With respect to item (10), section 493C(b)(1) of the HEA permits a 
borrower to elect IBR if the borrower has a PFH, ``whether or not the 
borrower's loan has been submitted to a guaranty agency for default 
aversion or had been in default.'' The HEOA amended the prior version 
of section 493C(b)(1) by replacing the term ``or is already in 
default'' with ``or had been in default.'' This change in the IBR 
eligibility criteria served to prohibit defaulted borrowers from 
participating in IBR, and a statutory change would be required to once 
again allow defaulted borrowers to select the IBR plan.
    With respect to item (11), no provision of the HEA permits the 
Secretary to restructure loans for any borrowers.
    With respect to recommendation (12), the interest rates charged on 
loans made under the FFEL and Direct Loan programs are established by 
statute in sections 427A and 455(b) of the HEA, respectively. The 
Department does not have the authority to change these statutory 
provisions.
    With respect to recommendation (13), section 493C(a)(3)(B) of the 
HEA specifies the standard for determining whether a borrower has a 
PFH, as discussed earlier in connection with item (7). Absent a 
statutory change, the Department is unable to make such changes.
    Changes: None.
Use of Electronic and Internet-Based Processes for Borrowers Repaying 
Under the IBR, ICR, and Pay As You Earn Repayment Plans
    Comments: Many commenters requested that the Department make the 
initial application and annual renewal process for the IBR, ICR, and 
Pay As You Earn repayment plans more efficient through the use of 
electronic, automated, or Internet-based methods. Some commenters 
requested that the Department develop an interface with the IRS to 
facilitate a borrower accessing and providing required income 
information electronically to the borrower's loan servicer.
    Discussion: The Department has recently made an electronic 
application for the IBR plan available to borrowers. Specifically, the 
Department's StudentLoans.gov Web site has been modified to allow 
borrowers to login to that site with their Federal Student Aid Personal 
Identification Number (PIN), apply for the IBR plan, populate their 
application with the AGI on file with the IRS, and submit it 
electronically to their Federal loan servicer. Borrowers may also use 
this process to annually provide updated AGI information, as required 
by the IBR regulations.
    Initially, this enhanced functionality will only be available to 
borrowers with Direct Loans and FFEL loans that are held by the 
Department, or with commercially-held FFEL loans that are serviced by 
an entity that has an association with certain members of the 
Department's federal loan servicer team, who wish to apply to repay 
under the IBR plan. The Department plans, however, to add a comparable 
process for the ICR and Pay As You Earn repayment plans in the near 
future. In addition, the Department also intends to eventually 
establish the electronic exchange relationships necessary for all 
servicers of commercially-held FFEL loans to participate in the 
electronic application process.
    The Department has also taken steps to modify and combine the 
various forms that borrowers currently use to request the IBR and ICR 
plans into a single standardized form borrowers can use to apply for 
the IBR, ICR, and Pay As You Earn repayment plans and provide 
alternative documentation of income, if appropriate, regardless of the 
type of loan or loan holder. The Department has greatly simplified the 
form to make it easier to understand and complete. The Department 
anticipates that the form will become available for borrowers to use by 
the end of 2012.
    Changes: None.

[[Page 66101]]

    Comments: Many commenters suggested that the Department should 
expand eligibility for the Pay As You Earn repayment plan (the proposed 
ICR-A plan) to include borrowers other than new borrowers as of October 
1, 2007 who receive Direct Loan disbursements on or after October 1, 
2011. Many of these commenters felt that it was unfair to exclude 
certain borrowers from the Pay As You Earn repayment plan. The 
commenters argued that all Federal student loan borrowers should have 
access to all repayment plans.
    One commenter suggested basing the eligibility criteria for the Pay 
As You Earn repayment plan on academic or award years rather than on 
the fiscal year approach taken in the proposed regulations. The 
commenter stated that using fiscal years may be confusing to borrowers, 
who are more familiar with award or academic years. The commenter 
suggested that if budgetary constraints preclude using an award year 
approach, we consider using calendar years 2008 and 2012 (January 1, 
2008 and January 1, 2012, respectively) instead.
    Discussion: In implementing the President's Pay As You Earn 
repayment initiative, the Department attempted to provide the benefit 
of the initiative to as many borrowers as budgetary constraints would 
allow. While the Department understands the view of some of the 
commenters that the Pay As You Earn repayment plan should be available 
to all Federal student loan borrowers, expanding eligibility would 
constitute a significant cost to the government. Similarly, defining 
``new borrower'' on the basis of award years rather than fiscal years 
would result in significant additional costs.
    We understand the commenter's concern that some borrowers may be 
confused by the use of fiscal year dates and appreciate the 
recommendation to use calendar years instead. However, the Department 
believes it is preferable to make the Pay As You Earn repayment plan 
available to as many borrowers as possible. Using calendar years to 
define the group of eligible borrowers would exclude borrowers from the 
Pay As You Earn repayment plan who would have otherwise been eligible 
under the proposed regulations. For example, a borrower who received 
the first disbursement of a loan in the fall of 2008 and graduated in 
three and a half years, with a final loan disbursement occurring on 
October 15, 2011, would not be eligible for the Pay As You Earn 
repayment plan if the regulations required the receipt of a Direct Loan 
disbursement on or after January 1, 2012, rather than on or after 
October 1, 2011, as in the proposed regulations. Similarly, an 
otherwise eligible borrower who received the first loan in November 
2007 would qualify under the proposed regulations, but would be 
ineligible if the regulations defined new borrower as someone who had 
no outstanding loan balance as of January 1, 2008. We believe making 
the Pay As You Earn repayment plan available to as many borrowers as 
possible is preferable to using dates that may be less confusing, but 
that would limit eligibility.
    Changes: None.
Income-Based and Income-Contingent Repayment Plans: Initial 
Determination of Eligibility, Annual Income Documentation Requirements, 
and Associated Notices
    Comments: One commenter noted that under proposed Sec.  
682.215(e)(9), FFEL program loan holders may grant forbearance under 
certain circumstances to a borrower repaying under the IBR plan whose 
required income documentation is received more than 10 days after the 
specified annual deadline, and whose loan payments are overdue or would 
be due at the time the borrower's new income-based monthly payment 
amount is determined. The commenter further noted that in the preamble 
to the NPRM the Secretary indicated that proposed Sec.  
685.221(e)(9)(i) would establish the same requirement in the Direct 
Loan program. However, the commenter pointed out that proposed Sec.  
685.221(e)(9)(i) (and also proposed Sec. Sec.  685.209(b)(3)(vi)(F)(1) 
and 685.209(a)(5)(ix)(A) for the ICR and Pay As You Earn repayment 
plans, respectively) states that the Secretary ``grants forbearance'' 
whereas the corresponding FFEL program regulation states that the loan 
holder ``may grant forbearance.'' The commenter believed that the 
different language in the proposed regulations would require the 
Secretary to grant forbearance in the Direct Loan program, but make the 
granting of the forbearance optional on the part of the loan holder in 
the FFEL program. The commenter recommended that the Department revise 
Sec.  682.215(e)(9) to require FFEL loan holders to grant the 
forbearance under the specified conditions.
    The commenter also recommended that the Department expand the 
conditions under which the forbearance described in proposed Sec. Sec.  
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 
685.221(e)(9)(i) is granted. Under the proposed regulations, this 
forbearance is granted only if the borrower's new calculated monthly 
payment amount is $0.00 or is less than the borrower's previously 
calculated monthly payment amount. The commenter recommended that the 
Department revise the regulations to include borrowers whose new 
calculated monthly payment amount is equal to the borrower's previously 
calculated monthly payment amount. The commenter believed that the 
forbearance should be available to a borrower whose new calculated 
monthly payment is equal to the borrower's previous monthly payment 
amount. The commenter suggested that a borrower whose financial 
situation has not improved would likely have trouble paying the 
``permanent standard'' payment amount (which is not based on the 
borrower's income) that applies when a borrower's income documentation 
is not received within 10 days of the specified annual deadline.
    Finally, the commenter recommended that the regulations be revised 
to provide that the forbearance described in proposed Sec. Sec.  
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 
685.221(e)(9)(i) could be granted at the discretion of the Secretary or 
loan holder under conditions other than those specified in the proposed 
regulations, if a borrower is experiencing exceptional circumstances 
such as personal or family health emergencies that prevented the 
borrower from submitting the required income documentation on time.
    Discussion: With regard to the recommendation that Sec.  
682.215(e)(9) be revised to require FFEL loan holders to grant 
forbearance (instead of specifying that the loan holder ``may grant 
forbearance''), the words ``may grant'' indicate that FFEL program loan 
holders are authorized to grant this forbearance. The Department does 
not have the authority to require loan holders to grant forbearance 
under conditions not provided for in section 428(c)(3)(A) of the HEA. 
However, the Department expects that loan holders will grant 
forbearance to FFEL program borrowers under the conditions specified in 
Sec.  682.215(e)(9).
    The Department declines to modify the forbearance regulations to 
provide a forbearance to a borrower who submits the required income 
information more than 10 days after the specified annual deadline if 
the borrower's new calculated monthly payment amount is equal to the 
borrower's previously calculated monthly payment amount. As discussed 
in the preamble to the NPRM, the Department believes it is appropriate 
to allow a forbearance

[[Page 66102]]

under limited circumstances, namely if a borrower's new calculated 
monthly payment amount is $0.00 or is less than the borrower's prior 
calculated monthly payment amount. A new calculated payment that is 
$0.00 or less than the prior calculated payment amount may indicate a 
worsening of the borrower's financial circumstances that may have 
contributed to the borrower becoming delinquent or failing to provide 
the required documentation in a timely manner. However, it is not 
reasonable to attribute delinquent payments or failure to meet the 
documentation deadline to a borrower's worsening financial situation if 
the borrower's new calculated payment amount is the same as the 
previously calculated payment amount, as this would suggest that there 
has been no significant change in the borrower's financial 
circumstances.
    Similarly, the Department declines to make the recommended change 
that would allow forbearance to be granted under conditions other than 
those specified in Sec. Sec.  682.215(e)(9), 685.209(a)(5)(ix)(A), 
685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) if there are exceptional 
circumstances. This approach would be inconsistent with the 
Department's intent to allow forbearance for borrowers who fail to 
submit income documentation in a timely manner and who are delinquent 
in making loan payments only under limited circumstances, and could 
result in inconsistent treatment of borrowers. Finally, we note that a 
borrower who is having difficulty making payments but who does not 
qualify for forbearance under Sec. Sec.  682.215(e)(9), 
685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) 
would have the option of requesting forbearance under Sec. Sec.  
682.211(a)(1) or 685.205(a)(1).
    Changes: None.
    Comments: One commenter recommended that the Department modify the 
proposed regulations in Sec. Sec.  682.215(e)(2), 685.209(a)(5)(ii), 
and 685.221(e)(2) governing the written notification that is sent to a 
borrower after the Secretary or the loan holder has determined that the 
borrower has a PFH to qualify for the IBR or Pay As You Earn repayment 
plan. Under the proposed regulations, this written notification would 
inform the borrower of the requirement for the borrower to provide 
certain information annually and would explain that the borrower will 
be notified in advance of the date by which the Secretary or loan 
holder must receive this information. The notification does not include 
the actual deadline date; the specific deadline by which the 
information must be received is provided to the borrower in a separate 
notification described in Sec. Sec.  682.215(e)(3)(i), 
685.209(a)(5)(iii), and 685.221(e)(3)(i) that is sent closer to the 
deadline date. The commenter asked the Department to modify proposed 
Sec. Sec.  682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) to 
require that the first written notification include the specific annual 
deadline by which the required information must be received, instead of 
simply explaining that the borrower will be notified in advance of the 
deadline date. The commenter believed that including the actual 
deadline date in the earlier notification would help borrowers plan 
ahead for submitting the required information in a timely manner.
    Discussion: As discussed in the preamble to the NPRM, the 
Department initially proposed during the negotiated rulemaking sessions 
that the annual notification reminding borrowers repaying under the IBR 
and Pay As You Earn repayment plans of the upcoming deadline date for 
submitting income documentation would be sent no later than 60 days 
before the annual deadline date established by the Secretary or the 
loan holder. However, some non-Federal negotiators were concerned that 
this approach would allow for the notification to be sent too far in 
advance of the annual deadline date for it to be effective. In response 
to that concern, the Department proposed the regulatory language in the 
NPRM that specifies that the notification of the deadline date for 
submitting income documentation may be sent no later than 60 days and 
no earlier than 90 days before the annual deadline date.
    The Department believes that including the annual deadline date in 
the initial notification required under Sec. Sec.  682.215(e)(2), 
685.209(a)(5)(ii), and 685.221(e)(2), as suggested by the commenter, 
would not be effective or helpful to most borrowers, as this 
notification is sent many months in advance of the annual deadline 
date. The Department believes the requirement for the borrower to be 
notified of the annual deadline date no later than 60 days and no 
earlier than 90 days before the annual deadline date provides 
sufficient advance notice for borrowers to plan for submitting the 
required information on time and will be more effective than notifying 
borrowers of the deadline date many months in advance. In addition, the 
Department notes that the notification required under Sec. Sec.  
682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) also includes 
information about the borrower's option to request that the loan holder 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was 
used to calculate the borrower's current monthly payment no longer 
reflects the borrower's current income. If a borrower makes such a 
request and the borrower's monthly payment is recalculated based on 
updated information provided by the borrower, there would be an 
associated change in the annual deadline date for submitting income 
information. This could be confusing for the borrower if the borrower 
had previously been notified of a different annual deadline date.
    Changes: None.
    Comments: One commenter asked the Department to modify the proposed 
regulations governing the IBR, ICR, and Pay As You Earn repayment plans 
by replacing all references to the requirement for income information 
to be received ``within 10 days'' of the annual deadline date with 
alternative language stating that the information must be received 
``before or within 10 days'' of the annual deadline. The commenter 
believed that income information received from a borrower more than 10 
days before the specified deadline date should be considered to have 
been received on time.
    Discussion: The regulatory language specifying that income 
information must be received by the Secretary or loan holder within 10 
days of the specified annual deadline date provides a ``grace period'' 
that allows a borrower who misses the annual deadline date to be 
considered to have submitted the required information on time if the 
information is received by the Secretary or the loan holder within 10 
days of the specified deadline date. This language does not mean that 
income information received before the annual deadline date is not 
considered on time. The Department encourages borrowers to submit the 
required income information prior to the annual deadline.
    Changes: None.
    Comments: One commenter recommended that the Department revise 
proposed Sec.  682.215(e)(8)(i), which requires a FFEL program loan 
holder to ``promptly'' determine a borrower's new monthly IBR payment 
amount if the required income information is received within 10 days of 
the specified annual deadline date, by defining the term ``promptly'' 
in order to establish specific guidelines on how quickly a loan holder 
must calculate a borrower's new monthly payment amount. The commenter 
noted that the corresponding Direct Loan regulations do not specify 
that the Secretary

[[Page 66103]]

``promptly'' determines the borrower's new monthly payment amount, 
though the Department noted in the preamble to the NPRM that the 
Secretary would apply the same requirements in the Direct Loan program. 
The commenter recommended that the Direct Loan regulations be revised 
to clarify that the Secretary will ``promptly'' determine a borrower's 
new IBR, Pay As You Earn, or ICR payment amount if the required income 
documentation is received within 10 days of the specified annual 
deadline date.
    Discussion: The Department does not believe that it is necessary to 
define ``promptly'' in Sec.  682.215(e)(8)(i). The regulations provide 
that if a borrower's income information is received within 10 days of 
the specified annual deadline date, but the loan holder does not 
determine the borrower's new monthly payment amount by the end of the 
borrower's current annual payment period, the loan holder must maintain 
the borrower's current monthly payment amount until the new payment 
amount is determined, and the borrower is not penalized in any way as a 
result of the loan holder's failure to make a more timely determination 
of the new payment amount. However, the Department agrees with the 
recommendation to revise the applicable Direct Loan program regulations 
to clarify that if a borrower's income information is received within 
10 days of the specified annual deadline date, the Secretary will 
``promptly'' determine the borrower's new monthly payment amount.
    Changes: We have amended proposed Sec. Sec.  685.209(a)(5)(viii), 
685.209(b)(3)(vi)(E), and 685.221(e)(8) to provide that if the 
Secretary receives the required income information from the borrower 
within 10 days of the specified annual deadline date, the Secretary 
``promptly determines the borrower's new scheduled monthly payment 
amount and maintains the borrower's current scheduled monthly payment 
amount until the new scheduled monthly payment amount is determined.''
    Comments: One commenter recommended that the Department add 
language to Sec.  685.209(a)(5)(iii)(B) clarifying that, for borrowers 
repaying under the Pay As You Earn repayment plan whose income 
information is received more than 10 days after the specified annual 
deadline date, unpaid interest is not capitalized until the end of the 
borrower's current annual payment period. The NPRM stated that interest 
would be capitalized, but did not specify when the capitalization would 
occur. The suggested change would make the regulatory language for the 
Pay As You Earn repayment plan consistent with the corresponding IBR 
plan regulatory language in Sec. Sec.  682.215(e)(3)(ii) and 
685.221(e)(3)(ii).
    Discussion: The Department agrees with the commenter's 
recommendation.
    Changes: Proposed Sec.  685.209(a)(5)(iii)(B) has been amended to 
clarify that unpaid interest will be capitalized ``at the end of the 
borrower's current annual payment period.''
    Comments: One commenter asked the Department to revise Sec.  
685.209(b)(3)(v)(C) to clarify that if a borrower repaying under the 
ICR plan believes that special circumstances warrant an adjustment to 
the borrower's repayment amount, the borrower may contact the Secretary 
at any time during the borrower's current annual payment period to 
request a change in the repayment amount. The NPRM indicated that the 
borrower could contact the Secretary for a determination as to whether 
an adjustment was appropriate, but did not clarify that the borrower 
could make such a request at any time during the borrower's current 
repayment period. The proposed change would make the regulations for 
the ICR plan consistent with the corresponding IBR and Pay As You Earn 
repayment plan regulations.
    Discussion: We agree with the recommended change.
    Changes: We have revised Sec.  685.209(b)(3)(v)(C) to clarify that 
a borrower may request a determination from the Secretary as to whether 
an adjustment to the borrower's payment amount is appropriate based on 
special circumstances at any time during the borrower's current annual 
payment period.
    Comments: One commenter recommended that the regulations governing 
the ICR plan be revised to require that the Secretary inform borrowers 
that they are required to annually certify their family size in 
addition to providing income information. The commenter noted that 
while the proposed regulations for the IBR and Pay As You Earn 
repayment plans require borrowers to annually certify family size, and 
specify that the Secretary or the loan holder assumes a family size of 
one if the borrower does not do so, the proposed regulations for the 
ICR plan specified only that the borrower must annually provide income 
information. To ensure that the calculated monthly payment under the 
ICR plan accurately reflects the borrower's current family size, the 
commenter believed that the regulations governing the ICR plan should 
also require borrowers to annually certify their family size.
    Discussion: Proposed Sec.  685.209(b)(1)(iii)(A) reflected the 
current ICR plan regulations that provide that the Secretary applies 
the HHS Poverty Guidelines for the borrower's family size if the 
borrower provides acceptable documentation that the borrower's family 
includes more than one person. In accordance with this provision, the 
Secretary requires borrowers to certify family size only at the time 
the borrower initially selects the ICR plan and the Secretary then 
continues to use that family size to calculate the borrower's monthly 
payment amount unless the borrower reports a change in family size. For 
greater consistency among the income-driven repayment plans, and to 
ensure that the ICR payment amount reflects the borrower's current 
family size, the Department agrees with the commenter that it would be 
appropriate to require borrowers repaying under the ICR plan to certify 
family size upon initially selecting the ICR plan and annually 
thereafter, and to specify that the Secretary assumes a family size of 
one if the borrower fails to certify family size.
    Changes: We have amended proposed Sec.  685.209(b)(3)(vi)(A) by 
retaining the first part of the paragraph as introductory text and 
creating two new paragraphs (b)(3)(iv)(A)(1) and (b)(3)(iv)(A)(2), 
respectively. New paragraph (b)(3)(iv)(A)(1) contains the requirement 
that was in proposed Sec.  685.209(b)(3)(vi)(A) for the borrower to 
provide documentation of his or her AGI. New paragraph (b)(3)(iv)(A)(2) 
requires the borrower to certify family size upon initially selecting 
the ICR plan and annually thereafter, and explains that the Secretary 
will assume a family size of one if the borrower fails to certify 
family size. In addition, new paragraph (b)(3)(iv)(A)(1) has been 
modified by adding a cross-reference to the alternative documentation 
of income provision in Sec.  685.209(b)(3)(i) that was inadvertently 
omitted from the proposed regulations. Minor conforming changes have 
also been made elsewhere in Sec.  685.209. We have also added language 
to Sec.  685.209(b)(1)(iii)(A) clarifying that for purposes of the ICR 
plan, family size is defined in Sec.  685.209(a)(1)(iv).
    Comments: One commenter recommended that the Department modify the 
proposed IBR, ICR, and Pay As You Earn repayment plan regulations in 
Sec. Sec.  682.215(e)(8), 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), 
and 685.221(e)(8) governing the treatment of borrowers whose annual 
income information is

[[Page 66104]]

received within 10 days after the annual deadline. Specifically, the 
commenter recommended that proposed Sec.  682.215(e)(8) be revised to 
clarify that if the loan holder does not calculate the borrower's new 
monthly payment amount by the end of the prior annual payment period, 
and the borrower continues to make payments at the previously 
calculated payment amount before the new payment amount is calculated, 
those payments would be considered to be qualifying payments for loan 
forgiveness purposes, as long as the payments otherwise meet the 
eligibility requirements for the respective repayment plans. The 
commenter recommended that similar language be added to the 
corresponding Direct Loan program regulations in Sec. Sec.  
685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(f), to clarify 
that payments the borrower continued to make at the previously 
calculated payment amount would count for loan forgiveness purposes. 
The commenter noted that the proposed regulations in Sec. Sec.  
685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii) 
indicate that, in the case of a borrower whose income information is 
received more than 10 days after the annual deadline, any payments that 
the borrower continues to make at the previously calculated payment 
amount after the end of the prior annual payment period and before the 
new payment amount is calculated would count as qualifying payments for 
purposes of Public Service Loan Forgiveness under Sec.  685.219. The 
Department stated in the preamble to the NPRM that these payments would 
also count for purposes of IBR plan loan forgiveness. The commenter 
believed that the regulations governing the treatment of borrowers who 
submit their income information on time should likewise clarify that 
payments a borrower continues to make at the previously calculated 
amount before the new payment amount is calculated are counted for loan 
forgiveness purposes.
    The commenter also recommended that comparable changes be made in 
Sec. Sec.  682.215(e)(9), 685.209(a)(5)(ix)(B), 
685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii) to clarify that in the 
case of a borrower whose income information is received more than 10 
days after the annual deadline, any payments the borrower continued to 
make at the previously calculated payment amount after the end of the 
prior annual payment period and before the new monthly payment amount 
is calculated would be considered qualifying payments for loan 
forgiveness purposes. The commenter noted that the Department clarified 
in the preamble to the NPRM that under proposed Sec.  685.221(e)(9)(ii) 
any payments the borrower continued to make at the previously 
calculated amount would count for purposes of IBR loan forgiveness, and 
believed that adding this clarification to the regulations for all of 
the income-driven repayment plans would encourage borrowers to continue 
making payments, even if they miss the annual deadline for submitting 
their required income information.
    Discussion: The Department does not believe it is necessary to 
revise the regulations to explicitly state that if a borrower's income 
information is received within 10 days after the specified annual 
deadline date, but the Secretary or the loan holder does not determine 
the borrower's new monthly payment amount prior to the end of the 
current annual payment period, payments the borrower continues to make 
at the previously calculated amount before the new payment amount is 
determined will count for purposes of loan forgiveness under the 
various income-driven repayment plans. The regulations make it clear 
that in such situations the Secretary or the loan holder maintains the 
borrower's previously calculated payment amount until the new payment 
amount is determined, and that the borrower is not subject to any 
adverse consequences as a result of the Secretary's or loan holder's 
failure to calculate the new payment amount in a timely manner. 
Payments the borrower continues to make at the previously calculated 
payment amount until the new payment amount is calculated are treated 
for loan forgiveness purposes the same as any other payments made under 
the IBR, ICR, or Pay As You Earn repayment plans.
    Likewise, we do not believe it is necessary to make the similar 
changes that were recommended for Sec. Sec.  682.215(e)(9), 
685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii). 
In the case of a borrower whose income information is received more 
than 10 days after the annual deadline, and the borrower's monthly 
payment is converted to the permanent standard payment amount, any 
payments that the borrower continues to make at the previously 
calculated payment amount are qualifying payments made under the IBR, 
ICR, or Pay As You Earn repayment plan and count as qualifying payments 
for purposes of loan forgiveness under those plans. The proposed 
regulations clarified that payments a Direct Loan borrower continues to 
make at the previously calculated amount would count for Public Service 
Loan Forgiveness purposes because otherwise these payments might be 
viewed as not meeting the eligibility requirements of the Public 
Service Loan Forgiveness program. We do not believe this clarification 
is needed with regard to counting payments for other loan forgiveness 
purposes.
    We note also that the commenter's recommendation that the FFEL 
program regulations be revised to state that payments would count for 
purposes of Direct Loan program IBR, Pay As You Earn repayment plan 
loan forgiveness, and ICR loan forgiveness, and a similar proposed 
revision of the Direct Loan program regulations to refer to FFEL 
program IBR loan forgiveness would be incorrect. Qualifying payments 
that a borrower made on a FFEL program loan under the IBR plan are not 
counted toward Direct Loan program IBR, ICR, or Pay As You Earn 
repayment plan loan forgiveness. Also, qualifying payments that a 
borrower made on a Direct Loan program loan under one of the income-
driven repayment plans do not count toward IBR loan forgiveness on the 
borrower's FFEL program loans.
    Changes: None.
    Comments: Several commenters recommended that the Department modify 
the proposed IBR and Pay As You Earn repayment plan regulations that 
provide for capitalization of unpaid interest if the Secretary or the 
loan holder does not receive a borrower's required annual income 
information within 10 days of the specified annual deadline.
    The commenters believed that the adverse consequences for borrowers 
whose required information is received more than 10 days after the 
annual deadline date (capitalization of unpaid interest and conversion 
of their monthly loan payment to the permanent standard payment amount) 
are unduly harsh, particularly for borrowers with the lowest incomes. 
One of the commenters presented an example in which a borrower with 
$50,000 in loan debt chose the IBR plan and had a monthly payment 
amount of zero for the first three years because she was unemployed and 
had no income. The borrower finds a job paying $45,000 per year shortly 
before the fourth year of repayment under IBR, but misses the deadline 
for submitting the required annual income information to the loan 
holder. As a result, the borrower's required monthly payment amount 
would increase from zero to more than $500 (the permanent standard 
payment amount), and more than $10,000 in unpaid interest would be 
capitalized,

[[Page 66105]]

significantly increasing the total amount the borrower would repay over 
the IBR plan repayment period. The commenter felt that this is a harsh 
and disproportionate penalty for missing a paperwork submission 
deadline. To address this issue, the commenter recommended that the 
regulations be revised to make the ``penalty'' for missing the annual 
deadline proportionate to the amount of time that elapses between the 
end of the most recent annual payment period and the date the 
borrower's income information is received. Specifically, the commenter 
proposed that if a borrower's income information is received more than 
10 days after the specified annual deadline, only unpaid interest that 
accrues during the period that the borrower's income information is 
late would be capitalized.
    Two other options suggested by the commenter would be to revise the 
IBR regulations to include a limit on the amount of unpaid interest 
that may be capitalized, or to authorize loan holders to reduce the 
interest capitalization penalty under exceptional circumstances. The 
commenter did not provide more detailed recommendations concerning 
these two additional options.
    The commenter believed these suggested changes would lessen the 
consequences of missing the deadline date for the required annual 
income information. The commenter also believed that these proposals 
would have little or no budgetary implications because the budget 
baseline for IBR and ICR does not include significant revenue from 
large numbers of borrowers missing the income documentation deadline 
and having their unpaid accrued interest capitalized. The commenter 
stated that until recently, an IRS consent process allowed ICR and IBR 
borrowers to provide a multi-year consent to allow the Department to 
check their income, effectively preventing them from missing the annual 
income documentation deadline date. The commenter added that if the 
budget baseline never assumed revenue from large numbers of borrowers 
submitting late paperwork and having their accrued interest 
capitalized, limiting the capitalization of interest for late paperwork 
would have little to no budgetary impact.
    Discussion: We decline to make the requested changes. The proposed 
regulations and the Department's current regulations reflect the 
statutory requirement in section 493C(b)(3)(B) of the HEA that requires 
capitalization of unpaid interest at the time a borrower repaying under 
the IBR plan elects to no longer make income-based payments, or is 
determined to no longer have a PFH. Under the current and proposed 
regulations, a borrower who fails to provide the annual income 
information required by the Secretary is considered to no longer have a 
PFH, and unpaid interest will be capitalized. Under the proposed 
regulations, unpaid interest would be capitalized only if the Secretary 
or the loan holder does not receive the required income information 
within 10 days after the annual deadline for the borrower to submit 
income information. In addition, the HEA (for the IBR plan), the 
current and proposed IBR plan regulations, and the proposed Pay As You 
Earn repayment plan regulations provide that if a borrower elects to 
discontinue making payments that are based on the borrower's income or 
is determined to no longer have a PFH, the borrower's monthly payment 
amount is recalculated and is no longer based on the borrower's income. 
In such cases, the recalculated payment amount is the amount the 
borrower would pay under a 10-year standard repayment plan, based on 
the loan amount the borrower owed upon entering repayment under the IBR 
or Pay As You Earn repayment plan. In the preamble to the NPRM, this 
recalculated payment amount is referred to as the ``permanent 
standard'' payment amount.
    The proposed regulations provide for borrowers to be informed of 
the annual income documentation requirement at the time they initially 
choose the IBR, ICR, or Pay As You Earn repayment plan. Borrowers are 
notified of the specific deadline for submitting the income information 
no later than 60 days before the deadline date. In addition, the 
proposed regulations include a 10-day ``grace period'' following the 
specified annual deadline date and ensure that borrowers are not 
subject to any adverse consequences if their income information is 
received by the end of the grace period. We believe that these required 
notifications and borrower protections will significantly reduce the 
number of instances in which borrowers are subject to interest 
capitalization and conversion to the permanent standard payment amount 
as a result of their failure to submit required income information on 
time. As discussed elsewhere in this preamble, the Department is also 
planning to implement processes that will allow borrowers who select an 
income-driven repayment plan to apply electronically and populate the 
application with AGI information obtained directly from the IRS, 
eliminating the need for borrowers to separately submit documentation 
of AGI. Borrowers will also be able to use this process to update their 
AGI information annually, as required by the IBR regulations. Although 
borrowers will be provided with ample time and opportunity to meet the 
income documentation requirements of the IBR plan, compliance with 
these requirements is ultimately the borrower's responsibility. For 
borrowers who do not submit their income information on time, 
capitalization of unpaid interest is not a penalty, but rather a result 
of the borrower's failure to comply with the terms and conditions of 
the repayment plan that the borrower chose.
    With regard to the suggested option of modifying the IBR plan 
regulations to include a cap on the amount of interest that may be 
capitalized, the Department does not have the statutory authority under 
the HEA to apply such a cap in the IBR plan. Section 493C(b)(3)(B) of 
the HEA requires the capitalization of any unpaid interest if a 
borrower is determined to no longer have a PFH or chooses to stop 
making income-based payments. The commenter's other recommendations 
(capitalizing only the interest that accrues during the period when a 
borrower's income information is late or giving loan holders discretion 
to limit interest capitalization under exceptional circumstances) are 
also inconsistent with the statutory interest capitalization 
requirements that apply in the IBR plan. Additionally, giving loan 
holders discretion to limit interest capitalization would result in 
inconsistent treatment of borrowers, since individual loan holders 
would determine what constitutes an exceptional circumstance.
    Finally, the commenter's recommendations would present significant 
operational challenges for loan holders and servicers, including the 
Department. In accordance with section 493C(c) of the HEA, a borrower 
who is repaying under the IBR plan must annually provide income 
information so that the Secretary or loan holder may determine the 
borrower's continued eligibility to make income-based payments and 
calculate the borrower's IBR plan payment amount for the next annual 
payment period. Section 493C(b)(6) of the HEA provides that if a 
borrower repaying under the IBR plan is determined to no longer have a 
PFH or chooses to stop making income-based payments, all unpaid 
interest is capitalized. The policy reflected in the NPRM is consistent 
with these statutory requirements. Based on these same requirements, 
the systems of most loan holders and servicers are currently designed 
to automatically

[[Page 66106]]

capitalize all unpaid interest at the end of a borrower's current 
annual payment period under the IBR plan and convert the borrower's 
payment to the permanent standard payment amount if the borrower has 
not provided the required income information. The commenter's 
recommendation to limit capitalization to the interest that accrues 
during the period when a borrower's income information is late would 
likely require interest capitalization to be handled as a manual 
process on an individual borrower basis. Such a manual process would 
not be feasible for the Secretary or loan holders to implement.
    Changes: None.
    Comments: One commenter recommended that the Department make two 
changes to proposed Sec. Sec.  682.215(e)(7), 685.209(a)(5)(vii), 
685.209(b)(3)(vi)(D), and 685.221(e)(7). First, the commenter asked the 
Department to add language clarifying that in the case of a borrower 
whose income information is received more than 10 days after the 
specified annual deadline, and whose monthly payment is converted to 
the permanent standard payment amount, the permanent standard payment 
amount will apply only until the Secretary or the loan holder receives 
the borrower's income documentation and calculates the new monthly 
payment amount. Second, the commenter recommended that additional 
language be added to the same sections of the regulations clarifying 
that a borrower's monthly payment will not be converted to the 
permanent standard payment amount if the borrower's income information 
is received more than 10 days after the annual deadline, but the 
Secretary or loan holder is able to determine the new monthly payment 
amount before the end of the borrower's current annual payment period. 
The commenter noted that this is consistent with what the Department 
said in the preamble to the NPRM, and believed that this borrower 
protection should be reflected in the regulations.
    Discussion: We do not believe it is necessary to state in the 
regulations that the permanent standard payment amount applies only 
until the borrower's new monthly payment amount is determined. Sections 
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 
685.221(e)(9)(i) make it clear that the Secretary or loan holder 
calculates a new monthly payment amount once the borrower's income 
information is received, and it is understood that the new payment 
amount would then replace the permanent standard payment amount. 
However, we agree with the second change recommended by the commenter, 
for the reasons cited by the commenter.
    Changes: We have modified Sec. Sec.  682.215(e)(7), 
685.209(a)(5)(vii), 685.209(b)(3)(vi)(D), and 685.221(e)(7) to clarify 
that in the case of a borrower whose income information is received 
more than 10 days after the specified annual deadline, the borrower's 
monthly payment is not converted to the permanent standard payment 
amount if the Secretary or the loan holder is able to determine the 
borrower's new monthly payment amount before the end of the borrower's 
current annual payment period.
    Comment: Several commenters recommended that the Department revise 
Sec. Sec.  685.209(a)(5)(vii), (a)(5)(viii) and (a)(5)(ix)(A), and 
685.221(e)(6), (e)(8), and (e)(9) by changing ``and'' to ``through.'' 
The commenters believed that the use of the word ``and'' in each of 
these paragraphs would suggest that a borrower must provide both 
documentation of his or her AGI and alternative documentation of 
income. They recommended that the Department replace the word ``and'' 
with the word ``through'' to make it clear that both types of income 
documentation are not required.
    Discussion: The proposed language cited by the commenters was not 
intended to suggest that a borrower must, in all cases, provide both 
documentation of AGI and alternative documentation of income. However, 
we do not believe that any changes are needed. The language describing 
alternative documentation of income in proposed Sec. Sec.  
685.209(a)(5)(i)(B) and 685.221(e)(1)(ii) makes it clear that 
alternative documentation of income is required only if the borrower's 
AGI is unavailable, or if the Secretary believes that the borrower's 
reported AGI does not reasonably reflect the borrower's current income. 
The use of the word ``and'' in Sec. Sec.  685.209(a)(5)(vii), 
(a)(5)(viii), and (a)(5)(ix)(A), and 685.221(e)(6), (e)(8), and (e)(9) 
does not suggest that borrowers are always required to provide both 
types of income documentation. In some cases a borrower may be required 
to provide only AGI or only alternative documentation of income, but in 
other cases a borrower may be required to provide both types of income 
documentation (for example, if the Secretary believes that the AGI 
information previously provided by the borrower does not reasonably 
reflect the borrower's current income).
    Changes: None.
    Comments: A number of commenters recommended that the Department 
change the proposed regulations for the Direct Loan program governing 
the treatment of borrowers repaying under the IBR, ICR, and Pay As You 
Earn repayment plans whose income information is received within 10 
days of the specified annual deadline, and those borrowers whose income 
information is received more than 10 days after the annual deadline. 
One commenter recommended that, for consistency with the corresponding 
FFEL program IBR plan regulations in Sec.  682.215(e)(8)(iii), the 
proposed Direct Loan program regulations in Sec. Sec.  
685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(e)(8) should be 
revised to clarify that if a borrower's new calculated monthly payment 
amount is equal to or greater than the borrower's previously calculated 
monthly payment amount, and the borrower continued to make payments at 
the previously calculated amount after the end of the most recent 
annual payment period, the Secretary does not make any adjustments to 
the borrower's account to make up for the difference between any 
payments the borrower made at a lower previously calculated amount and 
the higher current payment amount. Several other commenters recommended 
that the Department make this same change in Sec. Sec.  
685.209(a)(5)(viii) and 685.221(e)(8), and proposed that the Department 
further revise and restructure these paragraphs for greater clarity. 
Using Sec.  685.209(a)(5)(viii) from the proposed Pay As You Earn 
repayment plan regulations as an example, these commenters proposed to 
restructure Sec.  685.209(a)(5)(viii) by dividing the current single 
paragraph into (a)(5)(viii)(A) and (B). All of the text from proposed 
(a)(5)(viii) would be retained with no changes, but most of the current 
text would be placed in new paragraph (a)(5)(viii)(A)(1), and new 
paragraphs (a)(5)(viii)(A)(2) and (a)(5)(viii)(A)(3) would be added, 
along with a new paragraph (a)(5)(viii)(B). New paragraph 
(a)(5)(viii)(A)(2) would clarify that if the borrower's new calculated 
monthly payment amount is equal to or greater than the borrower's 
previously calculated payment amount, and the borrower continued to 
make payments at the previous amount before the new payment was 
calculated, the Secretary does not make any adjustments to the 
borrower's account. New paragraph (a)(5)(viii)(A)(3) would clarify that 
payments made by the borrower at the previously calculated payment 
amount would be considered

[[Page 66107]]

qualifying payments for purposes of the Public Service Loan Forgiveness 
program under Sec.  685.219, provided that the payments otherwise meet 
the requirements of that program. New paragraph (a)(5)(viii)(B) would 
include the Department's clarification in the preamble to the NPRM that 
the new annual payment period begins on the day after the end of the 
most recent annual payment period. The commenters recommended that the 
Department make the same changes in Sec.  685.221(e)(8) of the Direct 
Loan program IBR plan regulations, and that similar changes be made in 
proposed Sec.  682.215(e)(8) of the FFEL program IBR plan regulations.
    The same commenters proposed an additional change in Sec. Sec.  
685.209(a)(5)(ix) and 685.221(e)(9), which govern the treatment of 
borrowers whose income information is received more than 10 days after 
the specified annual deadline. Specifically, the commenters proposed to 
remove Sec. Sec.  685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), which 
provide that any payments that a borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new payment amount is calculated are 
considered to be qualifying payments for purposes of the Public Service 
Loan Forgiveness program, provided that the payments otherwise meet the 
eligibility requirements of that program. The commenters proposed to 
remove these paragraphs from Sec. Sec.  685.209(a)(5)(ix) and 
685.221(e)(9) and place the same text in new Sec. Sec.  
685.209(a)(5)(viii)(A)(3) and 685.221(e)(8)(i)(C), respectively.
    Discussion: We agree that the recommended changes provide greater 
consistency and clarity, except for the proposed removal of Sec. Sec.  
685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii). These paragraphs, which 
reflect the consensus language agreed to at the conclusion of the 
negotiated rulemaking sessions, clarify that even if a borrower misses 
the annual deadline and the borrower's payment is converted to the 
permanent standard payment amount, any payments that the borrower 
continues to make at the previously calculated income-based payment 
amount after the end of the prior annual payment period and before the 
new monthly payment amount is calculated are considered to be 
qualifying payments for purposes of the Public Service Loan Forgiveness 
program. Although we disagree with the proposal to remove Sec. Sec.  
685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), we believe that for 
consistency it would be appropriate to add the same clarifying language 
to the regulatory provisions governing the treatment of borrowers whose 
income information is received on time, and who continue to make 
payments at the previously calculated payment amount before the new 
monthly payment amount is determined.
    Changes: We have revised Sec. Sec.  682.215(e)(8), 
685.209(a)(5)(viii), and 685.221(e)(8) as described earlier in the 
Comments and Discussion sections. We have also made comparable changes 
to the ICR plan regulations in Sec.  685.209(b)(3)(vi)(E).
    Comments: Several commenters recommended that the Department 
restructure proposed Sec. Sec.  682.215(e)(2) and (e)(4) and 
685.221(e)(2) and (e)(4) for greater clarity. Proposed Sec. Sec.  
682.215(e)(2) and 685.221(e)(2) specify, in paragraphs (e)(2)(i) 
through (e)(2)(v) of both the FFEL and Direct Loan program regulations, 
the information that must be included in a written notification to a 
borrower after the Secretary or the loan holder makes a determination 
that a borrower has a PFH to qualify for the IBR plan for the year the 
borrower initially selects the plan and for any subsequent year that 
the borrower has a PFH. In both the FFEL and Direct Loan program 
regulations, proposed paragraph (e)(2)(v) states that the written 
notification must include information about the borrower's option to 
request, at any time during the borrower's current annual payment 
period, that the Secretary or the loan holder recalculate the 
borrower's monthly payment amount if the borrower's financial 
circumstances have changed. The last sentence of paragraph (e)(2)(v) 
states that if the Secretary or loan holder recalculates the borrower's 
payment at the borrower's request, the Secretary or loan holder sends 
the borrower a written notification that includes the information 
described in paragraphs (e)(2)(i) through (e)(2)(v).
    Proposed Sec. Sec.  682.215(e)(4) and 685.221(e)(4) specify, in 
paragraphs (e)(4)(i) through (iii) of both the FFEL and Direct Loan 
program regulations, the information that must be included in a written 
notice to the borrower each time the Secretary or the loan holder makes 
a determination that a borrower no longer has a PFH for a subsequent 
year that the borrower remains on the IBR plan. In both the FFEL and 
Direct Loan program regulations, paragraph (e)(4)(iii) states that the 
written notification must include information about the borrower's 
option to request, at any time during the borrower's current annual 
payment period, that the Secretary or the loan holder recalculate the 
borrower's monthly payment amount if the borrower's financial 
circumstances have changed. The last sentence of paragraph (e)(4)(iii) 
states that if the Secretary or loan holder recalculates the borrower's 
payment based on the borrower's request, the Secretary or loan holder 
sends the borrower a written notification that includes the information 
described in paragraphs (e)(2)(i) through (v).
    The commenters believed that Sec. Sec.  682.215(e)(2)(v) and 
(e)(4)(iii) and 685.221(e)(2)(v) and (e)(4)(iii) could, as currently 
structured, be interpreted to mean that the written notifications 
required by the introductory text of Sec. Sec.  682.215(e)(2) and 
(e)(4) and 685.221(e)(2) and (e)(4) must inform the borrower that the 
Secretary or the loan holder will send the borrower another written 
notification if the Secretary recalculates the borrower's payment 
amount based on the borrower's request. To avoid this possible 
misinterpretation, the commenters recommended that the last sentences 
in Sec. Sec.  682.215(e)(2)(v), 682.215(e)(4)(iii), 685.221(e)(2)(v), 
and 685.221(e)(4)(iii) be placed in separate paragraphs, with 
additional conforming changes to the numbering of the paragraphs to 
reflect the suggested restructuring.
    Discussion: The recommended changes are not necessary. The phrasing 
of the last sentences in Sec. Sec.  682.215(e)(2)(v), 
682.215(e)(4)(iii), 685.221(e)(2)(v), and 685.221(e)(4)(iii) (``If the 
[Secretary/loan holder] recalculates * * *'') makes it clear that these 
sentences describe actions that must be taken only if the borrower's 
payment is recalculated. The written notification required by the 
introductory text of Sec. Sec.  682.215(e)(2) and (e)(4) and 
685.221(e)(2) and (e)(4) does not have to inform the borrower that 
another written notification will be sent if the borrower's payment is 
later recalculated based on the borrower's request.
    Changes: None.
    Comments: Several commenters requested clarification regarding 
proposed Sec. Sec.  682.215(e)(3)(ii) and 685.221(e)(3)(ii), which 
provide for the Secretary or the loan holder to explain to the borrower 
the consequences if the borrower's income information is not received 
within 10 days following the annual deadline. Specifically, the 
commenters asked the Department to confirm their understanding, based 
on discussions that took place during the negotiated rulemaking 
sessions, that the notification to the borrower would not communicate 
the actual 10-day ``grace period'' following the deadline date. Rather, 
it was the understanding of the commenters that the purpose of the

[[Page 66108]]

notification to the borrower was simply to explain the consequences of 
not providing the required income information in a timely manner. The 
commenters were concerned that telling the borrowers about the extra 10 
days could lead some borrowers to not mail the required information by 
the specified deadline and to miss the extra 10 days for mail 
processing time.
    Discussion: Proposed Sec. Sec.  682.215(e)(3)(ii) and 
685.221(e)(3)(ii), which were approved by the consensus of the 
negotiated rulemaking committee, state that the notice must inform the 
borrower of the consequences if the Secretary or the loan holder does 
not receive the required income information ``within 10 days following 
the annual deadline specified in the notice.'' The clear intent of 
Sec. Sec.  682.215(e)(3)(ii) and 685.221(e)(3)(ii) is that the notice 
must inform the borrower of the additional 10-day period. We note that 
this is consistent with many notices sent to borrowers in connection 
with other financial obligations, such as home mortgages. For example, 
most monthly mortgage statements specify a date, generally 10 to 15 
days after the payment due date, by which the borrower's payment must 
be received to avoid late charges or other penalties. We believe it is 
in the best interest of the borrower to make the borrower aware of the 
additional 10-day period.
    Changes: None.
    Comments: Several commenters recommended clarifying changes to 
Sec. Sec.  682.215(e)(3) and (e)(7). Section 682.215(e)(3) describes 
the notification that is sent to a borrower who has a PFH for a 
subsequent year under the IBR plan; Sec.  682.215(e)(7) describes what 
happens if a borrower who is repaying under the IBR plan remains on the 
plan for a subsequent year, but the loan holder does not receive the 
borrower's income information within 10 days of the specified annual 
deadline. The commenters recommended that Sec.  682.215(e)(3) be 
revised to explain more clearly that it cannot be known whether a 
borrower will remain on the IBR plan with a PFH until the lender 
determines whether the borrower qualifies for that subsequent year. 
They recommended that Sec.  682.215(e)(7) be restructured and slightly 
revised to more clearly state that a borrower who currently has a PFH 
will be moved to the permanent standard payment amount upon expiration 
of the current annual payment period if the borrower's income 
information is not received within 10 days of the annual deadline.
    Discussion: We believe that the two paragraphs cited by the 
commenters are sufficiently clear as currently written and therefore 
decline to make the changes suggested.
    Changes: None.
    Comments: Several commenters recommended that the Department add a 
new administrative forbearance provision in Sec.  682.211(f) to cover 
the new type of administrative forbearance included in proposed Sec.  
682.215(e)(9).
    Discussion: We agree with the commenter. To ensure consistency and 
completeness in our regulations, we are making the proposed change to 
Sec.  682.211(f).
    Changes: We have revised Sec.  682.211(f) by adding a new paragraph 
(f)(16) that addresses the forbearance provision described in Sec.  
682.215(e)(9).
Income-Based and Income-Contingent Repayment Plans: Eligibility for 
Interest Subsidy on Income-Based and Pay As You Earn Repayment Plan 
Payments of Less Than Accrued Interest for Borrowers Who Change Plans 
(Sec. Sec.  685.209(a)(2)(iii) and 685.221(b)(3))
    Comments: Several commenters asked for clarification on the 
treatment of Direct Loan borrowers who change from repayment under the 
IBR plan to repayment under the Pay As You Earn repayment plan, or the 
reverse, as it relates to the borrower's eligibility for the interest 
subsidy on the borrower's subsidized Direct Loans. The commenters 
stated that proposed Sec. Sec.  685.209(a)(2)(iii) and 685.221(b)(3) 
appear to require the Department to reset the measurement of the 
borrower's three consecutive years of eligibility for this interest 
subsidy when the borrower enters each plan.
    Discussion: The proposed regulations did not address the treatment 
of a borrower who leaves the IBR plan and enters the Pay As You Earn 
repayment plan, or the reverse. Under these plans, if a borrower's 
calculated monthly payment on a subsidized Direct Loan does not cover 
all accruing interest, the Secretary will pay the remaining interest 
that accrues on the loan for up to three consecutive years from the 
date the borrower entered the respective repayment plan, excluding 
periods during which the borrower has an economic hardship deferment. 
However, the intent of the regulations was not to provide borrowers who 
change from one plan to the other with up to six years of eligibility 
for the interest subsidy. That result would be inconsistent with the 
HEA. Instead, to be consistent with the treatment of Direct 
Consolidation loans that repay loans that were being repaid under IBR, 
the maximum three-year interest subsidy period will include any period 
during which the Secretary did not charge the borrower accrued interest 
under the other repayment plan.
    Changes: Sections 685.209(a)(2)(iii) and 685.221(b)(3) have been 
revised to state that any period during which the Secretary has 
previously not charged the borrower accrued interest on an eligible 
loan under either the IBR or the Pay As You Earn repayment plan counts 
toward the maximum three years of subsidy a borrower is eligible to 
receive.
Determination of Initial Borrower Partial Financial Hardship Status and 
Recalculated Payment Amount for Borrowers Transferring Between the IBR 
and Pay As You Earn Repayment Plans (Sec. Sec.  685.209(a)(1)(v), 
685.209(a)(4), 685.209(a)(4)(i)(A), 685.221(a)(4), 685.221(d), and 
685.221(d)(1)(i))
    Comments: Several commenters requested clarification on the 
treatment of a borrower who changes from repayment under the IBR plan 
to repayment under the Pay As You Earn repayment plan, or the reverse, 
as it relates to determining whether the borrower has a PFH to 
initially qualify for the respective plan and, if the borrower 
initially qualifies for the plan but is later determined to no longer 
have a PFH, determining the borrower's recalculated maximum monthly 
payment amount (the amount referred to as the ``permanent standard'' 
payment amount in the NPRM). The commenters noted that the definition 
of ``partial financial hardship'' in proposed Sec.  685.209(a)(1)(v) 
provides for comparing the amount due on the borrower's eligible loans 
at the time the borrower initially entered repayment with the amount 
due ``at the time the borrower elects the ICR-A plan.'' The provision 
for determining the permanent standard payment amount in proposed Sec.  
685.209(a)(4)(i)(A) provides that the borrower's maximum monthly 
payment (if the borrower no longer has a PFH or chooses to stop making 
income-contingent payments) is the amount that would be due under a 10-
year standard plan using the amount of the borrower's eligible loans 
that was outstanding ``at the time the borrower began repayment on the 
loans under the ICR-A plan.'' The commenters stated that in a situation 
where a borrower changes from the IBR plan to the Pay As You Earn 
repayment plan, the proposed regulations appeared to require the 
Department to recalculate the maximum monthly payment amount used for 
the purposes of determining PFH status and the permanent standard 
payment amount. If this was not the Department's intent, the commenters 
recommended that the regulations be revised to clarify the treatment of 
a borrower who

[[Page 66109]]

changes from one repayment plan to the other.
    Discussion: The commenters' understanding of the intent of the 
proposed regulations is correct. We believe that because a borrower's 
outstanding eligible loan balance may increase as a result of interest 
capitalization after the borrower leaves the IBR plan to repay under 
the Pay As You Earn repayment plan (or the reverse), the borrower will 
receive the greatest benefit if the Secretary uses the greater of the 
amount due at the time the borrower first entered repayment or at the 
time the borrower elects to enter the new plan when determining whether 
the borrower has a PFH. We also believe that once a borrower has begun 
repayment under either the IBR or the Pay As You Earn repayment plan 
after such a transfer, and later becomes subject to a change in the 
maximum payment amount under Sec.  685.209(a)(4) or Sec.  685.221(d), 
there is no reason to treat the borrower differently from other 
borrowers under the plan when recalculating the borrower's maximum 
payment amount. As a result, the recalculated maximum payment amount 
for a borrower repaying under IBR who no longer has a PFH or who 
chooses to stop making income-based payments would continue to be based 
on ``the amount of the borrower's eligible loans that was outstanding 
at the time the borrower began repayment under the income-based 
repayment plan'' as provided under section 685.221(d)(1)(i). For 
borrowers repaying under the Pay As You Earn repayment plan, the 
maximum recalculated payment amount under the same circumstances would 
be calculated using ``the amount of the borrower's eligible loans that 
was outstanding at the time the borrower began repayment on the loans 
under the ICR-A [Pay As You Earn repayment] plan.''
    Changes: None.
Income-Based and Income-Contingent Repayment Plans: Payment Issues 
Qualifying Payments for IBR, Pay As You Earn, and ICR Loan Forgiveness
    Comments: Several commenters requested that the Department clarify 
whether a borrower who changes from repayment under the Pay As You Earn 
repayment plan (referred to as ICR-A in the NPRM) to repayment under 
the ICR plan (referred to as ICR-B in the NPRM) would still be subject 
to the 20-year repayment requirement for loan forgiveness that applies 
under the Pay As You Earn repayment plan. These same commenters 
recommended that the regulations governing eligible payments for ICR 
forgiveness be revised to include payments made under the Pay As You 
Earn repayment plan as eligible payments toward the 25 years for 
forgiveness under the ICR plan.
    Discussion: When a borrower transfers from the Pay As You Earn 
repayment plan to the ICR plan, the borrower becomes subject to the 
requirements of the ICR plan, which provides for forgiveness after 25 
years of repayment. Prior payments made under the Pay As you Earn 
repayment plan would, however, count toward the 25 years of repayment 
required for forgiveness under the ICR plan.
    Changes: Section 685.209(b)(3)(iii) of the proposed regulations 
governing the ICR plan repayment period has been revised to specify in 
new paragraph (b)(3)(iii)(3) that the repayment period includes periods 
in which the borrower made monthly payments under the Pay As You Earn 
repayment plan, and proposed paragraphs (b)(3)(iii)(3)-(7) have been 
redesignated as (b)(3)(iii)(4)-(8).
    Comments: Several commenters suggested that the proposed 
regulations in Sec.  685.221(f)(1)(iii) governing IBR loan forgiveness 
in the Direct Loan program were inconsistent with the statutory 
requirements in section 493C(b)(7)(B)(ii) of the HEA and the 
corresponding FFEL regulations at 34 CFR 682.215(f)(1)(iv), and 
recommended that the Direct Loan regulations be revised to remove this 
inconsistency. The commenters also recommended that the same change be 
made in Sec.  685.209(a)(6)(i)(C), since the Pay As You Earn repayment 
plan is largely modeled on the IBR plan. The commenters claimed that 
the proposed Direct Loan regulations in Sec.  685.221(f)(1)(iii) are 
inconsistent with the HEA.
    Discussion: We agree with the commenters that changes should be 
made in Sec. Sec.  685.221(f) and 685.209(a)(6)(i), but disagree with 
the specific change that the commenters proposed. Sections 
685.221(f)(1)(iii) and 685.209(a)(6)(i)(C) of the Direct Loan 
regulations should correspond to Sec.  682.215(f)(1)(iii) of the FFEL 
regulations, which reflects section 493C(b)(7)(B)(iii) of the HEA. 
Section 493C(b)(7)(B)(iii) of the HEA governs a circumstance under 
which a borrower repays under any repayment plan other than the 10-year 
standard plan and pays a monthly payment amount under that plan that is 
not less than what the borrower would pay under the standard repayment 
plan over a 10-year period. This provision of the HEA does not refer to 
the amount of the borrower's loans that were outstanding at the time 
the loans initially entered repayment under the IBR plan. We believe 
that Sec. Sec.  685.209(a)(6)(i)(D) and 685.221(f)(1)(iv) of the Direct 
Loan regulations should correspond with section 682.215(f)(1)(iv) of 
the FFEL regulations, which reflects section 493C(b)(7)(B)(ii) of the 
HEA. As a result, we are revising Sec. Sec.  685.209(a)(6)(i)(C) and 
(D) and 685.221(f)(1)(iii) and (iv) to properly align these provisions 
with the HEA and the FFEL regulations.
    Changes: Sections 685.209(a)(6)(i)(C) and 685.221(f)(1)(iii) of the 
Direct Loan regulations have been revised to delete the words ``for the 
amount of the borrower's loans that were outstanding at the time the 
loans initially entered repayment'' at the end of the respective 
paragraphs and to substitute in their place the words ``with a 10-year 
repayment period.'' Sections 685.209(a)(6)(i)(D) and 685.221(f)(1)(iv) 
have also been revised by inserting at the end of the respective 
paragraphs before the period: ``For the amount of the borrower's loans 
that were outstanding at the time the borrower first selected the Pay 
As You Earn repayment plan''; and ``for the amount of the borrower's 
loans that were outstanding at the time the borrower first selected the 
income-based repayment plan.''
    Comments: Many commenters requested that the current treatment of 
consolidation loans for purposes of the repayment period associated 
with IBR and ICR loan forgiveness be changed and that all qualifying 
payments made before and after consolidation should be counted towards 
a borrower's IBR or ICR loan forgiveness if the loans on which 
qualifying payments are made are later consolidated. The commenters 
believed that borrowers should be given appropriate credit for what may 
be many years of qualifying payments on loans that are later 
consolidated, and noted that counting payments made prior to 
consolidation for purposes of the three consecutive years of interest 
subsidy on subsidized loans under the IBR plan, and as proposed under 
the new Pay As You Earn repayment plan, serves as a precedent for such 
a change.
    Discussion: The conditions and qualifying payments that a borrower 
must satisfy for loan forgiveness are in section 493C(b)(7) of the HEA, 
which states that ``the Secretary shall repay or cancel an outstanding 
balance of principal and interest due on all loans made under part B or 
D'' if certain payment conditions are met on those loans. There is no 
outstanding balance of principal and interest due on a loan if the loan 
is repaid through the consolidation process and therefore a borrower's 
payments on a loan that is later repaid through consolidation are

[[Page 66110]]

considered in calculating the 20- or 25-year repayment period necessary 
for forgiveness of a Direct or FFEL Consolidation loan.
    Changes: None
Treatment of Prepayments for Borrowers Repaying Under the IBR, ICR, and 
Pay As You Earn Repayment Plans
    Comments: One commenter noted that, consistent with Sec.  
682.215(c)(2)(4) of the current FFEL regulations governing the IBR 
plan, the proposed regulations added language to the Direct Loan 
regulations in Sec. Sec.  685.209(a)(3)(ii)-(iv) and 685.221(c)(2)-(4) 
to clarify that borrowers repaying their Direct Loans under the IBR and 
the Pay As You Earn repayment plan may prepay their loans without 
penalty. The commenter recommended that similar language be added to 
the regulations governing the ICR plan.
    The same commenter also observed that the proposed regulations 
allowed a different treatment of borrower excess payments or 
prepayments if the borrower submits the annual paperwork for 
determination of the borrower's IBR or Pay As You Earn PFH eligibility 
and the recalculation of the borrower's IBR, Pay As You Earn, and ICR 
scheduled monthly payment amount within 10 days of the specified annual 
deadline, and recommended that this treatment be applied to all 
borrowers repaying loans under the IBR and ICR plans. Under the 
proposed regulations, if a borrower's annual paperwork is received 
within 10 days of the specified annual deadline, the borrower's current 
monthly payment is maintained until the new scheduled monthly payment 
amount is determined. If the new calculated scheduled monthly payment 
amount is less than the amount the borrower paid while the prior annual 
payment amount was maintained, the loan servicer makes appropriate 
adjustments to the borrower's account that can result in the borrower 
having made excess payments during those months. Sections 
682.215(e)(8)(ii), 685.209(a)(5)(viii), 685.209(b)(vi)(E), and 
685.221(e)(8) provide that excess payments identified retroactively 
through these adjustments will be applied first to accrued interest, 
then to collection costs, then to late charges, and finally to loan 
principal, unless the borrower requests otherwise. The commenter noted 
that borrower excess payments or prepayments at all other times are 
applied to the borrower's future installment payments by advancing the 
borrower's next payment due date unless the borrower requests 
otherwise. The commenter believed that treating prepayment amounts as 
intended for future installment payments is not appropriate for 
borrowers repaying under the IBR and ICR plans where required payments 
are based on the borrower's income and family size and pointed out that 
FFEL and Direct Loan general prepayment regulations already contain an 
exception for IBR in Sec. Sec.  682.209(b)(1) and 685.211(a)(1) of the 
regulations. The commenter believed a change in the treatment of excess 
payments for IBR and ICR borrowers would encourage borrowers to make 
larger payments and repay their loans faster and recommends deleting 
proposed Sec. Sec.  685.209(a)(3)(iii) and 685.221(c)(3) and Sec.  
682.215(c)(3) of the current FFEL IBR regulations that state: ``If the 
prepayment amount equals or exceeds a monthly payment amount of $10.00 
or more under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
Sec.  685.211(a)(3) [Sec.  682.209(b)(2)(ii) in FFEL].''
    The same commenter also recommended that all borrowers be allowed 
to specifically request that their excess payments be counted toward 
principal first, rather than be applied first to accrued interest, 
collection costs, and late charges, and that regulatory provisions 
governing recalculation of payments be modified so that borrowers 
making payments greater than their required scheduled monthly payment 
amount are not treated as if they no longer have a PFH and are forced 
to make a ``permanent standard'' payment amount.
    Discussion: The application of borrower payments under the IBR plan 
is specified in section 493C(b)(2) of the HEA and is reflected in Sec.  
682.215(c)(1) of the FFEL regulations and Sec.  685.221(c) of the 
Direct Loan regulations. Under the HEA, payments must be applied first 
toward interest due on the loan, next toward any fees due on the loan, 
and then toward the principal of the loan. ``Fees due on the loan'' are 
identified as collection costs and late charges in the regulations and 
are the responsibility of the borrower. The proposed regulations for 
the Pay As You Earn repayment plan would adopt the IBR payment 
application requirements along with other features of the IBR plan. 
Given the different payment application requirements under IBR and the 
proposed Pay As You Earn repayment plan, we believe it is important to 
clarify in the regulations governing those plans that borrowers paying 
under these plans may prepay all or part of their loans at any time 
without penalty.
    The ICR plan, however, is not subject to these statutory payment 
application requirements. Borrower payments under ICR and the other 
remaining Direct Loan repayment plans are applied in accordance with 
Sec.  685.211(a)(1), which provides that any payment is first applied 
to any accrued charges and collection costs, then to any outstanding 
interest, and then to outstanding principal. Section 685.211(a)(2) of 
the Direct Loan regulations provides borrowers repaying under ICR and 
the other remaining Direct Loan repayment plans the same protection on 
the ability to prepay a loan without penalty at any time. As a result, 
we do not believe the change recommended by the commenter is needed in 
the ICR regulations.
    We also disagree that the same treatment of excess payments as that 
proposed for IBR, Pay As You Earn, and ICR borrowers that submit their 
annual paperwork on time and maintained their current payment until a 
new lower annual payment is calculated should be applied to all IBR and 
ICR borrowers at all times. The excess payments subject to these 
exception processing provisions are the result of adjustments made 
after the borrower's lower annual payment amount is calculated. We 
believe it is important to ensure that excess payments identified 
through such adjustments for a retroactive period do not affect the 
integrity of the separate payments the borrower has already made at the 
higher annual payment amount. We have, therefore, specified in the 
regulations that these payments will be applied, unless otherwise 
requested by the borrower, to cover accrued interest, other charges, 
and loan principal first. Since many borrowers who continue to make on-
time, full monthly payments at the prior annual scheduled payment 
amount under these circumstances will not have outstanding accrued 
interest or other charges, the excess funds will be used primarily to 
reduce the loan principal.
    Sections 682.209(b)(2)(ii) and 685.211(a)(3) provide all FFEL and 
Direct Loan borrowers the opportunity to request that excess payment 
amounts or lump sum prepayments not be treated as intended for future 
installment payments. These provisions require the loan holder or the 
Department to treat a prepayment that equals or exceeds the borrower's 
scheduled monthly payment amount under the borrower's repayment plan as 
intended for a future installment payment by advancing the due date of 
the next payment, unless the borrower requests otherwise. As a result, 
we do not believe it is necessary to revise the IBR and ICR regulations 
governing prepayments.
    Finally, we disagree that the IBR and Pay As You Earn regulations 
governing recalculation of borrower payment

[[Page 66111]]

amounts need to be modified to prevent a borrower who currently has a 
PFH and who makes excess payments from losing PFH status and being 
converted to a 10-year standard (permanent standard) payment amount. 
The regulations clearly provide that borrowers will be determined to no 
longer have a PFH and converted to the permanent standard payment 
amount only based on: (1) The loan holder's annual evaluation of the 
borrower's income and family size; (2) the borrower's failure to 
provide the required information annually that is necessary to 
determine continued PFH status and recalculate the borrower's scheduled 
monthly payment; (3) the borrower's notice to the loan servicer that 
the borrower no longer chooses to make income-based payments; or (4) 
the borrower's request to leave the IBR or Pay As You Earn repayment 
plan. The Secretary encourages borrowers to make excess payments if 
they can and to exercise their options under the regulations on the 
treatment of those payments.
    Changes: None.
Leaving the IBR Plan (Sec. Sec.  682.215(d)(3) and 685.221(d)(2)(ii))
    Comments: Many commenters requested that the Department modify the 
IBR regulations to permit borrowers to exit the IBR plan without what 
the commenters believe is a prohibitive penalty. These commenters 
requested that borrowers not be required to repay their loans under the 
standard repayment plan when exiting the IBR plan or, if they are 
required to enter the standard plan, that borrowers not be required to 
make a payment under the standard repayment plan before being allowed 
to move to another repayment plan for which the borrower is eligible. 
Commenters asserted that requiring borrowers to exit the IBR plan and 
enter the standard repayment plan, or requiring such borrowers to make 
one payment under the standard plan before switching to another 
repayment plan for which the borrower is eligible, constitutes a 
prohibitive penalty because the borrower's payment amount under the 
standard repayment plan would be far higher than under the IBR plan or 
another repayment plan for which the borrower may be eligible.
    These same commenters also requested that the FFEL regulations be 
revised to require FFEL holders to grant a reduced-payment forbearance 
to borrowers who exit the IBR plan if the borrower is unable to make 
the scheduled monthly payment under the standard repayment plan. The 
commenters requested this revision to ensure that FFEL borrowers would 
receive the same treatment as Direct Loan borrowers. In the Direct Loan 
program, the Secretary will grant a reduced-payment forbearance to 
borrowers in this circumstance. These commenters also requested that 
the Department set a ceiling on the payment amount required under the 
reduced-payment forbearance agreement, require that interest accruing 
during such a forbearance period not be capitalized, and clarify that 
the reduced-payment forbearance period may be as short as the time 
needed for a borrower to make one reduced payment.
    Several commenters also requested that the Department clarify that 
the reduced-payment forbearance granted to such borrowers could result 
in a payment of any amount greater than $0.
    Discussion: Section 493C(b)(8) of the HEA requires a borrower who 
leaves the IBR plan to repay the loans formerly repaid under the IBR 
plan under the standard repayment plan. The borrower also becomes 
subject to the maximum statutory repayment period under the standard 
plan with the time spent in the IBR plan counted against that statutory 
maximum repayment period. The Department has interpreted the statutory 
requirement that borrowers exiting the IBR plan must repay under the 
standard repayment plan to be satisfied if the borrower makes one full 
monthly payment under the standard plan before the borrower switches to 
another repayment plan. Because the time spent repaying in IBR counts 
against the statutory maximum repayment periods applicable to the other 
repayment plans, the outstanding balance of the loan at the time the 
borrower exits the IBR plan must be amortized over the remaining years 
available to the borrower under the standard plan to determine the 
standard plan payment amount. Any unpaid accrued interest the borrower 
may have is also capitalized when the borrower leaves the IBR plan. As 
a result, the resulting payment calculated for the borrower under the 
standard repayment plan may be quite large. Other borrowers whose time 
repaying under IBR already exceeds the maximum repayment periods 
available under other repayment plans may not be able to leave the IBR 
plan, which provides for a longer repayment period.
    During negotiated rulemaking, the Department acknowledged that 
borrowers exiting IBR may be required to make a large payment under the 
standard plan before requesting to move to another repayment plan. As a 
result, the proposed IBR regulations permit the borrower to make a 
lesser payment under a reduced-payment forbearance agreement to satisfy 
the one-payment requirement under the standard repayment plan.
    With regard to the commenters' request that the Department require 
FFEL loan holders to grant a reduced-payment forbearance to borrowers 
exiting IBR, section 428(c)(3)(A) of the HEA requires loan holders to 
grant forbearances in limited circumstances specified in the HEA. 
Otherwise, section 428(c)(3)(B) of the HEA states that lenders may 
grant forbearance for the benefit of the borrower as permitted under 
regulations of the Secretary. Under the proposed regulations, FFEL 
holders are authorized to grant reduced-payment forbearances to 
borrowers in these circumstances and we strongly recommend and expect 
that they will do so. However, we do not believe that under the HEA we 
can mandate that FFEL holders grant forbearances in these 
circumstances.
    With regard to the comments that sought clarification on the 
payment amount required under the reduced-payment forbearance for such 
a borrower, the amount of any reduced-payment forbearance is a matter 
negotiated between the borrower and the loan holder. The Department 
believes that for these borrowers it can be any amount that is greater 
than $0 and less than the borrower's scheduled monthly payment under 
the standard repayment plan. For example, one approach to determining 
the reduced payment amount in this circumstance would be to require the 
borrower to pay the scheduled monthly payment amount the borrower would 
pay under the repayment plan the borrower seeks to pay under after 
leaving the standard repayment plan. If the borrower is eligible for 
and wants to enter the extended repayment plan, the reduced-payment 
forbearance amount could be set at the amount the borrower would 
otherwise be required to pay under the extended repayment plan.
    With regard to the commenters' request for clarification that the 
reduced-payment forbearance period need not be longer than one month, 
we agree that the forbearance period can be limited to the time 
associated with the one required monthly payment under the standard 
repayment plan. Finally, because the forbearance is granted while the 
borrower is repaying under the standard repayment plan, and not when 
the borrower is transferring to the standard repayment plan, there is 
no basis under the for not capitalizing any unpaid accrued interest 
related to the forbearance period.
    Changes: None.

[[Page 66112]]

Income-Based and Income-Contingent Repayment Plans: Other Issues

Treatment of Married Borrowers
    Comments: Several commenters requested that the Department remove 
the so-called ``marriage penalty'' associated with the IBR plan. 
Specifically, the commenters objected to the requirement that borrowers 
who are married and who file a joint Federal income tax returns must 
include the income of both the borrower and the borrower's spouse for 
use in determining eligibility for IBR and calculating the scheduled 
monthly payment amount under the plan regardless of whether the spouse 
has loans eligible under the plan or requests to pay under the plan. 
Many commenters believed that the spouse's income should not be 
considered because the spouse has no legal responsibility for repayment 
of the borrower's debt. Many commenters also stated that married 
borrowers would need to decide whether to file their Federal income tax 
returns separately and forego the various benefits in the Internal 
Revenue Code associated with filing their Federal income tax returns 
jointly with their spouse, or to file their Federal income tax returns 
jointly with the prospect that this could result in a higher calculated 
monthly payment amount under the plan or making them ineligible for 
IBR.
    Discussion: The treatment of married borrowers under IBR is 
specified in section 493C(a)(3)(B)(i) of the HEA, which states that the 
borrower's and the borrower's spouse's AGI is used when determining a 
PFH for borrowers who are married and file a joint Federal income tax 
return. In addition, section 493C(d) of the HEA specifies that only the 
borrower's AGI and eligible Federal student loan debt are used if the 
borrower is married, but files a separate Federal income tax return.
    Changes: None.
    Comments: Some commenters who are married and reside in States that 
treat income and property acquired during the marriage as community 
property strongly objected to the fact that they are required, as a 
general matter, to pool all community income on their Federal income 
tax return if they file their taxes jointly or to split all community 
income equally between them if they file their taxes separately, thus 
significantly affecting their eligibility for IBR and the calculated 
scheduled monthly payment amount under the IBR plan in comparison with 
other married borrowers residing in non-community property states.
    Discussion: As described in the response to the previous comment on 
married borrowers, the treatment of income of married borrowers when 
determining IBR eligibility is specified in the HEA. The Department 
acknowledges, however, that application of these requirements to 
married borrowers who reside in community property states and who file 
separately from their spouse results in a different outcome than for 
similarly situated married borrowers residing in other states.
    As an example, a married couple resides in a community property 
state and has no dependents. The borrower earns $40,000 and the spouse 
earns $60,000. They filed their income tax returns separately and have 
no pre-tax deductions from pay, no other income, and no adjustments to 
income when filing their Federal income tax returns. Only the borrower 
has IBR-eligible Federal student loans, which total $50,000. Each 
spouse would be considered to have an AGI of $50,000. The borrower is 
eligible for the IBR plan, with a calculated monthly payment amount of 
$341.31. If the same couple did not reside in a community property 
state and filed separately, the borrower would have an AGI of $40,000 
and the spouse an AGI of $60,000. Because the borrower's AGI would only 
be $40,000, the borrower would be eligible for the IBR plan, but would 
have a lower IBR scheduled monthly payment amount of $216.31.
    The Department understands that married borrowers who file their 
Federal income tax returns separately from their spouses and who reside 
in community property states may be disadvantaged when determining IBR 
eligibility when compared to similarly situated married borrowers in 
non-community property states. However, Sec. Sec.  682.215(e)(1)(B) and 
685.221(e)(1)(i)(B) and Sec.  685.209(a)(5)(i)(B) authorize the use of 
alternative documentation of a borrower's income if the Secretary or 
the FFEL loan holder believes the borrower's reported AGI does not 
reasonably reflect the borrower's current income. Because the 
Department believes that it is inequitable to treat married borrowers 
who file their Federal income tax returns separately differently based 
on where they reside, we encourage FFEL loan holders to use alternative 
documentation of the borrower's income under these circumstances. The 
Department will take the same approach with the loans it holds.
    Changes: None.
Notices to Borrowers in Anticipation of Receiving Forgiveness Under the 
IBR, ICR, and Pay As You Earn Repayment Plans (Sec. Sec.  682.215(g), 
685.209(a)(6)(v)(A), 685.209(b)(3)(iii)(D), and 685.221(f)(5))
    Comments: Several commenters requested that the Department clarify 
that the notices required to be sent to borrowers who are approaching 
the end of the maximum repayment period necessary for loan forgiveness 
under the IBR, ICR, or Pay As You Earn repayment plans would be based 
on the information available to the loan holder at the time that the 
notice is generated and that later circumstances could affect the 
information provided in the notice.
    Discussion: The Department agrees that the notices that must be 
provided to borrowers who are approaching loan forgiveness under the 
IBR, ICR, and Pay As You Earn repayment plans can only be based on 
information that is available to the loan holder at the time the notice 
is sent to the borrower and that the timeline for forgiveness could 
change based on borrower behavior after the notice is sent.
    Changes: None.
IBR Plan Maximum Repayment Period
    Comments: Some commenters requested that the Department reduce the 
maximum period after which a borrower who has repaid under the IBR plan 
may receive forgiveness of the borrower's remaining loan balance from 
25 years to 10 years. A small number of other commenters suggested that 
a borrower's remaining principal balance should be automatically 
forgiven in IBR when the original principal balance of the loan has 
been satisfied, regardless of the length of time the borrower has been 
in repayment.
    Discussion: The Department appreciates these comments and 
understands that commenters want to reduce loan burden for borrowers 
paying under IBR. However, the Department declines to adopt the 
commenters' suggestions. Although the Department will continue to 
examine this issue, we believe the current HEA standard of 25 years of 
repayment for current IBR and ICR borrowers, and 20 years of repayment 
for new IBR borrowers on or after July 1, 2014, reflect the Congress' 
view of an appropriate repayment period prior to a borrower's receipt 
of loan forgiveness.
    Changes: None.
Repayment of FFEL Program Loans Under the Income-Based Repayment Plan 
(Sec.  682.215(b)(3))
    Comments: Several commenters servicing commercially-held FFEL

[[Page 66113]]

program loans asked the Department to clarify how the change to Sec.  
682.215(b)(3) of the FFEL regulations, which will require FFEL 
borrowers who choose the IBR plan to repay all of their loans under the 
IBR plan unless some of the borrower's loans are not eligible for the 
plan, would apply to borrowers already repaying under the IBR plan. The 
commenters noted that many FFEL borrowers had excluded IBR-eligible 
loans when they entered the IBR plan, as permitted by the current FFEL 
regulations. These commenters recommended that we continue to recognize 
borrower choices made prior to the effective date of the change. The 
commenters noted that not recognizing prior borrower choices would 
require revisions to previously agreed-upon repayment plans without 
borrower consent or request, and could cause borrower confusion, 
concern, and possible defaults. The commenters urged the Department to 
apply the change to borrowers who enter the IBR plan on or after July 
1, 2013.
    Discussion: We agree that a borrower's choice made prior to the 
effective date of the regulatory change should continue to be 
recognized and that the change should apply to borrowers who begin 
repayment of a loan under the IBR plan on or after July 1, 2013.
    Changes: Section 682.215(b)(3) has been revised to specify that the 
requirement that borrowers entering the IBR plan repay all of their 
loans under that plan, except for those that are ineligible for IBR, 
applies to borrowers who elect the IBR plan on or after July 1, 2013.
Spousal Consent for Loan Holder Access to NSLDS Information (Sec.  
682.215(e)(1)(iii)(A))
    Comments: Several commenters requested that the proposed regulation 
that requires a borrower applying for IBR to provide consent to a loan 
holder's access to the borrower's spouse's information in the National 
Student Loan Data System (NSLDS) be modified to clarify that the 
borrower's spouse, not the borrower, must authorize such access. Other 
commenters recommended that a comparable provision be added to the IBR 
and ICR regulations in the Direct Loan program.
    Discussion: We agree with the commenters that the spouse, not the 
borrower, must authorize a loan holder's access to NSLDS information on 
the spouse's loans in cases where the lender does not hold one of the 
spouse's loans and would otherwise not have authority to access the 
information. A comparable provision is not required in the Direct Loan 
program regulations because the Secretary has access to all borrower 
data in NSLDS.
    Changes: Section 682.215(e)(1)(iii)(A) has been revised to provide 
that the borrower must ensure that the borrower's spouse has provided 
the necessary consent for the loan holder to access NSLDS information 
on the spouse's eligible loans to determine the borrower's eligibility 
for IBR.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This regulatory action will have an annual effect on the economy of 
more than $100 million because the availability of the Pay As You Earn 
repayment plan is estimated to transfer from the Federal government to 
students in reduced principal and interest payments over the 2012 to 
2021 loan cohorts approximately $10.6 billion and $10.2 billion on a 
cash basis at 3 percent and 7 percent discount rates, respectively. As 
discussed in the Net Budget Impacts section, this is expected to have a 
net budget impact of approximately $2.1 billion over the 2012 to 2021 
loan cohorts. Therefore, this final action is economically significant 
and subject to review by OMB under section 3(f) of Executive Order 
12866. Notwithstanding this determination, we have assessed the 
potential costs and benefits--both quantitative and qualitative--of 
this regulatory action. The agency believes that the benefits justify 
the costs.
    We have also reviewed these regulations pursuant to Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor their regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives, taking into account, 
among other things, and to the extent practicable, the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than specifying the behavior or manner of compliance that regulated 
entities must adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    We emphasize as well that Executive Order 13563 requires agencies 
``to use the best available techniques to quantify anticipated present 
and future benefits and costs as accurately as possible.'' In its 
February 2, 2011, memorandum (M-11-10) on Executive Order 13563, the 
Office of Information and Regulatory Affairs within the Office of 
Management and Budget emphasized that such techniques may include 
``identifying changing future compliance costs that might result from 
technological innovation or anticipated behavioral changes.''
    We are issuing these final regulations only upon a reasoned 
determination that their benefits justify their costs. In choosing 
among alternative regulatory approaches, we selected those approaches 
that maximize net benefits. Based on the analysis below, the Department 
believes that these final regulations are consistent with the 
principles in Executive Order 13563.
    We also have determined that this regulatory action will not unduly

[[Page 66114]]

interfere with State, local, and tribal governments in the exercise of 
their governmental functions.
    In this regulatory impact analysis we discuss the need for 
regulatory action, the potential costs and benefits, net budget 
impacts, assumptions, limitations, and data sources, as well as 
regulatory alternatives we considered. Elsewhere in this section under 
Paperwork Reduction Act of 1995, we identify and explain burdens 
specifically associated with information collection requirements.

The Need for Regulatory Action

    The Department is responsible for administration of the Federal 
student loan programs authorized by title IV of the HEA. Federal 
student loans are a crucial element in providing important 
opportunities for Americans seeking to expand their skills and earn 
postsecondary degrees and certificates. One of the Department's goals 
is to ensure that its regulations promote a transparent and consistent 
administration of title IV programs. Borrowers should be able to easily 
understand their rights, responsibilities, and options. Sometimes 
statutory revisions or Administration priorities require the Department 
to revise its policies and regulations. With these final regulations, 
the Department enhances the income-driven repayment options available 
to borrowers so borrowers can repay their loans, student loan debt will 
be manageable, and students will continue to pursue postsecondary 
education that makes sense for them. In addition, the Department will 
improve the TPD process to increase efficiency and consistency in the 
treatment of borrowers.
    The passage of the SAFRA Act (Pub. L. 111-152) ended the 
origination of new FFEL program loans and amended the statutory 
provisions governing the IBR plan so that the discretionary income caps 
and loan forgiveness eligibility periods would be reduced effective 
July 1, 2014, for new borrowers who choose the IBR plan.
    Student loan indebtedness and tuition costs have become major 
issues not only in the media but at the kitchen table in millions of 
American households. In light of recent economic conditions, many 
Americans remain worried that postsecondary education is becoming, or 
has become, unaffordable for themselves and their children. Recognizing 
that fear of unmanageable student loan indebtedness may discourage 
potential students from seeking postsecondary education, Congress 
enacted, as part of SAFRA, President Obama's proposal to lower the IBR 
student loan payment cap to 10 percent of the borrower's discretionary 
income and to provide loan forgiveness after 20 years of qualifying 
payments for new borrowers in 2014.
    Concerned about the current and future students with student loans, 
President Obama proposed the Pay As You Earn repayment plan initiative. 
This proposal revises the ICR repayment plan in the Direct Loan program 
to reflect the statutory changes made to IBR by SAFRA. Eligible 
borrowers (new borrowers on or after October 1, 2007, with new loans in 
2012) would be able to take advantage of the 10 percent income cap and 
the shorter loan forgiveness period in the fall of 2012 instead of 
waiting until 2014 for the statutory changes to IBR.
    To achieve the goals of the President's Pay As You Earn initiative 
and provide the maximum benefit to borrowers, the Secretary is revising 
the ICR repayment plan while implementing the statutory IBR changes. 
The revisions offer eligible borrowers lower payments and loan 
forgiveness after 20 years of qualifying payments. As discussed earlier 
in this section, income-based repayment options may encourage higher 
borrowing and potentially introduce an unintended moral hazard, 
especially for borrowers enrolled at schools with high tuitions and 
with low expected income streams. Some commenters disagreed with the 
inclusion of this moral hazard statement, noting that the aspect of 
more generous income-based repayment plans causing increased borrowing 
has not been established. The Department has not found any definitive 
studies on the matter but since some analysts, academics, and others 
have suggested the possibility of this inducement effect, we wanted to 
address it to ensure comprehensive coverage of this issue.
    Table 2 summarizes the differences in eligibility between the 
existing and final IBR and ICR programs.

                            Table 2--Summary of Existing and Final IBR and ICR Plans
----------------------------------------------------------------------------------------------------------------
                                                       Final IBR  (with                        Final Pay as You
                                      Current IBR         07/01/2014          Current ICR       Earn repayment
                                                      statutory changes)   (proposed ICR-B)          plan
----------------------------------------------------------------------------------------------------------------
Loan Program and Eligible          Direct      Direct      Direct      Direct
 Borrowers.                        Loan program.       Loan program only.  Loan program only   Loan program
                                   FFEL        Only new    (FEEL Borrowers     only.
                                   program.            borrowers as of     who consolidate     Only new
                                                       July 1, 2014:.      into the Direct     borrowers in 2008
                                                      [cir] Must have no   Loan Program are    who receive a
                                                       outstanding         considered Direct   Direct Loan
                                                       Direct Loan or      Loan borrowers      disbursement in
                                                       FFEL balance as     and therefore       2012 or later:
                                                       of July 1, 2014     qualify).          [cir] Must have no
                                                       or on the date a                        outstanding
                                                       new Direct Loan                         Direct Loan or
                                                       is received after                       FFEL balance as
                                                       July 1, 2014.                           of October 1,
                                                                                               2007 or on the
                                                                                               date a new Direct
                                                                                               Loan or FFEL
                                                                                               program loan is
                                                                                               received after
                                                                                               October 1, 2007;
                                                                                               and
                                                                                              [cir] Must receive
                                                                                               a disbursement of
                                                                                               a Direct Loan on/
                                                                                               after October 1,
                                                                                               2011, or receive
                                                                                               a Direct
                                                                                               Consolidation
                                                                                               Loan based on an
                                                                                               application
                                                                                               received on/after
                                                                                               October 1, 2011.
                                                                                               FFEL new
                                                                                               borrowers in 2008
                                                                                               may qualify
                                                                                               through
                                                                                               consolidation
                                                                                               into the Direct
                                                                                               Loan program.

[[Page 66115]]

 
Graduate/Professional PLUS Loans  Yes...............  Yes...............  Yes...............  Yes.
 eligible?
Parent PLUS Loans eligible?       No................  No................  No................  No.
Consolidation Loans that repaid   No................  No................  Yes...............  No.
 Parent PLUS Loans eligible?
Partial Financial Hardship        Yes...............  Yes...............  No................  Yes.
 Required?
Partial Financial Hardship        10-year standard    10-year standard    N/A...............  10-year standard
 Definition.                       payment amount on   payment amount on                       payment amount on
                                   eligible loans      eligible loans                          eligible loans
                                   (annual amount      (annual amount                          (annual amount
                                   owed) exceeds 15%   owed) exceeds 10%                       owed) exceeds 10%
                                   of difference       of difference                           of difference
                                   between AGI and     between AGI and                         between AGI and
                                   150% of poverty     150% of poverty                         150% of poverty
                                   line amount.        line amount.                            line amount.
Forgiveness Period..............  25 years of         20 years of         25 years of         20 years of
                                   qualifying          qualifying          qualifying          qualifying
                                   payments/months     payments/months     payments/months     payments/months
                                   of economic         of economic         of economic         of economic
                                   hardship            hardship            hardship            hardship
                                   deferment.          deferment.          deferment.          deferment.
Estimated Borrowers Eligible for  1.53..............  1.03..............  0.39..............  1.67.
 Participation (2012-2021
 cohorts in millions) *.
----------------------------------------------------------------------------------------------------------------
* Note: While the figures represent the 2012-2021 cohorts, the numbers only apply to those cohorts eligible for
  the particular program above those already eligible for existing programs. For example, the 1.03 million for
  the Proposed Revised IBR only includes eligible new borrowers after July 1, 2014.

    The Department's current process for considering applications for 
TPD discharges on student loans has also been reviewed for efficiencies 
and improved consistency in response to concerns raised by the 
Department and external parties. Borrowers and advocates particularly 
have described the application process and monitoring period 
requirements as burdensome. The revisions will address these problems 
by requiring borrowers to submit applications for disability discharges 
directly to the Secretary, rather than to individual lenders; ensuring 
that borrowers whose applications for a discharge are rejected receive 
a more thorough explanation of the reasons for the rejection and 
adequate information about their options; permitting a TPD discharge 
based on a borrower's SSA notice of award for SSDI or SSI benefits 
indicating that the borrower's eligibility for disability benefits will 
be reviewed on a five- to seven-year schedule, which classifies the 
borrower as permanently impaired--medical improvement not expected. 
Borrowers will still be subject to the three-year discharge review that 
is currently in place; and, simplifying the income verification process 
during the three-year monitoring period. The final regulations also 
eliminate the necessity for FFEL lenders and guaranty agencies to 
evaluate disability discharge applications and ensure that the 
disability discharge application process is also expedited for 
veterans.
    Beyond those details, Executive Order 12866 emphasizes that 
``Federal agencies should promulgate only such regulations as are 
required by law, are necessary to interpret the law, or are made 
necessary by compelling public need, such as material failures of 
private markets to protect or improve the health and safety of the 
public, the environment, or the well-being of the American people.'' In 
this case, there is indeed a compelling public need for regulation. The 
Secretary recognizes the growth in the number of students enrolled in 
college, the ongoing increase in college costs, the resulting increased 
need for student loans, and the potential difficulty in repaying them. 
The Secretary's goal in regulating is to provide borrowers with maximum 
repayment options to ensure that borrowers are able to repay their debt 
and to improve the process for considering applications for disability 
discharges on Federal student loans.
    As noted in the NPRM there has been a steep increase in the cost of 
tuition in America. According to data collected by the Department's 
National Center for Education Statistics (NCES), the cost of tuition, 
room and board for full-time students at America's 4-year public and 
private non-profit institutions rose by 140% between 1980 and 2010 when 
controlled for inflation.\1\ The average published tuition and fees at 
4-year public universities increased by 8.3 percent between the 2010-
2011 and 2011-2012 academic years, according to College Board.\2\ The 
tuition pinch is not limited to undergraduate studies. The average 
price of tuition and required fees at graduate and professional schools 
has doubled since 1988, even when adjusted for inflation.\3\
---------------------------------------------------------------------------

    \1\ This percentage was calculated by the Department using data 
collected from Thomas D. Snyder and Sally A. Dillow, Digest of 
Education Statistics 2010, (pgs 493-495) Education (U.S. Department 
of Education, April 2011), https://nces.ed.gov/pubs2011/2011015.pdf.
    \2\ Trends in College Pricing 2011, Table 4A: Average Tuition 
and Fees in Current Dollars, 1981-82 to 2011-12 (College Board 
Advocacy and Policy Center, nd.), https://trends.collegeboard.org/college_pricing/report_findings/indicator/Tuition_Fees_Over_Time.
    \3\ Snyder and Dillow, Digest of Education Statistics 2010, page 
498.
---------------------------------------------------------------------------

    As discussed in detail in the preamble to the NPRM, the combination 
of increased enrollment and college costs has contributed to a 
significant increase of student loan debt in America. Enrollments have 
grown as more students are enrolling in college each

[[Page 66116]]

year with hopes of building a career or changing job fields. This has 
led to a growth in outstanding debt as students are increasingly 
relying on Federal student loans. According to data collected by NCES, 
34.9 percent of all undergraduates took out a Federal student loan in 
the 2007-2008 academic year \4\ compared to 19.9 percent in the 1992-
1993 academic year.\5\
---------------------------------------------------------------------------

    \4\ Thomas D. Snyder and Sally A. Dillow, Digest of Education 
Statistics: 2010 (United States Department of Education, National 
Center for Education Statistics, April, 2011), https://nces.ed.gov/programs/digest/d10/tables/xls/tabn354.xls.
    \5\ Thomas D. Snyder, Digest of Education Statistics, 1995 
(United States Department of Education, National Center for 
Education Statistics, October, 1995), https://nces.ed.gov/programs/digest/d95/dtab309.asp.
---------------------------------------------------------------------------

    While higher levels of student loan debt are indicative of 
troubling trends with respect to the cost of college, these higher 
levels simultaneously reflect increased levels of investment in the 
nation's human capital. These investments yield significant and 
demonstrable benefits not only for individuals but for the nation as 
well. College graduates on average fare better economically than their 
high school educated counterparts as discussed in detail in the Need 
For Regulatory Action Section of the NPRM. According to the Bureau of 
Labor Statistics, even those individuals who attended college but never 
received a degree have higher weekly earnings, on average, than those 
with only a high-school diploma. For the Nation, higher levels of 
educational attainment increase economic productivity and raise gross 
domestic product, among many other benefits.
    Even though the economy has begun to strengthen, many recent 
graduates are finding it challenging to obtain employment and garner 
wages at or near average levels. A March 2011 letter published by the 
Federal Reserve Bank of San Francisco, for example, highlighted that 
the unemployment rate of recent graduates has doubled over the past few 
years.\6\ Even for recent graduates who obtain employment, prior 
research has shown that it can take several years for those entering 
the workforce during a recession to reach normal wage levels.\7\ For 
these graduates and in particular, for borrowers who do not complete a 
degree, repaying their student loans can be especially daunting.
---------------------------------------------------------------------------

    \6\ Bart Hobijn, Colin Gardiner, and Theodor Wiles, Recent 
College Graduates and the Labor Market, March 21, 2011, https://www.frbsf.org/publications/economics/letter/2011/el2011-09.html.
    \7\ Philip Oreopoulos, Till von Wachter, and Andrew Heisz, The 
Short- and Long-Term Career Effects of Graduating in a Recession: 
Hysteresis and Heterogeneity in the Market for College Graduates, 
Economic (The National Bureau of Economic Research, April 2006), 
https://www.nber.org/papers/w12159.
---------------------------------------------------------------------------

    The revised ICR and IBR plans will provide borrowers with improved 
income-related payment management options. They will also encourage 
borrowers to honor their debt commitments by offering loan forgiveness 
after a significant period of repayment in an income related payment 
plan.
    In addition to implementing statutory changes in the IBR plan and 
revising the ICR plan, the final regulations will also seek to solve 
well-documented problems with the process for evaluating discharge 
applications. The current process by which borrowers apply for a 
discharge has led to inconsistencies in determining eligibility and 
created hardships for eligible borrowers. Currently, borrowers who have 
suffered a TPD that leaves them unable to fulfill their loan obligation 
contact the holders of their loans and apply for a discharge. Lenders 
have different processes and this has led to discrepancies in the way 
loan holders are processing and assessing borrowers' eligibility for 
TPD. Also, the current reporting requirements during the monitoring 
period have proved to be burdensome on borrowers with disabilities and 
many who may meet all other eligibility requirements are having their 
loans reinstated due to their failure to meet the current reporting 
requirements.
    The Secretary is revising the regulations governing disability 
discharges in the different title IV student loan programs to 
standardize the process. Under the final regulations, all discharge 
applications will be submitted directly to the Secretary. The 
Department's proposal eliminates the requirement that each of a 
borrower's loan holders (and guaranty agencies, in the FFEL program) 
review the borrower's disability discharge application. Through this 
process, the Secretary will ensure consistency in the administration of 
the disability discharge process. A more detailed analysis of these 
changes is provided in the Significant Final Regulations section of 
this preamble.
    Executive Order 13563, Section 4, notes that ``Where relevant, 
feasible, and consistent with regulatory objectives, and to the extent 
permitted by law, each agency shall identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public. These approaches include warnings, appropriate 
default rules, and disclosure requirements as well as provision of 
information to the public in a form that is clear and intelligible.'' 
Consistent with this section of the Executive Order, the Department is 
enhancing the information available to prospective and enrolled 
students, providing better guidance, and offering more feasible loan 
repayment options through these final regulations.
Discussion of Costs, Benefits, and Transfers
    Consistent with the principles of Executive Orders 12866 and 13563, 
the Department has analyzed the impact of these regulations on 
students, businesses, the Federal Government, and State and local 
governments. The analysis rests on the projected impact of the 
regulations. The benefits and costs are discussed below.
Income-Contingent Repayment
    The Pay As You Earn repayment plan will cap payments for eligible 
borrowers at 10 percent of discretionary income divided by 12. This is 
a reduction from the current 15 percent cap and will be consistent with 
the statutory changes to IBR that become effective in 2014. The Pay As 
You Earn repayment plan will be available to eligible borrowers in the 
fall of 2012. A detailed breakdown of the qualifications needed for 
participation in either plan is provided earlier in Table 2.
    Accurately predicting or forecasting transfers or costs from the 
ICR changes is difficult because these costs depend heavily on borrower 
trends and participation. Traditionally, there has been low 
participation in ICR, and many participants only participated because 
they wanted to consolidate defaulted loans. The Pay As You Earn 
repayment plan may see significant enrollment as a result of the 
publicity it has received as part of the President's student loan 
repayment initiative. Economic recovery will also play a large role. If 
the economy shows significant improvement and wage levels begin to 
rise, then borrowers whose salaries have increased significantly may 
opt to leave ICR for another repayment plan, particularly if they no 
longer demonstrate a PFH. There was an in-depth analysis of how first 
year payments under the Pay As You Earn repayment plan (referred to as 
ICR-A in the NPRM) would compare to first year payments under ICR 
(referred to as ICR-B in the NPRM), standard, and extended payment 
plans in the NPRM; interested parties can refer to that document for 
more information.
    The following chart compares first year payments under the Pay As 
You Earn repayment plan and ICR for borrowers based on family size and

[[Page 66117]]

income. ICR payments are calculated using the lesser amount of the 
amount borrowers would pay if they repaid their loan in 12 years 
multiplied by an income percentage factor that varies with their 
adjusted gross income (AGI), or the difference between AGI and the 
applicable HHS poverty guideline amount, divided by 12. Borrowers can 
calculate what their payments would be under ICR (referred to as ICR-B 
in the NPRM) on the Federal Student Aid Web site at (https://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp). Pay As You Earn repayments are calculated using 
10 percent of the difference between the subject's AGI and 150 percent 
of the applicable HHS poverty guidelines amount, divided by 12 (the Pay 
As You Earn repayment plan requires PFH for initial qualification so 
first-year calculations will assume PFH).

                                Sample First-Year Monthly Repayment Amounts for a Borrower With $26,000 in Student Loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Family size
                   Income                   ------------------------------------------------------------------------------------------------------------
                                                                                 1            2            3            4            5            6
--------------------------------------------------------------------------------------------------------------------------------------------------------
$15,000....................................  ICR..........................          $64           $0           $0           $0           $0           $0
                                             PAYE.........................            0            0            0            0            0
20,000.....................................  ICR..........................          147           81           15            0            0            0
                                             PAYE.........................           27            0            0            0            0
25,000.....................................  ICR..........................          184          165           99           33            0            0
                                             PAYE.........................           69           19            0            0            0
30,000.....................................  ICR..........................          204          204          182          116           50            0
                                             PAYE.........................          110           61           11            0            0            0
35,000.....................................  ICR..........................          221          221          221          199          133           67
                                             PAYE.........................          152          103           53            4            0            0
40,000.....................................  ICR..........................          235          235          235          235          217          151
                                             PAYE.........................          194          144           95           45            0            0
45,000.....................................  ICR..........................          249          249          249          249          249          234
                                             PAYE.........................          235          186          136           87           37            0
50,000.....................................  ICR..........................          264          264          264          264          264          264
                                             PAYE.........................          277          228          178          129           79           30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sample repayment amounts are based on an interest rate of 6.80%.

    The Pay As You Earn repayment plan offers loan forgiveness after 20 
years of payments compared to 25 years under ICR. Consequently, 
eligible borrowers may have as much as five fewer years of payments 
under the Pay As You Earn repayment plan. The effects of this change 
will also depend on borrower trends, enrollment, and possibly the 
economy.
    As mentioned earlier, the ability of recent graduates to find 
suitable employment may play a large role in determining the 
participation rate of the Pay As You Earn repayment plan and ICR. The 
job struggles of new graduates have been well documented. Those 
borrowers who enter into lower paying jobs or struggle to find 
employment may benefit from participating in the Pay As You Earn 
repayment plan. The average single borrower entering repayment with a 
$30,000 salary and 6.8 percent interest rate could qualify for the Pay 
As You Earn repayment plan with approximately $10,000 in debt.
    Leaving ICR open to all Direct Loan borrowers ensures that the 
majority of borrowers will have an income-driven payment option. This 
may be particularly important for borrowers employed in jobs eligible 
for public sector loan forgiveness after 10 years but who do not 
qualify for IBR or the Pay As You Earn repayment plan. This will allow 
borrowers to choose which repayment plan is the best option for them. 
The formulas and calculators for the standard and fixed payment plans 
can be found at (https://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp)
    All of the examples used above are only estimates. While these 
examples are able to paint a relatively clear picture of how the final 
regulations will affect individual borrowers' payments in a given year, 
they lack the scalability required to show an exact link to the overall 
budget impact because of the uniqueness of any borrower's 
circumstances. Initial payments and payments over time will vary based 
on borrower behavior. ICR borrowers may see their payments fluctuate 
because of marriage, pay raises, or children. As in IBR, under the Pay 
As You Earn repayment plan borrowers are re-evaluated annually and 
payments may rise based on family size and AGI to the point they 
trigger a 10-year standard payment amount that, depending on the amount 
of the debt, may result in the borrower either repaying the debt in 
full before 20 years and receiving no forgiveness or leaving the plan 
entirely and receiving no forgiveness. Those borrowers who end up with 
lower payments will have more disposable income and possibly have a net 
positive impact on the economy. However, some borrowers will pay more 
money overall in order to have smaller payments up front.
    There will also be other small costs and transfers associated with 
the Pay As You Earn repayment plan. For example, those borrowers under 
PFH with calculated payments less than $5 will not have to pay at all, 
while there is a $5 minimum payment under ICR.
    Borrowers with a PFH would have $10 monthly payments if their 
calculated payments are greater than $5 but less than $10. There is no 
PFH determination under ICR.
    Interest will be capped at 10 percent of the original principal 
balance at the time the borrower enters the Pay As You Earn repayment 
plan compared to ICR, in which interest is capped at 10 percent of the 
original principal amount at the time the borrower entered repayment. 
This may or may not mean lower total loan debts. For married borrowers, 
joint AGI and eligible loan debt would be used only if the couple files 
a joint tax return under the Pay As You Earn repayment plan. Current 
ICR uses joint AGI and eligible loan debt regardless of filing status.
Income-Based Repayment
    The statutory changes to the Income-Based Repayment (IBR) Plan 
reduce the discretionary income payment cap to 10 percent and the loan 
forgiveness period to 20 years for new borrowers effective July 1, 
2014. IBR participants may have

[[Page 66118]]

lower payments as a result and may be able to take advantage of loan 
forgiveness. The PFH definition changes from when the 10-year standard 
payment amount on eligible loans (annual amount owed) exceeds 15 
percent of the difference between AGI and 150 percent of the poverty 
line amount to 10 percent.
    Accurately predicting or forecasting the transfers from these 
changes is particularly difficult because most of them will heavily 
depend on borrower trends. Economic recovery will also play a large 
role. If the economy shows significant improvement and wage levels 
begin to rise, then borrowers whose salaries have increased 
significantly may opt to leave IBR for another one of the repayment 
plans, particularly if they no longer demonstrate PFH.
    The chart below shows how first year payments will differ after the 
2014 implementation of the IBR revisions. Currently IBR payments are 
calculated by using 15 percent of the difference between 150 percent of 
the applicable HHS poverty guidelines and the borrower's AGI, divided 
by 12.\8\ The IBR plan will use 10 percent of the difference between 
150 percent of the applicable HHS poverty guidelines and the borrower's 
AGI, divided by 12.
---------------------------------------------------------------------------

    \8\ Repayment Plans and Calculators, Government, n.d., https://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp.

                                Sample First-Year Monthly Repayment Amounts for a Borrower With $26,000 in Student Loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Family Size
                   Income                                                  -----------------------------------------------------------------------------
                                                                                 1            2            3            4            5            6
--------------------------------------------------------------------------------------------------------------------------------------------------------
$15,000....................................  IBR..........................          $ 0          $ 0          $ 0          $ 0          $ 0          $ 0
                                             IBR-Revised..................            0            0            0            0            0            0
20,000.....................................  IBR..........................           41            0            0            0            0            0
                                             IBR-Revised..................           27            0            0            0            0            0
25,000.....................................  IBR..........................          103           29            0            0            0            0
                                             IBR-Revised..................           69           19            0            0            0            0
30,000.....................................  IBR..........................          166           91           17            0            0            0
                                             IBR-Revised..................          110           61           11            0            0            0
35,000.....................................  IBR..........................          228          154           80            5            0            0
                                             IBR-Revised..................          152          103           53            4            0            0
40,000.....................................  IBR..........................          291          216          142           68            0            0
                                             IBR-Revised..................          194          144           95           45            0            0
45,000.....................................  IBR..........................       No-PFH          279          205          130           56            0
                                             IBR-Revised..................          235          186          136           87           37            0
50,000.....................................  IBR..........................       No PFH       No PFH          267          193          119           44
                                             IBR-Revised..................          277          228          178          129           79           30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sample repayment amounts are based on an interest rate of 6.80%.

    Overall, the IBR revisions will offer many benefits. Reduced income 
caps, PFH payment qualifications, and loan forgiveness periods may 
encourage more borrowers to acknowledge their loan debt and could 
possibly decrease the default rate. The savings that eligible borrowers 
could acquire via reduced payment amounts and loan forgiveness periods 
will allow borrowers to have more disposable income and will likely 
have a net positive impact on the economy. Some borrowers may pay more 
money overall however, to have lower payments up front.
    A detailed analysis of how borrowers would fare under the revised 
IBR plan was included in the Regulatory Impact Analysis section of the 
NPRM. Please note that all examples used here and in the NPRM are 
calculated with constant dollars only. Some commenters voiced concerns 
over how inflation and the annual update of the HHS Poverty Guidelines 
would affect payment amounts over time. We acknowledge that inflation 
could affect actual payment amounts over time but any attempt to 
calculate this would be subjective. Borrowers who participate in the 
income driven plans will be given information about their options 
annually during the evaluation process. Any borrower, who wishes to 
learn more about the HHS Poverty Guidelines or track their annual 
updates, can visit the HHS Poverty Guidelines Web site at https://aspe.hhs.gov/poverty/index.shtml.
    As mentioned earlier, borrowers who no longer demonstrate PFH may 
very well opt to leave IBR for another payment plan. The final 
regulations will allow a borrower to use forbearance and pay less than 
the standard payment when leaving IBR.
Total and Permanent Disability Discharge
    The Department believes that the streamlined TPD discharge process 
will provide many benefits to borrowers.
    The final regulations will--
     Simplify the process for the borrower;
     Permit a TPD discharge based on a borrower's SSA 
disability notice of award for SSDI or SSI benefits indicating that the 
borrower's eligibility for disability benefits will be reviewed on a 
five- to seven-year schedule, which classifies the borrower as 
permanently impaired--medical improvement not expected. Borrowers will 
still be subject to the three-year discharge review that is currently 
in place.
     Establish a single point of contact for the borrower 
throughout the disability discharge process;
     Reduce the time needed to process applications;
     Provide more consistency in eligibility determinations;
     Provide more uniformity in the communications sent to 
borrowers throughout the process; and
     Ensure that all of a borrower's title IV loans that are 
eligible for a TPD discharge are discharged at the same time, reducing 
instances of ``straggler'' loans that the borrower may forget to 
include when applying for discharge of the borrower's other title IV 
loans.
    By ensuring that borrowers whose discharge applications are denied 
have adequate information about the reasons for the denial and their 
future options,

[[Page 66119]]

borrowers will be able to make better informed decisions and possibly 
correct their applications if denial is a result of applicant error. 
This may reduce the number of technically eligible borrowers who fail 
to have their loans discharged. Increasing the number of discharged 
loans could lead to an increased transfer of funds to borrowers as they 
would not be required to make loan payments.
    By developing an OMB-approved form for income reporting purposes, 
the Secretary will simplify the post-discharge monitoring process and 
possibly reduce the number of otherwise eligible borrowers with 
disabilities who have their loans reinstated. Currently, a large 
proportion of discharged borrowers end up with their loans reinstated 
because of failure to submit adequate information during the post-
discharge monitoring period. By reducing the number of borrowers with 
disabilities who have their loans reinstated for their failure to 
provide income information, but who may be otherwise eligible, the 
Secretary will provide economic relief for many of the country's most 
vulnerable citizens.
    In 2011, approximately 78,000 borrowers applied for the TPD 
discharge of 179,454 loans across the Direct, FFEL, and Perkins loan 
programs. The revised TPD process will offer many benefits to borrowers 
with disabilities and possibly reduce the number of reinstatements. The 
increase in applications and discharges that could occur as an 
incentive of the simplified process, would lead to a transfer of funds 
from the Federal Government to borrowers through the elimination of 
their debt. Also, by allowing direct application to the Secretary, all 
applications will be reviewed according to the same standard. This will 
drastically reduce the chance of inconsistencies in the review process. 
The elimination of multiple medical evaluations will relieve 
administrative burden on title IV providers and reduce the application 
review time.
    Also, the Department believes that veterans will benefit because 
the changes to the non-veterans TPD discharge will also apply to the 
process for disability discharges based on VA documentation.
    Like those applying with documentation from the VA, borrowers using 
the SSA notice of award for SSDI or SSI benefits that indicates a 
continuing medical review period of 5-to-7 years as the basis for a TPD 
discharge will benefit from the process changes such as the single 
application point for all loans and enhanced uniformity in 
communications.
    Borrowers will benefit from the elimination of the requirement that 
a physician provide a letter requesting more time for the borrower to 
submit a TPD discharge application.
    As noted, while the Department does believe that the final 
regulations will ultimately benefit truly eligible borrowers, it cannot 
accurately predict applicant behavior as a result.
Regulatory Alternatives Considered and Analysis of Significant Comments
    Alternatives to the regulations were considered as part of the 
rulemaking process. These alternatives were reviewed in detail in the 
preamble to the proposed regulations under both the Regulatory Impact 
Analysis and the Reasons sections accompanying the discussion of each 
proposed regulatory provision. To the extent that they were addressed 
in response to comments received on the proposed regulations, 
alternatives are also considered elsewhere in the preamble to these 
final regulations under the Discussion sections related to each 
provision. We did not receive any comments related to the Regulatory 
Impact Analysis discussion of these alternatives.
    As discussed above in the Analysis of Comments and Changes section, 
the final regulations reflect minor revisions in response to public 
comments. None of these changes result in revisions to cost estimates 
prepared for and discussed in the Regulatory Impact Analysis of the 
proposed regulations.
    One alternative considered in response to public comments was 
changing the date for defining a ``new borrower'' and a ``new loan'' 
for eligibility for Pay As You Earn repayment plan from the Federal 
fiscal year basis with an October 1 start to an academic year or 
calendar year basis to be more consistent with other dates governing 
the loan programs and to prevent confusion for students. As discussed 
in the NPRM, a cut-off point for eligibility for Pay As You Earn 
repayment plans is required and from the budgeting perspective, the 
Federal fiscal year is the point for determining loan cohorts. Student 
confusion should be limited by the Web site that will inform them of 
the repayment plans for which they may be eligible and will make the 
dates clear. The Department estimated that an additional 90,000 
borrowers would be eligible for Pay As You Earn repayment plans if the 
date for defining a new borrower was changed from October 1, 2007, to 
July 1, 2007, and the estimated cost for expanding Pay As You Earn 
repayment plans to these borrowers would be approximately $125 million 
over the 2012 to 2021 loan cohorts. While the suggested change is a 
reasonable alternative, the Department believes the use of the Federal 
fiscal year is appropriate and balances the offering of an improved ICR 
option to eligible borrowers and the resources available to support the 
program.
    Another alternative considered in response to proposals in public 
comments was changing the capitalization of accrued interest for 
students who are removed from IBR or Pay As You Earn repayment plan 
because they fail to submit their annual paperwork on time. Under 
current regulations, students who do not submit the required income and 
family size paperwork on time so that the borrower's PFH can be 
determined by the borrower's annual deadline, are treated as having 
elected to end paying under IBR and are subject to the capitalization 
of all accrued interest. The proposed and final regulations provide a 
10-day grace period from the paperwork submission deadline and provide 
for enhanced borrower notifications about the annual paperwork 
requirements. Many commenters argued that capitalization of all accrued 
interest is too great a penalty for late submission of annual paperwork 
and proposed several options to reduce the effect on borrowers. The 
alternatives the commenters proposed included: limiting capitalization 
to the interest accrued on the loan between day 11 after the paperwork 
submission deadline to the day the borrower's new payment is 
calculated; applying a cap on overall capitalization in IBR; 
authorizing lenders to limit interest capitalization for exceptional 
circumstances; requiring lenders to grant forbearance for overdue 
payments for all late borrowers; not capitalizing accrued interest 
associated with past due payments for this period; and recognizing 
payments that continue to be made for IBR/ICR and PSLF forgiveness.
    While the Department acknowledges that capitalization of accrued 
interest is a significant consequence for failing to submit the 
required annual paperwork within the timeframe allowed, the proposed 
alternatives do not work because of operational implications that are 
discussed in the Analysis of Comments and Changes section of the 
preamble related to this subject. The improved notifications and grace 
period should reduce the number of borrowers affected by the 
capitalization provision for the reason of late paperwork submission.

[[Page 66120]]

    Additionally, as discussed in the Analysis of Comments and Changes 
in the preamble, the Department will accept an SSA disability notice of 
award for SSDI or SSI benefits indicating that the borrower's next 
scheduled disability review will be within five to seven years, which 
classifies the borrower as permanently impaired with medical 
improvement not expected, as proof of the borrower's TPD. The 
Department believes this SSA standard for permanent impairment overlaps 
with the Department's existing standard and that this change will 
reduce the application burden on borrowers who have already gone 
through the SSA disability application process. This could also reduce 
the administrative burden on the Department in processing TPD 
applications.
Net Budget Impacts
    The final regulations are estimated to have a net budget impact of 
$2.1 billion in subsidy cost over the 2012 to 2021 loan cohorts. 
Consistent with the requirements of the Credit Reform Act of 1990 
(CRA), budget cost estimates for the student loan programs reflect the 
estimated net present value of all future non-administrative Federal 
costs associated with a cohort of loans. A cohort reflects all loans 
originated in a given fiscal year. As discussed in the Regulatory 
Alternatives Considered and Analysis of Significant Comments, some 
commenters suggested changes to the dates for defining eligibility for 
the new ICR-A plan, amending the capitalization of accrued interest for 
borrowers who submit their annual income and family size paperwork 
late, and using SSA determinations as proof for a TPD discharge. None 
of the changes the Department made in response to those proposals had 
an effect on the Net Budget Impact section included in the NPRM.
    These estimates were developed using the Office of Management and 
Budget's (OMB) Credit Subsidy Calculator. The OMB calculator takes 
projected future cash flows from the Department's student loan cost 
estimation model and produces discounted subsidy rates reflecting the 
net present value of all future Federal costs associated with awards 
made in a given fiscal year. Values are calculated using a ``basket of 
zeros'' methodology under which each cash flow is discounted using the 
interest rate of a zero-coupon Treasury bond with the same maturity as 
that cash flow. To ensure comparability across programs, this 
methodology is incorporated into the calculator and used Government-
wide to develop estimates of the Federal cost of credit programs. 
Accordingly, the Department believes it is the appropriate methodology 
to use in developing estimates for these regulations. That said, in 
developing the following Accounting Statement, the Department consulted 
with OMB on how to integrate our discounting methodology with the 
discounting methodology traditionally used in developing regulatory 
impact analyses.
    Absent evidence of the impact of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys. Program cost 
estimates were generated by running projected cash flows related to 
each provision through the Department's student loan cost estimation 
model. Student loan cost estimates are developed across five risk 
categories: for-profit institutions (less than two-year), two-year 
institutions, freshmen/sophomores at four-year institutions, juniors/
seniors at four-year institutions, and graduate students. Risk 
categories have separate assumptions based on the historical pattern of 
behavior of borrowers in each category--for example, the likelihood of 
default or the likelihood to use statutory deferment or discharge 
benefits.
Income-Contingent Repayment
    As described in the NPRM, the budget impact in this package of 
regulations is related to the changes in the ICR plan. These final 
regulations, based on the President's Pay As You Earn initiative, 
create the Pay As You Earn repayment plan, a new income-contingent 
option that mirrors the changes made to the IBR plan by SAFRA. The Pay 
As You Earn repayment plan allows new borrowers in FY 2008 or later 
with a new loan in FY 2012 or later who demonstrate a PFH to use an 
income contingent repayment plan based on 10 percent of their 
discretionary income and with a 20-year forgiveness period. The terms 
and conditions of the Pay As You Earn repayment plan are based on IBR, 
including the treatment of married borrowers and the timing of interest 
capitalization, except the Pay As You Earn repayment plan maintains the 
cap on interest capitalization from existing ICR and does not require 
borrowers leaving the plan to make a payment under standard repayment. 
The existing ICR plan would remain available for those borrowers who do 
not qualify for or choose the Pay As You Earn or IBR repayment plans 
because of timing, not demonstrating PFH, or individual preference. The 
availability of the Pay As You Earn repayment plan, with its reduced 
income percentage and shorter forgiveness period, is estimated to cost 
$2.1 billion over the 2012 to 2021 loan cohorts.
    In evaluating the changes to the ICR and IBR programs, the 
Department assumes that, if possible, income-contingent borrowers would 
elect the Pay As You Earn repayment plan given its more generous income 
and forgiveness provisions. Based on this, the Department estimates 
that between 2012 and 2021 approximately 1.67 million borrowers not 
already eligible for the improved IBR program will choose the Pay As 
You Earn repayment plan. The availability of the Pay As You Earn 
repayment plan results in an estimated average savings of $4,250 per 
borrower. Assuming all those in the Pay As You Earn repayment plan 
remained in the plan, the Department estimates that approximately 13 
percent would receive public sector loan forgiveness, 39 percent would 
receive forgiveness after twenty years of qualifying payments, and 48 
percent would pay-off their balances. (Note: the budget estimate of 
$2.1 billion takes into account prepayment through consolidation, 
defaults, and death/disability/bankruptcy discharges). The actual 
number of borrowers receiving forgiveness will be significantly less 
than would be obtained by multiplying the 1.7 million borrowers 
estimated to repay under ICR by the above percentages since not all 
borrowers will remain in ICR. Currently, the Department estimates that 
approximately 400,000 borrowers from cohorts 2012 through 2021 will 
ultimately receive forgiveness. In general, those borrowers receiving 
forgiveness have higher balances as payments based on income are more 
likely to cover lower balances. Those receiving forgiveness have an 
average original balance of approximately $39,500 and receive 
forgiveness of approximately $41,000 as their payments tend to cover 
interest owed so they end up with balances forgiven close to the 
original debt.
    As discussed in the NPRM, when the assumption for loan forgiveness 
is increased as a result of a policy the cash flow impact is a 
reduction in principal and interest payments. The subsidy cost is 
derived from comparing the baseline payments to the policy payments (on 
a Net Present Value basis) and comparing the two resulting subsidy 
rates. The outlays are calculated by subtracting the new subsidy rate 
with the policy cash flows from the baseline subsidy rate and 
multiplying by the volume for the cohort. As stated above, compared to 
the baseline, the availability of the Pay As You Earn repayment plan 
(referred to as

[[Page 66121]]

the ICR-A repayment plan in the NPRM) is estimated to cost 
approximately $2.1 billion for the cohorts from 2012 to 2021 as shown 
in Table 3.

                                                    Table 3--Estimated Outlays for Cohorts 2012-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Cohorts                               2012     2013     2014     2015     2016     2018     2019     2020     2021    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Budget Authority..............................................      134      199      208      255      235      239      249      224      177    2,173
Outlays.......................................................      114      191      208      253      235      234      254      218      178    2,132
--------------------------------------------------------------------------------------------------------------------------------------------------------

Income-Based Repayment
    The budgetary impact of the changes to the IBR program that 
implement the statutory changes in SAFRA are incorporated into the 
budget baseline. The Department estimates that approximately one 
million new borrowers from the 2014 to 2021 cohorts would benefit from 
the changes to IBR made by SAFRA. The final regulations also include 
process clarifications related to the ultimate loan forgiveness and the 
timing of notices and annual certification. These changes are expected 
to improve the servicing for IBR borrowers and provide guidance before 
the first set of eligible borrowers reach the forgiveness point, but 
are not expected to have a budgetary impact.
Total and Permanent Disability
    As detailed in the NPRM, the final regulations will establish a 
single application process through the Department for borrowers seeking 
a TPD discharge of their Federal loans, specify requirements for more 
detailed information in TPD discharge denial letters, and modify the 
process and documentation requirements for the post-discharge 
monitoring period. Additionally, as described in the Analysis of 
Comments and Changes section of the preamble, in response to comments 
about aligning the Department's determinations of disability with those 
of other agencies and allowing borrowers with a disability 
determination from the SSA to receive a TPD discharge, the Department 
will accept an SSA disability notice of award for SSDI or SSI benefits 
indicating that the borrower's next scheduled disability review will be 
within five to seven years, which classifies the borrower as 
permanently impaired with medical improvement not expected, as proof of 
the borrower's TPD. The Department believes this will reduce the 
application burden on borrowers who have already gone through the SSA 
process. Because the final regulations are not expected to expand the 
pool of borrowers potentially eligible for discharge, there is no 
expected effect on the Federal student loan budget. The Department will 
continue to closely monitor the TPD discharge process and any 
significant changes in the frequency or magnitude of disability 
discharges will be reflected in future budget estimates.
    In the NPRM, the Department requested comments about the estimated 
net budget impacts described above. No such comments were received.
Accounting Statement
    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf ), in the 
following table we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
these final regulations. This table provides our best estimate of the 
costs, benefits, and changes in annual monetized transfers as a result 
of the revisions to the ICR repayment plan as reflected in these final 
regulations. Expenditures are classified as transfers from the Federal 
Government to borrowers in the revised ICR repayment plan. The 
transfers presented below represent the annualized estimated reductions 
in principal and interest payments from borrowers in cohorts 2012 to 
2021 in the Pay As You Earn plan on a cash basis and not the subsidy 
cost presented in the Net Budget Impacts section of the preamble. The 
nominal dollars of principal and interest payment reductions were 
converted to constant dollars using an estimated GDP inflator of 1.9 
percent.

   Accounting Statement Classification of Estimated Expenditures at 3
                  Percent and 7 Percent Discount Rates
                              [In millions]
------------------------------------------------------------------------
                       Category                               Costs
------------------------------------------------------------------------
Costs of compliance with paperwork requirements.......       $1.34 (7%).
                                                              1.35 (3%).
------------------------------------------------------------------------
                       Category                             Transfers
------------------------------------------------------------------------
Annualized reduced payments to Federal Government from       $1,357 (7%)
 borrowers in the Pay As You Earn repayment plan......        1,210 (3%)
------------------------------------------------------------------------

Regulatory Flexibility Act Certification
    The Secretary certifies that these final regulations will not have 
a significant economic impact on a substantial number of small 
entities. These final regulations are concerned with the relationship 
between certain Federal student loan borrowers and the Federal 
government, with some of the provisions modifying the servicing and 
collections activities of guaranty agencies and other parties. The 
Department believes that the entities affected by these final 
regulations do not fall within the definition of a small entity. The 
U.S. Small Business Administration Size Standards define ``for-profit 
institutions'' as ``small businesses'' if they are independently owned 
and operated and not dominant in their field of operation with total 
annual revenue below $7,000,000, and defines ``non-profit 
institutions'' as small organizations if they are independently owned 
and operated and not dominant in their field of operation,

[[Page 66122]]

or as small entities if they are institutions controlled by 
governmental entities with populations below 50,000. In the NPRM, the 
Secretary invited comments from small entities as to whether they 
believe the proposed changes would have a significant economic impact 
on them and requested evidence to support that belief. No comments were 
received.
Paperwork Reduction Act of 1995
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on proposed and continuing collections of information in 
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 
3506(c)(2)(A)). This helps ensure that: The public understands the 
Department's collection instructions, respondents can provide the 
requested data in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the Department can properly assess the impact of 
collection requirements on respondents.
    Sections 674.61, 682.215, 682.221, 682.402, 685.213, and 685.215 
contain information collection requirements. Under the PRA, the 
Department submitted a copy of these sections to OMB for its review at 
the time the Department published the notice of proposed rulemaking.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number.
    These final regulations display the control numbers assigned by OMB 
to any information collection requirements adopted in the final 
regulations.

Total and Permanent Disability Discharge Application Process Based on a 
Physician's Certification (Sec. Sec.  674.61(b)(2), 682.402(c)(2) and 
685.213(b))

    These final regulations revise Sec. Sec.  674.61(b)(2) and 
682.402(c)(2) of the Perkins Loan and FFEL program regulations to 
require Perkins Loan and FFEL borrowers to apply directly to the 
Department for TPD discharges. In the Direct Loan program, borrowers 
will continue to apply directly to the Department for TPD discharges, 
as they do under the current Direct Loan program regulations.
    Under the final TPD discharge process, if a Perkins Loan program 
school or a FFEL lender is contacted by a borrower intending to apply 
for a TPD discharge, the school or lender would provide the borrower 
with the information needed to apply to the Department for the 
discharge. Under the current regulations, when a borrower has loans 
held by two or more loan holders, the borrower must complete and submit 
a separate TPD application for each holder. Under the streamlined 
process in these final regulations, a borrower would submit one TPD 
discharge application to the Department, eliminating the need for 
borrowers to submit separate discharge applications to each of their 
loan holders. We determined that in 2011 the number of TPD applications 
was as follows:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Number of       Number of
                 Year                            Program             borrowers         Loans      loans/borrower
----------------------------------------------------------------------------------------------------------------
2011..................................  Direct Loans............          29,777          65,823  ..............
2011..................................  FFEL Loans..............          48,518         114,040  ..............
2011..................................  Perkins Loans...........              95              95  ..............
                                                                 -----------------------------------------------
                                                                          78,390         179,958             2.3
----------------------------------------------------------------------------------------------------------------

    Borrower Burden: Under currently approved OMB 1845-0065--Discharge 
Application: Total and Permanent Disability, the average amount of time 
for the borrower to complete and submit an application is estimated to 
be 30 minutes (0.5 hours) per application. These regulations provide 
that a borrower with a single loan holder must still provide the 
Secretary with a single TPD discharge application for all the affected 
title IV, HEA program loans held by that holder. However, borrowers 
with multiple loan holders would no longer have to complete and submit 
TPD discharge applications to each separate loan holder but instead 
will submit a single application to the Secretary. Under currently 
approved OMB 1845-0065, there are 30,000 respondents annually with 
30,000 responses (applications) annually times 0.5 hours to yield a 
total burden of 15,000 hours to borrowers. Information from the 2011 
award year indicates that the number of borrowers applying for TPD 
discharges has increased to 78,390 borrowers on 179,958 title IV, HEA 
loans. Using the 2011 number of loan applications and the current 
process requiring borrowers to file applications separately with each 
lender, the burden would have expanded to 89,979 hours (179,958 times 
0.5 hours equal 89,979 hours). That would have created an increase in 
burden of 74,979 hours (89,979 burden hours in 2011 minus 15,000 hours 
under the current collection).
    However, because the final regulations do not require borrowers to 
file separate applications for each lender, the increase in burden is 
significantly less. We estimate that half of the 48,313 increase in the 
number of borrowers (24,157 borrowers) have all of their 24,157 title 
IV, HEA loans held by single holders. Therefore, the burden associated 
with the group of borrowers with single holders is an increase of 
12,079 burden hours (24,157 times 0.5 hours per application).
    We estimate that the other half of the 48,313 increase in the 
number of borrowers (24,156 borrowers) have multiple holders for their 
125,801 title IV, HEA loans. We obtained this number of loans by taking 
the 179,958 affected loans in 2011 and subtracting the 30,000 loans 
already accounted for in the current ICR. We then subtracted the 24,157 
loans held by 24,157 borrowers that hold only a single loan, which 
leaves the remaining 125,801 loans held by multiple holders. Under the 
final TPD application process the remaining 24,156 borrowers with loans 
held by multiple holders would only need to submit a single TPD 
application. Therefore, the burden associated with the group of 
borrowers with multiple holders is an increase of 12,078 burden hours 
(24,156 times 0.5 hours per application). The total amount of burden 
for these two groups of

[[Page 66123]]

borrowers is an increase of 24,157 burden hours under OMB Control 
Number 1845-0065.
    Loan Holder Burden: Under the final regulations, lenders and 
guaranty agencies will no longer perform a number of functions in the 
TPD discharge process. Lenders and guaranty agencies will no longer: 
Distribute the TPD discharge application, receive the completed and 
submitted TPD applications, review the completed and submitted TPD 
application forms, evaluate the TPD application forms, request 
additional information necessary to complete or resolve open issues 
regarding the TPD applications, review and evaluate supplemental 
information provided by the applicants, and make a determination 
whether the application supports the conclusion that the borrower is 
totally and permanently disabled.
    Under the currently approved burden analysis in OMB 1845-0019 for 
the Perkins Loan program, there are 31 hours of burden attributed to 
this regulation (62 respondents with 62 responses times 0.5 hours per 
response). Information from the 2011 award year indicates that the 
current annual number of Perkins Loan borrowers applying for TPD 
discharge has increased from an average of 62 to 95 borrowers. Thus, 
absent these proposed regulations, the burden hours would increase to 
47.5 hours.
    Instead, the final regulations in Sec. Sec.  674.61(b)(2) and 
682.402(c)(2) require institutions that participate in the Perkins Loan 
program and FFEL program loan holders to provide borrowers seeking a 
TPD discharge with information needed for the borrower to notify the 
Secretary. Since this is likely to be a highly automated process, we 
estimate that the average amount of time to provide a borrower with the 
required referral information to take 0.03 hours (2 minutes) per 
request. At the estimated notification rate of 0.03 hours per borrower, 
the total burden is 3 hours (95 borrowers times 0.03 hours). While the 
number of affected Perkins Loan borrowers increased, this is a 
reduction in burden of 28 (31 hours in the currently approved 
collection minus 3 hours) hours under OMB Control Number 1845-0019.
    Section 682.402 does not contain any burden attributed to the 
regulation for the TPD discharge collection of information, nor is 
there burden attributable to the application process other than that 
which impacts the borrower completing the application. In the 2011 
award year, our data indicate that there were 48,518 FFEL borrowers who 
applied for TPD discharges on 114,040 loans. Of the total 48,518 
borrowers, 18,078 borrowers applied for discharge of 38,742 FFEL loans 
that were held by the Department, and 30,440 borrowers applied for 
discharge of 75,298 FFEL loans that were not held by the Department.
    Under the previous regulations, we estimated that the holder 
providing the TPD discharge application and all the other related 
review and determination processes would take 0.5 hours per 
application, thus creating 15,220 hours of burden on holders of FFEL 
loans not held by the Department.
    However, under the final regulation in Sec.  682.402(c)(2), the 
holder only has to provide information to the borrower telling the 
borrower how to notify the Secretary. Under these regulations, we 
estimate that providing the required information to the borrower so the 
borrower can notify the Secretary would take 0.03 hours (2 minutes) per 
borrower request. At this rate, the total burden is 913 hours (30,440 
borrowers times 0.03 hours). This would be a reduction of 14,307 burden 
hours for lenders (15,220 hours less 913 hours). However, we note that 
this is not a burden reduction since the current burden had not been 
previously established. Instead, an increase of 913 hours would be 
added to OMB Control Number 1845-0020.
    As noted earlier, these regulations revise Sec. Sec.  674.61(b)(2) 
and 682.402(c)(2) of the Perkins Loan and FFEL regulations to require 
Perkins and FFEL borrowers to apply directly to the Department for TPD 
discharges. In the Direct Loan program, borrowers continue to apply 
directly to the Department for TPD discharges.
    Under Sec. Sec.  674.61(b)(2)(v)-(viii), 682.402(c)(2)(iv)-(viii), 
and 685.213(b)(3), a Perkins Loan, FFEL, or Direct Loan borrower must 
submit the TPD discharge application certified by a physician to the 
Department within 90 days of the date of the physician's certification. 
After receiving the TPD discharge application, the Department notifies 
the borrower's title IV loan holders that the Department has received 
the application. This notification directs the borrower's loan holders 
to either suspend collection activity or to maintain the suspension of 
collection activity on the borrower's title IV loans. If the 
application is incomplete, the Department requests the missing 
information from the borrower or the physician who certified the 
application.
    These changes do not constitute a change in burden for the 
borrowers because the application process remains virtually the same. 
However, since the borrower is directed to obtain the application form 
approved by the Secretary from the Department rather than from the 
institution in the case of a Perkins loan, or the lender in the case of 
a FFEL loan, the burden associated with the streamlined TPD discharge 
application process is transferred to the Department, but since the 
burden associated with receiving the TPD application with the 
physician's certification, revaluating the application for 
completeness, and requesting additional missing information was not 
estimated under the prior regulations, no burden reduction can be 
established as a result of the changes in the final regulations.
    Changes to the TPD discharge application form must be made to 
implement the new regulations. The TPD discharge application form 
currently in use expires on February 28, 2015. These final regulations 
are effective July 1, 2013. A revised TPD discharge application form 
associated with OMB Control Number 1845-0065 will be submitted for OMB 
review in late 2012, thereby ensuring that the public has an 
opportunity to provide comment upon the newly revised form that will be 
available for use on or about the effective date of the final 
regulations.
    Under Sec. Sec.  674.61(b)(7)(iii), 682.402(c)(7)(iii), and 
685.213(b)(8)(iii), during the three-year period following a discharge 
of a title IV loan based on TPD, the borrower must provide the 
Secretary, upon request, with documentation of the borrower's annual 
earnings from employment on an OMB approved form that would be 
available by the time that these regulations become effective. The form 
will require a certification from the borrower and will require the 
borrower to submit documentation to support the certification. The 
documentation may include income tax returns, documentation of 
eligibility for Social Security disability benefits, or other 
documentation that supports the borrower's certification.
    These regulations do not specify the content of the form but, as 
with all OMB-approved forms, the form would be made available for 
public comment as part of the PRA forms clearance process.
    Collectively, the regulatory changes in Sec. Sec.  674.61 and 
682.402 increase burden by 25,042 hours. The burden in OMB Control 
Number 1845-0065 increases from 15,000 to 24,157. The burden in OMB 
Control Number 1845-0019 decreases by 28 hours from 31 hours to 3 
hours. The burden in OMB Control

[[Page 66124]]

Number 1845-0020 increases by 913 hours.

Income-Based Repayment Plan (Sec. Sec.  682.215(e)(2) and 
685.221(e)(2)--Eligibility Documentation, Verification, and 
Notifications)

    Under Sec.  682.215(e)(2), a FFEL loan holder, after making a 
determination that a borrower has a PFH to qualify for the IBR plan for 
the year the borrower initially selects the plan and for any subsequent 
year that the borrower has a PFH, sends the borrower a written 
notification. A portion of the required notifications is established 
under OMB 1845-NEWA and other information and notifications are 
included under OMB 1845-0102, the Income-Based/Income-Contingent 
Repayment Plan Request form.
    The required notifications under OMB 1845-NEWA include the 
following information: The borrower's scheduled monthly payment amount, 
the time period during which that monthly payment amount will apply 
(annual payment period); and information about the borrower's option to 
request, at any time during the borrower's current annual payment 
period, that the loan holder recalculate the borrower's monthly payment 
amount if the borrower's financial circumstances have changed and the 
income amount that was used to calculate the borrower's current monthly 
payment no longer reflects the borrower's current income. If the 
monthly payment amount is recalculated based on the borrower's request, 
the loan holder sends the borrower a written notification that includes 
the borrower's new calculated monthly payment amount and the other 
information described above.
    Using the most recent monthly reports on IBR applications, we 
examined the number of loans being repaid under IBR that are serviced 
by the Department's Title IV Additional Servicers (TIVAS). We 
determined that 71 percent of all of the non-defaulted FFEL loans are 
held by the Department (and serviced by the TIVAS), with the remaining 
29 percent being held by commercial for-profit and not-for-profit 
holders. Applying these same percentages to the IBR participation data 
we obtained from the Department's TIVAS, we estimated that the 
annualized estimated number of commercially held loans being repaid 
under IBR as 290,268 for the basis of this burden assessment. However, 
our data does not allow us to further disaggregate this number into the 
affected entities grouped under Public entities, Private-Not for Profit 
entities, and Proprietary entities. We estimate that the required 
notifications above would be highly automated and thus projected an 
average of 0.08 hours (5 minutes) of burden per IBR applicant, thus 
23,221 hours of burden (290,268 times 0.08 hours) of increased burden 
are added as a new information collection under OMB Control Number 
1845-NEWA.
    The following required information is provided to the borrower 
through the Income-Based/Income-Contingent Repayment Plan Request form 
(OMB 1845-0102). Information about the requirement for the borrower to 
annually provide income information (and, in some cases for married 
FFEL program borrowers, information about the eligible loans of the 
borrower's spouse) and certify family size, if the borrower chooses to 
remain on the IBR plan after the initial year on the plan; An 
explanation that the borrower will be notified in advance of the date 
by which the loan holder must receive this information; and An 
explanation of the consequences if the borrower does not annually 
provide the required information.
    Section 682.215(e) places further notification requirements on loan 
holders for subsequent years which are outside the scope of this burden 
analysis and require future burden analysis.

Loan Forgiveness Processing and Payment

    Section 682.215(g) under the FFEL program, clarifies that the loan 
holder determines when a borrower has met the requirements for loan 
forgiveness and that the borrower is not required to submit a request 
for loan forgiveness.
    These regulations provide for the loan holder to send the borrower 
a written notice no later than six months prior to the anticipated date 
that the borrower would meet the loan forgiveness requirements. This 
notice explains that the borrower is approaching the date he or she is 
expected to qualify for loan forgiveness, reminds the borrower that he 
or she must continue to make scheduled monthly payments, and provides 
general information on the current treatment of the forgiveness amount 
for tax purposes, including instructions to contact the IRS for more 
information.
    The prior Sec.  682.215(g)(4) (redesignated as Sec.  682.215(g)(5) 
under the final regulations) would be revised to clarify that when a 
loan holder notifies a borrower that the borrower has been determined 
eligible for loan forgiveness, the borrower must be provided with 
information on the current treatment of the forgiveness amount for tax 
purposes and directed to the IRS for more information.
    The loan holder determines when a borrower qualifies for loan 
forgiveness and does not require the borrower to track his or her own 
progress toward meeting the loan forgiveness requirement and then 
submit an application for forgiveness. In this section, we are required 
to analyze and publish the estimated amount of burden that the final 
regulations place on affected entities (other than the Federal 
government) as of the effective date of the implementation of the 
proposed regulation, (assuming that it would occur in the initial year 
that the final regulations are effective). However, since these 
additional proposed notification requirements occur 24.5 years after 
the first income-based repayment loans were placed into repayment (in 
approximately 2031), they are outside the scope of this burden 
analysis.
    Consistent with the discussions above, the following chart 
describes the sections of these regulations involving information 
collections, the information being collected, and the collections the 
Department will submit to the OMB for approval and public comment under 
the Paperwork Reduction Act, and the estimated costs associated with 
the information collections. The monetized cost of the additional 
burden on lender/guaranty agencies and institutions, using wage data 
developed using BLS data, available at https://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $593,248.66 as shown below. This cost was based on an 
hourly rate of $24.61. The monetized cost of the additional burden on 
students is $431,927.16 based on an hourly rate of $17.88.

[[Page 66125]]



                                            Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                      OMB Control Number and
   Regulatory section              Information collection            estimated change in the    Estimated costs
                                                                              burden
----------------------------------------------------------------------------------------------------------------
674.61..................  This section requires Perkins borrowers   OMB 1845-0065............        $431,927.16
                           to apply directly to the Department for  A separate 60-day Federal           -$689.08
                           TPD discharges. Under the final           Register notice will be
                           regulations, institutions no longer       published to solicit
                           distribute the Total and Permanent        public comment on the
                           Disability Discharge application,         form that would be used
                           receive the completed form, review and    to collect this
                           evaluate the request, request             information. The burden
                           supplemental information where            would increase by 24,157
                           indicated, evaluate the supplemental      hours.
                           application, and make a determination    OMB 1845-0019............
                           whether the application supports the     The burden would decrease
                           conclusion that the borrower is totally   by 28 hours to 3 hours.
                           and permanently disabled. The burden
                           associated with the completion and
                           submission of the application form is
                           found in OMB 1845-0065. Instead, the
                           institution is required to provide the
                           borrower seeking a TPD discharge with
                           the information to notify the Secretary.
682.215.................  This section requires FFEL loan holders,  OMB 1845-NEWA............        $571,468.81
                           after making a determination that a      This would be a new
                           borrower has a PFH to qualify for the     collection. A separate
                           IBR plan, to send the borrower for the    60-day Federal Register
                           initial year or any subsequent year,      notice will be published
                           written information to include the        to solicit public
                           scheduled monthly payment amount, the     comment on the form used
                           time period during which the monthly      to collect the
                           payment will apply, and other             information. The burden
                           information.                              would increase by 23,221
                                                                     hours.
682.402.................  This section requires FFEL loan holders   OMB 1845-0020............        $ 22,468.93
                           to provide information to the borrower   The burden would increase
                           so the borrower can notify the            by 913 hours.
                           Secretary about their interest in
                           applying for a TPD discharge.
----------------------------------------------------------------------------------------------------------------

    If you want to comment on the proposed information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S. 
Department of Education. Send these comments by email to OIRA_DOCKET@omb.eop.gov or by fax to (202) 395-6974. You may also send a 
copy of these comments to the Department contact named in the ADDRESSES 
section of this preamble.
Assessment of Educational Impact
    In the NPRM we requested comments on whether the proposed 
regulations would require transmission of information to that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    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 program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
    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.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal 
Family Education Loan Program; 84.038 Federal Perkins Loan Program; 
84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 674, 682, and 685

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

    Dated: October 23, 2012.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary amends 
parts 674, 682, and 685 of title 34 of the Code of Federal Regulations 
as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
1. The authority citation for part 674 continues to read as follows:

    Authority: 20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise 
noted.


0
2. Section 674.61 is amended by:
0
A. Revising paragraph (b).
0
B. Revising paragraph (c).
0
C. Revising paragraph (d).
    The revisions read as follows:


Sec.  674.61  Discharge for death or disability.

* * * * *
    (b) Total and permanent disability as defined in Sec.  
674.51(aa)(1). (1) General. (i) A borrower's Defense, NDSL, or Perkins 
loan is discharged if the borrower becomes totally and permanently 
disabled, as defined in Sec.  674.51(aa)(1), and satisfies the 
additional eligibility requirements in this section.
    (ii) For purposes of paragraph (b) of this section, a borrower's 
representative or a veteran's representative is a member of the 
borrower's family, the borrower's attorney, or another individual 
authorized to act on behalf of the borrower in connection with the 
borrower's total and permanent disability discharge application. 
References to a ``borrower'' or a ``veteran'' include, if applicable, 
the borrower's representative or the veteran's representative for 
purposes of applying for a total and permanent disability discharge, 
providing notifications or information to the Secretary, and receiving 
notifications from the Secretary.
    (2) Discharge application process for borrowers who have a total 
and permanent disability as defined in Sec.  674.51(aa)(1). (i) If the 
borrower notifies the institution that the borrower

[[Page 66126]]

claims to be totally and permanently disabled as defined in Sec.  
674.51(aa)(1), the institution must direct the borrower to notify the 
Secretary of the borrower's intent to submit an application for total 
and permanent disability discharge and provide the borrower with the 
information needed for the borrower to notify Secretary.
    (ii) If the borrower notifies the Secretary of the borrower's 
intent to apply for a total and permanent disability discharge, the 
Secretary--
    (A) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the borrower and notifies 
the lenders of the borrower's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
borrower for a period not to exceed 120 days; and
    (D) Informs the borrower that the suspension of collection activity 
described in paragraph (b)(2)(ii)(C) of this section will end after 120 
days and the collection will resume on the loans if the borrower does 
not submit a total and permanent disability discharge application to 
the Secretary within that time.
    (iii) If the borrower fails to submit an application for a total 
and permanent disability discharge to the Secretary within 120 days, 
collection resumes on the borrower's title IV loans.
    (iv) The borrower must submit to the Secretary an application for 
total and permanent disability discharge on a form approved by the 
Secretary. The application must contain--
    (A) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as defined in Sec.  674.51(aa)(1); 
or
    (B) A Social Security Administration (SSA) notice of award for 
Social Security Disability Insurance (SSDI) or Supplemental Security 
Income (SSI) benefits indicating that the borrower's next scheduled 
disability review will be within five to seven years.
    (v) The borrower must submit the application described in paragraph 
(b)(2)(iv) of this section to the Secretary within 90 days of the date 
the physician certifies the application, if applicable.
    (vi) After the Secretary receives the application described in 
paragraph (b)(2)(iv) of this section, the Secretary notifies the 
holders of the borrower's title IV loans that the Secretary has 
received a total and permanent disability discharge application from 
the borrower.
    (vii) If the application is incomplete, the Secretary notifies the 
borrower of the missing information and requests the missing 
information from the borrower, the borrower's representative, or the 
physician who provided the certification, as appropriate. The Secretary 
does not make a determination of eligibility until the application is 
complete.
    (viii) The lender notification described in paragraph (b)(2)(vi) of 
this section directs the borrower's loan holders to suspend collection 
activity or maintain the suspension of collection activity on the 
borrower's title IV loans.
    (ix) After the Secretary receives a disability discharge 
application, the Secretary sends a notice to the borrower that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the borrower that the borrower's lenders will suspend 
collection activity or maintain the suspension of collection activity 
on the borrower's title IV loans while the Secretary reviews the 
borrower's application for discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (3) Secretary's review of the total and permanent disability 
discharge application. (i) If, after reviewing the borrower's completed 
application, the Secretary determines that the physician's 
certification or the SSA notice of award for SSDI or SSI benefits 
supports the conclusion that the borrower is totally and permanently 
disabled as defined in Sec.  674.51(aa)(1), the borrower is considered 
totally and permanently disabled as of the date--
    (A) The physician certified the borrower's application; or
    (B) The Secretary received the SSA notice of award for SSDI or SSI 
benefits.
    (ii) The Secretary may require the borrower to submit additional 
medical evidence if the Secretary determines that the borrower's 
application does not conclusively prove that the borrower is totally 
and permanently disabled as defined in Sec.  674.51(aa)(1). As part of 
the Secretary's review of the borrower's discharge application, the 
Secretary may require and arrange for an additional review of the 
borrower's condition by an independent physician at no expense to the 
borrower.
    (iii) After determining that the borrower is totally and 
permanently disabled as defined in Sec.  674.51(aa)(1), the Secretary 
notifies the borrower and the borrower's lenders that the application 
for a disability discharge has been approved. With this notification, 
the Secretary provides the date the physician certified the borrower's 
loan discharge application or the date the Secretary received the SSA 
notice of award for SSDI or SSI benefits and directs each institution 
holding a Defense, NDSL, or Perkins Loan made to the borrower to assign 
the loan to the Secretary.
    (iv) The institution must assign the loan to the Secretary within 
45 days of the date of the notice described in paragraph (b)(3)(iii) of 
this section.
    (v) After the loan is assigned, the Secretary discharges the 
borrower's obligation to make further payments on the loan and notifies 
the borrower and the institution that the loan has been discharged. The 
notification to the borrower explains the terms and conditions under 
which the borrower's obligation to repay the loan will be reinstated, 
as specified in paragraph (b)(6) of this section. Any payments received 
after the date the physician certified the borrower's loan discharge 
application or the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits are returned to the person who made the 
payments on the loan in accordance with paragraph (b)(8) of this 
section.
    (vi) If the Secretary determines that the physician's certification 
or the SSA notice of award for SSDI or SSI benefits provided by the 
borrower does not support the conclusion that the borrower is totally 
and permanently disabled as defined in Sec.  674.51(aa)(1), the 
Secretary notifies the borrower and the institution that the 
application for a disability discharge has been denied. The 
notification includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the institution 
under the terms of the promissory note and that the loan will return to 
the status that would have existed had the total and permanent 
disability discharge application not been received;
    (C) A statement that the institution will notify the borrower of 
the date the borrower must resume making payments on the loan;
    (D) An explanation that the borrower is not required to submit a 
new total and permanent disability discharge application if the 
borrower requests that the Secretary re-evaluate the application for 
discharge by providing, within 12 months of the date of the 
notification, additional information that supports the borrower's 
eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation

[[Page 66127]]

of the borrower's prior discharge application within 12 months of the 
date of the notification, the borrower must submit a new total and 
permanent disability discharge application to the Secretary if the 
borrower wishes the Secretary to re-evaluate the borrower's eligibility 
for a total and permanent disability discharge.
    (vii) If the borrower requests re-evaluation in accordance with 
paragraph (b)(3)(vi)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(b)(3)(vi)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for a total and 
permanent disability discharge.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification or the date the Secretary received the 
SSA notice of award for SSDI or SSI benefits until the date of 
discharge. If a borrower received a title IV loan or TEACH Grant before 
the date the physician certified the borrower's discharge application 
or before the date the Secretary received the SSA notice of award for 
SSDI or SSI benefits and a disbursement of that loan or grant is made 
during the period from the date of the physician's certification or the 
date the Secretary received the SSA notice of award for SSDI or SSI 
benefits until the date the Secretary grants a discharge under this 
section, the processing of the borrower's loan discharge application 
will be suspended until the borrower ensures that the full amount of 
the disbursement has been returned to the loan holder or to the 
Secretary, as applicable.
    (5) Receipt of new title IV loans or TEACH Grants after the date of 
the physician's certification or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits. If a borrower 
receives a disbursement of a new title IV loan or receives a new TEACH 
Grant made on or after the date the physician certified the borrower's 
discharge application or on or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits and before the date 
the Secretary grants a discharge under this section, the Secretary 
denies the borrower's discharge request and collection resumes on the 
borrower's loans.
    (6) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(3)(v) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins or 
Direct Loan programs, except for a Direct Consolidation Loan that 
includes loans that were not discharged;
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made is returned to the loan holder or to the Secretary, as 
applicable, within 120 days of the disbursement date; or
    (D) Receives a notice from the SSA indicating that the borrower is 
no longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period indicated in the SSA 
notice of award for SSDI or SSI benefits.
    (ii) If the borrower's obligation to repay a loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed had the 
total and permanent disability discharge application not been received; 
and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(6)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (7) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(6)(i) of this section, the borrower must--
    (i) Promptly notify the Secretary of any changes in the borrower's 
address or phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(6)(i)(A) of this section;
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment on a form approved by 
the Secretary; and
    (iv) Promptly notify the Secretary if the borrower receives a 
notice from the SSA indicating that the borrower is no longer disabled 
or that the borrower's continuing disability review will no longer be 
the five- to seven-year period indicated in the SSA notice of award for 
SSDI or SSI benefits.
    (8) Payments received after the physician's certification of total 
and permanent disability. (i) If the institution receives any payments 
from or on behalf of the borrower on or attributable to a loan that has 
been assigned to the Secretary based on the Secretary's determination 
of eligibility for a total and permanent disability discharge, the 
institution must return the payments to the sender.
    (ii) At the same time that the institution returns the payments, it 
must notify the borrower that there is no obligation to make payments 
on the loan after it has been discharged due to a total and permanent 
disability unless the loan is reinstated in accordance with Sec.  
674.61(b)(6), or the Secretary directs the borrower otherwise.
    (iii) When the Secretary discharges the loan, the Secretary returns 
to the sender any payments received on the loan after the date the 
borrower became totally and permanently disabled.
    (c) Total and permanent disability discharges for veterans. (1) 
General. A veteran's Defense, NDSL, or Perkins loan will be discharged 
if the veteran is totally and permanently disabled, as defined in Sec.  
674.51(aa)(2).
    (2) Discharge application process for veterans who have a total and 
permanent disability as defined in Sec.  674.51(aa)(2). (i) If a 
veteran notifies the institution that the veteran claims to be totally 
and permanently disabled as defined in Sec.  674.51(aa)(2), the 
institution must direct the veteran to notify the Secretary of the 
veteran's intent to submit an application for a total and permanent 
disability discharge to the Secretary; and provide the veteran with the 
information needed for the veteran to apply for a total and permanent 
disability discharge to the Secretary.

[[Page 66128]]

    (ii) If the veteran notifies the Secretary of the veteran's intent 
to apply for a total and permanent disability discharge, the 
Secretary--
    (A) Provides the veteran with information needed for the veteran to 
apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the veteran and notifies 
the lenders of the veteran's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
borrower for a period not to exceed 120 days; and
    (D) Informs the veteran that the suspension of collection activity 
described in paragraph (c)(2)(ii)(C) of this section will end after 120 
days and collection will resume on the veteran's title IV loans if the 
veteran does not submit a total and permanent disability discharge 
application to the Secretary within that time.
    (iii) If the veteran fails to submit an application for a total and 
permanent disability discharge to the Secretary within 120 days, 
collection resumes on the veteran's title IV loans.
    (iv) The veteran must submit to the Secretary an application for 
total and permanent disability discharge on a form approved by the 
Secretary.
    (v) The application must be accompanied by documentation from the 
Department of Veteran Affairs showing that the Department of Veteran 
Affairs has determined that the veteran is unemployable due to a 
service-connected disability. The veteran will not be required to 
provide any additional documentation related to the veteran's 
disability.
    (vi) After the Secretary receives the application and supporting 
documentation described in paragraphs (c)(2)(iv) and (c)(2)(v) of this 
section, the Secretary notifies the holders of the veteran's title IV 
loans that the Secretary has received a total and permanent disability 
discharge application from the veteran.
    (vii) If the application is incomplete, the Secretary notifies the 
veteran of the missing information and requests the missing information 
from the veteran or the veteran's representative. The Secretary does 
not make a determination of eligibility until the application is 
complete.
    (viii) The lender notification described in paragraph (c)(2)(vi) of 
this section directs the lenders to suspend collection activity or 
maintain the suspension of collection activity on the borrower's title 
IV loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the veteran that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the veteran that the veteran's lenders will suspend 
collection activity on the veteran's title IV loans while the Secretary 
reviews the borrower's application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (3) Secretary's review of the total and permanent disability 
discharge application. (i) If, after reviewing the veteran's completed 
application, the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is totally and permanently disabled as defined in Sec.  674.51(aa)(2), 
the Secretary notifies the veteran and the veteran's lenders that the 
application for disability discharge has been approved. With this 
notification, the Secretary provides the effective date of the 
determination and directs each institution holding a Direct, NDSL, or 
Perkins Loan made to the veteran to discharge the loan.
    (ii) The institution returns any payments received on or after the 
effective date of the determination by the Department of Veterans 
Affairs that the veteran is unemployable due to a service-connected 
disability to the person who made the payments.
    (iii) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as defined in Sec.  
674.51(aa)(2), the Secretary notifies the veteran or the veteran's 
representative, and the institution that the application for a 
disability discharge has been denied. The notification includes--
    (A) The reason or reasons for the denial;
    (B) An explanation that the loan is due and payable to the 
institution under the terms of the promissory note and that the loan 
will return to the status that would have existed had the total and 
permanent disability discharge application not been received;
    (C) An explanation that the institution will notify the veteran of 
the date the veteran must resume making payments on the loan;
    (D) An explanation that the veteran is not required to submit a new 
total and permanent disability discharge application if the veteran 
requests that the Secretary re-evaluate the veteran's application for 
discharge by providing, within 12 months of the date of the 
notification, additional documentation from the Department of Veterans 
Affairs that supports the veteran's eligibility for discharge; and
    (E) Information on how the veteran may reapply for a total and 
permanent disability discharge in accordance with the procedures 
described in paragraphs (b)(1) through (b)(8) of this section, if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as defined in 
Sec.  674.51(aa)(2), but indicates that the veteran may be totally and 
permanently disabled as defined in Sec.  674.51(aa)(1).
    (d) No Federal reimbursement. No Federal reimbursement is made to 
an institution for discharge of loans due to death or disability.
* * * * *

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

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

    Authority:  20 U.S.C. 1071 to 1087-2, unless otherwise noted.


Sec.  682.209  [Amended]

0
4. Section 682.209 is amended in paragraph (a)(6)(v)(C), by adding the 
words ``through (e)(1)(iii)'' between the citation ``682.215(e)(1)(i)'' 
and the word ``within''.
0
5. Section 682.211 is amended in paragraph (f) by:
0
A. In paragraph (f)(15), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, the punctuation and word ``; 
or''.
0
B. Adding a new paragraph (f)(16).
    The addition reads as follows:


Sec.  682.211  Forbearance.

* * * * *
    (f) * * *
    (16) For the periods described in Sec.  682.215(e)(9) in regard to 
the income-based repayment plan.
* * * * *

0
6. Section 682.215 is amended by:
0
A. In paragraph (b)(1)(i), adding the words ``the borrower's'' 
immediately after the words ``outstanding principal amount of''.
0
B. In paragraph (b)(1)(ii)(C), adding the words ``the borrower's'' 
immediately after the words ``outstanding principal amount of''.
0
C. In the first sentence of paragraph (b)(2), removing the words ``an 
income-based repayment plan'' and adding, in their place, the words 
``the income-based repayment plan''.
0
D. Revising paragraph (b)(3).
0
E. In paragraph (b)(7), removing the words ``an income-based repayment

[[Page 66129]]

plan'' and adding, in their place, the words ``the income-based 
repayment plan''.
0
F. In paragraph (b)(8), removing the words ``an income-based repayment 
plan'' and adding, in their place, the words ``the income-based 
repayment plan''.
0
G. In the introductory text of paragraph (c)(1), removing the words 
``an income-based repayment plan'' and adding, in their place, the 
words ``the income-based repayment plan''.
0
H. Revising paragraph (d).
0
I. Revising paragraph (e).
0
J. Revising paragraph (f)(1)(i).
0
K. In paragraph (f)(1)(iii), adding the words ``for the amount of the 
borrower's loans that were outstanding at the time the loans initially 
entered repayment'' at the end of the paragraph, immediately before the 
punctuation ``;''.
0
L. In paragraph (f)(1)(iv), removing the words ``for the amount of the 
borrower's loans that were outstanding at the time the borrower first 
selected the income-based repayment plan''.
0
M. In the first sentence of paragraph (f)(3)(i), removing the words ``a 
FFEL Consolidation Loan,'' and adding, in their place, the words ``an 
eligible FFEL Consolidation Loan,''.
0
N. In paragraph (f)(3)(iv), removing the words ``(f)(1) after 
qualifying for the income-based repayment plan'' immediately before the 
punctuation ``.'' and adding, in their place, the words ``paragraph 
(f)(1) of this section''.
0
O. Revising paragraph (f)(5).
0
P. Revising paragraph (g).
0
Q. Adding an OMB control number parenthetical following the section.
    The revisions and addition read as follows:


Sec.  682.215  Income-based repayment plan.

* * * * *
    (b) * * *
    (3) If a borrower elects the income-based repayment plan on or 
after July 1, 2013, the loan holder must, unless the borrower has some 
loans that are eligible for repayment under the income-based repayment 
plan and other loans that are not eligible for repayment under that 
plan, require that all eligible loans owed by the borrower to that 
holder be repaid under the income-based repayment plan.
* * * * *
    (d) Changes in the payment amount. (1) If a borrower no longer has 
a partial financial hardship, the borrower may continue to make 
payments under the income-based repayment plan but the loan holder must 
recalculate the borrower's monthly payment. The loan holder also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as a result of the 
recalculation--
    (i) The maximum monthly amount that the loan holder requires the 
borrower to repay is the amount the borrower would have paid under the 
FFEL standard repayment plan based on a 10-year repayment period using 
the amount of the borrower's eligible loans that was outstanding at the 
time the borrower began repayment on the loans with that holder under 
the income-based repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the FFEL standard repayment 
plan and the loan holder recalculates the borrower's monthly payment 
based on--
    (i) Except as provided in paragraph (d)(2)(ii) of this section, the 
time remaining under the maximum 10-year repayment period and the 
amount of the borrower's loans that was outstanding at the time the 
borrower discontinued paying under the income-based repayment plan; or
    (ii) For a Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under Sec.  
682.209(h)(2) and the total amount of that loan that was outstanding at 
the time the borrower discontinued paying under the income-based 
repayment plan.
    (3) A borrower who no longer wishes to repay under the income-based 
repayment plan and who is required to repay under the FFEL standard 
repayment plan in accordance with paragraph (d)(2) of this section may 
request a change to a different repayment plan after making one monthly 
payment under the FFEL standard repayment plan. For this purpose, a 
monthly payment may include one payment made under a forbearance that 
provides for temporarily accepting smaller payments than previously 
scheduled, in accordance with Sec.  682.211(a)(1).
    (e) Eligibility documentation, verification, and notifications. (1) 
The loan holder determines whether a borrower has a partial financial 
hardship to qualify for the income-based repayment plan for the year 
the borrower elects the plan and for each subsequent year that the 
borrower remains on the plan. To make this determination, the loan 
holder requires the borrower to--
    (i) Provide documentation, acceptable to the loan holder, of the 
borrower's AGI;
    (ii) If the borrower's AGI is not available, or the loan holder 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, provide other documentation to verify 
income;
    (iii) If the spouse of a married borrower who files a joint Federal 
tax return has eligible loans and the loan holder does not hold at 
least one of the spouse's eligible loans--
    (A) Ensure that the borrower's spouse has provided consent for the 
loan holder to obtain information about the spouse's eligible loans 
from the National Student Loan Data System; or
    (B) Provide other documentation, acceptable to the loan holder, of 
the spouse's eligible loan information; and
    (iv) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the loan holder must assume a family size 
of one for that year.
    (2) After making a determination that a borrower has a partial 
financial hardship to qualify for the income-based repayment plan for 
the year the borrower initially elects the plan and for any subsequent 
year that the borrower has a partial financial hardship, the loan 
holder must send the borrower a written notification that provides the 
borrower with--
    (i) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (b)(1) of this section, and the time period during 
which this scheduled monthly payment amount will apply (annual payment 
period);
    (ii) Information about the requirement for the borrower to annually 
provide the information described in paragraph (e)(1) of this section, 
if the borrower chooses to remain on the income-based repayment plan 
after the initial year on the plan, and an explanation that the 
borrower will be notified in advance of the date by which the loan 
holder must receive this information;
    (iii) An explanation of the consequences, as described in 
paragraphs (e)(1)(iv) and (e)(7) of this section, if the borrower does 
not provide the required information;
    (iv) An explanation of the consequences if the borrower no longer 
wishes to repay under the income-based repayment plan; and
    (v) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the loan 
holder recalculate the borrower's monthly payment amount if the 
borrower's financial circumstances have changed and the income amount 
that was used to calculate the borrower's current monthly payment no 
longer reflects the borrower's current income. If the loan

[[Page 66130]]

holder recalculates the borrower's monthly payment amount based on the 
borrower's request, the loan holder must send the borrower a written 
notification that includes the information described in paragraphs 
(e)(2)(i) through (e)(2)(v) of this section.
    (3) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the income-based repayment plan, 
the loan holder must notify the borrower in writing of the requirements 
in paragraph (e)(1) of this section no later than 60 days and no 
earlier than 90 days prior to the date specified in paragraph (e)(3)(i) 
of this section. The notification must provide the borrower with--
    (i) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the loan holder must receive 
all of the information described in paragraph (e)(1) of this section 
(annual deadline); and
    (ii) The consequences if the loan holder does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (d)(1) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (b)(5) of 
this section.
    (4) Each time a loan holder makes a determination that a borrower 
no longer has a partial financial hardship for a subsequent year that 
the borrower wishes to remain on the plan, the loan holder must send 
the borrower a written notification that provides the borrower with--
    (i) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (d)(1) of this section;
    (ii) An explanation that unpaid accrued interest will be 
capitalized in accordance with paragraph (b)(5) of this section; and
    (iii) Information about the borrower's option to request, at any 
time, that the loan holder redetermine whether the borrower has a 
partial financial hardship, if the borrower's financial circumstances 
have changed and the income amount used to determine that the borrower 
no longer has a partial financial hardship does not reflect the 
borrower's current income, and an explanation that the borrower will be 
notified annually of this option. If the loan holder determines that 
the borrower again has a partial financial hardship, the loan holder 
must recalculate the borrower's monthly payment in accordance with 
paragraph (b)(1) of this section and send the borrower a written 
notification that includes the information described in paragraphs 
(e)(2)(i) through (e)(2)(v) of this section.
    (5) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the income-based repayment 
plan, the loan holder must send the borrower a written notification 
that includes the information described in paragraph (e)(4)(iii) of 
this section.
    (6) If a borrower who is currently repaying under another repayment 
plan selects the income-based repayment plan but does not provide the 
documentation described in paragraphs (e)(1)(i) through (e)(1)(iii) of 
this section, or if the loan holder determines that the borrower does 
not have a partial financial hardship, the borrower remains on his or 
her current repayment plan.
    (7) The loan holder designates the repayment option described in 
paragraph (d)(1) of this section if a borrower who is currently 
repaying under the income-based repayment plan remains on the plan for 
a subsequent year but the loan holder does not receive the information 
described in paragraphs (e)(1)(i) through (e)(1)(iii) of this section 
within 10 days of the specified annual deadline, unless the loan holder 
is able to determine the borrower's new monthly payment amount before 
the end of the borrower's current annual payment period.
    (8) If the loan holder receives the information described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section within 10 days 
of the specified annual deadline--
    (i) The loan holder must promptly determine the borrower's new 
monthly payment amount.
    (ii) If the loan holder does not determine the new monthly payment 
amount by the end of the borrower's current annual payment period, the 
loan holder must prevent the borrower's monthly payment amount from 
being recalculated in accordance with paragraph (d)(1) of this section 
and maintain the borrower's current scheduled monthly payment amount 
until the loan holder determines the new monthly payment amount.
    (A) If the new monthly payment amount is less than the borrower's 
previously calculated income-based monthly payment amount, the loan 
holder must make the appropriate adjustment to the borrower's account 
to reflect any payments at the previously calculated amount that the 
borrower made after the end of the most recent annual payment period. 
Notwithstanding the requirements of Sec.  682.209(b)(2)(ii), unless the 
borrower requests otherwise the loan holder applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of paragraph (c)(1) of this section.
    (B) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated income-based monthly payment 
amount, the loan holder does not make any adjustments to the borrower's 
account.
    (iii) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (9) If the loan holder receives the documentation described in 
paragraphs (e)(1)(i) through (e)(1)(iii) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph (d)(1) of 
this section, the loan holder may grant forbearance with respect to 
payments that are overdue or would be due at the time the new 
calculated income-based monthly payment amount is determined, if the 
new monthly payment amount is $0.00 or is less than the borrower's 
previously calculated income-based monthly payment amount. Interest 
that accrues during the portion of this forbearance period that covers 
payments that are overdue after the end of the prior annual payment 
period is not capitalized.
    (f) * * *
    (1) * * *
    (i) Made reduced monthly payments under a partial financial 
hardship as provided in paragraph (b)(1) of this section, including a 
monthly payment amount of $0.00, as provided in paragraph (b)(1)(iii) 
of this section;
* * * * *
    (5) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 25-year 
forgiveness period.
    (g) Loan forgiveness processing and payment. (1) The loan holder 
determines when a borrower has met the loan forgiveness requirements 
under paragraph (f) of this section and does not require the borrower 
to submit a request for loan forgiveness. No later than six months 
prior to the anticipated date that the borrower will meet the loan 
forgiveness requirements, the loan holder must send the borrower a 
written notice that includes--

[[Page 66131]]

    (i) An explanation that the borrower is approaching the date that 
he or she is expected to meet the requirements to receive loan 
forgiveness;
    (ii) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (iii) General information on the current treatment of the 
forgiveness amount for tax purposes, and instructions for the borrower 
to contact the Internal Revenue Service for more information.
    (2) No later than 60 days after the loan holder determines that a 
borrower qualifies for loan forgiveness, the loan holder must request 
payment from the guaranty agency.
    (3) If the loan holder requests payment from the guaranty agency 
later than the period specified in paragraph (g)(2) of this section, 
interest that accrues on the discharged amount after the expiration of 
the 60-day filing period is ineligible for reimbursement by the 
Secretary, and the holder must repay all interest and special allowance 
received on the discharged amount for periods after the expiration of 
the 60-day filing period. The holder cannot collect from the borrower 
any interest that is not paid by the Secretary under this paragraph.
    (4)(i) Within 45 days of receiving the holder's request for 
payment, the guaranty agency must determine if the borrower meets the 
eligibility requirements for loan forgiveness under this section and 
must notify the holder of its determination.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period required under paragraph (g)(4)(i) of 
this section, pay the holder the amount of the forgiveness.
    (5) After being notified by the guaranty agency of its 
determination of the eligibility of the borrower for loan forgiveness, 
the holder must, within 30 days--
    (i) Inform the borrower of the determination and, if appropriate, 
that the borrower's repayment obligation on the loans is satisfied; and
    (ii) Provide the borrower with the information described in 
paragraph (g)(1)(iii) of this section.
    (6)(i) The holder must apply the payment from the guaranty agency 
under paragraph (g)(4)(ii) of this section to satisfy the outstanding 
balance on those loans subject to income-based forgiveness; or
    (ii) If the forgiveness amount exceeds the outstanding balance on 
the eligible loans subject to forgiveness, the loan holder must refund 
the excess amount to the guaranty agency.
    (7) If the guaranty agency does not pay the forgiveness claim, the 
lender will continue the borrower in repayment on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date the borrower's repayment obligation was suspended until a 
new payment due date is established. Unless the denial of the 
forgiveness claim was due to an error by the lender, the lender may 
capitalize any interest accrued and not paid during this period, in 
accordance with Sec.  682.202(b).
    (8) The loan holder must promptly return to the sender any payment 
received on a loan after the guaranty agency pays the loan holder the 
amount of loan forgiveness.
    (Approved by the Office of Management and Budget under control 
number 1845-NEWA.)
* * * * *

0
7. Section 682.402 is amended by:
0
A. Revising paragraph (c).
0
B. In paragraph (g)(1)(iv), removing the words ``certification of 
disability described in paragraph (c)(2) of this section'' and adding, 
in their place, the words ``notification described in paragraph 
(c)(3)(iii) or (c)(9)(ix) of this section in which the Secretary 
notifies the lender that the borrower is totally and permanently 
disabled''.
0
C. In paragraph (g)(2)(i), removing the punctuation and words ``, or 
the lender determines that the borrower is totally and permanently 
disabled''.
0
D. Redesignating paragraphs (g)(2)(ii), (g)(2)(iii), and (g)(2)(iv) as 
paragraphs (g)(2)(iii), (g)(2)(iv), and (g)(2)(v), respectively.
0
E. Adding a new paragraph (g)(2)(ii).
0
F. In paragraph (h)(1)(i)(A), adding the punctuation and word ``, 
disability,'' after the word ``death''.
0
G. In paragraph (h)(1)(i)(B), removing the words and punctuation 
``disability, closed school,'' and adding, in their place, the words 
``closed school''.
0
H. Revising paragraph (h)(1)(v).
0
I. In paragraph (h)(3)(iii)(A), adding the punctuation and word ``, 
disability,'' after the word ``death''.
0
J. In paragraph (h)(3)(iii)(B), removing the words and punctuation 
``disability, closed school,'' and adding, in their place, the words 
``closed school''.
0
K. Revising paragraph (k)(2)(i).
0
L. Revising paragraph (k)(2)(ii).
0
M. In paragraph (k)(2)(iii), adding the words ``by the Secretary'' 
after the words ``is determined''
0
N. In paragraph (k)(5)(ii), removing the words ``the guaranty agency 
makes a preliminary determination'' and adding, in their place, the 
words ``the Secretary makes a determination''.
0
O. Revising paragraph (r)(2).
0
P. Revising paragraph (r)(3).
    The revisions and additions read as follows:


Sec.  682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

* * * * *
    (c)(1) Total and permanent disability. (i) A borrower's loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  682.200(b), and satisfies the eligibility requirements 
in this section.
    (ii) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraphs (c)(2) through (c)(8) of this section.
    (iii) For a veteran who is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c)(9) of this section.
    (iv) For purposes of this paragraph (c)--
    (A) A borrower's representative or a veteran's representative is a 
member of the borrower's family, the borrower's attorney, or another 
individual authorized to act on behalf of the borrower in connection 
with the borrower's total and permanent disability discharge 
application. References to a ``borrower'' or a ``veteran'' include, if 
applicable, the borrower's representative or the veteran's 
representative for purposes of applying for a total and permanent 
disability discharge, providing notifications or information to the 
Secretary, and receiving notifications from the Secretary;
    (B) References to ``the lender'' mean the guaranty agency if the 
guaranty agency is the holder of the loan at the time the borrower 
applies for a total and permanent disability discharge, except that the 
total and permanent disability discharge claim filing requirements 
applicable to a lender do not apply to the guaranty agency; and
    (C) References to ``the applicable guaranty agency'' mean the 
guaranty agency that guarantees the loan.
    (2) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). (i) If the borrower notifies the lender 
that the borrower claims to be totally and permanently disabled as 
described in paragraph (1) of

[[Page 66132]]

the definition of that term in Sec.  682.200(b), the lender must direct 
the borrower to notify the Secretary of the borrower's intent to submit 
an application for total and permanent disability discharge and provide 
the borrower with the information needed for the borrower to notify the 
Secretary.
    (ii) If the borrower notifies the Secretary of the borrower's 
intent to apply for a total and permanent disability discharge, the 
Secretary--
    (A) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the borrower and notifies 
the lenders of the borrower's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
borrower for a period not to exceed 120 days; and
    (D) Informs the borrower that the suspension of collection activity 
described in paragraph (c)(2)(ii)(C) of this section will end after 120 
days and collection will resume on the loans if the borrower does not 
submit a total and permanent disability discharge application to the 
Secretary within that time;
    (iii) If the borrower fails to submit an application for a total 
and permanent disability discharge to the Secretary within 120 days, 
collection resumes on the borrower's title IV loans, and the lender is 
deemed to have exercised forbearance of principal and interest from the 
date it suspended collection activity. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period, except that if the lender is a guaranty agency it 
may not capitalize accrued interest.
    (iv) The borrower must submit to the Secretary an application for a 
total and permanent disability discharge on a form approved by the 
Secretary. The application must contain--
    (A) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of 
the definition of that term in Sec.  682.200(b); or
    (B) An SSA notice of award for Social Security Disability Insurance 
(SSDI) or Supplemental Security Income (SSI) benefits indicating that 
the borrower's next scheduled disability review will be within five to 
seven years.
    (v) The borrower must submit the application described in paragraph 
(c)(2)(iv) of this section to the Secretary within 90 days of the date 
the physician certifies the application, if applicable.
    (vi) After the Secretary receives the application described in 
paragraph (c)(2)(iv) of this section, the Secretary notifies the 
holders of the borrower's title IV loans, that the Secretary has 
received a total and permanent disability discharge application from 
the borrower. The holders of the loans must notify the applicable 
guaranty agencies that the total and permanent disability discharge 
application has been received.
    (vii) If the application is incomplete, the Secretary notifies the 
borrower of the missing information and requests the missing 
information from the borrower or the physician who provided the 
certification, as appropriate. The Secretary does not make a 
determination of eligibility until the application is complete.
    (viii) The lender notification described in paragraph (c)(2)(vi) of 
this section directs the borrower's loan holders to suspend collection 
activity or maintain the suspension of collection activity on the 
borrower's title IV loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the borrower that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the borrower that the borrower's lenders will suspend 
collection activity or maintain the suspension of collection activity 
on the borrower's title IV loans while the Secretary reviews the 
borrower's application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (3) Secretary's review of total and permanent disability discharge 
application. (i) If, after reviewing the borrower's completed 
application, the Secretary determines that the physician's 
certification or the SSA notice of award for SSDI or SSI benefits 
supports the conclusion that the borrower is totally and permanently 
disabled, as described in paragraph (1) of the definition of that term 
in Sec.  682.200(b), the borrower is considered totally and permanently 
disabled--
    (A) As of the date the physician certified the borrower's 
application; or
    (B) As of the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits.
    (ii) The Secretary may require the borrower to submit additional 
medical evidence if the Secretary determines that the borrower's 
application does not conclusively prove that the borrower is totally 
and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b). As part of the Secretary's 
review of the borrower's discharge application, the Secretary may 
require and arrange for an additional review of the borrower's 
condition by an independent physician at no expense to the borrower.
    (iii) After determining that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b), the Secretary notifies the borrower and 
the borrower's lenders that the application for a disability discharge 
has been approved. With this notification, the Secretary provides the 
date the physician certified the borrower's loan discharge application 
or the date the Secretary received the SSA notice of award for SSDI or 
SSI benefits and directs each lender to submit a disability claim to 
the guaranty agency so the loan can be assigned to the Secretary. The 
Secretary returns any payment received by the Secretary after the date 
the physician certified the borrower's loan discharge application or 
received the SSA notice of award for SSDI or SSI benefits to the person 
who made the payment.
    (iv) After the loan is assigned, the Secretary discharges the 
borrower's obligation to make further payments on the loan and notifies 
the borrower and the lender that the loan has been discharged. The 
notification to the borrower explains the terms and conditions under 
which the borrower's obligation to repay the loan will be reinstated, 
as specified in paragraph (c)(6)(i) of this section.
    (v) If the Secretary determines that the physician's certification 
or SSA notice of award for SSDI or SSI benefits provided by the 
borrower does not support the conclusion that the borrower is totally 
and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b), the Secretary notifies the 
borrower and the lender that the application for a disability discharge 
has been denied. The notification includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the lender 
under the terms of the promissory note and that the loan will return to 
the status that would have existed had the total and permanent 
disability discharge application not been received;
    (C) A statement that the lender will notify the borrower of the 
date the borrower must resume making payments on the loan;

[[Page 66133]]

    (D) An explanation that the borrower is not required to submit a 
new total and permanent disability discharge application if the 
borrower requests that the Secretary re-evaluate the application for 
discharge by providing, within 12 months of the date of the 
notification, additional information that supports the borrower's 
eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12 
months of the date of the notification, the borrower must submit a new 
total and permanent disability discharge application to the Secretary 
if the borrower wishes the Secretary to re-evaluate the borrower's 
eligibility for a total and permanent disability discharge.
    (vi) If the borrower requests re-evaluation in accordance with 
paragraph (c)(3)(v)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(c)(3)(v)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for a total and 
permanent disability discharge.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification or the date the Secretary received the 
SSA notice of award for SSDI or SSI benefits until the date of 
discharge. If a borrower received a title IV loan or TEACH Grant before 
the date the physician certified the borrower's discharge application 
or before the date the Secretary received the SSA notice of award for 
SSDI or SSI benefits and a disbursement of that loan or grant is made 
during the period from the date of the physician's certification or the 
Secretary's receipt of the SSA notice of award for SSDI or SSI benefits 
until the date the Secretary grants a discharge under this section, the 
processing of the borrower's loan discharge request will be suspended 
until the borrower ensures that the full amount of the disbursement has 
been returned to the loan holder or to the Secretary, as applicable.
    (5) Receipt of new title IV loans or TEACH Grants after the date of 
the physician's certification or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits. If a borrower 
receives a disbursement of a new title IV loan or receives a new TEACH 
Grant made on or after the date the physician certified the borrower's 
discharge application or the date the Secretary received the SSA notice 
of award for SSDI or SSI benefits and before the date the Secretary 
grants a discharge under this section, the Secretary denies the 
borrower's discharge request and collection resumes on the borrower's 
loans.
    (6) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (c)(3)(iii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins or 
Direct Loan programs, except for a Direct Consolidation Loan that 
includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made is returned to the loan holder or to the Secretary, as 
applicable, within 120 days of the disbursement date; or
    (D) Receives a notice from the SSA indicating that the borrower is 
no longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period indicated in the SSA 
notice of award for SSDI or SSI benefits.
    (ii) If the borrower's obligation to repay a loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed if the 
total and permanent disability discharge application had not been 
received; and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (c)(6)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (7) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (c)(6)(i) of this section, the borrower must--
    (i) Promptly notify the Secretary of any changes in the borrower's 
address or phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(6)(i)(A) of this section;
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment, on a form approved by 
the Secretary; or
    (iv) Promptly notify the Secretary if the borrower receives a 
notice from the SSA indicating that the borrower is no longer disabled 
or that the borrower's continuing disability review will no longer be 
the five- to seven-year period indicated in the SSA notice of award for 
SSDI or SSI benefits.
    (8) Lender and guaranty agency actions. (i) If the Secretary 
approves the borrower's total and permanent disability discharge 
application--
    (A) The lender must submit a disability claim to the guaranty 
agency, in accordance with paragraph (g)(1) of this section;
    (B) If the claim satisfies the requirements of paragraph (g)(1) of 
this section and Sec.  682.406, the guaranty agency must pay the claim 
submitted by the lender;
    (C) After receiving a claim payment from the guaranty agency, the 
lender must return to the sender any payments received by the lender 
after the date the physician certified the borrower's loan discharge 
application or after the date the Secretary received the SSA notice of 
award for SSDI or SSI benefits as well as any payments received after 
claim payment from or on behalf of the borrower;
    (D) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender; 
and
    (E) The guaranty agency must assign the loan to the Secretary 
within 45 days of the date the guaranty agency pays the disability 
claim and receives the reimbursement payment, or within 45 days of the 
date the guaranty agency receives the notice described in paragraph 
(c)(3)(iii) of this section if a guaranty agency is the lender.
    (ii) If the Secretary does not approve the borrower's total and 
permanent

[[Page 66134]]

disability discharge request, the lender must resume collection of the 
loan and is deemed to have exercised forbearance of payment of both 
principal and interest from the date collection activity was suspended. 
The lender may capitalize, in accordance with Sec.  682.202(b), any 
interest accrued and not paid during that period, except if the lender 
is a guaranty agency it may not capitalize accrued interest.
    (9) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b). (i) General. If a veteran notifies the 
lender that the veteran claims to be totally and permanently disabled 
as described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the lender must direct the veteran to notify the Secretary 
of the veteran's intent to submit an application for a total and 
permanent disability discharge and provide the veteran with the 
information needed for the veteran to apply for a total and permanent 
disability discharge to the Secretary.
    (ii) If the veteran notifies the Secretary of the veteran's intent 
to apply for a total and permanent disability discharge, the 
Secretary--
    (A) Provides the veteran with information needed for the veteran to 
apply for a total and permanent disability discharge;
    (B) Identifies all title IV loans owed by the veteran and notifies 
the lenders of the veteran's intent to apply for a total and permanent 
disability discharge;
    (C) Directs the lenders to suspend efforts to collect from the 
veteran for a period not to exceed 120 days; and
    (D) Informs the veteran that the suspension of collection activity 
described in paragraph (c)(9)(ii)(C) of this section will end after 120 
days and the lender will resume collection on the loans if the veteran 
does not submit a total and permanent disability discharge application 
to the Secretary within that time.
    (iii) If the veteran fails to submit an application for a total and 
permanent disability discharge to the Secretary within 120 days, 
collection resumes on the veteran's title IV loans and the lender is 
deemed to have exercised forbearance of principal and interest from the 
date it suspended collection activity. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period, except that if the lender is a guaranty agency it 
may not capitalize accrued interest.
    (iv) The veteran must submit to the Secretary an application for a 
total and permanent disability discharge on a form approved by the 
Secretary.
    (v) The application must be accompanied by documentation from the 
Department of Veterans Affairs showing that the Department of Veterans 
Affairs has determined that the veteran is unemployable due to a 
service-connected disability. The veteran will not be required to 
provide any additional documentation related to the veteran's 
disability.
    (vi) After the Secretary receives the application and supporting 
documentation described in paragraphs (c)(9)(iv) and (c)(9)(v) of this 
section, the Secretary notifies the holders of the veteran's title IV 
loans, that the Secretary has received a total and permanent disability 
discharge application from the veteran. The holders of the loans must 
notify the applicable guaranty agencies that the total and permanent 
disability discharge application has been received.
    (vii) If the application is incomplete, the Secretary notifies the 
veteran of the missing information and requests the missing information 
from the veteran or the veteran's representative. The Secretary does 
not make a determination of eligibility until the application is 
complete.
    (viii) The lender notification described in paragraph (c)(9)(vi) of 
this section directs the lenders to suspend collection activity or 
maintain the suspension of collection activity on the veteran's title 
IV loans.
    (ix) After the Secretary receives the disability discharge 
application, the Secretary sends a notice to the veteran that--
    (A) States that the application will be reviewed by the Secretary;
    (B) Informs the veteran that the veteran's lenders will suspend 
collection activity on the veteran's title IV loans while the Secretary 
reviews the veteran's application for a discharge; and
    (C) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (x) After making a determination that the veteran is totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b), the Secretary notifies the veteran and 
the veteran's lenders that the application for a disability discharge 
has been approved. With this notification, the Secretary provides the 
effective date of the determination and directs each lender to submit a 
disability claim to the guaranty agency.
    (xi) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in Sec.  682.200(b), the Secretary 
notifies the veteran and the lender that the application for a 
disability discharge has been denied. The notification includes--
    (A) The reason or reasons for the denial;
    (B) An explanation that the loan is due and payable to the lender 
under the terms of the promissory note and that the loan will return to 
the status it was in at the time the veteran applied for a total and 
permanent disability discharge;
    (C) An explanation that the lender will notify the veteran of the 
date the veteran must resume making payments on the loan;
    (D) An explanation that the veteran is not required to submit a new 
total and permanent disability discharge application if the veteran 
requests that the Secretary re-evaluate the application for discharge 
by providing, within 12 months of the date of the notification, 
additional documentation from the Department of Veterans Affairs that 
supports the veteran's eligibility for discharge; and
    (E) Information on how the veteran may reapply for a total and 
permanent disability discharge in accordance with procedures described 
in paragraphs (c)(2) through (c)(8) of this section, if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as described in 
paragraph (2) of the definition of that term in Sec.  682.200(b), but 
indicates that the veteran may be totally and permanently disabled as 
described in paragraph (1) of the definition of that term.
    (xii)(A) If the Secretary approves the veteran's total and 
permanent disability discharge application based on documentation from 
the Department of Veterans Affairs the lender must submit a disability 
claim to the guaranty agency, in accordance with paragraph (g)(1) of 
this section.
    (B) If the claim meets the requirements of paragraph (g)(1) of this 
section and Sec.  682.406, the guaranty agency must pay the claim and 
discharge the loan.
    (C) The Secretary reimburses the guaranty agency for a disability 
claim after the agency pays the claim to the lender.
    (D) Upon receipt of the claim payment from the guaranty agency, the 
lender returns any payments received by the

[[Page 66135]]

lender on or after the effective date of the determination by the 
Department of Veterans Affairs to the person who made the payments.
    (E) If the Secretary does not approve the veteran's total and 
permanent disability discharge application based on documentation from 
the Department of Veterans Affairs, the lender must resume collection 
and is deemed to have exercised forbearance of payment of both 
principal and interest from the date collection activity was suspended. 
The lender may capitalize, in accordance with Sec.  682.202(b), any 
interest accrued and not paid during that period, except that if the 
lender is a guaranty agency it may not capitalize accrued interest.
* * * * *
    (g) * * *
    (2) * * *
    (ii) Within 60 days of the date the lender received notification 
from the Secretary that the borrower is totally and permanently 
disabled, in accordance with paragraphs (c)(3)(iii) or (c)(9)(ix) of 
this section.
* * * * *
    (h) * * *
    (1) * * *
    (v) In the case of a disability claim based on a veteran's 
discharge application processed in accordance with paragraph (c)(9) of 
this section, the guaranty agency must review the claim promptly and 
not later than 45 days after the claim was filed by the lender pay the 
claim or return the claim to the lender in accordance with paragraph 
(c)(9)(xi)(B) of this section.
* * * * *
    (k) * * *
    (2) * * *
    (i) The Secretary determines that the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled 
since applying for the loan, or the guaranty agency determines that the 
borrower (or the student for whom a parent obtained a PLUS loan or each 
of the co-makers of a PLUS loan) has died, or has filed for relief in 
bankruptcy, in accordance with the procedures in paragraph (b), (c), or 
(f) of this section, or the student was unable to complete an 
educational program because the school closed, or the borrower's 
eligibility to borrow (or the student's eligibility in the case of a 
PLUS loan) was falsely certified by an eligible school. For purposes of 
this paragraph, references to the ``lender'' and ``guaranty agency'' in 
paragraphs (b) through (f) of this section mean the guaranty agency and 
the Secretary respectively;
    (ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary 
determines that the borrower (or each of the co-makers of a PLUS loan) 
has become totally and permanently disabled since applying for the 
loan, the guaranty agency determines that the borrower (or the student 
for whom a parent obtained a PLUS loan, or each of the co-makers of a 
PLUS loan) has died, or has filed the petition for relief in bankruptcy 
within 10 years of the date the borrower entered repayment, exclusive 
of periods of deferment or periods of forbearance granted by the lender 
that extended the 10-year maximum repayment period, or the borrower (or 
the student for whom a parent received a PLUS loan) was unable to 
complete an educational program because the school closed, or the 
borrower's eligibility to borrow (or the student's eligibility in the 
case of a PLUS loan) was falsely certified by an eligible school;
* * * * *
    (r) * * *
    (2) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that has been assigned to 
the Secretary based on the determination that the borrower is eligible 
for a total and permanent disability discharge, the guaranty agency 
must promptly return these payments to the sender. At the same time 
that the agency returns the payments, it must notify the borrower that 
there is no obligation to make payments on the loan after it has been 
discharged due to a total and permanent disability, unless the loan is 
reinstated in accordance with paragraph (c) of this section, or the 
Secretary directs the borrower otherwise.
    (3) When the Secretary discharges the loan, the Secretary returns 
to the sender any payments received by the Secretary on the loan after 
the date the borrower became totally and permanently disabled.
* * * * *

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

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

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

0
9. Section 685.200 is amended by revising paragraph (a)(1)(iv)(A)(3).
    The revision reads as follows:


Sec.  685.200  Borrower eligibility.

    (a) * * *
    (1) * * *
    (iv) * * *
    (A) * * *
    (3) If the borrower receives a new Direct Loan, other than a Direct 
Consolidation Loan, within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with Sec.  
685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 682.402(c)(3)(iv), 
or 34 CFR 686.42(b) based on a discharge request received on or after 
July 1, 2010, the borrower resumes repayment on the previously 
discharged loan in accordance with Sec.  685.213(b)(7), 34 CFR 
674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he or she 
is once again subject to the terms of the TEACH Grant agreement to 
serve before receiving the new loan.
* * * * *

0
10. Section 685.202 is amended by:
0
A. In paragraph (b)(3), removing the citation ``Sec.  685.209(d)(3)'' 
and adding, in its place, the citation ``Sec.  685.209(b)(3)(iv)''.
0
B. Revising paragraph (b)(4).
    The revision reads as follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

* * * * *
    (b) * * *
    (4) Except as provided in paragraph (b)(3) of this section and in 
Sec. Sec.  685.208(l)(5) and 685.209(b)(3)(iv), the Secretary annually 
capitalizes unpaid interest when the borrower is paying under the 
alternative repayment plan or the income-contingent repayment plan 
described in Sec.  685.209(b) and the borrower's scheduled payments do 
not cover the interest that has accrued on the loan.
* * * * *

0
11. Section 685.208 is amended by:
0
A. Revising paragraph (a)(1).
0
B. Revising paragraph (a)(2).
0
C. Revising paragraph (k).
    The revisions read as follows:


Sec.  685.208  Repayment plans.

    (a) * * *
    (1) Borrowers who entered repayment before July 1, 2006. (i) A 
Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct Subsidized 
Consolidation Loan, or a Direct Unsubsidized Consolidation Loan may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (f) 
of this section;

[[Page 66136]]

    (D) The income-contingent repayment plan in accordance with 
paragraph (k)(2) of this section; or
    (E) The income-based repayment plan in accordance with paragraph 
(m) of this section.
    (ii) A Direct PLUS Loan or a Direct PLUS Consolidation Loan may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (d) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (f) 
of this section.
    (2) Borrowers entering repayment on or after July 1, 2006. (i) A 
Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS 
Loan that was made to a graduate or professional student borrower may 
be repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (g) 
of this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph 
(m) of this section.
    (ii) A Direct PLUS Loan that was made to a parent borrower may be 
repaid under--
    (A) The standard repayment plan in accordance with paragraph (b) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section; or
    (C) The graduated repayment plan in accordance with paragraph (g) 
of this section.
    (iii) A Direct Consolidation Loan that did not repay a parent 
Direct PLUS Loan or a parent Federal PLUS Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) 
of this section;
    (D) The income-contingent repayment plans in accordance with 
paragraph (k) of this section; or
    (E) The income-based repayment plan in accordance with paragraph 
(m) of this section.
    (iv) A Direct Consolidation Loan that repaid a parent Direct PLUS 
Loan or a parent Federal PLUS Loan may be repaid under--
    (A) The standard repayment plan in accordance with paragraph (c) of 
this section;
    (B) The extended repayment plan in accordance with paragraph (e) of 
this section;
    (C) The graduated repayment plan in accordance with paragraph (h) 
of this section; or
    (D) The income-contingent repayment plan in accordance with 
paragraph (k)(2) of this section.
    (v) No scheduled payment may be less than the amount of interest 
accrued on the loan between monthly payments, except under the income-
contingent repayment plans, the income-based repayment plan, or an 
alternative repayment plan.
* * * * *
    (k) Income-contingent repayment plans. (1) Under the income-
contingent repayment plan described in Sec.  685.209(a), the required 
monthly payment for a borrower who has a partial financial hardship is 
limited to no more than 10 percent of the amount by which the 
borrower's AGI exceeds 150 percent of the poverty guideline applicable 
to the borrower's family size, divided by 12. The Secretary determines 
annually whether the borrower continues to qualify for this reduced 
monthly payment based on the amount of the borrower's eligible loans, 
AGI, and poverty guideline.
    (2) Under the income-contingent repayment plan described in Sec.  
685.209(b), a borrower's monthly repayment amount is generally based on 
the total amount of the borrower's Direct Loans, family size, and AGI 
reported by the borrower for the most recent year for which the 
Secretary has obtained income information.
    (3) For the income-contingent repayment plan described in Sec.  
685.209(b), the regulations in effect at the time a borrower enters 
repayment and selects the income-contingent repayment plan or changes 
into the income-contingent repayment plan from another plan govern the 
method for determining the borrower's monthly repayment amount for all 
of the borrower's Direct Loans, unless--
    (i) The Secretary amends the regulations relating to a borrower's 
monthly repayment amount under the income-contingent repayment plan; 
and
    (ii) The borrower submits a written request that the amended 
regulations apply to the repayment of the borrower's Direct Loans.
    (4) Provisions governing the income-contingent repayment plans are 
in Sec.  685.209.
* * * * *

0
12. Section 685.209 is revised to read as follows:


Sec.  685.209  Income-contingent repayment plans.

    (a) Pay As You Earn repayment plan: The Pay As You Earn repayment 
plan is an income-contingent repayment plan for eligible new borrowers.
    (1) Definitions. As used in this section--
    (i) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income;
    (ii) Eligible loan means any outstanding loan made to a borrower 
under the Direct Loan Program or the FFEL Program except for a 
defaulted loan, a Direct PLUS Loan or Federal PLUS Loan made to a 
parent borrower, or a Direct Consolidation Loan or Federal 
Consolidation Loan that repaid a Direct PLUS Loan or Federal PLUS Loan 
made to a parent borrower;
    (iii) Eligible new borrower means an individual who--
    (A) Has no outstanding balance on a Direct Loan Program Loan or a 
FFEL Program loan as of October 1, 2007, or who has no outstanding 
balance on such a loan on the date he or she receives a new loan after 
October 1, 2007; and
    (B)(1) Receives a disbursement of a Direct Subsidized Loan, Direct 
Unsubsidized Loan, or student Direct PLUS Loan on or after October 1, 
2011; or
    (2) Receives a Direct Consolidation Loan based on an application 
received on or after October 1, 2011, except that a borrower is not 
considered an eligible new borrower if the Direct Consolidation Loan 
repays a loan that would otherwise make the borrower ineligible under 
paragraph (a)(1)(iii)(A) of this section;
    (iv) Family size means the number that is determined by counting 
the borrower, the borrower's spouse, and the borrower's children, 
including unborn children who will be born during the year the borrower 
certifies family size, if the children receive more than half their 
support from the borrower. A borrower's family size includes other 
individuals if, at the time the borrower certifies family size, the 
other individuals--
    (A) Live with the borrower; and

[[Page 66137]]

    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs;
    (v) Partial financial hardship means a circumstance in which--
    (A) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment 
plan based on a 10-year repayment period, using the greater of the 
amount due at the time the borrower initially entered repayment or at 
the time the borrower elects the Pay As You Earn repayment plan, 
exceeds 10 percent of the difference between the borrower's AGI and 150 
percent of the poverty guideline for the borrower's family size; or
    (B) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse 
elects the Pay As You Earn repayment plan, exceeds 10 percent of the 
difference between the borrower's and spouse's AGI, and 150 percent of 
the poverty guideline for the borrower's family size; and
    (vi) Poverty guideline refers to the income categorized by State 
and family size in the poverty guidelines published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2). If a borrower is not a resident of a State identified 
in the poverty guidelines, the poverty guideline to be used for the 
borrower is the poverty guideline (for the relevant family size) used 
for the 48 contiguous States.
    (2) Terms of the Pay As You Earn repayment plan. (i) A borrower may 
select the Pay As You Earn repayment plan only if the borrower has a 
partial financial hardship. The borrower's aggregate monthly loan 
payments are limited to no more than 10 percent of the amount by which 
the borrower's AGI exceeds 150 percent of the poverty guideline 
applicable to the borrower's family size, divided by 12.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (a)(2)(ii)(B) of 
this section, the total amount of the borrower's eligible loans are not 
Direct Loans, in which case the Secretary determines the borrower's 
adjusted monthly payment by multiplying the calculated payment by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (B) Both the borrower and borrower's spouse have eligible loans and 
filed a joint Federal tax return, in which case the Secretary 
determines--
    (1) Each borrower's percentage of the couple's total eligible loan 
debt;
    (2) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(a)(2)(ii)(B)(1) of this section; and
    (3) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (a)(2)(ii)(B)(2) of this section by the 
percentage of the total outstanding principal amount of the borrower's 
eligible loans that are Direct Loans;
    (C) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is less than $5.00, in which case the 
borrower's monthly payment is $0.00; or
    (D) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), 
or (a)(2)(ii)(B) of this section is equal to or greater than $5.00 but 
less than $10.00, in which case the borrower's monthly payment is 
$10.00.
    (iii) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or 
the subsidized portion of a Direct Consolidation Loan, the Secretary 
does not charge the borrower the remaining accrued interest for a 
period not to exceed three consecutive years from the established 
repayment period start date on that loan under the Pay As You Earn 
repayment plan. Any period during which the Secretary has previously 
not charged the borrower accrued interest on an eligible loan under the 
income-based repayment plan counts toward the maximum three years of 
subsidy a borrower is eligible to receive under the Pay As You Earn 
repayment plan. On a Direct Consolidation Loan that repays loans on 
which the Secretary has not charged the borrower accrued interest, the 
three-year period includes the period for which the Secretary did not 
charge the borrower accrued interest on the underlying loans. This 
three-year period does not include any period during which the borrower 
receives an economic hardship deferment.
    (iv)(A) Except as provided in paragraph (a)(2)(iii) of this 
section, accrued interest is capitalized--
    (1) When a borrower is determined to no longer have a partial 
financial hardship; or
    (2) At the time a borrower chooses to leave the Pay As You Earn 
repayment plan.
    (B)(1) The amount of accrued interest capitalized under paragraph 
(a)(2)(iv)(A)(1) of this section is limited to 10 percent of the 
original principal balance at the time the borrower entered repayment 
under the Pay As You Earn repayment plan.
    (2) After the amount of accrued interest reaches the limit 
described in paragraph (a)(2)(iv)(B)(1) of this section, interest 
continues to accrue, but is not capitalized while the borrower remains 
on the Pay As You Earn repayment plan.
    (v) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is 
postponed until the borrower chooses to leave the Pay As You Earn 
repayment plan or no longer has a partial financial hardship.
    (vi) The repayment period for a borrower under the Pay As You Earn 
repayment plan may be greater than 10 years.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the Pay As You Earn repayment plan in the 
following order:
    (A) Accrued interest.
    (B) Collection costs.
    (C) Late charges.
    (D) Loan principal.
    (ii) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec.  685.211(a)(2).
    (iii) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec.  685.211(a)(3).
    (iv) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (a)(3)(i) of this section.
    (4) Changes in the payment amount. (i) If a borrower no longer has 
a partial financial hardship, the borrower may continue to make 
payments under the Pay As You Earn repayment plan, but the Secretary 
recalculates the borrower's monthly payment. The Secretary also 
recalculates the monthly payment for a borrower who chooses to stop 
making

[[Page 66138]]

income-contingent payments. In either case, as a result of the 
recalculation--
    (A) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on a 10-year repayment period using the 
amount of the borrower's eligible loans that was outstanding at the 
time the borrower began repayment on the loans under the Pay As You 
Earn repayment plan; and
    (B) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (ii) A borrower who no longer wishes to repay under the Pay As You 
Earn repayment plan may change to a different repayment plan in 
accordance with Sec.  685.210(b).
    (5) Eligibility documentation, verification, and notifications. 
(i)(A) The Secretary determines whether a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan 
for the year the borrower selects the plan and for each subsequent year 
that the borrower remains on the plan. To make this determination, the 
Secretary requires the borrower to provide documentation, acceptable to 
the Secretary, of the borrower's AGI.
    (B) If the borrower's AGI is not available, or if the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the borrower must provide other 
documentation to verify income.
    (C) The borrower must annually certify the borrower's family size. 
If the borrower fails to certify family size, the Secretary assumes a 
family size of one for that year.
    (ii) After making a determination that a borrower has a partial 
financial hardship to qualify for the Pay As You Earn repayment plan 
for the year the borrower initially elects the plan and for each 
subsequent year that the borrower has a partial financial hardship, the 
Secretary sends the borrower a written notification that provides the 
borrower with--
    (A) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (a)(2) of this section, and the time period during 
which this scheduled monthly payment amount will apply (annual payment 
period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (a)(5)(i) of this 
section, if the borrower chooses to remain on the Pay As You Earn 
repayment plan after the initial year on the plan, and an explanation 
that the borrower will be notified in advance of the date by which the 
Secretary must receive this information;
    (C) An explanation of the consequences, as described in paragraphs 
(a)(5)(i)(C) and (a)(5)(vii) of this section, if the borrower does not 
provide the required information; and
    (D) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was 
used to calculate the borrower's current monthly payment no longer 
reflects the borrower's current income. If the Secretary recalculates 
the borrower's monthly payment amount based on the borrower's request, 
the Secretary sends the borrower a written notification that includes 
the information described in paragraphs (a)(5)(ii)(A) through 
(a)(5)(ii)(D) of this section.
    (iii) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the Pay As You Earn repayment 
plan, the Secretary notifies the borrower in writing of the 
requirements in paragraph (a)(5)(i) of this section no later than 60 
days and no earlier than 90 days prior to the date specified in 
paragraph (a)(5)(iii)(A) of this section. The notification provides the 
borrower with--
    (A) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the documentation described in paragraph (a)(5)(i) of this 
section (annual deadline); and
    (B) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (a)(4)(i) of this section, the effective 
date for the recalculated monthly payment amount, and the fact that 
unpaid accrued interest will be capitalized at the end of the 
borrower's current annual payment period in accordance with paragraph 
(a)(2)(iv) of this section.
    (iv) Each time the Secretary makes a determination that a borrower 
no longer has a partial financial hardship for a subsequent year that 
the borrower wishes to remain on the plan, the Secretary sends the 
borrower a written notification that provides the borrower with--
    (A) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (a)(4)(i) of this section;
    (B) An explanation that unpaid interest will be capitalized in 
accordance with paragraph (a)(2)(iv) of this section; and
    (C) Information about the borrower's option to request, at any 
time, that the Secretary redetermine whether the borrower has a partial 
financial hardship, if the borrower's financial circumstances have 
changed and the income amount used to determine that the borrower no 
longer has a partial financial hardship does not reflect the borrower's 
current income, and an explanation that the borrower will be notified 
annually of this option. If the Secretary determines that the borrower 
again has a partial financial hardship, the Secretary recalculates the 
borrower's monthly payment in accordance with paragraph (a)(2)(i) of 
this section and sends the borrower a written notification that 
includes the information described in paragraphs (a)(5)(ii)(A) through 
(a)(5)(ii)(D) of this section.
    (v) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the Pay As You Earn 
repayment plan, the Secretary sends the borrower a written notification 
that includes the information described in paragraph (a)(5)(iv)(C) of 
this section.
    (vi) If a borrower who is currently repaying under another 
repayment plan selects the Pay As You Earn repayment plan but does not 
provide the documentation described in paragraphs (a)(5)(i)(A) or 
(a)(5)(i)(B) of this section, or if the Secretary determines that the 
borrower does not have a partial financial hardship, the borrower 
remains on his or her current repayment plan.
    (vii) The Secretary designates the repayment option described in 
paragraph (a)(4)(i) of this section if a borrower who is currently 
repaying under the Pay As You Earn repayment plan remains on the plan 
for a subsequent year but the Secretary does not receive the 
documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of 
this section within 10 days of the specified annual deadline, unless 
the Secretary is able to determine the borrower's new monthly payment 
amount before the end of the borrower's current annual payment period.
    (viii) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days 
of the specified annual deadline--
    (A) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current

[[Page 66139]]

scheduled monthly payment amount until the new scheduled monthly 
payment amount is determined.
    (1) If the new monthly payment amount is less than the borrower's 
previously calculated Pay As You Earn repayment plan monthly payment 
amount, and the borrower made payments at the previously calculated 
amount after the end of the most recent annual payment period, the 
Secretary makes the appropriate adjustment to the borrower's account. 
Notwithstanding the requirements of Sec.  685.211(a)(3), unless the 
borrower requests otherwise, the Secretary applies the excess payment 
amounts made after the end of the most recent annual payment period in 
accordance with the requirements of Sec.  685.209(a)(3)(i).
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated Pay As You Earn repayment plan 
monthly payment amount, and the borrower made payments at the 
previously calculated payment amount after the end of the most recent 
annual payment period, the Secretary does not make any adjustment to 
the borrower's account.
    (3) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (B) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (ix)(A) If the Secretary receives the documentation described in 
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10 
days after the specified annual deadline and the borrower's monthly 
payment amount is recalculated in accordance with paragraph (a)(4)(i) 
of this section, the Secretary grants forbearance with respect to 
payments that are overdue or would be due at the time the new 
calculated Pay As You Earn repayment plan monthly payment amount is 
determined, if the new monthly payment amount is $0.00 or is less than 
the borrower's previously calculated income-based monthly payment 
amount. Interest that accrues during the portion of this forbearance 
period that covers payments that are overdue after the end of the prior 
annual payment period is not capitalized.
    (B) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (6) Loan forgiveness. (i) To qualify for loan forgiveness after 20 
years, a borrower must have participated in the Pay As You Earn 
repayment plan and satisfied at least one of the following conditions 
during that period:
    (A) Made reduced monthly payments under a partial financial 
hardship as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this 
section, including a monthly payment amount of $0.00, as provided under 
paragraph (a)(2)(ii)(C) of this section.
    (B) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-contingent 
payments as provided in paragraph (a)(4)(i) of this section.
    (C) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) with a 10-year repayment period.
    (D) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) for the amount of the borrower's 
loans that were outstanding at the time the borrower first selected the 
Pay As You Earn repayment plan.
    (E) Made monthly payments under the income-contingent repayment 
plan described in paragraph (b) of this section or the income-based 
repayment plan described in Sec.  685.221, including a calculated 
monthly payment amount of $0.00.
    (F) Received an economic hardship deferment on eligible Direct 
Loans.
    (ii) As provided under paragraph (a)(6)(v) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (A) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (a)(6)(i) of this section, 
including a monthly payment amount of $0.00, as provided under 
paragraph (a)(2)(ii)(C) of this section; and
    (B)(1) The borrower made those monthly payments each year for a 20-
year period; or
    (2) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 20 years of 
payments.
    (iii) For a borrower who qualifies for the Pay As You Earn 
repayment plan, the beginning date for the 20-year period is--
    (A) If the borrower made payments under the income-contingent 
repayment plan described in paragraph (b) of this section or the 
income-based repayment plan described in Sec.  685.221, the earliest 
date the borrower made a payment on the loan under one of those plans 
at any time after October 1, 2007; or
    (B) If the borrower did not make payments under the income-
contingent repayment plan described in paragraph (b) of this section or 
the income-based repayment plan described in Sec.  685.221--
    (1) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for the 
Pay As You Earn repayment plan. The beginning date is the date the 
borrower made the payment or received the deferment after October 1, 
2007;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower 
made that payment or received the deferment on that loan after October 
1, 2007;
    (3) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph 
(a)(6)(iii)(B)(1) or (a)(6)(iii)(B)(2) of this section, the date the 
borrower made a payment on the loan under the Pay As You Earn repayment 
plan;
    (4) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the Direct Consolidation Loan that 
met the requirements of paragraph (a)(6)(i) of this section; or
    (5) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (a)(6)(iii)(A) or 
(a)(6)(iii)(B) of this section, the date the borrower made a payment on 
the loan under the Pay As You Earn repayment plan.
    (iv) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the 20-year 
forgiveness period.
    (v)(A) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (a)(6) of this 
section on an eligible loan, the Secretary cancels the outstanding 
balance and accrued interest on that loan. No later than six

[[Page 66140]]

months prior to the anticipated date that the borrower will meet the 
forgiveness requirements, the Secretary sends the borrower a written 
notice that includes--
    (1) An explanation that the borrower is approaching the date that 
he or she is expected to meet the requirements to receive loan 
forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (B) The Secretary determines when a borrower has met the loan 
forgiveness requirements in paragraph (a)(6) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (C) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the borrower with the information described in 
paragraph (a)(6)(v)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (b) Income-contingent repayment plan: The income-contingent 
repayment (ICR) plan is an income-contingent repayment plan under which 
a borrower's monthly payment amount is generally based on the total 
amount of the borrower's Direct Loans, family size, and AGI.
    (1) Repayment amount calculation. (i) The amount the borrower would 
repay is based upon the borrower's Direct Loan debt when the borrower's 
first loan enters repayment, and this basis for calculation does not 
change unless the borrower obtains another Direct Loan or the borrower 
and the borrower's spouse obtain approval to repay their loans jointly 
under paragraph (b)(2)(ii) of this section. If the borrower obtains 
another Direct Loan, the amount the borrower would repay is based on 
the combined amounts of the loans when the last loan enters repayment. 
If the borrower and the borrower's spouse repay the loans jointly, the 
amount the borrowers would repay is based on both borrowers' Direct 
Loan debts at the time they enter joint repayment.
    (ii) The annual amount payable by a borrower under the ICR plan is 
the lesser of--
    (A) The amount the borrower would repay annually over 12 years 
using standard amortization multiplied by an income percentage factor 
that corresponds to the borrower's AGI as shown in the income 
percentage factor table in a notice published annually by the Secretary 
in the Federal Register; or
    (B) 20 percent of discretionary income.
    (iii)(A) For purposes of paragraph (b) of this section, 
discretionary income is defined as a borrower's AGI minus the amount of 
the poverty guideline, as defined in paragraph (b)(1)(iii)(B) of this 
section, for the borrower's family size as defined in Sec.  
685.209(a)(1)(iv).
    (B) For purposes of paragraph (b) of this section, the term 
``poverty guideline'' refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty line to be used for the borrower is the 
poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (iv) For exact incomes not shown in the income percentage factor 
table in the annual notice published by the Secretary, an income 
percentage factor is calculated, based upon the intervals between the 
incomes and income percentage factors shown on the table.
    (v) Each year, the Secretary recalculates the borrower's annual 
payment amount based on changes in the borrower's AGI, the variable 
interest rate, the income percentage factors in the table in the annual 
notice published by the Secretary, and updated HHS Poverty Guidelines 
(if applicable).
    (vi) If a borrower's monthly payment is calculated to be greater 
than $0 but less than or equal to $5.00, the amount payable by the 
borrower is $5.00.
    (vii) For purposes of the annual recalculation described in 
paragraph (b)(1)(v) of this section, after periods in which a borrower 
makes payments that are less than interest accrued on the loan, the 
payment amount is recalculated based upon unpaid accrued interest and 
the highest outstanding principal loan amount (including amount 
capitalized) calculated for that borrower while paying under the ICR 
plan.
    (viii) For each calendar year, the Secretary publishes in the 
Federal Register a revised income percentage factor table reflecting 
changes based on inflation. This revised table is developed by changing 
each of the dollar amounts contained in the table by a percentage equal 
to the estimated percentage changes in the Consumer Price Index (as 
determined by the Secretary) between December 1995 and the December 
next preceding the beginning of such calendar year.
    (ix) Examples of the calculation of monthly repayment amounts and 
tables that show monthly repayment amounts for borrowers at various 
income and debt levels are included in the annual notice published by 
the Secretary.
    (x) At the beginning of the repayment period under the ICR plan, 
the borrower must make monthly payments of the amount of interest that 
accrues on the borrower's Direct Loan until the Secretary calculates 
the borrower's monthly payment amount on the basis of the borrower's 
income.
    (2) Treatment of married borrowers. (i)(A) For a married borrower 
who files a joint Federal tax return with his or her spouse, the AGI 
for both spouses is used to calculate the monthly payment amount under 
the ICR plan.
    (B) For a married borrower who files a Federal income tax return 
separately from his or her spouse, only the borrower's AGI is used to 
determine the monthly payment amount under the ICR plan.
    (ii) Married borrowers may repay their loans jointly. The 
outstanding balances on the loans of each borrower are added together 
to determine the borrowers' payback rate under paragraph (b)(1) of this 
section.
    (iii) The amount of the payment applied to each borrower's debt is 
the proportion of the payments that equals the same proportion as that 
borrower's debt to the total outstanding balance, except that the 
payment is credited toward outstanding interest on any loan before any 
payment is credited toward principal.
    (3) Other features of the ICR plan. (i) Alternative documentation 
of income. If a borrower's AGI is not available or if, in the 
Secretary's opinion, the borrower's reported AGI does not reasonably 
reflect the borrower's current income, the Secretary may use other 
documentation of income provided by the borrower to calculate the 
borrower's monthly repayment amount.
    (ii) Adjustments to repayment obligations. The Secretary may 
determine that special circumstances, such as a loss of employment by 
the borrower or the borrower's spouse, warrant an adjustment to the 
borrower's repayment obligations.
    (iii) Repayment period. (A) The maximum repayment period under the 
ICR plan is 25 years.
    (B) The repayment period includes--
    (1) Periods in which the borrower makes payments under the ICR plan 
on loans that are not in default;

[[Page 66141]]

    (2) Periods in which the borrower makes reduced monthly payments 
under the income-based repayment plan or a recalculated reduced monthly 
payment after the borrower no longer has a partial financial hardship 
or stops making income-based payments, as provided in Sec.  
685.221(d)(1)(i);
    (3) Periods in which the borrower made monthly payments under the 
Pay As You Earn repayment plan;
    (4) Periods in which the borrower made monthly payments under the 
standard repayment plan after leaving the income-based repayment plan 
as provided in Sec.  685.221(d)(2);
    (5) Periods in which the borrower makes payments under the standard 
repayment plan described in Sec.  685.208(b);
    (6) For borrowers who entered repayment before October 1, 2007, and 
if the repayment period is not more than 12 years, periods in which the 
borrower makes monthly payments under the extended repayment plans 
described in Sec.  685.208(d) and (e), or the standard repayment plan 
described in Sec.  685.208(c);
    (7) Periods after October 1, 2007, in which the borrower makes 
monthly payments under any other repayment plan that are not less than 
the amount required under the standard repayment plan described in 
Sec.  685.208(b); or
    (8) Periods of economic hardship deferment after October 1, 2007.
    (C) If a borrower repays more than one loan under the ICR plan, a 
separate repayment period for each loan begins when that loan enters 
repayment.
    (D) If a borrower has not repaid a loan in full at the end of the 
25-year repayment period under the ICR plan, the Secretary cancels the 
outstanding balance and accrued interest on that loan. No later than 
six months prior to the anticipated date that the borrower will meet 
the forgiveness requirements, the Secretary sends the borrower a 
written notification that includes--
    (1) An explanation that the borrower is approaching the date that 
he or she is expected to meet the requirements to receive loan 
forgiveness;
    (2) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (3) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (E) The Secretary determines when a borrower has met the loan 
forgiveness requirements under paragraph (b)(3)(iii)(D) of this section 
and does not require the borrower to submit a request for loan 
forgiveness. After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (1) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (2) Provides the information described in paragraph 
(b)(3)(iii)(D)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
    (iv) Limitation on capitalization of interest. If the amount of a 
borrower's monthly payment is less than the accrued interest, the 
unpaid interest is capitalized until the outstanding principal amount 
is 10 percent greater than the original principal amount. After the 
outstanding principal amount is 10 percent greater than the original 
amount, interest continues to accrue but is not capitalized. For 
purposes of this paragraph, the original amount is the amount owed by 
the borrower when the borrower enters repayment.
    (v) Notification of terms and conditions. When a borrower elects or 
is required by the Secretary to repay a loan under the ICR plan, and 
for each subsequent year that the borrower remains on the plan, the 
Secretary sends the borrower a written notification that provides the 
terms and conditions of the plan, including--
    (A) The borrower's scheduled monthly payment amount as calculated 
under paragraph (b)(1) or (b)(3)(vi)(D) of this section, as applicable, 
and the time period during which this scheduled monthly payment will 
apply (annual payment period);
    (B) Information about the requirement for the borrower to annually 
provide the information described in paragraph (b)(3)(vi)(A) of this 
section, if the borrower chooses to remain on the ICR plan after the 
initial year on the plan, and an explanation that the borrower will be 
notified in advance of the date by which the Secretary must receive the 
information;
    (C) That if the borrower believes that special circumstances 
warrant an adjustment to the borrower's repayment obligations, as 
described in paragraph (b)(3)(ii) of this section, the borrower may 
contact the Secretary at any time during the borrower's current annual 
payment period and obtain the Secretary's determination as to whether 
an adjustment is appropriate; and
    (D) An explanation of the consequences, as described in paragraph 
(b)(3)(vi)(D) of this section, if the borrower does not provide the 
required information.
    (vi) Documentation of income and certification of family size. (A) 
For the initial year that a borrower selects the ICR plan and for each 
subsequent year that the borrower remains on the plan, the borrower 
must--
    (1) Provide to the Secretary, for purposes of calculating a monthly 
repayment amount and servicing and collecting the borrower's loan, 
acceptable documentation, as determined by the Secretary, of the 
borrower's AGI or alternative documentation of income in accordance 
with paragraph (b)(3)(i) of this section; and
    (2) Certify the borrower's family size. If the borrower fails to 
certify family size, the Secretary assumes a family size of one for the 
year.
    (B) For each subsequent year that a borrower remains on the ICR 
plan, the Secretary notifies the borrower in writing of the 
requirements described in paragraph (b)(3)(vi)(A) of this section no 
later than 60 days and no earlier than 90 days prior to the date 
specified in paragraph (b)(3)(vi)(B)(1) of this section. The 
notification provides the borrower with--
    (1) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
the documentation described in paragraph (b)(3)(vi)(A) of this section 
(annual deadline); and
    (2) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (b)(3)(vi)(D) of this section, and the 
effective date for the recalculated monthly payment amount.
    (C) The Secretary designates the standard repayment plan for a 
borrower who initially selects the ICR plan but does not comply with 
the requirement in paragraph (b)(3)(vi)(A)(1) of this section.
    (D) If, during a subsequent year that a borrower remains on the ICR 
plan, the Secretary does not receive the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline, the Secretary recalculates the borrower's 
required monthly payment amount, unless the Secretary is able to 
determine the borrower's new monthly payment amount before the end of 
the borrower's current annual payment period. The maximum recalculated 
monthly amount the Secretary requires the borrower to repay is the 
amount the borrower would have paid under the standard repayment plan 
based on a 10-year repayment period using the amount of the borrower's 
loans that was outstanding at the time the borrower began repayment

[[Page 66142]]

under the ICR plan. The repayment period based on the recalculated 
payment may exceed 10 years.
    (E) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the 
specified annual deadline--
    (1) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount 
is determined.
    (i) If the new calculated monthly payment amount is less than the 
borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated amount after the 
end of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding Sec.  
685.211(a)(3), the Secretary applies the excess payment amounts made 
after the end of the most recent annual payment period in accordance 
with the requirements of Sec.  685.211(a)(1), unless the borrower 
requests otherwise.
    (ii) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated payment amount 
after the end of the most recent annual payment period, the Secretary 
does not make any adjustment to the borrower's account.
    (iii) Any payments the borrower continued to make at the previously 
calculated payment amount after the end of the prior annual payment 
period and before the new monthly payment amount is calculated are 
considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (2) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (F)(1) If the Secretary receives the documentation described in 
paragraph (b)(3)(vi)(A)(1) of this section more than 10 days after the 
specified annual deadline and the borrower's monthly payment amount is 
recalculated in accordance with paragraph (b)(3)(vi)(D) of this 
section, the Secretary grants forbearance with respect to payments that 
are overdue or would be due at the time the new calculated monthly 
payment amount is determined, if the new monthly payment amount is 
$0.00 or is less than the borrower's previously calculated monthly 
payment amount. Interest that accrues during the portion of this 
forbearance period that covers payments that are overdue after the end 
of the prior annual payment period is not capitalized.
    (2) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (G) If a borrower defaults and the Secretary designates the ICR 
plan for the borrower but the borrower fails to comply with the 
requirements in paragraph (b)(3)(vi)(A) of this section, the Secretary 
mails a notice to the borrower establishing a repayment schedule for 
the borrower.


(Approved by the Office of Management and Budget under control number 
1845-0021)


(Authority: 20 U.S.C. 1087a et seq.)

0
13. Section 685.210 is amended by revising paragraph (b)(2)(ii) to read 
as follows:


Sec.  685.210  Choice of repayment plan.

* * * * *
    (b) * * *
    (2) * * *
    (ii) If a borrower changes plans, the repayment period is the 
period provided under the borrower's new repayment plan, calculated 
from the date the loan initially entered repayment. However, if a 
borrower changes to the income-contingent repayment plan under Sec.  
685.209(a), the income-contingent repayment plan under Sec.  
685.209(b), or the income-based repayment plan under Sec.  685.221, the 
repayment period is calculated as described in Sec.  
685.209(a)(6)(iii), Sec.  685.209(b)(3)(iii), or Sec.  685.221(f)(3), 
respectively.
* * * * *


Sec.  685.211  [Amended]

0
14. Section 685.211(a)(1) is amended by adding the words ``income-
contingent repayment plan under Sec.  685.209(a)(3) or the'' 
immediately before the words ``income-based repayment''.


Sec.  685.212  [Amended]

0
15. Section 685.212(g)(2) is amended by removing the words ``the 
borrower became totally and permanently disabled, as certified under 
Sec.  685.213(b)'' and adding, in their place, the words ``specified in 
Sec.  685.213(b)(4)(iii) or 685.213(c)(2)(i), as applicable''.

0
16. Section 685.213 is revised to read as follows:


Sec.  685.213  Total and permanent disability discharge.

    (a) General. (1) A borrower's Direct Loan is discharged if the 
borrower becomes totally and permanently disabled, as defined in Sec.  
685.102(b), and satisfies the eligibility requirements in this section.
    (2) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
685.102(b), the borrower's loan discharge application is processed in 
accordance with paragraph (b) of this section.
    (3) For veterans who are totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
685.102(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c) of this section.
    (4) For purposes of this section, a borrower's representative or a 
veteran's representative is a member of the borrower's family, the 
borrower's attorney, or another individual authorized to act on behalf 
of the borrower in connection with the borrower's total and permanent 
disability discharge application. References to a ``borrower'' or a 
``veteran'' include, if applicable, the borrower's representative or 
the veteran's representative for purposes of applying for a total and 
permanent disability discharge, providing notifications or information 
to the Secretary, and receiving notifications from the Secretary.
    (b) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  685.102(b). (1) Borrower application for discharge. 
To qualify for a discharge of a Direct Loan based on a total and 
permanent disability, a borrower must submit a discharge application to 
the Secretary on a form approved by the Secretary. If the borrower 
notifies the Secretary that the borrower claims to be totally and 
permanent disabled prior to submitting a total and permanent disability 
discharge application, the Secretary--
    (i) Provides the borrower with information needed for the borrower 
to apply for a total and permanent disability discharge;
    (ii) Suspends collection activity on any of the borrower's title IV 
loans held by the Secretary, and notifies the borrower's other title IV 
loan holders to suspend collection activity on the

[[Page 66143]]

borrower's title IV loans for a period not to exceed 120 days; and
    (iii) Informs the borrower that the suspension of collection 
activity will end after 120 days and collection will resume on the 
loans if the borrower does not submit a total and permanent disability 
discharge application to the Secretary within that time.
    (2) Physician certification or Social Security Administration (SSA) 
disability notice of award. The application must contain--
    (i) A certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of 
the definition of that term in Sec.  685.102(b); or
    (ii) An SSA notice of award for Social Security Disability 
Insurance (SSDI) or Supplemental Security Income (SSI) benefits 
indicating that the borrower's next scheduled disability review will be 
within five to seven years.
    (3) Deadline for application submission. The borrower must submit 
the application described in paragraph (b)(1) of this section to the 
Secretary within 90 days of the date the physician certifies the 
application, if applicable. Upon receipt of the borrower's application, 
the Secretary--
    (i) Identifies all title IV loans owed by the borrower, notifies 
the lenders that the Secretary has received a total and permanent 
disability discharge application from the borrower and directs the 
lenders to suspend collection activity or maintain the suspension of 
collection activity on the borrower's title IV loans;
    (ii) If the application is incomplete, notifies the borrower of the 
missing information and requests the missing information from the 
borrower or the physician who certified the application, as 
appropriate, and does not make a determination of eligibility for 
discharge until the application is complete;
    (iii) Notifies the borrower that no payments are due on the loan 
while the Secretary determines the borrower's eligibility for 
discharge; and
    (iv) Explains the process for the Secretary's review of total and 
permanent disability discharge applications.
    (4) Determination of eligibility. (i) If, after reviewing the 
borrower's completed application, the Secretary determines that the 
physician's certification or the SSA notice of award for SSDI or SSI 
benefits supports the conclusion that the borrower meets the criteria 
for a total and permanent disability discharge, as described in 
paragraph (1) of the definition of that term in Sec.  685.102(b), the 
borrower is considered totally and permanently disabled--
    (A) As of the date the physician certified the borrower's 
application; or
    (B) As of the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits.
    (ii) The Secretary may require the borrower to submit additional 
medical evidence if the Secretary determines that the borrower's 
application does not conclusively prove that the borrower is totally 
and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  685.102(b). As part of the Secretary's 
review of the borrower's discharge application, the Secretary may 
require and arrange for an additional review of the borrower's 
condition by an independent physician at no expense to the borrower.
    (iii) After determining that the borrower is totally and 
permanently disabled, as described in paragraph (1) of the definition 
of that term in Sec.  685.102(b), the Secretary discharges the 
borrower's obligation to make any further payments on the loan, 
notifies the borrower that the loan has been discharged, and returns to 
the person who made the payments on the loan any payments received 
after the date the physician certified the borrower's loan discharge 
application or the date the Secretary received the SSA notice of award 
for SSDI or SSI benefits. The notification to the borrower explains the 
terms and conditions under which the borrower's obligation to repay the 
loan will be reinstated, as specified in paragraph (b)(7)(i) of this 
section.
    (iv) If the Secretary determines that the physician's certification 
or the SSA notice of award for SSDI or SSI benefits provided by the 
borrower does not support the conclusion that the borrower is totally 
and permanently disabled, as described in paragraph (1) of the 
definition of that term in Sec.  685.102(b), the Secretary notifies the 
borrower that the application for a disability discharge has been 
denied. The notification to the borrower includes--
    (A) The reason or reasons for the denial;
    (B) A statement that the loan is due and payable to the Secretary 
under the terms of the promissory note and that the loan will return to 
the status that would have existed if the total and permanent 
disability discharge application had not been received;
    (C) The date that the borrower must resume making payments;
    (D) An explanation that the borrower is not required to submit a 
new total and permanent disability discharge application if the 
borrower requests that the Secretary re-evaluate the borrower's 
application for discharge by providing, within 12 months of the date of 
the notification, additional information that supports the borrower's 
eligibility for discharge; and
    (E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12 
months of the date of the notification, the borrower must submit a new 
total and permanent disability discharge application to the Secretary 
if the borrower wishes the Secretary to re-evaluate the borrower's 
eligibility for a total and permanent disability discharge.
    (v) If the borrower requests re-evaluation in accordance with 
paragraph (b)(4)(iv)(D) of this section or submits a new total and 
permanent disability discharge application in accordance with paragraph 
(b)(4)(iv)(E) of this section, the request must include new information 
regarding the borrower's disabling condition that was not provided to 
the Secretary in connection with the prior application at the time the 
Secretary reviewed the borrower's initial application for total and 
permanent disability discharge.
    (5) Treatment of disbursements made during the period from the date 
of the physician's certification or the date the Secretary received the 
SSA notice of award for SSDI or SSI benefits until the date of 
discharge. If a borrower received a title IV loan or TEACH Grant before 
the date the physician certified the borrower's discharge application 
or before the date the Secretary received the SSA notice of award for 
SSDI or SSI benefits and a disbursement of that loan or grant is made 
during the period from the date of the physician's certification or the 
receipt of the SSA notice of award for SSDI or SSI benefits until the 
date the Secretary grants a discharge under this section, the 
processing of the borrower's loan discharge request will be suspended 
until the borrower ensures that the full amount of the disbursement has 
been returned to the loan holder or to the Secretary, as applicable.
    (6) Receipt of new title IV loans or TEACH Grants after the date of 
the physician's certification or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits. If a borrower 
receives a disbursement of a new title IV loan or receives a new TEACH 
Grant made on or after the date the physician certified the borrower's 
discharge application or on or after the date the Secretary received 
the SSA notice of award for SSDI or SSI benefits and before the date 
the Secretary grants

[[Page 66144]]

a discharge under this section, the Secretary denies the borrower's 
discharge request and resumes collection on the borrower's loan.
    (7) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(4)(iii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins or 
Direct Loan programs, except for a Direct Consolidation Loan that 
includes loans that were not discharged;
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made is returned to the loan holder or to the Secretary, as 
applicable, within 120 days of the disbursement date; or
    (D) Receives a notice from the SSA indicating that the borrower is 
no longer disabled or that the borrower's continuing disability review 
will no longer be the five- to seven-year period indicated in the SSA 
notice of award for SSDI or SSI benefits.
    (ii) If the borrower's obligation to repay the loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated;
    (B) Returns the loan to the status that would have existed if the 
total and permanent disability discharge application had not been 
received; and
    (C) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(7)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) An explanation that the first payment due date on the loan 
following reinstatement will be no earlier than 60 days after the date 
of the notification of reinstatement; and
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (8) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(7)(i) of this section, the borrower must--
    (i) Promptly notify the Secretary of any changes in the borrower's 
address or phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(7)(i)(A) of this section;
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment on a form provided by 
the Secretary; and
    (iv) Promptly notify the Secretary if the borrower receives a 
notice from the SSA indicating that the borrower is no longer disabled 
or that the borrower's continuing disability review will no longer be 
the five- to seven-year period indicated in the SSA notice of award for 
SSDI or SSI benefits.
    (c) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  685.102(b). (1) Veteran's application for discharge. 
To qualify for a discharge of a Direct Loan based on a total and 
permanent disability as described in paragraph (2) of the definition of 
that term in Sec.  685.102(b), a veteran must submit a discharge 
application to the Secretary on a form approved by the Secretary. The 
application must be accompanied by documentation from the Department of 
Veterans Affairs showing that the Department of Veterans Affairs has 
determined that the veteran is unemployable due to a service-connected 
disability. The Secretary does not require the veteran to provide any 
additional documentation related to the veteran's disability. Upon 
receipt of the veteran's application, the Secretary--
    (i) Identifies all title IV loans owed by the veteran and notifies 
the lenders that the Secretary has received a total and permanent 
disability discharge application from the borrower;
    (ii) If the application is incomplete, requests the missing 
information from the veteran and does not make a determination of 
eligibility for discharge until the application is complete;
    (iii) Notifies the veteran that no payments are due on the loan 
while the Secretary determines the veteran's eligibility for discharge; 
and
    (iv) Explains the Secretary's process for reviewing total and 
permanent disability discharge applications.
    (2) Determination of eligibility. (i) If the Secretary determines, 
based on a review of the documentation from the Department of Veterans 
Affairs, that the veteran is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
685.102(b), the Secretary discharges the veteran's obligation to make 
any further payments on the loan and returns to the person who made the 
payments on the loan any payments received on or after the effective 
date of the determination by the Department of Veterans Affairs that 
the veteran is unemployable due to a service-connected disability.
    (ii) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in Sec.  685.102(b), the Secretary 
notifies the veteran that the application for a disability discharge 
has been denied. The notification to the veteran includes--
    (A) The reason or reasons for the denial;
    (B) An explanation that the loan is due and payable to the 
Secretary under the terms of the promissory note and that the loan will 
return to the status it was in at the time the veteran applied for a 
total and permanent disability discharge;
    (C) The date that the veteran must resume making payments;
    (D) An explanation that the veteran is not required to submit a new 
total and permanent disability discharge application if the veteran 
requests that the Secretary re-evaluate the veteran's application for 
discharge by providing, within 12 months of the date of the 
notification, additional documentation from the Department of Veterans 
Affairs that supports the veteran's eligibility for discharge; and
    (E) Information on how the veteran may reapply for a total and 
permanent disability discharge in accordance with the procedures 
described in paragraph (b) of this section if the documentation from 
the Department of Veterans Affairs does not indicate that the veteran 
is totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  685.102(b), but indicates that the 
veteran may be totally and permanently disabled as described in 
paragraph (1) of the definition of that term.


(Approved by the Office of Management and Budget under control number 
1845-0065.)

(Authority: 20 U.S.C.1087a et seq.)

[[Page 66145]]


0
17. Section 685.220 is amended by revising paragraph (d)(1)(ii)(D) to 
read as follows:


Sec.  685.220  Consolidation.

* * * * *
    (d) * * *
    (1) * * *
    (ii) * * *
    (D) In default but agrees to repay the consolidation loan under one 
of the income-contingent repayment plans described in Sec.  685.208(k) 
or the income-based repayment plan described in Sec.  685.208(m).
* * * * *

0
18. Section 685.221 is amended by:
0
A. Redesignating paragraphs (a)(4) and (a)(5) as paragraphs (a)(5) and 
(a)(6), respectively.
0
B. Adding a new paragraph (a)(4).
0
C. In redesignated paragraph (a)(5)(i), removing the words ``exceeds 15 
percent'' and adding, in their place, the words ``exceeds 15 percent 
or, for a new borrower, 10 percent''.
0
D. In redesignated paragraph (a)(5)(ii), removing the words ``exceeds 
15 percent'' and adding, in their place, the words ``exceeds 15 percent 
or, for a new borrower, 10 percent''.
0
E. In paragraph (b)(1), removing the words ``no more than 15 percent'' 
and adding, in their place, the words ``no more than 15 percent or, for 
a new borrower, 10 percent''.
0
F. In paragraph (b)(2)(i), removing the words ``the total amount of 
eligible loans'' and adding, in their place, the words ``the total 
outstanding principal amount of the borrower's eligible loans''.
0
G. In paragraph (b)(2)(ii)(C), removing the words ``the outstanding 
principal amount of eligible loans'' and adding, in their place, the 
words ``the total outstanding principal amount of the borrower's 
eligible loans''.
0
H. Revising paragraph (b)(3).
0
I. Revising paragraph (c).
0
J. Revising paragraph (d).
0
K. Revising paragraph (e).
0
L. Revising paragraph (f).
    The addition and revisions read as follows:


Sec.  685.221  Income-based repayment plan.

    (a) * * *
    (4) New borrower means an individual who has no outstanding balance 
on a Direct Loan Program or FFEL Program loan on July 1, 2014, or who 
has no outstanding balance on such a loan on the date he or she obtains 
a loan after July 1, 2014.
* * * * *
    (b) * * *
    (3) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or 
the subsidized portion of a Direct Consolidation Loan, the Secretary 
does not charge the borrower the remaining accrued interest for a 
period not to exceed three consecutive years from the established 
repayment period start date on that loan under the income-based 
repayment plan. Any period during which the Secretary has previously 
not charged the borrower accrued interest on an eligible loan under the 
Pay As You Earn repayment plan counts toward the maximum three years of 
subsidy a borrower is eligible to receive under the income-based 
repayment plan. On a Direct Consolidation Loan that repays loans on 
which the Secretary has not charged the borrower accrued interest, the 
three-year period includes the period for which the Secretary did not 
charge the borrower accrued interest on the underlying loans. This 
three-year period does not include any period during which the borrower 
receives an economic hardship deferment.
* * * * *
    (c) Payment application and prepayment. (1) The Secretary applies 
any payment made under the income-based repayment plan in the following 
order:
    (i) Accrued interest.
    (ii) Collection costs.
    (iii) Late charges.
    (iv) Loan principal.
    (2) The borrower may prepay all or part of a loan at any time 
without penalty, as provided under Sec.  685.211(a)(2).
    (3) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the Secretary applies the prepayment consistent with the 
requirements of Sec.  685.211(a)(3).
    (4) If the prepayment amount exceeds a monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the 
Secretary applies the prepayment consistent with the requirements of 
paragraph (c)(1) of this section.
    (d) Changes in the payment amount. (1) If a borrower no longer has 
a partial financial hardship, the borrower may continue to make 
payments under the income-based repayment plan, but the Secretary 
recalculates the borrower's monthly payment. The Secretary also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as result of the 
recalculation--
    (i) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on a 10-year repayment period using the 
amount of the borrower's eligible loans that was outstanding at the 
time the borrower began repayment on the loans under the income-based 
repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2)(i) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the standard repayment plan 
and the Secretary recalculates the borrower's monthly payment based 
on--
    (A) For a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a 
Direct PLUS Loan, the time remaining under the maximum ten-year 
repayment period for the amount of the borrower's loans that were 
outstanding at the time the borrower discontinued paying under the 
income-based repayment plan; or
    (B) For a Direct Consolidation Loan, the time remaining under the 
applicable repayment period as initially determined under Sec.  
685.208(j) and the amount of that loan that was outstanding at the time 
the borrower discontinued paying under the income-based repayment plan.
    (ii) A borrower who no longer wishes to repay under the income-
based repayment plan and who is required to repay under the Direct Loan 
standard repayment plan in accordance with paragraph (d)(2)(i) of this 
section may request a change to a different repayment plan after making 
one monthly payment under the Direct Loan standard repayment plan. For 
this purpose, a monthly payment may include one payment made under a 
forbearance that provides for accepting smaller payments than 
previously scheduled, in accordance with Sec.  685.205(a).
    (e) Eligibility documentation, verification, and notifications. (1) 
The Secretary determines whether a borrower has a partial financial 
hardship to qualify for the income-based repayment plan for the year 
the borrower selects the plan and for each subsequent year that the 
borrower remains on the plan. To make this determination, the Secretary 
requires the borrower to--
    (i) Provide documentation, acceptable to the Secretary, of the 
borrower's AGI;
    (ii) If the borrower's AGI is not available, or the Secretary 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, provide other documentation to verify 
income; and

[[Page 66146]]

    (iii) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the Secretary assumes a family size of 
one for that year.
    (2) After making a determination that a borrower has a partial 
financial hardship to qualify for the income-based repayment plan for 
the year the borrower initially elects the plan and for any subsequent 
year that the borrower has a partial financial hardship, the Secretary 
sends the borrower a written notification that provides the borrower 
with--
    (i) The borrower's scheduled monthly payment amount, as calculated 
under paragraph (b)(1) of this section, and the time period during 
which this scheduled monthly payment amount will apply (annual payment 
period);
    (ii) Information about the requirement for the borrower to annually 
provide the information described in paragraph (e)(1) of this section, 
if the borrower chooses to remain on the income-based repayment plan 
after the initial year on the plan, and an explanation that the 
borrower will be notified in advance of the date by which the Secretary 
must receive this information;
    (iii) An explanation of the consequences, as described in 
paragraphs (e)(1)(iii) and (e)(7) of this section, if the borrower does 
not provide the required information;
    (iv) An explanation of the consequences if the borrower no longer 
wishes to repay under the income-based repayment plan; and
    (v) Information about the borrower's option to request, at any time 
during the borrower's current annual payment period, that the Secretary 
recalculate the borrower's monthly payment amount if the borrower's 
financial circumstances have changed and the income amount that was 
used to calculate the borrower's current monthly payment no longer 
reflects the borrower's current income. If the Secretary recalculates 
the borrower's monthly payment amount based on the borrower's request, 
the Secretary sends the borrower a written notification that includes 
the information described in paragraphs (e)(2)(i) through (e)(2)(v) of 
this section.
    (3) For each subsequent year that a borrower who currently has a 
partial financial hardship remains on the income-based repayment plan, 
the Secretary notifies the borrower in writing of the requirements in 
paragraph (e)(1) of this section no later than 60 days and no earlier 
than 90 days prior to the date specified in paragraph (e)(3)(i) of this 
section. The notification provides the borrower with--
    (i) The date, no earlier than 35 days before the end of the 
borrower's annual payment period, by which the Secretary must receive 
all of the information described in paragraph (e)(1) of this section 
(annual deadline); and
    (ii) The consequences if the Secretary does not receive the 
information within 10 days following the annual deadline specified in 
the notice, including the borrower's new monthly payment amount as 
determined under paragraph (d)(1) of this section, the effective date 
for the recalculated monthly payment amount, and the fact that unpaid 
accrued interest will be capitalized at the end of the borrower's 
current annual payment period in accordance with paragraph (b)(4) of 
this section.
    (4) Each time the Secretary makes a determination that a borrower 
no longer has a partial financial hardship for a subsequent year that 
the borrower wishes to remain on the plan, the Secretary sends the 
borrower a written notification that provides the borrower with--
    (i) The borrower's recalculated monthly payment amount, as 
determined in accordance with paragraph (d)(1) of this section;
    (ii) An explanation that unpaid interest will be capitalized in 
accordance with paragraph (b)(4) of this section; and
    (iii) Information about the borrower's option to request, at any 
time, that the Secretary redetermine whether the borrower has a partial 
financial hardship, if the borrower's financial circumstances have 
changed and the income amount used to determine that the borrower no 
longer has a partial financial hardship does not reflect the borrower's 
current income, and an explanation that the borrower will be notified 
annually of this option. If the Secretary determines that the borrower 
again has a partial financial hardship, the Secretary recalculates the 
borrower's monthly payment in accordance with paragraph (b)(1) of this 
section and sends the borrower a written notification that includes the 
information described in paragraphs (e)(2)(i) through (e)(2)(v) of this 
section.
    (5) For each subsequent year that a borrower who does not currently 
have a partial financial hardship remains on the income-based repayment 
plan, the Secretary sends the borrower a written notification that 
includes the information described in paragraph (e)(4)(iii) of this 
section.
    (6) If a borrower who is currently repaying under another repayment 
plan selects the income-based repayment plan but does not provide the 
information described in paragraphs (e)(1)(i) and (e)(1)(ii) of this 
section, or if the Secretary determines that the borrower does not have 
a partial financial hardship, the borrower remains on his or her 
current repayment plan.
    (7) The Secretary designates the repayment option described in 
paragraph (d)(1) of this section if a borrower who is currently 
repaying under the income-based repayment plan remains on the plan for 
a subsequent year but the Secretary does not receive the information 
described in paragraphs (e)(1)(i) through (e)(1)(ii) of this section 
within 10 days of the specified annual deadline, unless the Secretary 
is able to determine the borrower's new monthly payment amount before 
the end of the borrower's current annual payment period.
    (8) If the Secretary receives the information described in 
paragraphs (e)(1)(i) and (e)(1)(ii) of this section within 10 days of 
the specified annual deadline--
    (i) The Secretary promptly determines the borrower's new scheduled 
monthly payment amount and maintains the borrower's current scheduled 
monthly payment amount until the new scheduled monthly payment amount 
is determined.
    (A) If the new monthly payment amount is less than the borrower's 
previously calculated income-based monthly payment amount, and the 
borrower made payments at the previously calculated amount after the 
end of the most recent annual payment period, the Secretary makes the 
appropriate adjustment to the borrower's account. Notwithstanding the 
requirements of Sec.  685.211(a)(3), unless the borrower requests 
otherwise, the Secretary applies the excess payment amounts made after 
the end of the most recent annual payment period in accordance with the 
requirements of paragraph (c)(1) of this section.
    (B) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated monthly payment amount, and the 
borrower made payments at the previously calculated payment amount 
after the end of the most recent annual payment period, the Secretary 
does not make any adjustment to the borrower's account.
    (C) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments

[[Page 66147]]

otherwise meet the requirements described in Sec.  685.219(c)(1).
    (ii) The new annual payment period begins on the day after the end 
of the most recent annual payment period.
    (9)(i) If the Secretary receives the documentation described in 
paragraphs (e)(1)(i) and (e)(1)(ii) of this section more than 10 days 
after the specified annual deadline and the borrower's monthly payment 
amount is recalculated in accordance with paragraph (d)(1) of this 
section, the Secretary grants forbearance with respect to payments that 
are overdue or would be due at the time the new calculated income-based 
monthly payment amount is determined, if the new monthly payment amount 
is $0.00 or is less than the borrower's previously calculated income-
based monthly payment amount. Interest that accrues during the portion 
of this forbearance period that covers payments that are overdue after 
the end of the prior annual payment period is not capitalized.
    (ii) Any payments that the borrower continued to make at the 
previously calculated payment amount after the end of the prior annual 
payment period and before the new monthly payment amount is calculated 
are considered to be qualifying payments for purposes of Sec.  685.219, 
provided that the payments otherwise meet the requirements described in 
Sec.  685.219(c)(1).
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years or, for a new borrower, after 20 years, a borrower must have 
participated in the income-based repayment plan and satisfied at least 
one of the following conditions during the applicable loan forgiveness 
period:
    (i) Made reduced monthly payments under a partial financial 
hardship as provided in paragraph (b)(1) or (b)(2) of this section, 
including a monthly payment amount of $0.00, as provided under 
paragraph (b)(2)(iii) of this section.
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d) of this section.
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) with a 10-year repayment period.
    (iv) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) for the amount of the borrower's 
loans that were outstanding at the time the borrower first selected the 
income-based repayment plan.
    (v) Made monthly payments under a Direct Loan income-contingent 
repayment plan, including a calculated monthly payment amount of $0.00.
    (vi) Received an economic hardship deferment on eligible Direct 
Loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, 
including a monthly payment amount of $0.00, as provided under 
paragraph (b)(2)(iii) of this section; and
    (ii)(A) The borrower made those monthly payments each year for the 
applicable loan forgiveness period, or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 25 years of 
payments or, for a new borrower, the equivalent of 20 years of 
payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the beginning date for the applicable loan forgiveness period 
is--
    (i) If the borrower made payments under the income-contingent 
repayment plan, the date the borrower made a payment on the loan under 
that plan at any time after July 1, 1994; or
    (ii) If the borrower did not make payments under the income-
contingent repayment plan--
    (A) For a borrower who has an eligible Direct Consolidation Loan, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan, before the date the borrower qualified for 
income-based repayment. The beginning date is the date the borrower 
made the payment or received the deferment, but no earlier than July 1, 
2009;
    (B) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower 
made that payment or received the deferment on that loan, but no 
earlier than July 1, 2009;
    (C) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph (f)(3)(ii)(A) 
or (f)(3)(ii)(B) of this section, the date the borrower made a payment 
under the income-based repayment plan on the loan;
    (D) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the Direct Consolidation Loan that 
met the requirements in paragraph (f)(1) of this section; or
    (E) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (f)(3)(i) or (f)(3)(ii) 
of this section, the date the borrower made a payment under the income-
based repayment plan on the loan.
    (4) Any payments made on a defaulted loan are not made under a 
qualifying repayment plan and are not counted toward the applicable 
loan forgiveness period.
    (5)(i) When the Secretary determines that a borrower has satisfied 
the loan forgiveness requirements under paragraph (f) of this section 
on an eligible loan, the Secretary cancels the outstanding balance and 
accrued interest on that loan. No later than six months prior to the 
anticipated date that the borrower will meet the forgiveness 
requirements, the Secretary sends the borrower a written notice that 
includes--
    (A) An explanation that the borrower is approaching the date that 
he or she is expected to meet the requirements to receive loan 
forgiveness;
    (B) A reminder that the borrower must continue to make the 
borrower's scheduled monthly payments; and
    (C) General information on the current treatment of the forgiveness 
amount for tax purposes, and instructions for the borrower to contact 
the Internal Revenue Service for more information.
    (ii) The Secretary determines when a borrower has met the loan 
forgiveness requirements under paragraph (f) of this section and does 
not require the borrower to submit a request for loan forgiveness.
    (iii) After determining that a borrower has satisfied the loan 
forgiveness requirements, the Secretary--
    (A) Notifies the borrower that the borrower's obligation on the 
loans is satisfied;
    (B) Provides the borrower with the information described in 
paragraph (f)(5)(i)(C) of this section; and
    (C) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted in accordance with paragraph (f)(5)(i) of 
this section.
* * * * *
[FR Doc. 2012-26348 Filed 10-31-12; 8:45 am]
BILLING CODE 4000-01-P