Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 67203-67242 [2015-27143]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 80, Number 210 (Friday, October 30, 2015)]
[Rules and Regulations]
[Pages 67203-67242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27143]



[[Page 67203]]

Vol. 80

Friday,

No. 210

October 30, 2015

Part VI





Department of Education





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34 CFR Parts 668, 682, and 685





Student Assistance General Provisions, Federal Family Education Loan 
Program, and William D. Ford Federal Direct Loan Program; Final Rule

Federal Register / Vol. 80 , No. 210 / Friday, October 30, 2015 / 
Rules and Regulations

[[Page 67204]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 682, and 685

[Docket ID ED-2014-OPE-0161]
RIN 1840-AD18


Student Assistance General Provisions, 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 regulations governing the William D. 
Ford Federal Direct Loan (Direct Loan) Program to create a new income-
contingent repayment plan in accordance with the President's initiative 
to allow more Direct Loan borrowers to cap their loan payments at 10 
percent of their monthly incomes. The Secretary is also implementing 
changes to the Federal Family Education Loan (FFEL) Program and Direct 
Loan Program regulations to streamline and enhance existing processes 
and provide additional support to struggling borrowers. These 
regulations will also amend the Student Assistance General Provisions 
regulations by expanding the circumstances under which an institution 
may challenge or appeal a draft or final cohort default rate based on 
the institution's participation rate index.

DATES: The regulations are effective July 1, 2016.
    Implementation date: For the implementation dates of the included 
regulatory provisions, see the Implementation Date of These Regulations 
section of this document.

FOR FURTHER INFORMATION CONTACT: For further information related to the 
Servicemembers Civil Relief Act (SCRA), the treatment of lump sum 
payments made under Department of Defense (DOD) student loan repayment 
programs for the purposes of public service loan forgiveness, and 
expanding the use of the participation rate index (PRI) challenge and 
appeal, Barbara Hoblitzell at (202) 502-7649 or by email at: 
Barbara.Hoblitzell@ed.gov. For information related to loan 
rehabilitation, Ian Foss at (202) 377-3681 or by email at: 
Ian.Foss@ed.gov. For information related to the Revised Pay As You Earn 
repayment plan, Brian Smith or Jon Utz at (202) 502-7551 or (202) 377-
4040 or by email at: Brian.Smith@ed.gov or Jon.Utz@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.

SUPPLEMENTARY INFORMATION: 

Executive Summary

    Purpose of This Regulatory Action: These final regulations will 
amend the Student Assistance General Provisions regulations governing 
Direct Loan cohort default rates (CDRs) to expand the circumstances 
under which an institution may challenge or appeal the potential 
consequences of a draft or final CDR based on the institution's PRI. In 
addition, we are implementing changes to the FFEL Program regulations 
to streamline and enhance existing processes and provide support to 
borrowers by establishing new procedures for FFEL Program loan holders 
to identify servicemembers who may be eligible for benefits under the 
SCRA. The final regulations will also require guaranty agencies to 
provide FFEL Program borrowers who are in the process of rehabilitating 
a defaulted loan with information on repayment plans available to them 
after the loan has been rehabilitated, as well as additional financial 
and economic education materials. We have also made several technical 
changes to the loan rehabilitation provisions contained in Sec.  
682.405. In addition, the final regulations will add a new income-
contingent repayment plan, called the Revised Pay As You Earn repayment 
plan (REPAYE plan), to Sec.  685.209. The REPAYE plan is modeled on the 
existing Pay As You Earn repayment plan, and will be available to all 
Direct Loan student borrowers regardless of when the borrower took out 
the loans. Finally, the regulations will allow lump sum payments made 
through student loan repayment programs administered by the DOD to 
count as qualifying payments for purposes of the Public Service Loan 
Forgiveness Program.
    Summary of the Major Provisions of This Regulatory Action:
    To expand the circumstances under which an institution may 
challenge or appeal the potential consequences of a draft or official 
CDR based on the institution's PRI, the final regulations--
     Permit an institution to bring a timely PRI challenge or 
appeal in any year in which the institution's CDR is less than or equal 
to 40 percent, but greater than or equal to 30 percent, for any of the 
three most recently calculated fiscal years.
     Provide that an institution will not lose eligibility 
based on three years of official CDRs that are less than or equal to 40 
percent, but greater than or equal to 30 percent, and will not be 
placed on provisional certification based on two such rates, if it 
brings a timely appeal or challenge with respect to any of the relevant 
rates and demonstrates a PRI less than or equal to 0.0625, provided 
that the institution has not brought a PRI challenge or appeal with 
respect to that rate before, and that the institution has not 
previously lost eligibility or been placed on provisional certification 
based on that rate.
     Provide that a successful PRI challenge with respect to a 
draft CDR is effective not only in preventing imposition of sanctions 
upon issuance of the official CDR for that year, but in preventing the 
institution from being placed on provisional certification or losing 
eligibility in subsequent years based on the official CDR for that year 
if the official rate is less than or equal to the draft rate.
    To reduce the burden on military servicemembers who may be entitled 
to an interest rate reduction under the SCRA, the final regulations--
     Require FFEL Program loan holders to proactively use the 
authoritative database maintained by the DOD to begin, extend, or end, 
as applicable, the SCRA interest rate limit of six percent.
     Permit a borrower to use a form developed by the Secretary 
to provide the loan holder with alternative evidence of military 
service to demonstrate eligibility when the borrower believes that the 
information contained in the DOD database may be inaccurate or 
incomplete.
    In regard to loan rehabilitation, the final regulations--
     Assist with the transition to loan repayment for a 
borrower who rehabilitates a defaulted loan, by requiring a guaranty 
agency to: Provide each borrower with whom it has entered into a loan 
rehabilitation agreement with information on repayment plans available 
to the borrower after rehabilitating the defaulted loan; explain to the 
borrower how to select a repayment plan; and provide financial and 
economic education materials to borrowers who successfully complete 
loan rehabilitation.
     Amend Sec.  682.405 with respect to the cap on collection 
costs that may be added to a rehabilitated loan when it is sold to a 
new holder and the treatment of rehabilitated loans for which the 
guaranty agency cannot secure a buyer, to conform with the Higher 
Education Act of 1965, as amended (HEA).
    To establish a new, widely available income-contingent repayment 
plan targeted to the neediest borrowers, the REPAYE regulations--

[[Page 67205]]

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

[[Page 67206]]

    We received many recommendations from commenters to make other 
changes to the Federal student loan programs. Generally, we do not 
address recommendations that are out of the scope of this regulatory 
action, or that would require statutory changes, in this preamble.
    Analysis of Comments and Changes: An analysis of the comments and 
of any changes in the regulations since publication of the NPRM 
follows.

General

    Comment: The majority of commenters expressed strong support for 
the proposed regulations. They stated that these regulations would: 
Protect colleges with low borrowing rates from sanctions triggered by 
high CDRs; increase the efficacy of PRI challenges and appeals to 
encourage colleges to continue offering Federal student loans; help 
ensure that military servicemembers benefit from the interest rate cap 
provided under the SCRA; help ensure that borrowers who are 
rehabilitating their loans make an informed decision about which 
repayment plan to select after successfully rehabilitating their loans; 
help borrowers by creating a repayment plan that allows all Direct Loan 
student borrowers to cap their monthly payments at 10 percent of their 
discretionary income, and prevents ballooning loan balances by limiting 
interest accrual for borrowers with low income relative to their debt; 
and provide that lump sum payments made on borrowers' behalf directly 
to the Department through student loan repayment programs administered 
by the DOD are counted as qualifying payments for public service loan 
forgiveness.
    Discussion: We appreciate the support from the overwhelming 
majority of commenters.
    Changes: None.

Implementation

    Comment: Several commenters urged the Department to implement the 
change to the PRI challenge and appeal processes in 2015, rather than 
in February 2017. Some commenters suggested that delaying the 
implementation of the regulations to coincide with the launch of the 
DCAS system would decrease the effectiveness of the change and result 
in missed opportunities to assure institutions continue to participate 
in the Direct Loan program. Several commenters opined that the number 
of schools with borrowing rates low enough to qualify for a PRI 
challenge or appeal due to CDRs that would trigger sanctions was so low 
as to suggest that the Department would not experience any increased 
burden in processing these challenges and appeals without the support 
of the DCAS system.
    Discussion: We agree that only a relatively small number of 
institutions are likely to qualify to submit a PRI challenge or appeal 
due to CDRs that would trigger sanctions. At the current time, however, 
PRI challenges and appeals, as well as certain other types of 
challenges and appeals, must be handled through time-consuming manual 
processes. Due to the number of challenges and appeals that must be 
processed manually and the need to devote limited resources to 
processing a high volume of loan servicing appeals, it is not feasible 
for the Department to implement the regulatory changes to the PRI 
challenge and appeal process earlier than February 2017, when the DCAS 
system is scheduled to be implemented. The implementation of the DCAS 
system will allow the Department to handle PRI challenges and appeals 
in a timely manner through an automated process. While we appreciate 
the commenters' interest in accelerating the implementation of this 
change, we do not agree that the current implementation schedule 
decreases the effectiveness of the rule change or results in missed 
opportunities to protect students from having to take out private loans 
or having to drop out of school. Institutions are currently able to 
appeal a CDR based on PRI, which enables those institutions that do so 
successfully to continue to participate in the title IV student aid 
programs and ensure their students have access to Federal funds.
    Changes: None.

Draft Cohort Default Rates and Your Ability to Challenge Before 
Official Cohort Default Rates Are Issued (Sec.  668.204(c)(1)(ii))

    Comment: One commenter expressed concern that the regulations did 
not sufficiently ensure that protections for students are maintained 
when an institution's default rate has risen to 30 or 40 percent (i.e., 
the point at which suspension or sanctions are imposed). While the 
commenter recognized the benefit this rule would provide to community 
colleges with low Federal student loan participation rates, the 
commenter was concerned that it may also allow unscrupulous schools 
with poor training outcomes the opportunity to delay their suspension 
or sanction under the title IV programs. The commenter recommended a 
limited pilot implementation of the PRI challenge and appeals processes 
with only community colleges to assess the impact before considering 
expanding the scope of the rule to other institutional sectors.
    Discussion: Section 435(a)(8) of the HEA requires PRI appeals and 
challenges, outlines how the PRI is to be computed, and establishes the 
PRI ceiling applicable to appeals or challenges from statutory 
sanctions based on three years of CDRs equal to or greater than 30 
percent. The statute does not distinguish between institutional sectors 
with respect to appeals and challenges. The new regulations do not 
relax the standards for a successful challenge or appeal or change how 
the PRI is computed. Instead, they provide opportunities for schools to 
bring their challenges and appeals earlier than in the past, including 
before the point at which it becomes clear that sanctions would apply 
absent a successful challenge or appeal. The regulations do not purport 
to affect the timing of statutory sanctions in the event of an 
unsuccessful appeal or challenge; that timeline is also set by statute 
(section 435(a)(2)(A) of the HEA). Indeed, altering the PRI challenge 
or appeal required by statute to impose a higher hurdle for avoiding 
sanctions, or to impose sanctions sooner, whether for all institutions 
or for only some, in the manner suggested by the commenter, would 
require a statutory change. In addition, the Department would regard 
regulations providing differential treatment of institutions by sector, 
even as a pilot, as inappropriate given the absence of such a 
distinction in the statutory provisions regarding CDRs.
    Changes: None.

Due Diligence in Servicing a Loan (Sec.  682.208(j))

    Comment: One commenter noted that, in other areas of lending 
covered by the SCRA, creditors often extend voluntary ``grace'' periods 
to servicemembers. The commenter suggested that we consider extending 
application of the SCRA's six percent interest rate to servicemembers 
for a transitional period after the end of the servicemembers' military 
service.
    Discussion: We appreciate the commenter's concern for 
servicemembers who are transitioning from the SCRA interest rate limit 
to the regular interest rate that applies to their Federal student 
loans. Section 427A(m) of the HEA provides that a FFEL lender may 
charge a borrower interest at a rate less than the rate that is 
applicable under statute. Accordingly, a FFEL lender may choose to 
continue to charge the SCRA interest rate for a period after the end of 
the servicemember's military

[[Page 67207]]

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

[[Page 67208]]

    Discussion: The DOD database provides information regarding periods 
of military service within a 367-day window prior to the date on which 
the loan holder queries the database. As long as the loan disbursement 
date is before the beginning of the military service period reflected 
in the database, the loans are eligible for the SCRA six percent 
interest rate. However, if the loan holder has other information 
showing an earlier service period, the loan holder must apply the SCRA 
interest rate limit as of the earliest date, on or after August 14, 
2008, supported by that evidence. The loan holder is not required to 
conduct multiple queries of prior periods to determine if the 
servicemember may have had a previous period of military duty service 
that coincides with the date(s) the loans were disbursed.
    Changes: None.

Loan Rehabilitation Agreement (Sec.  Sec.  682.405(b)(1)(vi)(B))

    Comment: One commenter asked the Department to provide guidance to 
guaranty agencies that are seeking to assign to the Department 
otherwise rehabilitated loans for which the guaranty agencies have been 
unable to secure a buyer.
    Discussion: Guaranty agencies may continue to contact the 
Department with specific questions concerning this issue.
    Changes: None.

Revised Pay As You Earn Repayment Plan (REPAYE Plan) Repayment Plans 
(Sec.  685.208(a)(2)(iii) and (iv))

    Comment: Section 685.208(a)(1)(i)(D) of the regulations provides 
that Direct Subsidized, Direct Unsubsidized, Direct Subsidized 
Consolidation Loans, and Direct Unsubsidized Consolidation Loans may be 
repaid under the REPAYE plan. However, under Sec.  
685.208(a)(2)(iv)(D), a Direct PLUS Loan made to a parent borrower, or 
a Direct Consolidation Loan that repaid a parent PLUS loan, may not be 
repaid under the REPAYE plan. One commenter noted that, currently, the 
only way for parent PLUS borrowers to access an income-driven repayment 
plan is by consolidating their loan(s) into a Direct Consolidation 
Loan, and repaying that loan under the income-contingent repayment plan 
described in Sec.  685.209(b). The commenter asserted that this option 
is often insufficient to meet the needs of many parent PLUS borrowers. 
The commenter disagreed with the Department's position that we are 
prohibited from making the REPAYE plan available to parent PLUS 
borrowers. The commenter argued that there is no basis in the HEA for 
excluding consolidation loans that include parent PLUS loans from 
eligibility for the REPAYE plan. The commenter recommended that we 
modify the REPAYE plan regulations to allow consolidation loans that 
include parent PLUS loans to be repaid under the REPAYE plan. Several 
commenters echoed that recommendation.
    As an alternative, one commenter recommended that we create a 
process under which a borrower who repaid a parent PLUS loan through a 
consolidation loan could somehow recreate the parent PLUS loan by 
removing it from the consolidation loan, so the consolidation loan can 
be repaid under the REPAYE plan, or be grandfathered into another more 
affordable repayment plan. The commenter argued that this would help 
borrowers who consolidated their student loans with parent PLUS loans 
without understanding the financial consequences.
    Discussion: Section 455(d)(1)(D) of the HEA, which authorizes the 
income-contingent repayment (ICR) plans, specifically provides that the 
ICR plans are not available to parent PLUS borrowers. Although Direct 
Consolidation Loans that have repaid parent PLUS loans may be repaid 
through the original ICR plan, they may not be repaid through the 
income-based repayment (IBR) or Pay As You Earn repayment plans. To 
maintain consistency with those plans, we have retained that 
restriction in the REPAYE plan.
    Contrary to the commenter's suggestion, there is no basis for the 
Department to ``recreate'' a PLUS loan that was intentionally repaid by 
the borrower through consolidation. A loan can be ``backed out'' of a 
consolidation loan and reconstituted only if the loan was included in 
the consolidation loan by error after the borrower requested that the 
loan not be included. Therefore, the situation described by the 
commenter would not qualify for this treatment.
    Changes: None.
    Comment: Commenters had a variety of suggestions for expanding 
REPAYE plan eligibility. These commenters recommended making the REPAYE 
plan available to:
     All borrowers, regardless of when they obtained student 
loans.
     Borrowers with government loans disbursed prior to October 
2007.
     Borrowers with FFEL Program loans who are repaying the 
loans through the IBR repayment plan
     FFEL Stafford Loan borrowers.
    Discussion: Under the regulations, Direct Loan student borrowers 
will be able to select the REPAYE plan regardless of when they obtained 
their Direct Loans. The REPAYE plan does not include the requirement in 
the Pay As You Earn repayment plan limiting eligibility to loans 
disbursed after October 1, 2007.
    While borrowers with FFEL loans may repay those loans under the IBR 
plan, REPAYE is an ICR plan and is only available to Direct Loan 
borrowers. Borrowers with FFEL loans may pay their loans under the 
REPAYE plan if they consolidate their loan(s) into a Direct 
Consolidation Loan, and then pay the consolidation loan under the 
REPAYE plan.
    Changes: None.

REPAYE Plan (Sec.  685.209(c))

    Comment: Thousands of student loan borrowers expressed strong 
support for the REPAYE plan, praising the Department for its efforts to 
let all Direct Loan borrowers cap their monthly payments at 10 percent 
of their income, and to prevent ballooning loan balances by limiting 
interest accrual for borrowers with low incomes relative to their debt.
    One commenter stated that the REPAYE plan rightly reflects the 
Department's interest in expanding income-driven repayment to all 
borrowers, while ensuring that the benefits of an IDR plan remain 
targeted toward the most at-risk individuals. The commenter also noted 
that the regulations take important steps to keep the costs of income-
based repayment reasonable. The commenter supported the decisions, 
discussed in more detail in the following sections, to: Not establish a 
cap on monthly payment amounts to ensure that high-income borrowers pay 
their fair share; require that payments for married borrowers be based 
on their combined income; and include provisions to discourage 
borrowers from intentionally failing to report their income accurately 
when they experience a significant increase in earnings.
    Commenters also supported the decision not to require borrowers to 
have a partial financial hardship (PFH) to select the REPAYE plan. As 
one commenter noted, this decision allows borrowers to select the 
REPAYE plan regardless of their debt-to-income ratio, and provides all 
Direct Loan student borrowers with a repayment plan that allows their 
payments to reflect their income. Those who earn less will pay less, 
and those who earn more will pay more.
    Not all commenters supported the REPAYE plan. One commenter 
believed that the REPAYE plan would have a

[[Page 67209]]

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

[[Page 67210]]

    We thank the commenters for their recommendation that the REPAYE 
plan be the model for a single income-driven repayment plan. However, 
as the commenters noted, such a change would require congressional 
action.
    We reiterate our intention to provide clear, understandable 
information regarding the various Federal student loan repayment plans, 
to enable borrowers to make informed choices when selecting repayment 
plans.
    Changes: None.

Definition of ``Adjusted Gross Income'' (Sec.  685.209(c)(1)(i)(A) and 
(B))

AGI of Married Borrowers Filing Separately
    Comment: Under the proposed definition of ``adjusted gross income 
(AGI)'' in Sec.  685.209(c)(1)(i), for a married borrower filing 
separately, the AGI for each spouse is combined to calculate the 
monthly payment amount under the REPAYE plan. Several commenters 
supported this provision of the REPAYE regulations. The commenters 
noted that, under the REPAYE plan, married borrowers are treated 
consistently, regardless of how they file their Federal income taxes. 
In the Pay As You Earn, IBR, and ICR plans, married borrowers who file 
their Federal income taxes jointly have their eligibility and payment 
amounts based on their combined income and combined Federal debt. 
However, those who file separately exclude their spouse's income from 
payment calculations, but still include their spouse in their family 
size, which could result in an artificially low monthly payment. In 
addition, a married borrower who earns a low income and files taxes 
separately could have very low or even $0 monthly payments, even if the 
borrower's spouse is a high income earner.
    As noted by one commenter, the costs of the REPAYE plan to 
taxpayers will be kept reasonable by ensuring that married borrowers' 
incomes are properly captured for purposes of determining the 
appropriate payment amount. The definition of AGI in the REPAYE 
regulations ensures that borrowers cannot manipulate the system to 
qualify for lower payments than other similarly-situated borrowers.
    One commenter expressed concern that counting the AGI of the spouse 
for married borrowers who file separately could have unintended 
consequences. Because the treatment of married borrowers' income under 
REPAYE would be inconsistent with the treatment in the other income-
driven repayment plans, the commenter expressed concern that this may 
lead to confusion, particularly among struggling borrowers who may 
already have difficulty navigating the characteristics of the different 
income-driven repayment plans. The commenter noted that the approach 
used in the REPAYE plan may lead to higher payments for some married 
borrowers who file taxes separately for a myriad of practical reasons, 
and who already accept significant financial consequences as a result 
of filing separate tax returns. The commenter supported the 
Department's goal of ensuring that borrowers do not ``game'' the 
system. However, the commenter expressed concern that many borrowers 
whose tax filing decisions are not determined by their title IV loan 
repayment options will be hurt under the REPAYE plan. The commenter 
asked whether the Department could adopt for the REPAYE plan the 
methodology used in the other income-driven repayment plans, with some 
additional protections, if needed, to prevent abuse. Along these lines, 
the commenter proposed including an income threshold under which 
married borrowers filing separately may repay their loans under the 
REPAYE plan based on their individual incomes. This would ease the 
difficulty for struggling borrowers while closing a loophole for 
married borrowers who may be more financially secure than single 
borrowers.
    Several commenters were opposed to the proposed definition of AGI. 
These commenters believed that combining the AGIs of spouses who file 
separately would encourage borrowers to divorce and continue to 
cohabitate with the former spouse in order to prevent their student 
loan payments from increasing. One commenter argued that the provision 
will lead to the degradation of the concept of marriage by encouraging 
people to live together unmarried and have children out of wedlock.
    Another commenter believed that the proposed AGI definition would 
shift the burden of student loan payments to married couples from 
single borrowers, increasing married couples' payment requirements 
under the REPAYE plan.
    One commenter believed that the proposed AGI definition would, in 
effect, take the decision to file income taxes separately out of the 
married couple's hands.
    Several commenters noted that they acquired their student loan debt 
before they met their spouse, and did not believe the spouse should be 
held accountable for their debt. Several commenters noted that a 
married couple could easily have a financial arrangement in which one 
spouse does not receive any financial benefit from the other, even if 
the other has taxable income. One commenter noted that student loan 
payments based on the combined AGI of borrowers who file separately may 
not be something that a married couple has budgeted or can afford.
    Commenters noted that married borrowers who file a separate tax 
return already lose substantial tax benefits by filing separately with 
the elimination of various tax deductions and/or credits.
    Another commenter recommended a uniform AGI calculation for both 
single and married borrowers, arguing that the tax penalty of filing 
taxes separately makes the REPAYE plan not helpful for married 
borrowers in most cases.
    Some commenters offered counter-proposals to the proposed 
definition of AGI. One commenter proposed allowing a married borrower 
the same AGI calculation as a single borrower, provided that the 
married borrower would not qualify for any student loan forgiveness. 
Another commenter recommended allowing borrowers in public sector jobs 
to use their individual AGI for REPAYE calculations regardless of 
marital status.
    One commenter proposed combining the AGI of two spouses and 
dividing that number by two instead of counting all of the spouse's 
AGI. As an alternative to this proposal the commenter recommended 
adding one-half of the spouse's AGI to the borrower's AGI. The 
commenter believed that this approach would recognize that almost all 
spouses will have expenses of their own, so not all of their income is 
actually available for repayment of the borrower's student loans. But 
it would also reflect the fact that, typically, some of a spouse's 
income is available for this purpose.
    Commenters also asserted that the spouse's income should not be 
considered unless the married couple's loans can be added together even 
if they are from different loan providers, or unless both spouses 
cosigned the loans.
    One commenter stated that borrowers who qualify for the REPAYE plan 
will also qualify for IBR. A borrower who is married to a spouse with, 
for example, the same amount of AGI as the borrower, and who wanted to 
avoid the higher repayment under the Department's formula could simply 
elect IBR instead of the REPAYE plan. The person would pay 15 percent 
rather than 10 percent of discretionary income, but would still save 
money compared to using the REPAYE plan. Many married borrowers would 
thereby be discouraged from using the REPAYE plan.

[[Page 67211]]

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

AGI of Married Borrowers Who Are Separated, or Are Unable To Access the 
Income Information of Their Spouse (Sec.  685.209(c)(1)(i)(A) and (B))

    Comment: Under proposed Sec.  685.209(c)(1)(i)(A) and (B) of the 
REPAYE regulations, the monthly payment for married borrowers is 
calculated based on the combined income of the borrower and spouse 
regardless of how they file Federal tax returns, except for a borrower 
who is separated from his or her spouse or cannot reasonably access his 
or her spouse's income information.
    As one commenter noted, the vast majority of married borrowers file 
joint tax returns due to the monetary advantage it provides. In this 
commenter's view, married borrowers who file separately are likely to 
be estranged from their spouses or otherwise unable to access their 
spouse's income. In some cases, these

[[Page 67212]]

tax filers may be survivors of domestic violence. This commenter 
believed that the Department struck the right balance by allowing these 
borrowers to self-certify that they are separated from their spouse or 
are otherwise unable to reasonably access the income information of 
their spouse, and therefore should have their monthly payments 
calculated based solely on their own income--but without including the 
spouse in their household size calculation.
    Another commenter supported the Department's decision to allow 
vulnerable married borrowers who file their taxes separately to 
calculate their REPAYE payment based upon the borrower's adjusted gross 
income without a cumbersome appeal process.
    One commenter expressed concern that, by requiring a borrower to 
certify that he or she is unable to reasonably access the spouse's 
income information, the requirements to qualify for this exception will 
place too heavy a burden on the borrowers it is meant to help. The 
commenter asked the Department to clarify this certification process 
and confirm that no additional documents or verification will be 
required for this exemption, to ensure that struggling borrowers are 
not faced with further hardship.
    Another commenter expressed concern about the proposed exception, 
arguing that it would encourage two methods for evading the requirement 
to add spousal AGI. The commenter suggested that some sophisticated 
married couples will simply arrange to have separate and secret bank 
accounts, decline to share pay stubs, and file separate tax returns in 
order to reduce a borrower's student loan repayments without having to 
divorce. The commenter suggested that blogs will quickly spread 
suggestions for how to do this.
    The commenter also suggested that borrowers who want to evade the 
requirement will not bother to have their spouse keep separate income 
information, but will falsely claim that they have no access to such 
information instead. According to the commenter, if the Department 
simply accepts such claims, some borrowers will unfairly benefit, and 
if the Department contests borrower claims that their spouse's income 
information cannot be accessed, it will lead to controversies and 
lawsuits at great expense to taxpayers.
    Discussion: We thank the commenters for their support for the 
exceptions provided for borrowers who are separated from their spouse, 
or who are unable to obtain income information from their spouse. As we 
noted in the NPRM, the certification form will be modeled on a similar 
certification for individuals completing the Free Application for 
Federal Student Aid (FAFSA), and we intend to make the process of 
certifying separation or inability to obtain income information simple 
and straightforward. The certification will be done through the 
standard process of applying for the REPAYE plan. It will not require 
the borrower to appeal an earlier decision, and will not add undue 
burden or complexity to that process.
    We note that the strategies suggested by the commenter who raised 
concerns that some borrowers might try to evade higher payments by 
hiding income or falsifying the certification form would be fraudulent. 
We expect that most borrowers would be deterred from falsifying 
information on a Federal application form by the significant penalties 
that can be applied. We believe the benefits of providing these 
exceptions outweigh the costs that could result if some borrowers 
falsify information in violation of Federal law.
    Changes: None.

Treatment of Recently Separated Borrowers Who Filed Jointly

    Comment: One commenter asserted that the proposed REPAYE 
regulations may still cause a hardship for some recently separated 
borrowers. Under the proposed regulations, a married borrower who has 
filed a joint tax return but who subsequently separates from his or her 
spouse is not allowed to self-certify that they are separated at the 
time of applying for the REPAYE plan. That option is only available to 
a borrower who is married but files a separate tax return. The 
commenter argued that a married borrower who filed a joint Federal tax 
return, but who is separated from his or her spouse at the time of 
application for the REPAYE plan, should have the option to exclude the 
spouse's income from the monthly payment amount calculation.
    The commenter acknowledged that the issue is not the borrower's 
inability to access income information of the spouse, since the spouses 
would have already filed a joint tax return. But, the commenter argued, 
if the borrower is separated from his or her spouse, the borrower would 
not have the joint resources with which to make the monthly payment 
amount that would be required under the REPAYE plan. In this situation, 
in the view of the commenter, the joint tax filing status would 
unfairly impact the monthly payment amount of the borrower.
    To exclude the spouse's income from the monthly payment calculation 
in these cases, the commenter recommended revising the definitions of 
``adjusted gross income'' and ``partial financial hardship'' in Sec.  
685.209(c)(1) and the formula for calculating the monthly payment 
amount in Sec.  685.209(c)(2)(i). The commenter also recommended that 
the definition of ``family size'' be modified to exclude a borrower's 
spouse if the borrower and the spouse are separated, regardless of 
whether the borrower and the spouse filed jointly or separately.
    Discussion: We do not believe it is necessary to provide an 
exemption for borrowers who have their spouse's income information. It 
is possible that married borrowers who are separated have not 
necessarily separated their finances. As one of the non-Federal 
negotiators during the negotiated rulemaking process noted, sometimes 
married couples who are legally separated continue to live together.
    In cases where couples have separated their finances and the joint 
AGI reported on the borrower's Federal tax return is no longer 
applicable to the borrower, the borrower may submit alternative 
documentation of income, as allowed by Sec.  685.209(c)(4)(i)(B). The 
borrower would be required to provide alternative documentation to the 
borrower's loan servicer. If the documentation provided is approved by 
the Department, it would be used in place of the prior year's AGI. This 
process would most commonly be used in cases where a borrower has lost 
a job, but the process also would be used for the situation discussed 
by the commenter, with no need for changes to the regulation.
    We agree with the commenter that a borrower's spouse should be 
excluded from the determination of the borrower's family size if the 
borrower is separated, regardless of the tax filing status of the 
borrower and the spouse.
    Changes: We have revised the definition of ``family size'' in Sec.  
685.209(c)(1)(iii) to specify that ``family size'' does not include the 
borrower's spouse if the borrower is separated from his or her spouse.

Terms of the REPAYE Plan (Sec.  685.209(c)(2)) Calculating Monthly 
Payment Amounts

    Comment: Commenters provided a wide variety of recommendations for 
modifying the formula for determining a borrower's monthly payment 
amount. One commenter recommended setting criteria for determining 
monthly payment amounts that take into consideration the borrowers' 
income levels, suggesting that we either protect a larger portion of 
income against which the payment is determined for

[[Page 67213]]

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

Payment Cap

    Comment: Several commenters noted that, while the Pay As You Earn 
repayment plan caps a borrower's monthly payment at the amount the 
borrower would have paid under the 10-year standard repayment plan, the 
REPAYE plan does not have a cap on the monthly payment amount. A 
borrower in the REPAYE plan will pay 10 percent of his or her 
discretionary income, even if that leads to a higher payment than under 
a standard repayment plan. While noting that this provision is directed 
towards ensuring that borrowers pay equitably, commenters expressed 
concerns that the new regulation could have a negative effect on 
certain borrowers. One commenter recommended adding a provision 
requiring the Department to provide a specific and clear notice to 
borrowers in this situation. The notice would inform borrowers that 
they are paying more than they might under other payment plans and 
present them with their other options for repayment.
    Several commenters supported not including a cap on the payment 
amount, believing that this change increases program fairness by 
requiring higher-income borrowers to pay the same share of their income 
as lower-income

[[Page 67214]]

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

Negative Amortization

    Comment: Several commenters supported the proposal to limit the 
amount of interest charged to borrowers whose monthly payments do not 
cover accrued interest (``negative amortization''). As in the Pay As 
You Earn and IBR plans, for borrowers in a negative amortization 
situation, no unpaid interest accrues on subsidized loans during the 
first three years a borrower is in the REPAYE plan. In addition, under 
the REPAYE regulations, if the borrower is in negative amortization, 
only 50 percent of any unpaid interest will accrue on subsidized loans 
after the first three years, and only 50 percent of any unpaid interest 
on unsubsidized loans will accrue at any time.
    The commenters noted that capping the accrual of unpaid interest 
for borrowers who are in negative amortization is a targeted benefit 
that helps minimize the growth of loan balances for borrowers with low 
incomes relative to their debt.
    Other commenters believed that adding on 50 percent of the 
remaining interest cost would still be a hardship to people with 
incomes at the level of 150

[[Page 67215]]

percent to 200 percent of the poverty level.
    One commenter stated that the assumption that amortization is 
taking place in the course of loan repayment, so that after several 
years the amount of interest is low, and that 50 percent of the 
interest would not be a large amount, is a false assumption. For some 
borrowers, the accumulation of interest means that after many years of 
making payments, the current balance is larger than the original amount 
borrowed. The commenter believed that, for borrowers in this situation, 
the new rules will result in a slight, but not very significant, 
discount.
    As noted by one commenter, even with the amount of unpaid interest 
each month not covered by the minimum monthly payment being reduced by 
50 percent, a borrower might still pay a lot more than the original 
principal of the loan. According to this commenter, this increase might 
more than offset the reduced monthly payment on the REPAYE plan (10 
percent) versus IBR (15 percent).
    One commenter believed that, as used in the regulations, the terms 
``charge,'' ``accrue,'' and ``capitalize'' are unclear. The commenter 
expressed concerns that these rules could pose problems for loan 
servicers, or for borrowers dealing with issues around consolidation, 
economic hardship, and bankruptcy. Furthermore, the commenter believed 
that any confusion caused by the use of these terms may make it 
especially difficult for borrowers to make informed decisions when 
selecting repayment plans. The commenter proposed defining the terms 
``charge,'' ``accrue,'' and ``capitalize.''
    Another commenter raised legal objections to proposed Sec.  
685.209(c)(2)(iii)(A), which would charge borrowers only half of the 
interest that accrues but is unpaid after the initial three-year 
period. According to this commenter, the proposed regulation conflicts 
with section 455(e)(5) of the HEA, which specifies that the balance due 
``shall equal the unpaid principal amount of the loan, any accrued 
interest . . .'' The commenter believed that the Secretary's regulatory 
authority is limited to specifying details of the capitalization of 
this interest. The commenter also claimed this proposal is moot, as 
negatively amortized borrowers will have the accrued but unpaid 
interest forgiven at the end of the repayment term. The commenter 
believed that this proposed aspect of the REPAYE plan merely adds 
complexity to an already complicated repayment plan.
    Discussion: We appreciate the commenters' support for the treatment 
of negatively amortizing loans in the REPAYE plan. We acknowledge that, 
even with the ``discount'' on interest payments provided for in the 
REPAYE regulations, some borrowers may have a greater amount of 
interest accrue over time. However, we believe that the treatment of 
negatively amortizing loans balances the goal of providing some relief 
to struggling borrowers, while protecting the interests of the 
taxpayers.
    We believe the use of the terms ``charge,'' ``accrue,'' and 
``capitalize'' in the regulations is clear and consistent with existing 
regulations and current operational processes. We see no need to define 
these longstanding student financial aid terms at this time.
    We do not agree with the legal concerns raised by a commenter. 
Section 455(e)(5) of the HEA defines how to calculate the balance due 
on a loan repaid under the ICR plan but does not restrict the 
Secretary's discretion to define or limit the amounts used in 
calculating the balance. These regulations reflect the Secretary's 
regulatory authority to define those terms for purposes of the REPAYE 
plan.
    We disagree with the suggestion that all negatively amortized loans 
will be forgiven at the end of the repayment period. The comment 
assumes a borrower in negative amortization will remain in that 
situation for the entire 20 or 25-year repayment period. However, a 
borrower's income can change significantly over that period of time. A 
borrower who recovers from the financial difficulties that put the 
borrower into negative amortization may resume making payments towards 
principal, and may repay the loan in its entirety by the end of the 
repayment period.
    Changes: None.

Capitalization of Accrued Interest

    Comment: Several commenters recommended elimination of the 
capitalization of interest within the REPAYE plan. Under the proposed 
regulations, interest would capitalize when a borrower enrolled in the 
REPAYE plan no longer has a PFH and when he or she switches from the 
REPAYE plan to another repayment plan. A borrower no longer has a PFH 
when 10 percent of his or her discretionary income is greater than or 
equal to the permanent standard payment amount due to changes in his or 
her income and/or family size.
    These commenters recommended eliminating the capitalization of 
interest while a borrower remains in the REPAYE plan because they 
believe that it adds unnecessary complexity and can increase costs for 
borrowers whose incomes are low for extended periods of time.
    In the view of these commenters, given the lack of a standard 
payment cap and of a PFH requirement for initial eligibility for the 
REPAYE plan, PFH is no longer a relevant benchmark, but rather is 
simply a carryover from other IDR plans with different eligibility 
requirements. Since borrowers' monthly payments in the REPAYE plan are 
always based on income, there is no need to capitalize interest when 
their debt-to-income ratio falls below a particular threshold. Under 
the proposed regulations, the only reason the Department would have to 
calculate PFH would be to determine whether interest should capitalize 
at what will be an irrelevant threshold, adding, according to these 
commenters, unnecessary complexity for the Department and creating 
confusion for borrowers. The commenters postulated that removing 
interest capitalization within the REPAYE plan would simplify 
implementation of the program because the Department would no longer 
need to treat interest differently under specific scenarios or 
implement the current 10 percent interest capitalization cap in the 
REPAYE plan.
    The commenters also argued that capitalizing interest when 
borrowers in the REPAYE plan lose their PFH status may increase costs 
for borrowers whose incomes are low for extended periods of time. The 
commenters said that borrowers with low incomes relative to their debt 
are more likely to have monthly payment amounts that do not cover 
accrued interest.
    One commenter noted that capitalization is not required by Federal 
law. The commenter suggested that it is not necessary to charge 
borrowers additional interest and urged the Department to consider 
elimination of capitalization in the REPAYE plan, and in all Federal 
student loan programs.
    One commenter noted that switching from one plan (such as IBR) to 
another (such as the REPAYE plan) would result in accrued interest 
capitalizing, and, as a result a borrower's monthly interest payments 
could increase significantly.
    A commenter currently enrolled in IBR with interest that has 
accrued (but not been capitalized) due to negative amortization asked 
for clarification regarding what happens to this type of interest if 
one switches from IBR to REPAYE. The commenter asked if it would be 
capitalized before the REPAYE monthly payment amount is calculated or 
if the interest would remain uncapitalized.

[[Page 67216]]

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

[[Page 67217]]

the REPAYE plan, for borrowers who switch from another repayment plan 
to the REPAYE plan. The commenters noted that under proposed Sec.  
685.209(c)(2)(iv), the 10 percent limit on capitalization within the 
REPAYE plan provides more favorable treatment of unpaid accrued 
interest than other repayment plans. These commenters believed that 
requiring capitalization of interest for borrowers who switch to the 
REPAYE plan would be an appropriate safeguard to prevent 
``importation'' of accrued interest when a borrower switches to the 
REPAYE plan. In the view of these commenters, the proposed rules 
provide adequate protection to ensure that a borrower with interest 
accrued under the IBR plan would not benefit from the more generous 
capitalization provisions of the REPAYE plan. Discussion: We agree with 
the commenters that the REPAYE regulations provide appropriate 
safeguards against accrued interest from other repayment plans being 
``imported'' into the REPAYE plan, with the borrower being given more 
generous treatment as a result. However, we note that, with the 
elimination of the capitalization requirement for borrowers who no 
longer have a PFH, we have also eliminated the 10 percent cap on 
accrued interest that may be capitalized for such borrowers.
    Changes: None.

Application of Payments (34 CFR 685.209(c)(3))

    Comment: One commenter recommended that we mandate that any 
payments made by borrowers in excess of the monthly amount due be 
applied to the loan principal.
    Another commenter recommended that the Department provide borrowers 
with accounts in good standing incentives for keeping loan payments 
current.
    Discussion: The application of payments in the Direct Loan Program 
is specified in Sec.  685.211. Under Sec.  685.211(a)(3)(i), a 
prepayment is applied first to any accrued charges and collection 
costs, then to outstanding interest, and then to outstanding principal. 
We do not believe that establishing a different application of payments 
rule for Direct Loans paid under the REPAYE plan is warranted.
    Under section 455(b)(8)(C) of the HEA, the Department has limited 
authority to provide payment incentives to certain categories of Direct 
Loan borrowers. The Department cannot expand on this statutory 
authority through our regulations.
    Changes: None.

Eligibility Documentation, Verification, and Notifications (Sec.  
685.209(c)(4))

    Comment: An overwhelming majority of commenters urged the 
Department to implement a system whereby a borrower repaying under the 
REPAYE plan or another income-driven repayment plan could provide 
advance consent for the Department to automatically obtain the 
borrower's AGI from the IRS for multiple tax years, so that it would 
not be necessary for the borrower to submit income documentation each 
year, as is currently required. Some commenters stated that borrowers 
should be able to revoke the consent at any time. The commenters 
believed that a multi-year consent approach would greatly simplify the 
annual income documentation requirement for borrowers, reduce burden 
for both borrowers and the Department, and significantly reduce the 
number of borrowers who fail to provide the required documentation on 
time and as a result lose eligibility to make payments based on income. 
Many commenters noted that in the past it was possible for borrowers to 
provide the Department with a multi-year consent to obtain income 
information directly from the IRS and believed that this process should 
be reinstated.
    Discussion: For all of the reasons cited by the commenters, we 
strongly agree that allowing borrowers to provide advance consent for 
the Department to obtain their AGI directly from the IRS for multiple 
tax years would be preferable to the current process that requires 
borrowers to submit income documentation each year. As we noted in the 
NPRM, in an Executive Memorandum dated March 10, 2015, the President 
instructed the Department to work with the IRS and the U.S. Department 
of the Treasury to develop and create a multi-year consent process. The 
Department continues to work closely with these agencies to resolve the 
issues that currently preclude the use of a multi-year consent process 
and we intend to implement such a process in the future. We note that 
the regulations governing the REPAYE plan and the other income-driven 
repayment plans require a borrower to provide documentation 
``acceptable to the Secretary'' of the borrower's AGI. This language is 
sufficiently broad to allow for income information to be obtained 
through a multi-year consent process in the future without regulatory 
changes.
    In response to the commenters who noted that borrowers were 
previously able to provide the Department with multi-year consent to 
obtain their income information from the IRS, we note that when the 
process described by the commenters was in place, there was only one 
income-driven repayment plan (the original ICR Plan) and only one 
servicer for Direct Loans. After new income-driven repayment plans were 
established and the Department contracted with additional servicers for 
Direct Loans, the multi-year consent process was no longer feasible, 
due to the significant increased complexity.
    As explained earlier in this discussion, we are working with the 
IRS and the Department of Treasury to address the issues that forced us 
to discontinue the prior multi-year consent process, so that a multi-
year consent process will be possible for the REPAYE plan. As we do so, 
we will consider the issues raised by the commenters, including 
procedures for revocation of consent.
    Changes: None.
    Comment: A few commenters asked the Department to revise proposed 
Sec.  685.209(c)(4)(iii)(B) to allow borrowers more than 10 days 
following the specified annual deadline to provide their required 
annual documentation of income and avoid the consequence of being 
removed from the REPAYE plan and being placed on the alternative 
repayment plan. One commenter believed that an extension of the 
deadline would allow for unforeseen delays that a borrower might face 
or possible deficiencies in notification procedures. Another commenter 
suggested that giving borrowers 30 days after the annual deadline to 
provide income documentation would be appropriate.
    A few commenters expressed support for the Department's plan, 
announced in the preamble to the NPRM, to conduct a pilot to test 
enhanced messaging techniques that would help the Department determine 
whether the current process for notifying borrowers of the annual 
deadline for providing income documentation should be modified to 
prevent more borrowers from missing the deadline. One commenter urged 
the Department to inform the public of the results of the pilot, and to 
move forward as soon as possible to implement changes based on those 
results.
    Discussion: During the negotiated rulemaking sessions, some of the 
non-Federal negotiators recommended that the Department extend the time 
after the annual deadline during which a borrower may submit income 
documentation. As we explained in the NPRM, the Department declined to 
consider this recommendation, noting that the proposed regulations 
related to the annual deadline for submitting

[[Page 67218]]

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

[[Page 67219]]

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

[[Page 67220]]

Forgiveness Program for all 120 qualifying payments to be made under an 
income-driven repayment plan. Payments made under the standard 
repayment plan with a 10-year repayment period count toward public 
service loan forgiveness, as do payments made under other repayment 
plans, if the payment amount is not less than what would have been paid 
under the 10-year standard repayment plan. However, as explained 
earlier, there is no statutory authority for counting payments made 
under an alternative repayment plan toward public service loan 
forgiveness.
    Changes: None.
    Comment: A number of commenters urged the Department to clarify 
that payments made under the REPAYE plan will count as qualifying 
payments for purposes of the Public Service Loan Forgiveness Program. 
One commenter understood the proposed regulatory language to mean that 
borrowers employed in public service would have to give up their access 
to the Public Service Loan Forgiveness Program to reduce their monthly 
loan payments through the REPAYE plan. Another commenter said that the 
proposed regulations would discourage public service by excluding 
payments made under the REPAYE plan from counting toward public service 
loan forgiveness.
    A couple of commenters asked the Department to clarify whether 
payments that a borrower previously made under the IBR plan would 
continue to count toward public service loan forgiveness if the 
borrower later changes to the REPAYE plan.
    One commenter said that the regulations for the REPAYE plan should 
allow borrowers who received loans prior to October 1, 2007 to qualify 
retroactively for public service loan forgiveness.
    Discussion: Some commenters may have misunderstood proposed Sec.  
685.209(c)(4)(vii)(G), which stated that payments made under the 
alternative repayment plan described in proposed Sec.  
685.209(c)(4)(vi) will not count toward public service loan forgiveness 
under Sec.  685.219. This limitation applies only to payments made 
under the alternative repayment plan after a borrower has been removed 
from the REPAYE plan due to not meeting the annual income documentation 
deadline. Payments made under the alternative repayment plan are not 
REPAYE plan payments.
    Section 685.219(c)(1)(iv)(B) of the regulations governing the 
Public Service Loan Forgiveness Program indicates that payments made 
under an income-contingent repayment plan in Sec.  685.209 are 
qualifying payments. The REPAYE plan is one of the income-contingent 
repayment plans in Sec.  685.209, meaning that payments made under that 
plan, if they otherwise meet the requirements of the Public Service 
Loan Forgiveness Program, would count as qualifying payments for public 
service loan forgiveness. We do not believe it is necessary to state in 
the REPAYE regulations themselves that payments made under that plan 
count toward public service loan forgiveness, since the appropriate 
place to describe what constitutes a qualifying payment for public 
service loan forgiveness is in the regulations that govern the Public 
Service Loan Forgiveness Program. We note that the regulations 
governing the Pay As You Earn, ICR, and IBR plans do not specify that 
payments made under those plans count toward public service loan 
forgiveness.
    If a borrower who made qualifying public service loan forgiveness 
payments on an eligible Direct Loan Program loan under the IBR plan 
later begins repaying that loan under the REPAYE plan, the prior 
payments that were made under the IBR plan will still count toward 
public service loan forgiveness.
    In response to the commenter who believed that the REPAYE plan 
regulations should allow borrowers who received loans prior to October 
1, 2007 to qualify retroactively for public service loan forgiveness, 
we note that there is nothing in the law or regulations that precludes 
borrowers who received loans prior to October 1, 2007 from receiving 
public service loan forgiveness. However, in accordance with section 
455(m)(1)(A) of the HEA, only payments made after October 1, 2007 may 
be counted toward the 120 qualifying payments required to receive 
public service loan forgiveness.
    Changes: None.

Loan Forgiveness Under the REPAYE Plan (Sec.  685.209(c)(5))

    Comment: A large number of commenters strongly opposed the 
provisions in proposed Sec.  685.209(c)(5)(ii)(A) and (B) under which a 
borrower would qualify for forgiveness after 20 years if the loans 
being repaid under the REPAYE plan include only loans the borrower 
received to pay for undergraduate study, whereas a borrower would 
qualify for forgiveness after 25 years if the loans being repaid under 
the REPAYE plan include a loan the borrower received to pay for 
graduate or professional study.
    The commenters who objected to proposed Sec.  685.209(c)(5)(ii)(A) 
and (B) believed that all borrowers who choose to repay their loans 
under the REPAYE plan should qualify for loan forgiveness after 20 
years of repayment. The reasons cited by these commenters included the 
following:
     Providing a 20-year repayment period for borrowers with 
only undergraduate loans and a 25-year repayment period for borrowers 
with one or more loans obtained for graduate study is inequitable and 
may serve as a disincentive for individuals considering post-graduate 
education, and could lead some students to take out private loans to 
pay for graduate school.
     The proposed longer repayment period for borrowers with 
loans received for graduate study further penalizes graduate and 
professional students, who contribute significantly to the success of 
our Nation. Graduate and professional students have already been 
negatively impacted by recent statutory changes such as the loss of 
eligibility for subsidized loans and higher interest rates on 
unsubsidized loans.
     The proposed 25-year repayment period for any borrower who 
received loans for graduate study is a punitive measure for those who 
seek to further their academic studies, and is especially harmful for 
those who are required to obtain a graduate degree to secure employment 
in their field.
     The proposed regulations establish a ``degree-based'' 
repayment plan that requires a longer repayment period for individuals 
who borrowed to pay for graduate studies, without taking into 
consideration the total amount borrowed or ability to repay.
     The proposed regulations do not differentiate between 
borrowers who receive loans for graduate study, but do not ultimately 
complete a graduate program, and those who are able to complete a 
graduate degree. As a result, a student with undergraduate loan debt 
who begins a graduate program and takes out additional loans, but who 
is ultimately unable to finish the graduate program, will not qualify 
for loan forgiveness until after 25 years of qualifying repayment. In 
contrast, other borrowers with only undergraduate degrees will qualify 
for loan forgiveness after 20 years of qualifying repayment.
     Requiring a different repayment period depending on 
whether a borrower received only loans for undergraduate study or 
received one or more loans for graduate study further complicates the 
REPAYE plan and will be difficult to explain to borrowers.
     Many individuals are older when they begin graduate or 
professional study. Establishing a maximum 20-year repayment period 
under the REPAYE plan for all borrowers will help individuals focus 
sooner on other

[[Page 67221]]

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

[[Page 67222]]

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

[[Page 67223]]

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

[[Page 67224]]

forgiveness would result in significant additional costs to taxpayers, 
as in some cases this could significantly shorten the period of time 
required for a borrower to qualify for loan forgiveness.
    We note that certain factors may mitigate the impact of not 
counting pre-consolidation payments toward IDR plan or public service 
loan forgiveness. Going forward, more and more borrowers will have only 
Direct Loans and, if all of a borrower's loans are Direct Loans, loan 
consolidation currently provides no particular benefit to the borrower. 
Even without consolidating, Direct Loan borrowers have just one monthly 
payment for all of their Direct Loans, and by not consolidating 
borrowers preserve the qualifying payments made on the undergraduate 
loans.
    We acknowledge that consolidation provides a means for borrowers 
with only FFEL Program loans or with a mix of FFEL and Direct Loan 
program loans to obtain benefits that are only available in the Direct 
Loan Program, such as the REPAYE plan and public service loan 
forgiveness, and that borrowers who consolidate FFEL Program loans will 
lose credit for any pre-consolidation payments they may have made under 
the IBR Plan. Such borrowers will need to weigh the potential 
advantages of consolidating versus keeping their current FFEL Program 
loans and continuing to make qualifying payments under the IBR Plan. We 
note that counting pre-consolidation payments for purposes of public 
service loan forgiveness would offer no benefit to borrowers who 
consolidate FFEL Program loans, since only qualifying payments made on 
Direct Loan Program loans are counted under the Public Service Loan 
Forgiveness Program. Borrowers who have both FFEL Program loans and 
Direct Loan Program loans on which they have made qualifying payments 
may wish to consider consolidating only their FFEL Program loans so as 
to avoid losing credit for qualifying payments made on the Direct 
Loans.
    For the reasons explained above, we decline to accept the 
recommendation to count qualifying pre-consolidation loan payments 
toward loan forgiveness under the IDR plans and the Public Service Loan 
Forgiveness Program. However, during the next revision of the Direct 
Consolidation Loan Application and Promissory Note and related 
documents we will make changes to more prominently explain to 
consolidation loan applicants the consequences of consolidation for 
borrowers who have made qualifying payments on the loans they plan to 
consolidate.
    Changes: None.
    Comment: Several commenters asked the Department to provide loan 
forgiveness to borrowers under other circumstances. The suggestions 
included forgiving the remaining loan balance for veterans who are 
unable to finish college within 10 years of leaving military service; 
forgiving the remaining loan balance for borrowers who have already 
repaid an amount equal to what they originally borrowed but still have 
outstanding loan debt due to accumulated interest; forgiving all 
interest and only requiring repayment of principal; forgiving the loans 
of borrowers who have been through bankruptcy several times; and 
forgiving the remaining loan balance for borrowers who are able to make 
a lump sum payment equal to a specified percentage of the total amount 
owed. A number of commenters recommended that loan forgiveness be 
granted to all borrowers who have reached a certain age, such as age 55 
or 60, or who are retired.
    Discussion: We appreciate the comments. However, the 
recommendations for establishing additional conditions for loan 
forgiveness are outside the scope of these regulations. We also note 
that the Department does not have the statutory authority to grant loan 
forgiveness based on some of the suggested forgiveness conditions.
    Changes: None.

Public Service Loan Forgiveness Program Borrower Eligibility (Sec.  
685.219(c)(1)(iii))

    Comment: Several commenters expressed support for expanding the 
acceptance of lump sum payments. Several commenters also suggested that 
we not restrict the treatment of lump sum payments to specific programs 
or agencies and instead allow lump sum payments from any Federal agency 
to count as the number of payments they represent. One commenter 
specifically suggested that we expand the treatment of lump sum 
payments to include payments made under the Department of State's 
Student Loan Repayment Assistance program. Another commenter requested 
inclusion of lump sum payments made on behalf of those employed in 
health professions.
    Multiple commenters also noted the negative consequences of 
receiving a lump sum payment applied to a borrower's account when 
counted as one payment. The payment raises a borrower's income (and tax 
liability) for that year, resulting in higher monthly income-based 
payments the following year.
    Discussion: We appreciate the support from commenters for expanding 
the acceptance of lump sum payments made on a borrower's behalf and 
applying them as the number of payments they represent for purposes of 
the Public Service Loan Forgiveness Program. The regulations provide 
for the treatment of payments made under student loan repayment 
programs administered by the DOD in the same manner as lump sum 
payments made by borrowers using Segal Education Awards after 
AmeriCorps service or Peace Corps transition payments after Peace Corps 
service.
    One commonality in the programs we address in our regulations is 
that the lump sum payments are submitted to the Department. In 
addition, similar to borrowers receiving lump sum payments associated 
with service in the Peace Corps or AmeriCorps, Sec. Sec.  
682.211(h)(2)(ii)(C) and 685.209(a)(9) provide that borrowers 
performing the type of service that would qualify them for a lump sum 
payment under the Student Loan Repayment Programs administered by the 
DOD are entitled to forbearance in anticipation of that third party 
payment. The Department will explore accepting additional lump sum 
payments from other agencies that are made directly to the Department.
    Changes: None.

Executive Orders 12866 and 13563

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

[[Page 67225]]

President's priorities, or the principles stated in the Executive 
order.
    This final regulatory action will have an annual effect on the 
economy of more than $100 million because the availability of the 
REPAYE plan is estimated to cost approximately $15.4 billion over loan 
cohorts from 1994 to 2025. Therefore, this action is ``economically 
significant'' and subject to review by OMB under section 3(f)(1) of 
Executive Order 12866. Notwithstanding this determination, we have 
assessed the potential costs and benefits, both quantitative and 
qualitative, of this regulatory action and determined that the benefits 
justify the costs.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these final regulations only on 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 that follows, the 
Department believes that these regulations are consistent with the 
principles in Executive Order 13563.
    We also have determined that this regulatory action will not unduly 
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.
    This regulatory impact analysis is divided into six sections. The 
``Need for Regulatory Action'' section discusses why amending the 
current regulations is necessary.
    The ``Summary of Changes from the NPRM'' section summarizes the 
most important revisions the Department made in these final regulations 
since publication of the NPRM. These changes were informed by the 
Department's consideration of the comments of 2,919 parties who 
submitted comments on the proposed regulations. The changes are 
intended to clarify the regulations and benefit the affected borrowers. 
In these final regulations, the Department is making 2 major changes in 
the proposed rules since the NPRM: (1) Using a definition of military 
service consistent with the SCRA; and (2) eliminating the loss of PFH 
status as a basis for interest capitalization. Additionally, we 
clarified that overpayments resulting from the application of the six 
percent interest rate to borrowers will be applied to future loan 
payments and refunded when all the borrower's loans are paid in full.
    The ``Discussion of Costs and Benefits'' section considers the cost 
and benefit implications of these regulations for student loan 
borrowers, the public, and the Federal Government.
    Under ``Net Budget Impacts,'' the Department presents its estimate 
that the regulations will have a significant net budget impact on the 
Federal Government of approximately $15.4 billion, $8.3 billion of 
which relates to existing loan cohorts from 1994 to 2015 and $7.1 
billion relates to loan cohorts from 2016 to 2025 (loans that will be 
made in the future).
    In ``Alternatives Considered,'' we describe other approaches the 
Department considered for key provisions of the regulations, including 
basing the determination of whether a borrower could qualify for loan 
forgiveness after 20 or 25 years on the amount borrowed, the treatment 
of married borrowers who file taxes separately, and the appropriate 
handling of borrowers who do not certify their income as required to 
remain in the REPAYE plan.
    Finally, the ``Regulatory Flexibility Act Certification'' considers 
the effect of the regulations on small entities.

Need for Regulatory Action

    The regulations address several topics related to the 
administration of the title IV, HEA student aid programs and benefits 
and options for borrowers. The changes to the PRI appeals process to 
allow more timely challenges and appeals will provide institutions with 
more certainty about whether they will be subject to sanctions or the 
loss of title IV aid eligibility as a result of their CDRs. This 
increased certainty could encourage some institutions, especially 
community colleges with low borrowing rates, to continue participating 
in the title IV loan programs.
    In the regulations the Department seeks to reduce the burden on 
military servicemembers and help ensure that those eligible for an 
interest rate reduction receive it.
    As mentioned in the NPRM, the Department has developed these 
regulations in response to a June 9, 2014, Presidential Memorandum for 
the Secretary of Treasury and the Secretary of Education that 
instructed the Secretary to develop regulations that will allow 
additional students who borrowed Federal Direct Loans to cap their 
Federal student loan payments at 10 percent of their income. The 
Secretary was instructed to target this option towards borrowers who 
would otherwise struggle to repay their loans.
    In 2012, the Department established a new income-contingent 
repayment plan called the Pay As You Earn repayment plan, which limited 
loan payments to 10 percent of the borrower's discretionary income and 
forgave any remaining balance after 20 years of qualifying payments for 
borrowers who first borrowed on or after October 1, 2007, with a loan 
disbursement made on or after October 1, 2011.
    However, while the Pay As You Earn repayment plan offered relief to 
qualifying recent borrowers, it did not help millions of existing 
borrowers with older student loan debt. As the concerns about American 
student loan debt burdens continue to build, the Department seeks to 
offer payment relief to a larger group of borrowers than is currently 
possible under the Pay As You

[[Page 67226]]

Earn repayment plan. To achieve that goal, the Department has created 
the REPAYE plan. This plan will offer borrowers many of the same 
benefits as the original Pay As You Earn repayment plan, regardless of 
when they originally borrowed.
    As noted in the Consumer Finance Protection Bureau's 2013 report, 
``Public Service & Student Debt: Analysis of Existing Benefits and 
Options for Public Service Organizations,'' \2\ the current process of 
applying ``lump sum payments'' made through student loan repayment 
programs administered by the DOD can be detrimental to the overall 
value of the eligible borrower's benefits. When such payments are 
counted as one single payment in lieu of the borrower being given 
credit for the equivalent number of monthly payments covered by the 
amount, the additional number of payments that would have been made do 
not count toward the 120 qualifying payments required for public 
service loan forgiveness.
---------------------------------------------------------------------------

    \2\ https://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf.
---------------------------------------------------------------------------

    Under these regulations, the Department will count lump sum 
payments made by the DOD under certain loan repayment programs towards 
public service loan forgiveness.

Summary of Changes From the NPRM

    The table below briefly summarizes the major provisions of the 
proposed regulations, including any significant changes from the 
proposed regulations in the NPRM.

                                      Table 1--Summary of Final Regulations
----------------------------------------------------------------------------------------------------------------
              Provision                      Reg Section                    Description of provision
----------------------------------------------------------------------------------------------------------------
Participation rate index challenges    Sec.  Sec.   668.16,     An institution may bring a timely PRI challenge
 and appeals.                           668.204, 668.208, and    or appeal in any year in which its draft or
                                        668.214.                 official CDR is greater than or equal to 30
                                                                 percent and less than or equal to 40 percent
                                                                 for any of the three most recent fiscal years,
                                                                 not just in the year that the institution faces
                                                                 sanctions.
                                                                Institutions will not lose eligibility based on
                                                                 three years of official CDRs or be placed on
                                                                 provisional certification based on two years if
                                                                 the timely appeal with respect to any of the
                                                                 relevant rates demonstrates a PRI less than or
                                                                 equal to .0625 percent. As under existing law,
                                                                 a successful PRI challenge will preclude
                                                                 sanctions from being imposed following
                                                                 publication of the corresponding official rate.
                                                                 However, under the final rule, the successful
                                                                 challenge will also preclude imposition of
                                                                 sanctions in subsequent years based in part on
                                                                 the official rate if the official rate is less
                                                                 than or equal to the draft rate.
SCRA.................................  Sec.  Sec.   682.202,    Loan holders must proactively consult the
                                        682.208, 682.410,        authoritative DOD DMDC database to apply the
                                        685.202.                 SCRA interest rate limit of six percent.
                                                                Allows borrowers to supply alternative evidence
                                                                 of military service to demonstrate eligibility
                                                                 for the SCRA interest rate limit through a form
                                                                 developed by the Secretary when the borrower
                                                                 believes the database is inaccurate or
                                                                 incomplete.
                                                                Conforms definition of military service with the
                                                                 SCRA.
                                                                Refunds overpayments resulting from the
                                                                 application of the 6 percent interest rate to
                                                                 borrowers who have paid their loans in full,
                                                                 over the de minimus amount of $25. For
                                                                 borrowers with loans outstanding, overpayments
                                                                 will be applied to future loan payments.
Loan rehabilitation..................  Sec.   682.405, Sec.     Makes changes to reflect a statutory change to
                                        682.410(b)(2).           the maximum collection costs that may be added
                                                                 to the balance of a loan upon rehabilitation
                                                                 from 18.5 percent to 16 percent and to reflect
                                                                 the requirement that guaranty agencies assign a
                                                                 loan to the Secretary if it qualifies for
                                                                 rehabilitation and the guaranty agency cannot
                                                                 find a buyer.
                                                                Requires guaranty agencies to provide
                                                                 information to borrowers about their repayment
                                                                 options during and after loan rehabilitation.
Treatment of Department of Defense     Sec.   685.219.........  Lump sum payments made under DOD loan repayment
 lump sum payments for public service                            programs would be applied as the number of
 loan forgiveness.                                               payments resulting after dividing the amount of
                                                                 the lump sum payment by the monthly payment
                                                                 amount the borrower would have otherwise been
                                                                 required to make or twelve payments.
----------------------------------------------------------------------------------------------------------------
                                                   REPAYE Plan
----------------------------------------------------------------------------------------------------------------
Eligibility..........................  Sec.   685.209.........  Available to all Direct Loan student borrowers.
Repayment period.....................  Sec.   685.209.........  For a borrower who has loans for undergraduate
                                                                 education only, the balance of the loans will
                                                                 be forgiven after 20 years of qualifying
                                                                 payments.
                                                                For a borrower who has at least one loan for
                                                                 graduate study, the balance of the loans will
                                                                 be forgiven after 25 years of qualifying
                                                                 payments.
                                                                Payments made under the alternative repayment
                                                                 plan would count towards forgiveness under
                                                                 income-driven plans if the borrower returns to
                                                                 such a plan, but not towards public service
                                                                 loan forgiveness.
Treatment of married borrowers'        Sec.   685.209.........  For married borrowers filing jointly, AGI
 income for determining payment.                                 includes the borrower's and spouse's income.

[[Page 67227]]

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

Discussion of Costs, Benefits, and Transfers

    These final regulations in large part affect loan repayment options 
and processes, so they would largely affect student borrowers, the 
Federal government, and loan servicers. The changes to the PRI appeal 
process affect institutions and the Federal government. The following 
discussion describes the costs and benefits of the final regulations by 
key topic area.

REPAYE Plan

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

[[Page 67228]]

Other Provisions

    The regulatory changes to require loan holders to proactively use 
the DOD's DMDC database and to allow borrowers to supply alternative 
evidence of military service through a form developed by the Secretary 
would benefit borrowers who are or have been in military service, 
reducing the burden on military servicemembers in obtaining application 
of the SCRA interest rate limit to their Federal student loans. These 
changes are intended to ensure the six percent interest rate limit is 
applied for the correct time period and that borrowers receive the 
benefit to which they are entitled.
    Similarly, the treatment of lump sum payments made by the DOD on 
behalf of borrowers as the equivalent monthly payments for the purpose 
of public service loan forgiveness would ensure that borrowers who are 
otherwise entitled to public service loan forgiveness do not fail to 
qualify based on the way the DOD loan repayment programs are 
administered. Based on National Student Loan Data System (NSLDS) data, 
the Department estimates that less than one percent of student loan 
borrowers are affected by this issue.
    The final regulations requiring guaranty agencies to provide 
information to FFEL Program borrowers transitioning from rehabilitating 
defaulted loans to loan repayment would benefit borrowers who struggle 
with repayment and could help to prevent those borrowers from 
defaulting again. The final regulations require guaranty agencies to 
inform borrowers about different repayment plan options and how the 
borrower can choose a plan. This assistance may help borrowers avoid 
additional negative credit events and allow them to enroll in a 
repayment plan that supports ongoing repayment of their loans.
    Finally, the changes to the PRI challenges and appeals process 
would permit some institutions to challenge their rate in any year, not 
just the one that could result in a loss of eligibility. Some non-
Federal negotiators and community college advocates suggested these 
changes would encourage more community colleges to participate in the 
title IV loan programs, thus giving students additional options to 
finance their education at those institutions.
    The final regulations would have administrative costs for guaranty 
agencies and loan holders that are detailed in the Paperwork Reduction 
Act section of this preamble. As detailed in the Net Budget Impacts 
section of this Regulatory Impact Analysis, the Department does not 
expect that these regulations would have a significant net budget 
impact.

Net Budget Impacts

    We estimate that these regulations will have a net budget impact of 
$15.4 billion, of which $8.3 billion is a modification for existing 
cohorts from 1994 to 2015 and $7.1 billion is related to future cohorts 
from 2016 to 2025. The change from the $15.3 billion estimated in the 
NPRM results from the lack of interest capitalization based on loss of 
PFH status. 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.
    These estimates were developed using the OMB's 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. In developing the following Accounting 
Statement, the Department also 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 listed under 
Assumptions, Limitations, and Data Sources. 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.

REPAYE Plan

    As described in the NPRM, the budget impact associated with these 
final regulations comes from the establishment of the REPAYE plan, 
which extends a plan with payments based on 10 percent of the 
borrower's discretionary income to borrowers with no restriction on 
when they borrowed. The REPAYE plan will differ from the existing Pay 
As You Earn repayment plan in several ways to better target the plan to 
the neediest borrowers and to reduce the costs in some areas to allow 
for the extension of the plan to additional borrowers. Of the 
provisions described in the Summary of the Regulations, the lack of a 
cap on the borrower's payment amount, the requirement for 25 years of 
payments to have loan forgiveness for any borrower with debt for 
graduate education, and the treatment of married borrowers who file 
taxes separately are important provisions to reduce the costs of the 
REPAYE plan, while the reduced interest accrual for borrowers in 
negative amortization and opening the plan to all student borrowers are 
significant drivers of the estimated costs. The availability of the 
REPAYE plan, with its extension of reduced income percentage and 
shorter forgiveness period to earlier cohorts of borrowers, no standard 
repayment cap, limited accrual of interest for borrowers in negative 
amortization, 20-year forgiveness period for undergraduate debt and 25-
year forgiveness period for graduate debt, a process for handling 
borrowers who do not recertify their income annually, treatment of 
married borrowers filing separately, and lack of interest 
capitalization for borrowers without a PFH is estimated to cost $15.4 
billion.
    To establish the baseline and to evaluate proposals related to IDR 
plans, the Department uses a micro-simulation model consisting of 
borrower-level data obtained by merging data on student loan borrowers 
derived from a sample of the NSLDS with income tax data from the IRS. 
Interest and principal payments are calculated according to the 
regulations governing the IDR plans, and the payments are adjusted for 
the likelihood of deferment or forbearance; default and subsequent 
collection; prepayment through consolidation;

[[Page 67229]]

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

                                Table 2--Estimated Outlays for Cohorts 2015-2025
----------------------------------------------------------------------------------------------------------------
                 Cohorts                  MOD  (1994-2015)    2016     2017     2018     2019     2020     2021
----------------------------------------------------------------------------------------------------------------
Outlays.................................  ................    1,105    1,012      902      785      692      614
                                         -----------------------------------------------------------------------
    Total...............................             8,306    1,105    1,012      902      785      692      614
----------------------------------------------------------------------------------------------------------------


[[Page 67230]]


----------------------------------------------------------------------------------------------------------------
                         Cohorts                              2022       2023       2024       2025      Total
----------------------------------------------------------------------------------------------------------------
Outlays..................................................        546        498        481        420      7,055
                                                          ------------------------------------------------------
    Total................................................        546        498        481        420     15,361
----------------------------------------------------------------------------------------------------------------

Other Provisions

    The other provisions of the regulations are not estimated to have a 
significant net budget impact. The changes to the SCRA servicing 
requirements so that lenders and loan servicers utilize the 
authoritative DOD database to ensure the SCRA interest rate limit is 
applied appropriately and allowing for alternative evidence will make 
it easier for eligible borrowers to receive the benefit of the SCRA 
interest rate limit. However, it does not extend eligibility to a new 
set of borrowers and the costs associated with eligible borrowers will 
be in the budget baseline for the President's FY 2016 budget. The 
treatment of lump-sum payments for borrowers who qualify for loan 
repayment under DOD loan repayment programs may allow some additional 
borrowers to qualify for public service loan forgiveness. Less than one 
percent of borrowers are expected to be affected by this change, and 
the lump sum payment must equal the amount owed by the borrower for 
however many months for which the borrower receives credit toward 
forgiveness, so the change in cash flows from those estimated to 
receive public service loan forgiveness for military careers is not 
expected to be significant. We believe it is appropriate to allow these 
borrowers to receive credit towards months of payments for public 
service loan forgiveness in this instance so active duty military 
members receive the forgiveness to which they are entitled and already 
estimated to receive. The PRI challenges and appeals will expand the 
number of such actions the Department will be involved with and may 
result in some schools retaining their participation in title IV, HEA 
programs, but we do not expect this to affect program volumes and costs 
in a significant way. Finally, the requirement that guaranty agencies 
provide information to assist borrowers in transitioning from 
rehabilitation of defaulted loans to loan repayment should benefit 
borrowers and may result in improved repayment behavior, but we do not 
expect this to materially affect the amount collected from borrowers.

Assumptions, Limitations and Data Sources

    In developing these estimates, a wide range of data sources were 
used, including data from the NSLDS; operational and financial data 
from Department of Education and Department of the Treasury systems; 
and data from a range of surveys conducted by the National Center for 
Education Statistics such as the 2008 National Postsecondary Student 
Aid Survey and the 2004 Beginning Postsecondary Student Survey. Data 
from other sources, such as the U.S. Census Bureau, were also used.

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 
changes in annual monetized transfers as a result of these regulations. 
Expenditures are classified as transfers from the Federal government to 
affected student loan borrowers.

------------------------------------------------------------------------
                                                 7%                3%
------------------------------------------------------------------------
              Category                             Benefits
------------------------------------------------------------------------
Creation of income-driven repayment
 plan with payment based on 10
 percent of income and a 20/25-year
 repayment and available to all
 cohorts of borrowers.                          Not Quantified
Transition assistance for borrowers
 rehabilitating loans.
Easier access for military borrowers
 to SCRA and public service loan
 forgiveness benefits.
------------------------------------------------------------------------
              Category                               Costs
------------------------------------------------------------------------
Costs of compliance with paperwork                      $5.95      $5.99
 requirements.......................
------------------------------------------------------------------------
              Category                             Transfers
------------------------------------------------------------------------
Reduced payments collected from some                   $1,854     $1,670
 borrowers who choose the REPAYE
 plan...............................
------------------------------------------------------------------------

Alternatives Considered

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

Final Regulatory Flexibility Analysis

    The Secretary certifies that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
These

[[Page 67231]]

regulations concern the relationship between certain Federal student 
loan borrowers and the Federal government, with some of the provisions 
modifying the servicing and collection activities of guaranty agencies 
and other parties. The Department believes that the entities affected 
by these regulations do not fall within the definition of a small 
entity. Additionally, the changes to the PRI challenges and appeals 
process may affect a small number of institutions that will qualify as 
small entities and potentially allow some to continue participating in 
title IV programs, but we do not expect the effect to be economically 
significant for a substantial number of small entities. 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, or as small 
entities if they are institutions controlled by governmental entities 
with populations below 50,000.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid OMB control 
number. We display the valid OMB control numbers assigned to the 
collections of information in these regulations at the end of the 
affected sections of the regulations.
    Sections 668.16, 668.204, 668.208, 668.214, 682.202, 682.208, 
682.405, 685.208, and 682.209 contain information collection 
requirements. Under the PRA, the Department has submitted a copy of 
these sections, related forms, and Information Collection Requests to 
OMB for its review.

Sections 668.16, 668.204, 668.208, and 668.214--Participation Rate 
Index Challenges and Appeals

    Requirements: Timelines for submitting a challenge or appeal to the 
potential consequences of an institution's CDR on the basis of its PRI.
    The regulations will permit an institution to bring a timely PRI 
challenge or appeal in any year the institution's draft or official CDR 
is less than or equal to 40 percent, but greater than or equal to 30 
percent, for any of the three most recently calculated fiscal years 
(for challenges, counting the draft rate as the most recent rate), 
provided that the institution has not brought a PRI challenge or appeal 
from that rate before, and that the institution has not previously lost 
eligibility or been placed on provisional certification based on that 
rate. In addition, if the institution brought a successful PRI 
challenge with respect to a draft CDR that was less than or equal to 
the corresponding official CDR, this will preclude provisional 
certification and loss of eligibility from being imposed based on the 
official CDR, without the institution needing to bring a PRI appeal in 
later years.
    Burden Calculation: Because the regulations will not fundamentally 
change an institution's basis for challenging or appealing its CDR, and 
will only alter the timeline in which an institution may submit its 
challenge or appeal, we do not believe that these regulations will 
significantly alter the burden on institutions. However, they will 
prevent a school from needing to appeal a final CDR on the basis of its 
PRI if the final CDR is less than or equal to the draft CDR on which a 
PRI challenge was successful.
    We estimate that the change in the need to appeal a final CDR on 
the basis of PRI when a challenge to a comparable rate on the same 
basis was successful will prevent 50 appeals per year--15 from public 
institutions, 10 from not-for-profit institutions, and 25 from 
proprietary institutions. We have previously estimated that an appeal 
takes each institution 1.5 hours per response.
    Under Sec. Sec.  668.16, 668.204, 668.208, and 668.214, therefore, 
for public institutions, we estimate burden will decrease by 23 hours 
per year (15 public institutions multiplied by 1 appeal multiplied by 
1.5 hours per appeal). For not-for-profit institutions, we estimate 
burden will decrease by 15 hours per year (10 not-for-profit 
institutions multiplied by 1 appeal multiplied by 1.5 hours per 
appeal). For proprietary institutions, we estimate that burden will 
decrease by 38 hours per year (25 proprietary institutions multiplied 
by 1 appeal multiplied by 1.5 hours per appeal).
    Collectively, the total decrease in burden under Sec. Sec.  668.16, 
668.204, 668.208, and 668.214 will be 76 hours under OMB Control Number 
1845-0022.

Sections 682.202, 682.208, and 682.410--Servicemembers Civil Relief Act 
in the FFEL Program

    Requirements: Matching borrower identifiers in a loan holder's 
servicing system against the DOD's DMDC database.
    Under Sec.  682.208(j)(1), (6), and (7), a FFEL Program loan 
holder, including a guaranty agency, must match information in its 
servicing system, including the identifiers of borrowers and endorsers, 
against the DOD's DMDC database to determine whether borrowers are 
eligible to receive an interest rate reduction under the SCRA.
    Under Sec.  682.208(j)(5), any FFEL Program loan holder, including 
a guaranty agency, must notify a borrower if an interest rate reduction 
under the SCRA is applied as a result of the loan holder having 
received evidence of the borrower's or endorser's qualifying status 
having begun within 30 days of the date that the loan holder applies 
the interest rate reduction.
    Under Sec.  682.208(j)(8), any FFEL Program loan holder, including 
a guaranty agency, must refund overpayments resulting from the 
application of the SCRA interest rate reduction to a loan that was in 
the process of being paid in full through loan consolidation at the 
time the interest rate reduction was applied by returning the 
overpayment to the holder of the consolidation loan.
    Under Sec.  682.208(j)(9), any FFEL Program loan holder, including 
a guaranty agency, must refund overpayments resulting from the 
application of the SCRA interest rate reduction by returning the 
overpayment to the borrower.
    Burden Calculation: There are approximately 53 public loan holders 
that hold loans for approximately 557,341 borrowers, 151 not-for-profit 
loan holders that hold loans for approximately 2,738,171 borrowers, and 
3,204 proprietary loan holders that hold loans for approximately 
10,524,463 borrowers. We estimate that one percent of borrowers are 
actually eligible for the SCRA interest rate limit.
    Section 682.208(j) will result in a shift in burden from borrowers 
to loan holders. Under the current regulations, a borrower is required 
to submit a written request for his or her loan holder to apply the 
SCRA interest rate limit and a copy of his or her military orders to 
support the request. Because, under the regulations, a borrower will no 
longer be required to submit a written request or a copy of his or her 
military orders, the burden on borrowers will be almost completely 
eliminated. While borrowers will still be able to submit other evidence 
that they qualify for the SCRA interest rate limit and loan holders 
will be required to evaluate that evidence, the Department has no data 
on the likelihood that erroneous or missing data in the DMDC database 
will give rise to the need for a borrower to submit alternative 
evidence of his or her military service. However,

[[Page 67232]]

anecdotal accounts suggest that the error rate of the DMDC database is 
de minimus. Therefore, the regulations will eliminate all but 20 hours 
of burden on borrowers associated with the current regulation.
    However, because the Department plans to create a form for 
borrowers to use to certify their military service in cases in which 
the borrower believes that the information in the DMDC database is 
incorrect, we estimate that 59 FFEL Program borrowers will submit such 
a form, and that it will take a borrower 20 minutes (0.33 hours) per 
response. We estimate that this form will increase burden by 20 hours 
(59 borrowers multiplied by 0.33 hours per response).
    For Sec.  682.208(j)(1), (6), and (7), we estimate that it will 
take each loan holder approximately three hours per month to extract 
applicable data from their servicing system, format it to conform to 
the DMDC database file layout, perform quality assurance, submit the 
file to the DMDC database, retrieve the result, import it back into 
their systems, perform quality assurance, and then, to the extent that 
a borrower or endorser is or was engaged in qualifying military 
service, apply, extend, or end the SCRA interest rate limitation.
    Under Sec.  682.208(j)(1), (6), and (7), therefore, for public loan 
holders, we estimate that this regulation will increase burden by 1,908 
hours per year (53 public loan holders multiplied by 3 hours per month 
multiplied by 12 months). For not-for-profit loan holders, we estimate 
that this regulation will increase burden by 5,436 hours per year (151 
not-for-profit loan holders multiplied by 3 hours per month multiplied 
by 12 months). For proprietary loan holders, we estimate that this 
regulation will increase burden by 115,344 hours per year (3,204 
proprietary loan holders multiplied by 3 hours per month multiplied by 
12 months).
    For Sec.  682.208(j)(8), if the application of the SCRA interest 
rate limit of six percent results in an overpayment on a loan that is 
subsequently paid in full through consolidation, the underlying loan 
holder must return the overpayment to the holder of the consolidation 
loan. We estimate that it will take each loan holder one hour per 
borrower to refund overpayments in this circumstance. We estimate that, 
over the past six months, 69 percent of the borrowers who consolidated 
loans included a loan with an interest rate in excess of 6 percent. We 
further estimate that 0.1 percent of those consolidation loans will 
create an overpayment that will require a loan holder to issue a refund 
to the holder of the consolidation loan.
    Under Sec.  682.208(j)(8), therefore, for public loan holders, we 
estimate that this regulation will increase burden by 4 hours per year 
(557,341 borrowers with loans held by public loan holders multiplied by 
1 percent of borrowers who are eligible for the SCRA interest rate 
limit multiplied by 69 percent of borrowers who have consolidated 
multiplied by 0.1 percent). For not-for-profit loan holders, we 
estimate that this regulation will increase burden by 19 hours per year 
(2,738,171 borrowers with loans held by not-for-profit loan holders 
multiplied by 1 percent of borrowers who are eligible for the SCRA 
interest rate limit multiplied by 69 percent of borrowers who have 
consolidated multiplied by 0.1 percent). For proprietary loan holders, 
we estimate that this regulation will increase burden by 73 hours per 
year (10,524,463 borrowers with loans held by proprietary loan holders 
multiplied by 1 percent of borrowers who are eligible for the SCRA 
interest rate limit multiplied by 69 percent of borrowers who have 
consolidated multiplied by 0.1 percent).
    For Sec.  682.208(j)(9), we estimate that it will take each loan 
holder one hour per borrower to refund overpayments for borrowers for 
whom the application of the SCRA interest rate limit caused their loan 
to be overpaid. We estimate that an overpayment will result for 0.05 
percent of borrowers who have the SCRA interest rate limit applied.
    Under Sec.  682.208(j)(9), therefore, for public loan holders, we 
estimate that this regulation will increase burden by 3 hours per year 
(557,341 borrowers with loans held by public loan holders multiplied by 
1 percent of borrowers who are eligible for the SCRA interest rate 
limit multiplied by 0.05 percent). For not-for-profit loan holders, we 
estimate that this regulation will increase burden by 14 hours per year 
(2,738,171 borrowers with loans held by not-for-profit loan holders 
multiplied by 1 percent of borrowers who are eligible for the SCRA 
interest rate limit multiplied by 0.05 percent). For proprietary loan 
holders, we estimate that this regulation will increase burden by 53 
hours per year (10,524,463 borrowers with loans held by proprietary 
loan holders multiplied by 1 percent of borrowers who are eligible for 
the SCRA interest rate limit multiplied by 0.05 percent).
    Collectively, the total increase in burden under Sec.  682.405 will 
be 122,873 hours under OMB Control Number 1845-0093. The burden 
associated with the form (20 hours) will be associated with OMB Control 
Number 1845-0135.

Section 682.405--Loan Rehabilitation Agreement

    Requirements: Providing information to borrowers about repayment 
options.
    Under Sec.  682.405(b)(1)(xi) and (c), guaranty agencies will be 
required to provide information to borrowers with whom they have 
entered into a loan rehabilitation agreement to inform them of the 
repayment options available to them upon successfully completing their 
loan rehabilitation.
    Burden Calculation: There are approximately 2,611,504 borrowers of 
FFEL Program loans who are in default, of which 799,904 have loans held 
by public guaranty agencies and 1,811,600 have loans held by not-for-
profit guaranty agencies. Approximately 4.79 percent of those borrowers 
have entered into a loan rehabilitation agreement with a guaranty 
agency to rehabilitate their defaulted FFEL Program loans. Therefore, 
public guaranty agencies administer loan rehabilitation agreements with 
approximately 38,315 borrowers and not-for-profit guaranty agencies 
administer loan rehabilitation agreements with approximately 86,776 
borrowers.
    We estimate that it will take a guaranty agency 10 minutes (0.17 
hours) per borrower to send the required communication to a borrower 
and respond to borrower inquiries generated by the communication.
    Under Sec.  682.405(c), therefore, for public guaranty agencies, we 
estimate that this regulation will increase burden by 6,514 hours per 
year (38,315 borrowers multiplied by 0.17 hours per borrower). For not-
for-profit guaranty agencies, we estimate that this regulation will 
increase burden by 14,752 hours per year (86,776 borrowers multiplied 
by 0.17 hours per borrower).
    Collectively, the total increase in burden under Sec.  682.405 will 
be 21,266 hours under OMB Control Number 1845-0020.

Section 685.202--Servicemembers Civil Relief Act in the Direct Loan 
Program

    Requirements: Borrowers will no longer be required to submit a 
written request and a copy of their military orders to receive an 
interest rate reduction under the SCRA; instead, the Department will, 
like loan holders in the FFEL Program, query the DMDC database to 
determine whether a borrower is eligible.
    Section 685.202(a)(11) will shift the burden from borrowers to the 
Secretary. Under the current regulations, borrowers are required to 
submit a

[[Page 67233]]

written request for the Secretary to apply the SCRA interest rate limit 
and a copy of their military orders to support the request. Because, 
under the regulations, borrowers will no longer be required to submit a 
written request or a copy of their military orders, the burden on 
borrowers will be eliminated. While borrowers will still be permitted 
to submit other evidence that they qualify for the SCRA interest rate 
limit, and the Secretary will evaluate it, the Department has no data 
on the likelihood that erroneous or missing data in the DMDC database 
will give rise to a borrower needing to submit alternative evidence of 
his or her military service, but anecdotal accounts suggest that the 
error rate of the DMDC database is de minimis. Therefore, the 
regulations will eliminate all but five hours of burden on borrowers 
that are associated with the current regulation.
    However, because the Department has created a form for borrowers to 
provide a certification of the borrower's authorized official in cases 
where the borrower believes the DMDC database is inaccurate or 
incomplete, we estimate that 141 Direct Loan borrowers will submit such 
a form, and that it will take a borrower 20 minutes (0.33 hours) per 
response. We estimate that this form will increase burden by 47 hours 
(141 borrowers multiplied by 0.33 hours per response).
    Collectively, the total decrease in burden for Sec.  685.202 will 
be 681 hours under OMB Control Number 1845-0094. This will eliminate 
all but 47 hours of burden in OMB Control Number 1845-0094. The burden 
associated with the form (47 hours) will be associated with OMB Control 
Number 1845-0135.

Sections 685.208 and 685.209--Revised Pay As You Earn Repayment Plan

    Requirements: Application, recertification, documentation of 
income, and certification of family size.
    Under Sec.  685.209(c)(4), a borrower selecting the REPAYE plan 
will apply for the plan, provide documentation of his or her income 
and, as applicable, his or her spouse's income, and provide a 
certification of family size. The borrower must provide this 
information annually. If a borrower who repays his or her Direct Loans 
under the REPAYE plan leaves the plan and subsequently wishes to return 
to the REPAYE plan, the borrower must provide income documentation and 
family size certifications for each year in which the borrower was not 
repaying his or her loans under the REPAYE plan after having left the 
plan before being allowed to re-enter the REPAYE plan.
    Burden Calculation: These information collection requirements are 
calculated as part of the Income-Driven Repayment Plan Request, under 
OMB Control Number 1845-0102. This collection is associated with this 
rulemaking because the regulations require that the collection be 
modified to encompass the REPAYE plan. Currently, we estimate that it 
takes 20 minutes (0.33 hours) to complete the Income-Driven Repayment 
Plan Request and that 3,159,132 Direct Loan and FFEL Program borrowers 
complete the form. Even though this form will be revised to include the 
REPAYE plan, we do not believe that it will take any additional time 
for a borrower to complete it. Therefore, we expect the burden hours 
per response to remain 20 minutes (0.33 hours). However, we are making 
an adjustment to the number of borrowers who complete the form based on 
new data and an overall increase in the borrower population. The 
adjustment to the number of borrowers who complete the form increases 
that number from 3,159,132 borrowers to 4,840,000 borrowers. However, 
because the REPAYE plan will be available to all Direct Loan borrowers, 
regardless of when the borrowers took out their loans, and because 
there will be no requirement for the borrowers to demonstrate PFH to 
enroll in the REPAYE plan, we estimate that the number of respondents 
will increase by 1,250,000 borrowers. This will bring the total number 
of respondents to 6,090,000 borrowers, of which only 1,250,000 of the 
increase will be attributable to the REPAYE plan.
    Collectively, the total increase in burden for Sec. Sec.  685.208 
and 685.209 will be 967,186 hours (2,930,868 additional borrowers 
multiplied by 0.33 hours per response), of which 412,500 hours 
(1,250,000 additional borrowers multiplied by 0.33 hours per response) 
will be attributable to the REPAYE plan under OMB Control Number 1845-
0102. Collectively, the total increase in burden under Sec. Sec.  
685.208 and 685.209 under OMB Control Number 1845-0021 will be 967,186 
hours.
    Consistent with the discussion above, the following chart describes 
the sections of the regulations involving information collections, the 
information being collected, and the collections that the Department 
will submit to OMB for approval and public comment under the PRA, and 
the estimated costs associated with the information collections. The 
monetized net costs of the increased burden on institutions, lenders, 
guaranty agencies, and borrowers, using wage data developed using U.S. 
Bureau of Labor Statistics data, available at www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $11,969,649 as shown in the chart below. This cost was 
based on an hourly rate of $36.55 for institutions, lenders, and 
guaranty agencies and $16.30 for borrowers.

[[Page 67234]]



                                            Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                  OMB Control No. and
          Regulatory section            Information collection      estimated burden         Estimated costs
                                                                   [change in burden]
----------------------------------------------------------------------------------------------------------------
668.16, 668.204, 668.208, 668.214-PRI  This regulation will     OMB 1845-0022 This will  $-2,778
 challenge and appeal.                  permit an institution    be a revised
                                        to bring a timely PRI    collection. We
                                        challenge in any year    estimate that burden
                                        the institution's        on institutions will
                                        draft or official CDR    decrease by 76 hours.
                                        is less than or equal
                                        to 40 percent, but
                                        greater than or equal
                                        to 30 percent, for any
                                        of the three most
                                        recently calculated
                                        fiscal years (for
                                        challenges, counting
                                        the draft rate as the
                                        most recent rate),
                                        provided that the
                                        institution has not
                                        brought a PRI
                                        challenge or appeal
                                        with respect to that
                                        rate before, and that
                                        the institution has
                                        not previously lost
                                        eligibility or been
                                        placed on provisional
                                        certification based on
                                        that rate.
                                        Institutions will not
                                        lose eligibility based
                                        on three years of
                                        official CDRs or be
                                        placed on provisional
                                        certification based on
                                        two years if the
                                        timely appeal with
                                        respect to any of the
                                        relevant rates
                                        demonstrates a PRI
                                        less than or equal to
                                        .0625 percent. As
                                        under existing law, a
                                        successful PRI
                                        challenge will
                                        preclude sanctions
                                        from being imposed
                                        following publication
                                        of the corresponding
                                        official rate.
                                        However, under the
                                        final rule, the
                                        successful challenge
                                        will also preclude
                                        imposition of
                                        sanctions in
                                        subsequent years based
                                        in part on the
                                        official rate if the
                                        official rate is less
                                        than or equal to the
                                        draft rate.
682.202 and 682.208-SCRA in the FFEL   Will revise current      OMB 1845-0093 This will  $4,480,876
 Program.                               regulations to require   be a revised
                                        loan holders to          collection. We
                                        determine a borrower's   estimate that burden
                                        military status for      on loan holders will
                                        application of the       increase by 122,873
                                        SCRA maximum interest    hours and that all
                                        rate based on            except 20 hours of
                                        information from the     burden on borrowers
                                        authoritative            will be eliminated.
                                        electronic database     OMB 1845-0135 This will
                                        maintained by the DOD.   be a new collection.
                                                                 We estimate that
                                                                 burden on borrowers
                                                                 will increase by 20
                                                                 hours.
682.405-Loan rehabilitation..........  This change will         OMB 1845-0020 This will  $777,272
                                        require a guaranty       be a revised
                                        agency to provide        collection. We
                                        information to a FFEL    estimate that burden
                                        Program borrower with    on guaranty agencies
                                        whom it has entered      will increase by
                                        into an agreement to     21,266 hours.
                                        rehabilitate a
                                        defaulted FFEL Program
                                        loan.
685.202..............................  Will modify current      OMB 1845-0094 This       -$9,471
                                        regulations to require   collection will be
                                        the Department to        revised. We estimate
                                        determine a borrower's   that all but 47 hours
                                        military status for      of burden on borrowers
                                        application of the       will be eliminated..
                                        SCRA maximum interest   OMB 1845-0135 This will
                                        rate based on            be a new collection.
                                        information from the     We estimate that
                                        authoritative            burden on borrowers
                                        electronic database      will increase by 47
                                        maintained by the DOD.   hours.

[[Page 67235]]

 
685.208 and 685.209-REPAYE plan......  Will add a new income-   OMB 1845-0021 This       $15,764,838, of which
                                        contingent repayment     collection will not      $6,723,750 will be
                                        plan, called the         change because all       attributable to the
                                        Revised Pay As You       burden associated with   regulation.
                                        Earn repayment plan      the collection
                                        (REPAYE plan), to Sec.   requirements is
                                          685.209 of the         contained in 1845-
                                        Direct Loan              0102..
                                        Regulations. The        OMB 1845-0102 This will
                                        REPAYE plan is modeled   be a revised
                                        on the Pay as You Earn   collection. We
                                        repayment plan, and      estimate that burden
                                        will be available to     will increase on
                                        all Direct Loan          borrowers by 967,186
                                        student borrowers        hours, of which
                                        regardless of when the   412,500 hours will be
                                        student borrowers        attributable to the
                                        received their Direct    regulation.
                                        Loans.
685.219-Public Service Loan            Will permit lump sum     OMB 1845-0021 This       $0
 Forgiveness.                           payments made on a       provision contains no
                                        borrower's behalf by     collection
                                        the DOD to be treated    requirements.
                                        like certain other
                                        payments made on
                                        behalf of borrowers
                                        who have served in
                                        AmeriCorps or the
                                        Peace Corps.
----------------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------
                                           Total burden      Change in
             Control number                    hours       burden hours
------------------------------------------------------------------------
1845-0020...............................       8,241,898        + 21,266
1845-0022...............................       2,216,044            - 76
1845-0093...............................         122,873       + 122,275
1845-0094...............................              47           - 634
1845-0102...............................       2,009,700       + 967,186
1845-0135...............................              67            + 67
                                         -------------------------------
    Total...............................      12,590,630     = 1,110,086
------------------------------------------------------------------------

Assessment of Educational Impact

    In the NPRM we requested comments on whether the proposed 
regulations would require transmission of information 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 Number does 
not apply.)

List of Subjects

34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs-education, Loan 
programs-education, Reporting and recordkeeping requirements, Selective 
Service System, Student aid, Vocational education.

34 CFR Parts 682 and 685

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

    Dated: October 21, 2015.
Arne Duncan,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary of 
Education amends parts 668, 682, and 685 of title 34 of the Code of 
Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority:  20 U.S.C. 1001-1003, 1070g, 1085, 1088, 1091, 1092, 
1094, 1099c, and 1099c-1, unless otherwise noted.


0
2. Section 668.16 is amended by:
0
a. Revising paragraph (m)(2)(ii)(B).

[[Page 67236]]

0
b. Adding paragraph (m)(2)(ii)(C).
0
c. Revising paragraphs (m)(2)(iv) and (v).
    The revisions and addition read as follows:


Sec.  668.16  Standards of administrative capability.

* * * * *
    (m) * * *
    (2) * * *
    (ii) * * *
    (B) If it has timely filed an appeal under Sec.  668.213 after 
receiving the second such rate, and the appeal is either pending or 
successful; or
    (C)(1) If it has timely filed a participation rate index challenge 
or appeal under Sec.  668.204(c) or Sec.  668.214 from either or both 
of the two rates, and the challenge or appeal is either pending or 
successful; or
    (2) If the second rate is the most recent draft rate, and the 
institution has timely filed a participation rate challenge to that 
draft rate that is either pending or successful.
* * * * *
    (iv) If the institution has 30 or fewer borrowers in the three most 
recent cohorts of borrowers used to calculate its cohort default rate 
under subpart N of this part, we will not provisionally certify it 
solely based on cohort default rates;
    (v) If a rate that would otherwise potentially subject the 
institution to provisional certification under paragraphs (m)(1)(ii) 
and (m)(2)(i) of this section is calculated as an average rate, we will 
not provisionally certify it solely based on cohort default rates;
* * * * *

0
3. Section 668.204 is amended by revising paragraphs (c)(1)(ii) and 
(iii) and (c)(5) to read as follows:


Sec.  668.204  Draft cohort default rates and your ability to challenge 
before official cohort default rates are issued.

* * * * *
    (c) * * *
    (1)(i) * * *
    (ii) Subject to Sec.  668.208(b), you may challenge a potential 
loss of eligibility under Sec.  668.206(a)(2), based on any cohort 
default rate that is less than or equal to 40 percent, but greater than 
or equal to 30 percent, for any of the three most recently calculated 
fiscal years, if your participation rate index is equal to or less than 
0.0625 for that cohort's fiscal year.
    (iii) You may challenge a potential placement on provisional 
certification under Sec.  668.16(m)(2)(i), based on any cohort default 
rate that fails to satisfy the standard of administrative capability in 
Sec.  668.16(m)(1)(ii), if your participation rate index is equal to or 
less than 0.0625 for that cohort's fiscal year.
* * * * *
    (5) If we determine that you qualify for continued eligibility or 
full certification based on your participation rate index challenge, 
you will not lose eligibility under Sec.  668.206 or be placed on 
provisional certification under Sec.  668.16(m)(2)(i) when your next 
official cohort default rate is published. Unless that next official 
cohort default rate is less than or equal to your draft cohort default 
rate, a successful challenge that is based on your draft cohort default 
rate does not excuse you from any other loss of eligibility or 
placement on provisional certification. However, if your successful 
challenge under paragraph (c)(1)(ii) or (iii) of this section is based 
on a prior, official cohort default rate, and not on your draft cohort 
default rate, or if the next official cohort default rate published is 
less than or equal to the draft rate you successfully challenged, we 
also excuse you from any subsequent loss of eligibility, under Sec.  
668.206(a)(2), or placement on provisional certification, under Sec.  
668.16(m)(2)(i), that would be based on that official cohort default 
rate.
* * * * *

0
4. Section 668.208 is amended by revising paragraphs (a)(2)(ii) and 
(b)(2) and (3) to read as follows:


Sec.  668.208  General requirements for adjusting official cohort 
default rates and for challenging or appealing their consequences.

    (a) * * *
    (2) * * *
    (ii) A participation rate index challenge or appeal submitted under 
this section and Sec.  668.204 or Sec.  668.214;
* * * * *
    (b) * * *
    (2) You may not challenge, request an adjustment to, or appeal a 
draft or official cohort default rate, under Sec.  668.204, Sec.  
668.209, Sec.  668.210, Sec.  668.211, Sec.  668.212, or Sec.  668.214, 
more than once on that cohort default rate.
    (3) You may not challenge, request an adjustment to, or appeal a 
draft or official cohort default rate, under Sec.  668.204, Sec.  
668.209, Sec.  668.210, Sec.  668.211, Sec.  668.212, or Sec.  668.214, 
if you previously lost your eligibility to participate in a Title IV, 
HEA program, under Sec.  668.206, or were placed on provisional 
certification under Sec.  668.16(m)(2)(i), based entirely or partially 
on that cohort default rate.
* * * * *

0
5. Section 668.214 is amended by revising paragraphs (a) and (c)(2) to 
read as follows:


Sec.  668.214  Participation rate index appeals.

    (a) Eligibility. (1) You do not lose eligibility under Sec.  
668.206(a)(1), based on one cohort default rate over 40 percent, if you 
bring an appeal in accordance with this section that demonstrates that 
your participation rate index for that cohort's fiscal year is equal to 
or less than 0.0832.
    (2) Subject to Sec.  668.208(b), you do not lose eligibility under 
Sec.  668.206(a)(2) if you bring an appeal in accordance with this 
section that demonstrates that your participation rate index for any of 
the three most recent cohorts' fiscal years is equal to or less than 
0.0625.
    (3) Subject to Sec.  668.208(b), you are not placed on provisional 
certification under Sec.  668.16(m)(2)(i) based on two cohort default 
rates that fail to satisfy the standard of administrative capability in 
Sec.  668.16(m)(1)(ii) if you bring an appeal in accordance with this 
section that demonstrates that your participation rate index for either 
of those two cohorts' fiscal years is equal to or less than 0.0625.
* * * * *
    (c) * * *
    (2) Notice under Sec.  668.205 of a cohort default rate that equals 
or exceeds 30 percent but is less than or equal to 40 percent.
* * * * *

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

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

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


0
7. Section 682.202 is amended by revising paragraph (a)(8) to read as 
follows:


Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (8) Applicability of the Servicemembers Civil Relief Act (SCRA) (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(4) of this section, a loan holder must use the official electronic 
database maintained by the Department of Defense to identify all 
borrowers with an outstanding loan who are members of the military 
service, as defined in Sec.  682.208(j)(10) and ensure the interest 
rate on a borrower's qualified loans with an outstanding balance does 
not exceed the six percent maximum interest rate under 50 U.S.C. 527, 
App. section

[[Page 67237]]

207(a) on FFEL Program loans made prior to the borrower entering 
military service status. For purposes of this paragraph (a)(8), the 
interest rate includes any other charges or fees applied to the loan.
* * * * *

0
8. Section 682.208 is amended by adding paragraph (j) to read as 
follows:


Sec.  682.208  Due diligence in servicing a loan.

* * * * *
    (j)(1) Effective July 1, 2016, a loan holder is required to use the 
official electronic database maintained by the Department of Defense, 
to--
    (i) Identify all borrowers who are military servicemembers and who 
are eligible under Sec.  682.202(a)(8); and
    (ii) Confirm the dates of the borrower's military service status 
and begin, extend, or end, as applicable, the use of the SCRA interest 
rate limit of six percent.
    (2) The loan holder must compare its list of borrowers against the 
database maintained by the Department of Defense at least monthly to 
identify servicemembers who are in military service status for the 
purpose of determining eligibility under Sec.  682.202(a)(8).
    (3) A borrower may provide the loan holder with alternative 
evidence of military service status to demonstrate eligibility if the 
borrower believes that the information contained in the Department of 
Defense database is inaccurate or incomplete. Acceptable alternative 
evidence includes--
    (i) A copy of the borrower's military orders; or
    (ii) The certification of the borrower's military service from an 
authorized official using a form approved by the Secretary.
    (4)(i) When the loan holder determines that the borrower is 
eligible under Sec.  682.202(a)(8), the loan holder must ensure the 
interest rate on the borrower's loan does not exceed the SCRA interest 
rate limit of six percent.
    (ii) The loan holder must apply the SCRA interest rate limit of six 
percent for the longest eligible period verified with the official 
electronic database, or alternative evidence of military service status 
received under paragraph (j)(3) of this section, using the combination 
of evidence that provides the borrower with the earliest military 
service start date and the latest military service end date.
    (iii) In the case of a reservist, the loan holder must use the 
reservist's notification date as the start date of the military service 
period.
    (5) When the loan holder applies the SCRA interest rate limit of 
six percent to a borrower's loan, it must notify the borrower in 
writing within 30 days that the interest rate on the loan has been 
reduced to six percent during the borrower's period of military 
service.
    (6)(i) For PLUS loans with an endorser, the loan holder must use 
the official electronic database to begin, extend, or end, as 
applicable, the SCRA interest rate limit of six percent on the loan 
based on the borrower's or endorser's military service status, 
regardless of whether the loan holder is currently pursuing the 
endorser for repayment of the loan.
    (ii) If both the borrower and the endorser are eligible for the 
SCRA interest rate limit of six percent on a loan, the loan holder must 
use the earliest military service start date of either party and the 
latest military service end date of either party to begin, extend, or 
end, as applicable, the SCRA interest rate limit.
    (7)(i) For joint consolidation loans, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan if either of 
the borrowers is eligible for the SCRA interest rate limit under Sec.  
682.202(a)(8).
    (ii) If both borrowers on a joint consolidation loan are eligible 
for the SCRA interest rate limit of six percent on a loan, the loan 
holder must use the earliest military service start date of either 
party and the latest military service end date of either party to 
begin, extend, or end, as applicable, the SCRA interest rate limit.
    (8) If the application of the SCRA interest rate limit of six 
percent results in an overpayment on a loan that is subsequently paid 
in full through consolidation, the underlying loan holder must return 
the overpayment to the holder of the consolidation loan.
    (9) For any other circumstances where application of the SCRA 
interest rate limit of six percent results in an overpayment of the 
remaining balance on the loan, the loan holder must refund the amount 
of that overpayment to the borrower.
    (10) For purposes of this section, the term ``military service'' 
means--
    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active 
military service, at a school designated as a service school by law or 
by the Secretary of the military department concerned. Such term does 
not include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including 
service under a call to active service, which means service on active 
duty or full-time National Guard duty, authorized by the President or 
the Secretary of Defense for a period of more than 30 consecutive days 
for purposes of responding to a national emergency declared by the 
President and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer 
of the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty 
on account of sickness, wounds, leave, or other lawful cause.
* * * * *

0
9. Section 682.405 is amended:
0
a. In paragraph (a)(2)(ii), by adding the words ``or assigned to the 
Secretary'' after the word ``lender''.
0
b. In paragraph (b)(1)(vi), by adding the words ``or assignment to the 
Secretary'' after the words ``repurchase by an eligible lender'' and 
removing the word ``other'' after the words ``The agency may not impose 
any''.
0
c. By revising paragraph (b)(1)(vi)(B).
0
d. In paragraph (b)(1)(xi), by removing the word ``During'', and 
adding, in its place, the words ``Except as provided in paragraph (c) 
of this section, during''.
0
e. By redesignating paragraph (b)(2) as paragraph (b)(2)(i).
0
f. By adding paragraph (b)(2)(ii).
0
g. In paragraph (b)(3) introductory text, by adding the words ``or 
assignment to the Secretary'' after the words ``to an eligible 
lender''.
0
h. In paragraph (b)(3)(i), by adding the words ``or assignment'' after 
the words ``of the sale''.
0
i. In paragraph (b)(3)(i)(A), by adding the words ``or assignment'' 
after the words ``such sale''.
0
j. In paragraph (b)(4), by removing the citation ``Sec.  682.209(a) or 
(h)'', and adding, in its place, the citation ``Sec.  682.209(a) or 
(e)''.
0
k. By revising paragraph (c).
    The addition and revisions reads as follows:


Sec.  682.405  Loan rehabilitation agreement.

* * * * *
    (b) * * *
    (1) * * *
    (vi) * * *
    (B) Of the amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is

[[Page 67238]]

sold to an eligible lender or assigned to the Secretary, which may not 
exceed 16 percent of the unpaid principal and accrued interest on the 
loan at the time of the sale or assignment; and
* * * * *
    (2) * * *
    (ii) If the guaranty agency has been unable to sell the loan, the 
guaranty agency must assign the loan to the Secretary.
* * * * *
    (c) A guaranty agency must make available to the borrower--
    (1) During the loan rehabilitation period, information about 
repayment plans, including the income-based repayment plan, that may be 
available to the borrower upon rehabilitating the defaulted loan and 
how the borrower can select a repayment plan after the loan is 
purchased by an eligible lender or assigned to the Secretary; and
    (2) After the successful completion of the loan rehabilitation 
period, financial and economic education materials, including debt 
management information.
* * * * *

0
10. Section 682.410 is amended by revising paragraph (b)(3) to read as 
follows:


Sec.  682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (3) Interest charged by guaranty agencies. (i) Except as provided 
in paragraph (b)(3)(ii) of this section, the guaranty agency shall 
charge the borrower interest on the amount owed by the borrower after 
the capitalization required under paragraph (b)(4) of this section has 
occurred at a rate that is the greater of--
    (A) The rate established by the terms of the borrower's original 
promissory note; or
    (B) In the case of a loan for which a judgment has been obtained, 
the rate provided for by State law.
    (ii) If the guaranty agency determines that the borrower is 
eligible for the interest rate limit of six percent under Sec.  
682.202(a)(8), the interest rate described in paragraph (b)(3)(i) shall 
not exceed six percent.
* * * * *

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

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

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

0
12. Section 685.202 is amended by revising paragraph (a)(11) to read as 
follows:


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

    (a) * * *
    (11) Applicability of the Servicemembers Civil Relief Act (SCRA)(50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(10) of this section, upon the Secretary's receipt of evidence of the 
borrower's military service, the maximum interest rate under 50 U.S.C. 
527, App. section 207(a), on Direct Loan Program loans made prior to 
the borrower entering military service status is six percent while the 
borrower is in military service. For purposes of this paragraph, the 
interest rate includes any other charges or fees applied to the loan. 
For purposes of this paragraph (a)(11), the term ``military service'' 
means--
    (i) In the case of a servicemember who is a member of the Army, 
Navy, Air Force, Marine Corps, or Coast Guard--
    (A) Active duty, meaning full-time duty in the active military 
service of the United States. Such term includes full-time training 
duty, annual training duty, and attendance, while in the active 
military service, at a school designated as a service school by law or 
by the Secretary of the military department concerned. Such term does 
not include full-time National Guard duty.
    (B) In the case of a member of the National Guard, including 
service under a call to active service, which means service on active 
duty or full-time National Guard duty, authorized by the President or 
the Secretary of Defense for a period of more than 30 consecutive days 
for purposes of responding to a national emergency declared by the 
President and supported by Federal funds;
    (ii) In the case of a servicemember who is a commissioned officer 
of the Public Health Service or the National Oceanic and Atmospheric 
Administration, active service; and
    (iii) Any period during which a servicemember is absent from duty 
on account of sickness, wounds, leave, or other lawful cause.
* * * * *

0
13. Section 685.208 is amended:
0
a. By revising paragraph (a)(1)(i)(D).
0
b. In paragraph (a)(4)(i), by removing the word ``the'' before the 
words ``income-contingent'' and adding, in its place, the word ``an''.
0
c. In paragraph (a)(5), by removing the word ``or'' after the words 
``income-contingent'' and adding, in its place, the words ``repayment 
plans and the''.
0
d. By redesignating paragraphs (k)(3) and (4) as paragraphs (k)(4) and 
(5), respectively.
0
e. By adding paragraph (k)(3).
    The revision and addition read as follows:


Sec.  685.208  Repayment plans.

    (a) * * *
    (1) * * *
    (i) * * *
    (D) The income-contingent repayment plans in accordance with 
paragraph (k)(2) or (3) of this section; or
* * * * *
    (k) * * *
    (3) Under the income-contingent repayment plan described in Sec.  
685.209(c), a borrower's required monthly payment 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, unless the borrower's monthly payment amount is 
adjusted in accordance with Sec.  685.209(c)(4)(vi)(E).
* * * * *

0
14. Section 685.209 is amended:
0
a. By revising the introductory text of paragraph (a)(1).
0
b. In paragraph (a)(1)(iii)(A), by removing the words ``Direct Loan 
Program Loan'' and adding, in their place, the words ``Direct Loan 
Program loan''.
0
c. In the second sentence of paragraph (a)(2)(iii), by adding the words 
``or the Revised Pay As You Earn repayment plan'' immediately after the 
words ``the income-based repayment plan''.
0
d. In paragraph (a)(6)(i)(E), by adding the punctuation and words ``, 
the Revised Pay As You Earn repayment plan described in paragraph (c) 
of this section,'' immediately after the words ``this section''.
0
e. By redesignating paragraph (a)(6)(i)(F) as paragraph (a)(6)(i)(G).
0
f. By adding paragraph (a)(6)(i)(F).
0
g. In paragraphs (a)(6)(iii)(A) and (B) introductory text, by adding 
the punctuation and words ``, the Revised Pay As You Earn repayment 
plan described in paragraph (c) of this section,'' immediately after 
the words ``this section''.
0
h. In paragraph (b)(3)(iii)(B)(3), by adding the words ``or the Revised 
Pay As You Earn repayment plan'' after the words ``repayment plan''.
0
i. By redesignating paragraphs (b)(3)(iii)(B)(4) through (8) as 
paragraphs (b)(3)(iii)(B)(5) through (9), respectively.
0
j. By adding paragraph (b)(3)(iii)(B)(4).
0
k. In newly redesignated paragraph (b)(3)(iii)(B)(9), by removing the 
words ``after October 1, 2007''.

[[Page 67239]]

0
l. By adding paragraph (c).
    The revision and additions read as follows:


Sec.  685.209  Income-contingent repayment plans.

    (a) * * *
    (1) Definitions. As used in this section, other than as expressly 
provided for in paragraph (c) of this section--
* * * * *
    (6) * * *
    (i) * * *
    (F) Made monthly payments under the alternative repayment plan 
described in paragraph (c)(4)(v) of this section prior to changing to a 
repayment plan described under this section or Sec.  685.221;
* * * * *
    (b) * * *
    (3) * * *
    (iii) * * *
    (B) * * *
    (4) Periods in which the borrower made monthly payments under the 
alternative repayment plan described in paragraph (c)(4)(v) of this 
section prior to changing to a repayment plan described under this 
section or Sec.  685.221;
* * * * *
    (c) Revised Pay As You Earn repayment plan. The Revised Pay As You 
Earn repayment plan (REPAYE plan) is an income-contingent repayment 
plan under which a borrower's monthly payment amount is based on the 
borrower's AGI and family size.
    (1) Definitions. As used in this paragraph (c)--
    (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 and is used to calculate the monthly payment amount. For a 
married borrower filing separately, the AGI for each spouse is combined 
to calculate the monthly payment amount, unless the borrower certifies, 
on a form approved by the Secretary, that the borrower is--
    (A) Separated from his or her spouse; or
    (B) Unable to reasonably access the income information of his or 
her spouse.
    (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) 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. Family size does not include the borrower's 
spouse if the borrower is separated from his or her spouse, or if the 
borrower is filing separately and is unable to reasonably access the 
spouse's income information. 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
    (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; and
    (iv) 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 Revised Pay As You Earn repayment plan. (i) The 
aggregate monthly loan payments of a borrower who selects the REPAYE 
plan 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, unless the borrower's 
monthly payment amount is adjusted in accordance with paragraph 
(c)(4)(vi)(E) of this section.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (c)(2)(ii)(B) of 
this section, the borrower's eligible loans are not solely 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, 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 
(c)(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 (c)(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 (c)(2)(i) or 
(c)(2)(ii)(A) or (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 (c)(2)(i) or 
(c)(2)(ii)(A) or (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 loan--
    (A) Except as provided in paragraph (c)(2)(iii)(B) of this section, 
for a 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 REPAYE plan. Following this three-year period, the Secretary 
charges the borrower 50 percent of the remaining accrued interest on 
the Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan.
    (B) For a Direct Unsubsidized Loan, a Direct PLUS Loan made to a 
graduate or professional student, the unsubsidized portion of a Direct 
Consolidation Loan, or for a Direct Subsidized Loan or the subsidized 
portion of a Direct Consolidation Loan for which the borrower has 
become responsible for accruing interest in accordance with Sec.  
685.200(f)(3), the Secretary charges the borrower 50 percent of the 
remaining accrued interest.
    (C) The three-year period described in paragraph (c)(2)(iii)(A) of 
this section--
    (1) Does not include any period during which the borrower receives 
an economic hardship deferment;
    (2) Includes any prior period of repayment under the income-based 
repayment plan or the Pay As You Earn repayment plan; and
    (3) For a Direct Consolidation Loan, includes any period in which 
the underlying loans were repaid under the

[[Page 67240]]

income-based repayment plan or the Pay As You Earn repayment plan.
    (iv) Any unpaid accrued interest is capitalized at the time a 
borrower leaves the REPAYE 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 leaves the REPAYE plan or the Secretary 
determines the borrower does not have a partial financial hardship.
    (vi) A borrower who no longer wishes to repay under the REPAYE plan 
may change to a different repayment plan in accordance with Sec.  
685.210(b). A borrower who changes to a different repayment plan in 
accordance with this paragraph or paragraph (c)(4)(vi)(C) of this 
section may return to the REPAYE plan pursuant to the requirements in 
paragraphs (c)(4)(vi)(D) and (E) of this section.
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the REPAYE 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 (c)(3)(i) of this section.
    (4) Eligibility documentation, verification, and notifications. 
(i)(A) For the year the borrower initially selects the REPAYE plan and 
for each subsequent year that the borrower remains on the plan, the 
Secretary determines the borrower's monthly payment amount for that 
year. 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) Unless otherwise directed by the Secretary, 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 the determination described in paragraph 
(c)(4)(i)(A) of this section for the initial year that the borrower 
selects the REPAYE plan and for each subsequent year that the borrower 
remains on the plan, 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 (c)(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 (c)(4)(i) of this 
section, if the borrower chooses to remain on the REPAYE 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 
(c)(4)(i)(C) and (c)(4)(v) and (vi) 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 (c)(4)(ii)(A) through (D) of 
this section.
    (iii) For each subsequent year that a borrower remains on the 
REPAYE plan, the Secretary notifies the borrower in writing of the 
requirements in paragraph (c)(4)(i) of this section no later than 60 
days and no earlier than 90 days prior to the date specified in 
paragraph (c)(4)(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 (c)(4)(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, as described in paragraphs (c)(2)(iv), (c)(4)(v), and 
(c)(4)(vi) of this section.
    (iv) If a borrower who is currently repaying under another 
repayment plan selects the REPAYE plan but does not provide the 
documentation described in paragraph (c)(4)(i)(A) or (B) of this 
section, the borrower remains on his or her current repayment plan.
    (v) Except as provided in paragraph (c)(4)(vii) of this section, if 
a borrower who is currently repaying under the REPAYE plan remains on 
the plan for a subsequent year but the Secretary does not receive the 
documentation described in paragraph (c)(4)(i)(A) or (B) of this 
section within 10 days of the specified annual deadline, the Secretary 
removes the borrower from the REPAYE plan and places the borrower on an 
alternative repayment plan under which the borrower's required monthly 
payment is the amount necessary to repay the borrower's loan in full 
within the earlier of--
    (A) Ten years from the date the borrower begins repayment under the 
alternative repayment plan; or
    (B) The ending date of the 20- or 25-year period as described in 
paragraphs (c)(5)(i) and (ii) of this section.
    (vi) If the Secretary places the borrower on an alternative 
repayment plan in accordance with paragraph (c)(4)(v) of this section, 
the Secretary sends the borrower a written notification containing the 
borrower's new monthly payment amount and informing the borrower that--
    (A) The borrower has been placed on an alternative repayment plan;
    (B) The borrower's monthly payment amount has been recalculated in 
accordance with paragraph (c)(4)(v) of this section;
    (C) The borrower may change to another repayment plan in accordance 
with Sec.  685.210(b);
    (D) The borrower may return to the REPAYE plan if he or she 
provides the documentation, as described in paragraph (c)(4)(i)(A) or 
(B) of this section, necessary for the Secretary to calculate the 
borrower's current REPAYE plan monthly payment amount and the monthly 
amount the borrower would have been required to pay under the REPAYE 
plan during the period when the borrower was on the alternative 
repayment plan or any other repayment plan;
    (E) If the Secretary determines that the total amount of the 
payments the

[[Page 67241]]

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

[[Page 67242]]

made a payment on the loan under the REPAYE plan;
    (4) If the borrower consolidates his or her eligible loans, the 
date the borrower made a qualifying monthly payment on the Direct 
Consolidation Loan; or
    (5) If the borrower did not make a qualifying monthly payment on 
the loan under paragraph (c)(5)(v)(A) or (B) of this section, the date 
the borrower made a payment on the loan under the REPAYE plan.
    (vi) Any payments made on a defaulted loan are not qualifying 
monthly payments and are not counted toward the 20-year or 25-year 
forgiveness period.
    (vii)(A) When the Secretary determines that a borrower has 
satisfied the loan forgiveness requirements under paragraph (c)(5) 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--
    (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 (c)(5) 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 (c)(5)(vii)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.


0
15. 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 repayment 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), the income-contingent repayment plan under Sec.  
685.209(c), 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), Sec.  685.209(c)(5)(v), 
or Sec.  685.221(f)(3), respectively.
* * * * *

0
16. Section 685.219 is amended:
0
a. In paragraph (c)(1)(iii), by adding the words and punctuation ``or 
who qualifies for partial repayment of his or her loans under the 
student loan repayment programs under 10 U.S.C. 2171, 2173, 2174, or 
any other student loan repayment programs administered by the 
Department of Defense,'' after ``Peace Corps position''.
0
b. In paragraph (c)(1)(iv)(D), by removing the word ``Any'' and adding, 
in its place, the words ``Except for the alternative repayment plan, 
any'' and removing the word ``paid'' immediately after the words 
``monthly payment amount''.
0
c. In paragraph (c)(2) introductory text, by adding the words and 
punctuation ``or if a lump sum payment is made on behalf of the 
borrower through the student loan repayment programs under 10 U.S.C. 
2171, 2173, 2174, or any other student loan repayment programs 
administered by the Department of Defense,'' after the words ``leaving 
the Peace Corps''.
0
d. By adding paragraph (c)(3).
    The addition reads as follows:


Sec.  685.219  Public Service Loan Forgiveness Program.

* * * * *
    (c) * * *
    (3) The Secretary considers lump sum payments made on behalf of the 
borrower through the student loan repayment programs under 10 U.S.C. 
2171, 2173, 2174, or any other student loan repayment programs 
administered by the Department of Defense, to be qualifying payments in 
accordance with paragraph (c)(2) of this section for each year that a 
lump sum payment is made.
* * * * *

0
17. Section 685.221 is amended:
0
a. In the second sentence of paragraph (b)(3), by adding the words ``or 
the Revised Pay As You Earn repayment plan'' immediately after the 
words ``the Pay As You Earn repayment plan''.
0
b. By redesignating paragraph (f)(1)(vi) as paragraph (f)(1)(vii).
0
c. By adding paragraph (f)(1)(vi).
0
d. In paragraph (f)(3)(i), by adding the punctuation and words ``, the 
Pay As You Earn repayment plan, or the Revised Pay As You Earn 
repayment plan,'' immediately after the words ``repayment plan''.
0
e. In paragraph (f)(3)(ii) introductory text, by removing the words 
``the income-contingent repayment plan'' and adding, in their place, 
the words ``one of the repayment plans described in paragraph (f)(3)(i) 
of this section''.
    The addition reads as follows:


Sec.  685.221  Income-based repayment plan.

* * * * *
    (f) * * *
    (1) * * *
    (vi) Made monthly payments under the alternative repayment plan 
described in Sec.  685.209(c)(4)(v) prior to changing to a repayment 
plan described under Sec.  685.209 or this section;
* * * * *

[FR Doc. 2015-27143 Filed 10-29-15; 8:45 am]
 BILLING CODE 4000-01-P