[Federal Register Volume 73, Number 127 (Tuesday, July 1, 2008)]
[Proposed Rules]
[Pages 37694-37725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-14140]
[[Page 37693]]
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Part IV
Department of Education
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34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal Family Education Loan Program,
and William D. Ford Federal Direct Loan Program; Proposed Rule
Federal Register / Vol. 73, No. 127 / Tuesday, July 1, 2008 /
Proposed Rules
[[Page 37694]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 674, 682, and 685
[Docket ID ED-2008-OPE-0009]
RIN 1840-AC94
Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the Federal Perkins Loan
(Perkins Loan) Program, Federal Family Education Loan (FFEL) Program,
and William D. Ford Federal Direct Loan (Direct Loan) Program
regulations. These proposed regulations are needed to implement
provisions of the Higher Education Act of 1965 (HEA), as amended by the
College Cost Reduction and Access Act of 2007 (CCRAA).
DATES: We must receive your comments on or before August 15, 2008.
ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via postal mail, commercial delivery, or hand delivery. We will not
accept comments by fax or by e-mail. Please submit your comments only
one time, in order to ensure that we do not receive duplicate copies.
In addition, please include the Docket ID at the top of your comments.
Federal eRulemaking Portal: Go to http://www.regulations.gov to submit your comments electronically. Information
on using Regulations.gov, including instructions for accessing agency
documents, submitting comments, and viewing the docket, is available on
the site under ``How To Use This Site.''
Postal Mail, Commercial Delivery, or Hand Delivery. If you
mail or deliver your comments about these proposed regulations, address
them to Nikki Harris, U.S. Department of Education, 1990 K Street, NW.,
room 8033, Washington, DC 20006-8502.
Privacy Note: The Department's policy for comments received from
members of the public (including those comments submitted by mail,
commercial delivery, or hand delivery) is to make these submissions
available for public viewing on the Federal eRulemaking Portal at
http://www.regulations.gov. All submissions will be posted to the
Federal eRulemaking Portal without change, including personal
identifiers and contact information.
FOR FURTHER INFORMATION CONTACT: Nikki Harris, U.S. Department of
Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502.
Telephone: (202) 219-7050 or via the Internet at: [email protected].
If you use a telecommunications device for the deaf, call the
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Individuals with disabilities can obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION:
Invitation To Comment
As outlined in the section of this notice entitled ``Negotiated
Rulemaking,'' significant public participation, through three public
hearings and four negotiated rulemaking sessions, has occurred in
developing this notice of proposed rulemaking (NPRM). Therefore, in
accordance with the requirements of the Administrative Procedure Act,
the Department invites you to submit comments regarding these proposed
regulations on or before August 15, 2008. To ensure that your comments
have maximum effect in developing the final regulations, we urge you to
identify clearly the specific section or sections of the proposed
regulations that each of your comments addresses and to arrange your
comments in the same order as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866, including its overall
requirements to assess both the costs and the benefits of the intended
regulation and feasible alternatives, and to make a reasoned
determination that the benefits of this intended regulation justify its
costs. Please let us know of any further opportunities we should take
to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
During and after the comment period, you may inspect all public
comments about these proposed regulations by accessing Regulations.gov.
You may also inspect the comments in person in room 8033, 1990 K
Street, NW., Washington, DC between the hours of 8:30 a.m. and 4 p.m.
Eastern Time, Monday through Friday of each week except Federal
holidays.
Assistance to Individuals With Disabilities in Reviewing the Rulemaking
Record
On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, please contact the person
listed under FOR FURTHER INFORMATION CONTACT.
Negotiated Rulemaking
Section 492 of the HEA requires the Secretary, before publishing
any proposed regulations for programs authorized by title IV of the
HEA, to obtain public involvement in the development of the proposed
regulations. After obtaining advice and recommendations from the
public, including individuals and representatives of groups involved in
the Federal student financial assistance programs, the Secretary must
subject the proposed regulations to a negotiated rulemaking process.
All proposed regulations that the Department publishes on which the
negotiators reached consensus must conform to final agreements
resulting from that process unless the Secretary reopens the process or
provides a written explanation to the participants stating why the
Secretary has decided to depart from the agreements. Further
information on the negotiated rulemaking process can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2008/index2008.html.
On October 22, 2007,the Department published a notice in the
Federal Register (72 FR 59494) announcing our intent to establish up to
two negotiated rulemaking committees to prepare proposed regulations.
One committee would focus on issues related to the new TEACH Grant
Program (TEACH Grant Committee). A second committee would address
Federal student loans (Loans Committee). The notice requested
nominations of individuals for membership on the committees who could
represent the interests of key stakeholder constituencies on each
committee. The Loans Committee met to develop proposed regulations
during the months of January 2008, February 2008, March 2008, and April
2008. This NPRM resulted from the work of the Loans Committee and
proposes regulations relating to the administration of the Federal
student loan programs.
The Department developed a list of proposed regulatory provisions
from advice and recommendations submitted by individuals and
organizations as testimony to the Department in a series of three
public hearings held on:
[[Page 37695]]
November 2, 2007, at the Sheraton New Orleans, New
Orleans, Louisiana.
November 16, 2007, at the U.S. Department of Education in
Washington, DC.
November 29, 2007, at the Manchester Grand Hyatt San
Diego, San Diego, California.
In addition, the Department accepted written comments on possible
regulatory provisions submitted directly to the Department by
interested parties and organizations. A summary of all comments
received orally and in writing is posted as background material in the
docket. Transcripts of the regional meetings can be accessed at http://www.ed.gov/policy/highered/reg/hearulemaking/2008/index2008.html.
Staff within the Department also identified issues for discussion
and negotiation.
At its first meeting, the Loans Committee reached agreement on its
protocols and proposed agenda. These protocols provided that the non-
Federal negotiators would participate in the negotiated rulemaking
process based on each Committee member's experience and expertise and
would not represent specific constituencies.
The Loans Committee included the following members:
Luke Swarthout, U.S. Public Interest Research Group, and
Rebecca Thompson (alternate), United States Student Association.
Carrie Steere-Salazar, Association of American Medical
Colleges, and Radhika Miller (alternate), National Lawyers Guild
Partnership for Civil Justice.
Deanne Loonin, National Consumer Law Center, and Lauren
Saunders (alternate), National Consumer Law Center.
Allison Jones, California State University, and Anna
Griswold (alternate), Pennsylvania State University.
Eileen O'Leary, National Direct Student Loan Coalition,
and Kathleen Koch (alternate), Seattle University School of Law.
George Chin, University Director of Student Financial
Assistance, The City University of New York, and John Curtice
(alternate), The State University of New York System Administration.
Mark Pelesh, Corinthian Colleges, and Tammy Halligan,
(alternate), Career College Association.
Tom Levandowski, Wachovia Corporation, and Walter Balmas
(alternate), MyRichUncle Student Loans.
Scott Giles, Vermont Student Assistance Corporation, and
Phil Van Horn (alternate), Wyoming Student Loan Corporation.
Gene Hutchins, New Jersey Higher Education Student
Assistance Authority, and Dick George (alternate), Great Lakes Higher
Education Guaranty Corporation.
Wanda Hall, Edfinancial Services, and Robert Sommer
(alternate), Sallie Mae.
Martin Damian, Windham Professionals, and Carl Perry
(alternate), Progressive Financial Services, Inc.
Anne Gross, National Association of College and University
Business Officers, and Larry Zaglaniczny (alternate), National
Association of Student Financial Aid Administrators.
Dan Madzelan, U.S. Department of Education.
These protocols also provided that, unless agreed to otherwise,
consensus on all of the amendments in the proposed regulations had to
be achieved for consensus to be reached on the entire NPRM. Consensus
means that there must be no dissent by any member.
During its meetings, the Loans Committee reviewed and discussed
drafts of proposed regulations. At the final meeting in April 2008, the
Loans Committee reached consensus on all of the proposed regulations in
this document. More information on the work of the Loans Committee can
be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2008/loans.html.
Following the Loans Committee's final meeting the proposed
regulations were reviewed by the Department of Defense (DOD) and the
Department of Health and Human Services (HHS). Based on the comments we
received from DOD and HHS, we made technical changes to the proposed
regulations.
HHS pointed out that the correct technical term for the specific
set of dollar figures published annually by HHS for use in determining
eligibility for certain programs is ``the poverty guidelines'' rather
than ``the poverty line guidelines.'' The poverty guidelines are used
to determine whether a title IV borrower is eligible for an economic
hardship deferment or has a partial financial hardship under the IBR
plan. HHS recommended that we replace all references to ``the poverty
line guidelines'' in the proposed regulations with the term ``poverty
guidelines.'' We agreed and made this change.
DOD questioned one provision in the proposed definition of ``active
duty'' for purposes of determining a borrower's eligibility for the
post-active duty student deferment in the Federal Perkins, FFEL, and
Direct Loan programs. DOD indicated that the reference to ``section
101(19) of title 32'' in proposed 34 CFR 674.34(i)(2)(iv),
682.210(u)(2)(iv), and 685.204(f)(2)(iv) was incorrect because State
active duty, which is not Federally funded, would not be covered under
section 101(19) of title 32, but under State law and regulations. To
correct the reference and to accomplish the goal of the proposed
provision, which was to exclude from deferment eligibility those
individuals who are employed in permanent full-time positions with the
National Guard unless they are subject to a further call-up to active
State duty, DOD recommended language that we have substantively
incorporated in the relevant sections of the proposed regulations.
These proposed regulations would implement a new loan repayment
plan and a new loan forgiveness program created by the CCRAA. In
addition, these proposed regulations would implement several other
provisions enacted by the CCRAA that relate to the title IV HEA loan
programs.
The CCRAA added a new income-based repayment (IBR) plan to the FFEL
and Direct Loan Programs. Under the IBR plan, effective July 1, 2009, a
borrower who has a partial financial hardship is eligible to make
reduced monthly payments on his or her loan for a period of up to 25
years, after which the Secretary cancels any remaining principal and
accrued interest on the loan, provided the borrower meets certain
requirements.
The CCRAA also added the new Public Service Loan Forgiveness
program to the Direct Loan Program. Under this loan forgiveness
program, the Secretary forgives any remaining principal and accrued
interest on a borrower's eligible Direct Loan if, after October 1,
2007, the borrower makes 120 monthly payments on the loan while the
borrower is employed full-time in a public service job. The CCRAA
provides that a FFEL borrower may obtain a Direct Consolidation Loan if
the borrower wants to participate in the Public Service Loan
Forgiveness Program, but this provision does not take effect until July
1, 2008.
This NPRM also addresses changes made by the CCRAA to military and
economic hardship deferments, special allowance payments, and not-for-
profit holders under the FFEL Program.
Significant Proposed Regulations
We group major issues according to subject, with appropriate
sections of the proposed regulations referenced in parentheses. We
discuss substantive issues under the sections of the
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proposed regulations to which they pertain. Generally, we do not
address proposed regulatory provisions that are technical or otherwise
minor in effect.
Economic Hardship Deferment (Sec. Sec. 674.34 and 682.210)
Statute: Section 435(o) of the HEA defines economic hardship as
when a borrower is working full-time and is earning an amount that does
not exceed either an amount equal to 150 percent of the poverty
guideline applicable to the borrower's family size or the Federal
minimum wage rate. The poverty guidelines are issued annually by the
Department of Health and Human Services (HHS). The statute also
authorizes the Secretary to establish other criteria by regulation. Any
regulatory criteria added by the Secretary would have to consider a
borrower's income and debt-to-income ratio as primary factors.
Current Regulations: The regulations governing the economic
hardship deferment in the FFEL, Direct Loan, and Federal Perkins Loan
programs were amended on November 1, 2007 (72 FR 61960) to incorporate
the change in the eligibility standard enacted as part of the CCRAA.
The CCRAA changed the applicable standard used to determine eligibility
for the deferment from ``an amount equal to 100 percent of the poverty
line for a family of two, as determined in accordance with section
673(2) of the Community Service Block Grant Act'' to ``an amount equal
to 150 percent of the poverty line applicable to the borrower's family
size, as determined in accordance with section 673(2) of the Community
Service Block Grant Act.'' The current regulations also include
criteria under which a borrower could qualify for the deferment if the
borrower is: (1) Working full-time and has a Federal educational debt
burden that equals or exceeds 20 percent of the borrower's monthly
income, and that income, minus the borrower's Federal education debt
burden, is less than 220 percent of either the Federal minimum wage
rate or the poverty guideline, or (2) working less than full-time and
has a monthly income that does not exceed twice the Federal minimum
wage rate or poverty guideline and, after deducting the borrower's
Federal education debt burden, the remaining amount of that income does
not exceed the Federal minimum wage rate or the poverty guideline.
Proposed Regulations: The Secretary proposes to amend the
regulations governing eligibility for an economic hardship deferment to
include a definition of family size. The proposed definition of family
size would be the number that is determined by counting the borrower,
the borrower's spouse, and the borrower's children, if the children
receive more than half their support from the borrower. A borrower's
family size could include other individuals if, at the time the
borrower requests the economic hardship deferment, the other
individuals reside with the borrower and receive more than half of
their support from the borrower, and if they will continue to receive
that support from the borrower. The kinds of support provided by the
borrower to the individual could include money, gifts, loans, housing,
food, clothes, car, medical and dental care, and payment of college
costs.
The proposed regulations also would remove the reference to
``section 673(2) of the Community Service Block Grant Act'' and
substitute, in its place, a reference to ``the Department of Health and
Human Services guidelines pursuant to 42 U.S.C. 9902(2).'' The
regulations also would specify that 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.
Finally, the proposed regulations would eliminate both the economic
hardship criterion for a borrower who is working full-time and has a
20/220 debt-to-income ratio, and the corresponding debt-to-income ratio
criterion for a borrower who is working part-time.
Reasons: A definition of family size is not currently part of the
poverty guidelines. A definition is now necessary because the
applicable poverty guideline used to determine whether a borrower has
an economic hardship is based on the borrower's family size at the time
the borrower requests, or applies for renewed eligibility for, the
deferment. A standard definition is needed to ensure that borrowers are
treated equitably in determining economic hardship. Because they share
the same statutory basis in section 435(o) of the HEA, the proposed
definition of family size for the purpose of determining eligibility
for an economic hardship deferment is also the definition proposed for
use to determine a borrower's partial economic hardship under the new
IBR plan.
The proposed regulations would clarify that HHS is the source of
the poverty guidelines and provide guidance on the treatment of a
borrower who is not residing in a ``State'' identified in the poverty
guidelines. In particular, the proposed regulations address situations
in which a borrower resides in a foreign country when the borrower
applies for the deferment. Some non-Federal negotiators indicated that
they believed that the Department's prior operational guidance on
economic hardship deferments directed them to use the poverty guideline
for the State in which the borrower last resided. However, the
borrower's last residence in that State might be many years in the past
and irrelevant to the borrower's current circumstances. Moreover, such
an approach could result in using a more favorable poverty guideline
for borrowers who formerly resided in either Alaska or Hawaii than
borrowers who formerly lived in one of the 48 contiguous States. In
light of these factors, the negotiators decided that using the
contiguous 48-State poverty guideline for borrowers living outside the
United States would be more equitable for similarly situated borrowers.
The CCRAA eliminated the provision in section 435(o) of the HEA
under which a borrower could be considered to have an economic hardship
if the borrower was working full-time and had a Federal educational
debt burden that equaled or exceeded 20 percent of the borrower's
adjusted gross income (AGI). Previously, borrowers were eligible for an
economic hardship deferment if they could demonstrate that they were
working full-time and had a Federal education debt burden that equaled
or exceeded 20 percent of the borrower's income, and that the
borrower's income minus the borrower's Federal education debt burden
would leave the borrower with an available income that was less than
220 percent of the Federal minimum wage rate or an amount equal to 150
percent of the poverty guideline based on the borrower's family size. A
comparable debt-to-income ratio provision applied to borrowers working
less than full-time. This has been referred to as ``the 20/220 rule.''
The Department retained the 20/220 rule in regulations published on
November 1, 2007, so that borrowers could continue to qualify for an
economic hardship deferment on this basis until the newly created IBR
plan became operational on July 1, 2009. Consequently, a borrower who
is in an economic hardship deferment under either one of the debt-to-
income provisions (applicable to borrowers working full-time or on a
less than full-time basis), with a deferment period that starts prior
to July 1, 2009, will continue in that status for one year after the
start date of that deferment period. However, no subsequent economic
hardship deferment will be available under that
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criterion for any deferment request made on or after July 1, 2009.
Some non-Federal negotiators asked the Department to retain the 20/
220 rule. They argued that the elimination of the rule would have an
adverse impact on borrowers (i.e., some borrowers who would not have to
make payments under the 20/220 rule would now be required to make
payments), particularly on medical and other health professionals who
have a large amount of student loan debt and will spend a number of
years in low paying medical internships and residencies as part of
their training. The Department believes, however, that Congress
intended to eliminate the 20/220 rule and replace it with the new IBR
plan that is meant to provide assistance to this kind of borrower
during periods of limited earnings. Both the definition of partial
financial hardship for purposes of the IBR plan and the criteria for
economic hardship deferment are based on the definition of economic
hardship in section 435(o) of the HEA. The Congress expanded the
potential applicability of a partial financial hardship, which supports
IBR eligibility, by changing the applicable poverty guideline for
eligibility in section 435(o)(1)(A)(ii), while at the same time
deleting section 435(o)(1)(B), which specifically supported the 20/220
criteria for the economic hardship deferment. The Department's action
to retain the 20/220 rule in the November 1, 2007, regulations was
designed to ease the transition for affected borrowers until the IBR
plan is implemented.
Although the IBR plan, unlike a deferment, does not permit a
borrower to postpone payments, it does provide for reduced payments
because borrowers who initially select the IBR plan must have a partial
financial hardship. A borrower has a partial financial hardship if the
annual amount due on all eligible loans, as calculated under a standard
repayment plan based on a 10-year repayment period, is more than 15
percent of the difference between the borrower's most recent,
documented AGI and 150 percent of the poverty guideline for the
borrower's family size. Some borrowers in the IBR plan will not be
required to make monthly loan payments. Other borrowers will have
monthly payment amounts that are much less than those normally
calculated under a standard repayment plan.
Military Service Deferment and Post-Active Duty Student Deferment
(Sec. Sec. 674.34, 682.210, 682.211, and 685.204)
Statute: The Higher Education Reconciliation Act of 2005 (HERA)
established a new military service deferment in the FFEL, Direct Loan,
and Federal Perkins Loan programs for military personnel and members of
the National Guard who are called to active duty military service
during a war or other military operation or national emergency. The
CCRAA expanded the military service deferment to allow all eligible
borrowers to receive the deferment on all their outstanding title IV
loans, rather than just on loans that were first disbursed on or after
July 1, 2001, and eliminated the maximum three-year limit on the
deferment. The CCRAA also extended the military service deferment for
an additional 180 days following the date the borrower is demobilized
from the qualifying active duty service. The expansion of the military
deferment is for all periods of active duty service that include
October 1, 2007, or begin on or after that date.
The CCRAA also created a new post-active duty student deferment in
the FFEL, Direct Loan, and Federal Perkins Loan programs for members of
the National Guard or Armed Forces Reserve, and members of the Armed
Forces who are in a retired status who are called or ordered to active
duty service. The deferment is available for up to 13 months following
the borrower's demobilization from active duty service. To be eligible,
the borrower must have been called to active duty service while the
borrower was enrolled in a program of instruction at an eligible
institution or within six months of having been enrolled. The deferment
expires if the borrower reenrolls in school. Active duty for the
purpose of this deferment is defined in the CCRAA as active duty as the
term is used in 10 U.S.C. section 101(d)(1); however, it does not
include active duty for attendance at a service school or for training
duty, and it does include active duty of members of the National Guard
(``active State duty''). Consistent with the date of enactment of the
CCRAA, the deferment is available to an eligible borrower who was
serving on active duty on October 1, 2007, or was called to active duty
service on or after that date.
Current Regulations: The FFEL, Direct Loan, and Federal Perkins
Loan program regulations governing the military service deferment were
amended on November 1, 2007, to reflect the expansion of deferment
benefits resulting from the CCRAA. The references in prior regulations
to a three-year time limit and its applicability only to loans first
disbursed on or after July 1, 2001 were removed from the regulations,
and the new 180-day post-active duty deferment was added. A provision
for the new 13-month post-active duty student deferment and the
statutory definition of the term ``active duty'' for purposes of this
deferment were also added to the regulations.
Proposed Regulations: The proposed regulations would clarify the
current regulations, incorporate guidance on the deferments that was
provided to program participants in Dear Colleague Letter GEN-08-01
(issued January 8, 2008), and would provide relief to borrowers who may
qualify for a post-active duty student deferment after demobilization,
but do not qualify for the military service deferment during their
active State duty service.
The proposed regulations would clarify that the expansion of the
military service deferment to include a 180-day post demobilization
period, and the post-active duty student deferment would be available
to borrowers who were serving on active duty on October 1, 2007, or who
are called to active duty on or after that date. The proposed
regulations in Sec. Sec. 674.34(i)(3), 682.210(u)(3), and
685.204(f)(1)(ii) would also clarify that a borrower's eligibility for
the post-active duty student deferment terminates only if the borrower
returns to enrolled student status on at least a half-time basis, and
that a borrower returning from active duty who is in the grace period
on a loan is not required to waive the grace period to use the 13-month
post-active duty student deferment. The proposed regulations in
Sec. Sec. 674.34(i)(2)(i) and (ii), 682.210(u)(2)(i) and (ii), and
685.204(f)(2)(i) and (ii) would also clarify that active State duty for
members of the National Guard includes, for purposes of the post-active
duty student deferment, both active duty under which a Governor
activates members of the National Guard under State statute or policy
and the activities are paid for with State funds, and active duty under
which a Governor is authorized, with the approval of the President or
U.S. Secretary of Defense to activate members of the National Guard and
the activities are paid for with Federal funds. The proposed
regulations in Sec. Sec. 674.34(i)(2)(iv), 682.210(u)(2)(iv), and
685.204(f)(2)(iv) would also specify that active duty for this purpose
does not include a borrower who is serving in a full-time, permanent
position of employment with the National Guard,
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unless the borrower is reassigned as part of a call-up to active duty
service. At the recommendation of DOD, the incorrect reference to
section 101(19) of title 32, U.S.C. has been removed, as discussed
elsewhere in this preamble.
The proposed regulations also incorporate the Department's earlier
guidance (Dear Colleague Letter GEN-08-01) on implementation of the
CCRAA military-related deferment provisions. As provided in that
guidance, the proposed regulations in Sec. Sec. 674.34(h)(7),
682.210(t)(9), and 685.204(e)(7) would authorize loan holders to grant
a military service deferment to an otherwise eligible borrower for an
initial deferment period not to exceed 12 months from the date the
borrower's qualifying active duty service begins based on a request
from either the borrower or the borrower's representative. Consistent
with that earlier guidance, although supporting documentation is not
required for this initial 12-month deferment period, it is required for
any subsequent deferment period. Additionally, Sec. Sec. 674.34(i)(4),
682.210(u)(4), and 685.214(f)(4) of the proposed regulations would
specify that if a borrower is eligible for both the 180-day military
service deferment following the borrower's demobilization, and the 13-
month post-active duty student deferment, the borrower's eligibility
for those separate deferments runs concurrently.
Finally, a change has been proposed in the FFEL program regulations
in Sec. 682.211(h) governing mandatory forbearance that would require
the loan holder to grant forbearance to a borrower who is called to
active State duty for more than a 30-day period and who does not
qualify for a military service deferment during the active State duty
service period, but who qualifies for the post-active duty student
deferment.
Reasons: The negotiators agreed that the regulations governing the
two military service-related deferments required clarifying amendments,
and that the Department's earlier guidance should be included in the
proposed regulations to ease program administration. That guidance
addressed the October 1, 2007, effective date for the new benefits, and
clarified that a borrower who received a military service deferment
that began prior to October 1, 2007, would qualify for the extra 180
days of deferment if the borrower's period of military service included
the October 1, 2007, date.
Non-federal negotiators noted that the post-active duty student
deferment does not relieve a borrower of the obligation to make
payments on a student loan during the borrower's period of active duty
military service. A borrower in an in-school status would be required
to make payments after the initial grace period elapses. A borrower
receiving an in-school deferment would be required to make payments on
a student loan after the borrower drops below half-time status at the
school and reports for active duty service.
The non-federal negotiators recommended that the Department provide
for a mandatory forbearance to cover this gap, so that borrowers who
will qualify for a post-active duty student deferment, but are no
longer in an in-school status or qualify for an in-school deferment,
will not be obligated to make loan payments during the period of active
duty service.
The Department agreed with the non-federal negotiators. The
proposed revisions to Sec. 682.211(h) provide for the mandatory
forbearance to begin after the initial grace period elapses, for
borrowers in an in-school status, and to begin after the borrower
ceases enrollment, for borrowers who are in an in-school deferment at
the time of the call to active duty.
Some of the non-Federal negotiators expressed concern over the
confusion that may result for borrowers and those assisting them with
respect to the different eligibility requirements for the two different
military service-related deferments. The negotiators discussed
different approaches to providing information on the various forms of
relief available to title IV student loan borrowers called to active
duty military service, such as charts and brochures, but determined
that these efforts were operational in nature and would not affect the
regulations.
Income-Based Repayment Plan
Definitions (Sec. Sec. 682.215(a) and 685.221(a))
Partial Financial Hardship
Statute: Section 493C(a)(3) of the HEA provides that a borrower has
a partial financial hardship if the annual amount due on all of the
borrower's eligible FFEL and Direct Loans (as calculated under a
standard repayment plan based on a 10-year repayment period) exceeds 15
percent of the difference between the borrower's AGI and 150 percent of
the poverty guideline for the borrower's family size. If a married
borrower files a separate Federal income tax return, section 493C(d) of
the HEA provides that only the borrower's income and student debt are
used in determining the amount of the borrower's payment under the IBR
plan.
Proposed Regulations: Proposed Sec. Sec. 682.215(a)(4) and
685.221(a)(4) would incorporate the statutory definition of the term
partial financial hardship. The proposed regulations would also
incorporate the terms and definitions of ``AGI,'' ``family size,'' and
``poverty guideline'' from existing Sec. 682.210, which addresses how
to determine whether a borrower qualifies for an economic hardship
deferment.
Under the proposed regulations, AGI would mean the income reported
by the borrower to the Internal Revenue Service (IRS). For a married
borrower filing jointly, AGI would include both the borrower's and
spouse's income. If a married borrower files separately, AGI would
include only the borrower's income.
Under the proposed regulations, family size would include the
borrower, the borrower's spouse, and the borrower's children if the
children receive more than half their support from the borrower. Other
individuals could be included in family size if, at the time the
borrower certifies family size, those other individuals live with the
borrower and receive more than half their support from the borrower and
will continue to receive this support for the year the borrower
certifies family size. Support would include money, gifts and payment
of other expenses, including college costs.
Under the proposed regulations, poverty income would be the income
categorized by State and family size in the poverty guidelines.
Finally, under the proposed regulations, the term ``eligible loan''
would refer to any outstanding FFEL or Direct Loan made to a borrower,
except for a FFEL or Direct PLUS Loan made to a parent borrower or a
FFEL or Direct Consolidation Loan that repaid a FFEL or Direct PLUS
Loan made to a parent borrower.
Reasons: For consistency and ease of administering the title IV
loan programs, the definitions of AGI, family size, and poverty
guidelines would be the same in all sections of the regulations to
which they apply. While supporting this approach, some non-Federal
negotiators suggested that AGI or the total amount of eligible loans
should be adjusted in cases when a married borrower and his or her
spouse both have outstanding loans, file a joint Federal tax return,
and both qualify for IBR. In these cases, the combined monthly student
loan payments of the borrower and the spouse could exceed the 15
percent payment threshold under the IBR plan. The Department
acknowledged this possibility but noted that the negotiators' suggested
change would be
[[Page 37699]]
inconsistent with the HEA. First, section 493C(d) of the HEA, as
amended by Public Law 110-153, specifically provides for considering
the individual AGI of one married borrower only when the borrower and
the borrower's spouse file separate Federal tax returns. Second,
section 493C(a)(3)(A) of the HEA requires that only the borrower's
eligible loans, not the spouse's, are considered in determining whether
the borrower has a partial financial hardship.
Income-Based Payment Amount (Sec. Sec. 682.215(b) and 685.221(b))
Statute: Under section 493C(b)(1) of the HEA, the monthly payment
amount of a borrower who qualifies for a partial financial hardship is
determined by calculating 15 percent of the amount obtained by
subtracting 150 percent of the borrower's poverty guideline from the
borrower's AGI, and then dividing this amount by 12 (an example of this
calculation is provided in Appendix A of this preamble).
Proposed Regulations: If a borrower's eligible loans are held by
more than one loan holder, proposed Sec. Sec. 682.215(b)(1) and
685.221(b)(2) would require each loan holder to adjust the amount of a
borrower's calculated monthly payment. The borrower's adjusted monthly
payment would be determined by multiplying the calculated monthly
payment amount by the percentage of the total outstanding principal
amount of eligible loans held by that holder (see the example in
Appendix A of this preamble).
If the borrower's calculated monthly payment is less than $5.00,
the borrower would not be required to make a payment. If the borrower's
calculated monthly payment is between $5.00 and $10.00, the borrower
would be required to make a $10.00 payment.
Reasons: Without the proposed adjustment by each loan holder of the
borrower's eligible loans, a borrower who selects the IBR plan with two
or more loan holders would have to make total monthly payments in
excess of the statutory maximum.
With regard to minimum monthly payment amounts, the Department
initially proposed to adopt the $5.00 minimum monthly payment provision
used in the Direct Loan Program income contingent repayment (ICR) plan.
Under the ICR plan, a minimum payment of $5.00 is required whenever the
borrower's calculated monthly payment is greater than zero but equal to
or less than $5.00. The non-Federal negotiators argued that, because a
borrower's calculated monthly payment amount under the IBR plan could
be zero, a minimum $5.00 payment (or any payment amount over zero)
would violate the 15 percent payment threshold. As a result, the
Department agreed to allow zero payment amounts, which will require no
collection action on the part of the loan holder. However, as an
administrative matter, taking into consideration the cost of processing
payments, the non-Federal negotiators agreed to the Department's
proposal to establish a minimum payment of $10.00 whenever the
borrower's calculated monthly payment is between $5.00 and $10.00. This
represents a compromise approach for dealing with de minimis payment
amounts for borrowers with low income and high debt. On one hand, it
satisfies the concern of the non-Federal negotiators that a borrower
with a calculated payment at or near zero should not have to make any
payments. On the other hand, setting the minimum payment at $10 (an
amount agreed to by the Loans Committee as part of the negotiations)
mitigates the financial risk to FFEL loan holders, servicers, and the
Department that the marginal cost of processing the payment is not more
than the payment amount.
Borrower Payments (Sec. Sec. 682.215(b), 682.215(c), 685.221(b),
685.221(c), and 682.300(b))
Statute: Section 493C(b)(2) of the HEA specifies that monthly loan
payments made under the IBR plan are applied first toward interest due
on the loan, next toward any fees, and then to the principal balance of
the loan. In addition, section 493C(b)(3) provides that if the
borrower's monthly payment does not cover the accrued interest on a
subsidized loan, the Secretary will pay the interest for up to three
years after the date the borrower elects IBR. The three-year period
does not include any period during which a borrower receives an
economic hardship deferment.
Proposed Regulations: Proposed Sec. Sec. 682.215(c) and 685.221(c)
would incorporate the provisions from the HEA regarding the order in
which IBR payments are to be applied by a loan holder.
Proposed Sec. Sec. 682.215(b)(4) and 682.300(b)(1)(iv) and
(b)(2)(x) would provide that, if the borrower's payment is insufficient
to pay the accrued interest on a loan, the Secretary pays the accrued
interest on a subsidized Stafford Loan, or on the subsidized portion of
a Consolidation Loan, to the FFEL loan holder for up to three
consecutive years from the date that the borrower initially began
repayment on each loan under the IBR plan. In the Direct Loan Program,
proposed Sec. 685.221(b)(3) would provide that the Secretary will not
charge interest to borrowers during this three-year period. In the
proposed regulations for both the FFEL and Direct Loan Programs, the
three-year period would not include any period during which a borrower
receives an economic hardship deferment.
Reasons: Some of the non-Federal negotiators believed that the
statutory provisions regarding the three-year interest subsidy period
were ambiguous in three respects. First, these negotiators believed
that the date that a borrower elects the IBR plan could be interpreted
to mean the date the borrower notified the holder, or any other date up
to the date the borrower makes a payment under the IBR plan. Second,
they believed it was unclear whether the three-year period was
applicable to each of the borrower's loans or was the cumulative period
of the borrower's eligibility for the subsidy payments. The proposed
regulations would address both of these issues by providing that the
three-year period starts on the date the borrower initially begins
repayment on each loan under the IBR plan.
Third, some of the non-Federal negotiators did not agree with the
Department's determination that the three-year period is a consecutive
period. The Department notes that section 493C(b)(3)(A) of the HEA
specifically states that the subsidy period starts on the date the
borrower selects the IBR plan and provides for only one type of
interruption or break in the three-year period--economic hardship
deferments. Therefore, once the subsidy period begins, it runs
continuously for three years as long as the borrower's monthly payment
under the IBR plan is not sufficient to pay the accrued interest on the
borrower's loan.
Changes in Payment Amount (Sec. Sec. 682.215(d) and 685.221(d))
Statute: For a borrower who no longer has a partial financial
hardship, or who no longer wants to continue making income-based
payments under the IBR plan, section 493C(b)(6) of the HEA provides
that the maximum monthly payment the borrower may be required to make
must not exceed the monthly amount calculated for the borrower under a
10-year repayment period when the borrower first entered IBR. Under
either of these circumstances, the repayment period may exceed 10
years. Section 493C(b)(8) of the HEA also provides that a borrower who
is paying under the IBR plan may elect, at any time, to terminate
payment under the IBR plan and repay under the standard repayment plan.
[[Page 37700]]
Proposed Regulations: Proposed Sec. Sec. 682.215(d) and 685.221(d)
would provide for the recalculation of the borrower's monthly payment
if the borrower no longer has a partial financial hardship, chooses to
stop making income-based payments, or elects to leave the IBR plan
entirely.
The proposed regulations provide that if a borrower no longer has a
partial financial hardship or wishes to stop making income-based
payments, but remains within the IBR plan, the maximum monthly amount
that the borrower would be required to repay must be recalculated. The
recalculated amount the borrower would be required to repay is the
amount the borrower would have paid under the standard repayment plan
with a 10-year repayment period based on the eligible loans that were
outstanding at the time the borrower began repayment under the IBR
plan. The proposed regulations would also provide that the borrower's
total repayment period based on the recalculated payment amount may
exceed 10 years.
If a borrower no longer wishes to pay under the IBR plan, the
proposed regulations would require the borrower to pay under the
standard repayment plan for the remaining term available based on the
borrower's initial standard repayment disclosure. The loan holder would
recalculate the borrower's monthly payment based on the time remaining
under the maximum 10-year repayment period for the amount of the
borrower's loans that were outstanding at the time the borrower
discontinued paying under the IBR plan. For a Consolidation Loan
borrower who elects to leave the IBR plan, the applicable repayment
period would be the repayment period remaining based on the total
amount of that loan and the balance on other student loans that were
outstanding at the time the borrower discontinued paying under the IBR
plan.
Reasons: The proposed regulations would reflect the statutory
provisions in section 493C(b)(6) of the HEA, which require a loan
holder to recalculate the borrower's monthly payment if the borrower no
longer has a partial financial hardship, chooses to stop making income-
based payments, or leaves the IBR plan entirely. The proposed
regulations would also provide for a different calculation of monthly
payment amounts for Consolidation Loans when a borrower elects to leave
the IBR plan and must repay under a standard repayment plan. The
Department is proposing this distinction because a Consolidation Loan
can have a repayment period of up to 30 years. The negotiators agreed
with this approach.
Eligibility Documentation and Verification (Sec. Sec. 682.215(e) and
685.221(e))
Statute: Section 493C(c) of the HEA requires the Department to
establish procedures for annually determining whether a borrower
qualifies for IBR. These procedures include verifying the borrower's
annual income and the annual amount due on the borrower's loans, and
other procedures necessary to effectively implement the IBR plan.
Proposed Regulations: Under proposed Sec. Sec. 682.215(e) and
685.221(e), the loan holder would determine whether a borrower has a
partial financial hardship to qualify for the IBR plan for the year the
borrower initially selects the plan and for each subsequent year that
the borrower remains in the plan.
To make this determination, the loan holder would require the
borrower to (1) provide written consent to the disclosure of AGI and
other tax return information by the IRS to the loan holder, and (2)
annually certify family size. The borrower would provide consent by
signing a consent form and returning it to the loan holder. If the
borrower's AGI is not available, or the loan holder believes that the
borrower's reported AGI does not reasonably reflect the borrower's
current income, the proposed regulations would allow the loan holder to
use other documentation provided by the borrower (for example, a
current pay stub or unemployment benefits letter) to verify income. If
the borrower fails to respond to a loan holder's request to certify
family size for a particular year, the loan holder must assume a family
size of one for that year.
The proposed regulations would require the loan holder to place the
borrower in a standard repayment plan if the borrower selects the IBR
plan, but fails to provide the required written consent necessary for
the loan holder to determine whether the borrower initially qualifies
for the IBR plan. The proposed regulations also designate the
recalculated monthly payment option as discussed under the ``Changes in
Payment Amount'' for a borrower who no longer has a partial financial
hardship or a borrower who fails to renew the required written consent
for income verification (or withdraws that consent) but does not select
another repayment plan.
Reasons: If a borrower initially selects the IBR plan but fails to
provide the necessary consent for securing income information, the loan
holder would place the borrower into the standard repayment plan. This
approach is consistent with the current FFEL and Direct Loan
regulations that provide for a borrower to be placed on the standard
repayment plan if the borrower selects the income-sensitive repayment
plan in the FFEL Program or the ICR plan in the Direct Loan Program,
but then fails to provide the information or authorization that is
necessary for the borrower to enter that repayment plan.
The non-Federal negotiators proposed that borrowers should be
allowed to provide consent for the disclosure of income information for
multiple years, rather than annually. Although the Department does not
object to this proposal, the forms used to provide consent are IRS-
produced forms. The Department has no authority to specify the period
of time an IRS consent form may cover, so the proposed regulations do
not specify the duration of the consent form.
The Department initially proposed that a loan holder would
automatically change the borrower's repayment option if the borrower
fails to provide annual information on family size. The non-Federal
negotiators recommended that the Department instead allow the
borrower's family size to default to one in these cases to allow the
loan holder to recalculate the borrower's eligibility for a partial
financial hardship. If the borrower no longer qualifies for a partial
financial hardship based on a family size of one, the loan holder would
recalculate the borrower's monthly payment as discussed under ``Changes
in Payment Amount.'' The Department agreed with this proposal.
Loan Forgiveness (Sec. Sec. 682.215(f) and 685.221(f))
Statute: Section 493C(b)(7) of the HEA provides that the Department
will repay or cancel the outstanding balance and accrued interest on an
eligible loan for a borrower who participates in the IBR plan for a
period not to exceed 25 years and meets certain requirements or makes
qualifying payments during the maximum 25-year period.
Proposed Regulations: Sections 682.215(f) and 685.221(f) of the
proposed regulations would: (1) Establish the conditions that a
borrower must satisfy to qualify for loan forgiveness under the IBR
plan; (2) identify the beginning date of the 25-year period for
determining whether a borrower made qualifying payments or received
economic hardship deferments during that period; and (3) provide that
the Department will repay or cancel the outstanding balance and accrued
interest on an eligible loan at the end of the 25-year period.
[[Page 37701]]
Under the proposed regulations, a borrower would qualify for loan
forgiveness after 25 years as long as the borrower participated in the
IBR plan at any time during that period and satisfied at least one of
the following conditions:
Made reduced monthly payments on the loan under a partial
financial hardship, including a payment of zero dollars.
Made reduced monthly payments on the loan after the
borrower no longer had a partial financial hardship or stopped making
income-based payments.
Made monthly payments under any repayment plan that were
not less than the amount required under a FFEL or Direct Loan standard
repayment plan with a 10-year repayment period based on when the
borrower initially entered repayment.
Made monthly payments under the FFEL standard repayment
plan based on a 10-year repayment period for the amount of the
borrower's loans that were outstanding at the time the borrower first
selected the IBR plan.
Paid a Direct Loan under the income contingent repayment
(ICR) plan.
Received an economic hardship deferment on an eligible
loan.
Except for borrowers who repaid Direct Loans under the ICR plan,
under proposed Sec. 685.221(f)(3)(ii) the beginning date of the 25-
year period would be no earlier than July 1, 2009, which is the
effective date for the implementation of the IBR plan. In general,
after the borrower selects the IBR plan, the loan holder would
establish the beginning date by determining when the borrower made a
qualifying payment or received an economic hardship deferment on the
loan on or after July 1, 2009. However, under Sec. 685.221(f)(3)(i) of
the proposed regulations, for a borrower who made payments under the
Direct Loan Program ICR plan, the beginning date would be the date the
borrower made a payment on the loan under that plan any time after July
1, 1994. For borrowers who consolidate their eligible loans, the 25-
year period would restart from the date of the consolidation.
Under proposed Sec. Sec. 682.215(f)(4) and 685.221(f)(4), the
Secretary would pay (for a FFEL loan) or forgive (for a Direct Loan)
the outstanding balance and accrued interest on the eligible loan after
the guaranty agency or the Department determines that the borrower
satisfies the loan forgiveness requirements.
Reasons: With regard to establishing the beginning date of the 25-
year period, some of the non-Federal negotiators suggested that
qualifying payments made by an otherwise eligible borrower at any time
before July 1, 2009 (i.e., retroactive payments), should count toward
the 25-year forgiveness period. The Department considered, but did not
adopt this suggestion, for three reasons. First, the statute does not
support a general rule that payments made before the effective date of
the IBR plan (July 1, 2009) should count toward the forgiveness period.
Second, allowing retroactive payments would substantially increase
costs to the Federal government and the taxpayers (for more detail see
the discussion under the Regulatory Impact Analysis section of the
preamble). Third, it would be administratively difficult, if not
impossible in some cases, for a loan holder to determine the beginning
date of the 25-year period before July 1, 2009, because there was no
expectation of loan forgiveness, and therefore, no basis to require
loan holders to track and maintain data on individual loan payments in
the manner needed to readily identify qualifying payments under the IBR
plan.
The Department was able, however, to reach a compromise on this
issue with the non-Federal negotiators for a group of borrowers that
the negotiators acknowledged as the most vulnerable and needy. The
Department agreed to count retroactive payments made by borrowers in
the Direct Loan Program ICR plan for two reasons. First, there are no
material administrative costs because the Department has readily
available payment data for ICR borrowers. Second, we do not believe
there would be any additional program costs because borrowers repaying
their loans under the Direct Loan Program ICR plan are already on a
path to loan forgiveness.
The proposed conditions and qualifying payments that a borrower
must satisfy for loan forgiveness would parallel the statutory
requirements. Some non-Federal negotiators encouraged the Department to
consider establishing a loan forgiveness period of less than 25 years.
The negotiators suggested a 20-year period, stating that the 25-year
period is only a statutory maximum. The Department could not adopt this
suggestion for two reasons. First, reducing the forgiveness period to
20 years would increase Federal costs (for more detail see the
discussion under the Regulatory Impact Analysis section of the
preamble). Second, as a policy matter, the Department believes that the
loan forgiveness periods for IBR and ICR should be the same for these
borrowers because they are in similar circumstances.
Loan Forgiveness Processing and Payment (Sec. 682.215(g))
Statute: The HEA does not address procedures for IBR loan
forgiveness processing and payment with respect to FFEL loan holders
and guaranty agencies.
Proposed Regulations: Proposed Sec. 682.215(g) would establish
deadlines for FFEL loan holders and guaranty agencies for processing
loan forgiveness claims. A loan holder would be required to request
payment from a guaranty agency no later than 60 days from the date the
holder determines that a borrower qualifies for loan forgiveness.
Within 45 days of receiving the lender's request, the guaranty agency
would need to determine if the borrower satisfies the forgiveness
requirements and notify the lender of that determination. Finally, the
proposed regulations would require the loan holder to notify the
borrower of the guaranty agency's determination within 30 days.
In addition, the proposed regulations would address how the loan
holder and guaranty agency resolve any differences between the
outstanding balance of the borrower's eligible loans and the
forgiveness amount, and how a borrower is treated if it is determined
that the borrower is not eligible for loan forgiveness. Although the
Department has not included comparable processes in the Direct Loan
Program regulations, the Department intends to follow the same deadline
and notification provisions specified in these proposed FFEL
regulations.
Reasons: The non-Federal negotiators supported including these
processing requirements in the proposed regulations to provide for the
timely processing of IBR forgiveness claims. The deadlines for lenders
and guaranty agencies to process IBR loan forgiveness claims are
consistent with the deadlines used for other loan discharges.
Special Allowance Payments for Income-based Loans (Sec. 682.302(a))
Statute: For loans in repayment under the IBR plan, section
493C(b)(9) of the HEA requires that the special allowance payment to a
lender be calculated separately on the principal balance of the loan
and on any unpaid accrued interest. In addition, section 493C(b)(3)(B)
provides that accrued interest may be capitalized only when the
borrower: (1) Elects to leave the IBR plan; or (2) begins making
payments of not less than the amount the borrower would have made under
a standard 10-year repayment plan based on the outstanding amount of
the borrower's
[[Page 37702]]
loan at the time the borrower began repayment under the IBR plan.
Current Regulations: Current Sec. 682.302(a) provides for special
allowance payments by the Secretary to loan holders in the FFEL
Program. A special allowance payment is generally described as a
subsidy payment made to a FFEL lender under a formula provided in the
HEA that ensures that the lender will receive a market-based rate on a
FFEL loan regardless of what the student or parent borrower pays.
Proposed Regulations: Proposed Sec. 682.302(a) would add to the
current regulations a separate calculation of the special allowance
rate for the unpaid accrued interest on a loan in repayment under the
IBR plan. The current provisions for calculating the special allowance
payment rate on the unpaid principal balance of a loan (including
capitalized interest) would remain unchanged. However, the proposed
regulations would require that, when computing the special allowance
rate on the unpaid accrued interest for a borrower in IBR, the
applicable interest rate used in the calculation would be zero.
Reasons: The Department initially proposed calculating the special
allowance payment to be paid on the unpaid accrued interest for a
borrower in the IBR plan in the same way that the special allowance
payment would be calculated for other loans. Some of the non-Federal
negotiators argued, however, that since accrued unpaid interest on an
income-based loan can only be capitalized under limited circumstances,
or may never be capitalized, the yield on the principal balance of an
income-based loan would be less than the yield that would otherwise be
obtained on the same type of loan when accrued unpaid interest is
capitalized and becomes part of the loan principal. Moreover, the yield
on the income-based loan would have been further reduced under the
Department's initial approach (the special allowance rate for the
unpaid accrued interest would be reduced by the applicable interest
rate of the loan). The Department agreed.
Income Contingent Repayment Plan--Maximum Repayment Period (Sec.
685.209(c))
Statute: Section 455(e) of the HEA specifies the periods that count
toward the maximum 25-year repayment period under the ICR plan in the
Direct Loan Program.
Current Regulations: Current Sec. 685.209(c) establishes the
repayment period for Direct Loans under the ICR plan.
Proposed Regulations: Proposed Sec. 685.209(c)(4) would parallel
the provisions in the HEA by counting the following periods toward the
maximum 25-year repayment requirement:
Periods in which the borrower makes payments under the ICR
plan on loans that are not in default.
Periods in which the borrower makes reduced monthly
payments under the IBR plan or a recalculated reduced monthly payment
after the borrower no longer has a partial financial hardship or stops
making income-based payments.
Periods in which the borrower made monthly payments under
the standard repayment plan after leaving the IBR plan.
Periods in which the borrower makes payments under the
standard repayment plan.
Periods after October 1, 2007, in which the borrower makes
monthly payments under any other repayment plan that are not less than
the amount required under the standard repayment plan.
Periods of economic hardship deferment after October 1,
2007.
In addition to the provisions reflecting the statutory
requirements, the Department proposes to maintain the current provision
in Sec. 685.209(c)(4)(ii)(A)(2). This current provision applies to
borrowers who entered repayment before October 1, 2007, with repayment
periods of not more than 12 years and who made payments under either of
the extended repayment plans, or, for Direct Consolidation Loan
borrowers, made payments under the standard repayment plan. October 1,
2007, is the effective date of the maximum ICR repayment period
provisions in the CCRAA.
Reasons: The proposed changes are necessary to reflect the
statutory requirements. The Department proposes to maintain the current
provisions to allow the periods that now count toward the 25-year
repayment timeframe to continue to be counted for these borrowers.
Eligible Not-For-Profit Holder Definition (Sec. 682.302)
Statute: Section 435(p) of the HEA, added by the CCRAA, included
the new term ``eligible not-for-profit holder'' to describe a State or
non-profit entity that may receive a higher special allowance payment
(SAP) rate on loans it holds than other lenders. Regulations issued by
the Department on November 1, 2007 (72 FR 61960), incorporated the
statutory definition of ``eligible not-for-profit holder'' from the
CCRAA into the regulations. However, Congress made further changes to
that definition in Public Law 110-109, the Third Higher Education
Extension Act of 2007, enacted October 31, 2007. Public Law 110-109
made a significant change to the definition by removing the requirement
that only an entity that is an eligible lender in its own right under
section 435(d) of the HEA could qualify as an eligible not-for-profit
holder. Public Law 110-109 made conforming changes to other parts of
section 435(p) of the HEA that excluded from eligible not-for-profit
holder status any State or non-profit entity that was not the sole
owner of the beneficial interest in the loan or that was itself owned
or controlled by a for-profit entity.
Current Regulations: Current Sec. 682.302(f) does not reflect the
changes made by Public Law 110-109. In addition, the regulations do not
address how an entity that claims to qualify as an eligible not-for-
profit holder demonstrates eligibility to the Department or the
standards the Department will use to determine whether the entity
qualifies for that status.
Proposed Regulations: The proposed regulations would amend Sec.
682.302(f)(3) to incorporate the changes made by Public Law 110-109
that removed the requirement that an entity qualified for not-for-
profit holder status, either directly or through an eligible lender
trustee (ELT), only if the entity was an eligible lender under section
435(d) of the HEA.
The Secretary also proposes to describe, in Sec. 682.302(f)(3)(v),
the circumstances in which a State or non-profit entity is deemed to be
owned or controlled by a for-profit entity. These circumstances
generally are those described in the Department's Dear Colleague Letter
FP-07-12, issued December 28, 2007, and which were used by the
Department in its initial determination of whether entities qualified
for eligible not-for-profit holder status. These circumstances include
those in which a for-profit entity either has a sufficient ownership
interest, as a member or shareholder of an entity, to control the State
or non-profit entity, or employs or appoints a majority of the
individuals who serve as trustees of the State or non-profit entity, or
who serve on the audit, executive, or compensation committees of the
board of the entity. The proposed regulations would deem a trustee or
director to be employed or appointed by a for-profit entity if the for-
profit entity employs a family member of an individual, unless the
Secretary determines that the nature of a family member's employment by
the for-profit entity is not the kind that
[[Page 37703]]
would likely subject the trustee, director, or the board on which the
family member serves to pressures that would affect the integrity of
their decisions. The proposed regulations thus would distinguish
between family members employed as lower level employees from those
employed in more responsible positions.
To identify whether a for-profit entity has the power to control a
State or non-profit entity, the proposed regulations would provide for
review of whether the for-profit entity controls, by any of various
agreements, a sufficient voting percentage of the membership or equity
interests of the State or non-profit entity to direct or cause the
direction of the management and policies of the State or non-profit
entity.
Section 435(p)(2)(C) of the HEA provides that the State or non-
profit entity must be the exclusive owner of at least the beneficial
interest in a loan and its income. The proposed regulations would
define ``beneficial owner'' (including ``beneficial ownership'' and
``owner of a beneficial interest'') in the conventional sense, as the
right to receive, possess, use, and sell or otherwise exercise control
over a loan and income from the loan. The proposed regulations would
recognize and disregard those instances in which this power might be
significantly restricted by a security interest granted by the entity
in the course of issuing a debt obligation or where the entity has used
an ELT to retain ownership of its loans in order to qualify those loans
for FFEL Program benefits.
The HEA provides that a trustee that holds loans on behalf of a
State or non-profit entity may not be compensated for that function in
excess of reasonable and customary fees. The proposed regulations would
provide that fees are reasonable and customary if the rate paid by the
entity to the trustee does not exceed the rate paid for similar
services on similar portfolios of loans of that State or non-profit
entity that did not qualify for the higher SAP, or did not exceed an
amount determined by using another method requested by the State or
non-profit entity that the Secretary considers reliable.
The Secretary also proposes, in Sec. 682.302(f)(3)(x), the list of
documents that must be provided to the Secretary by a State or non-
profit entity that seeks to demonstrate that it qualifies as an
eligible not-for-profit holder. These documents generally are those
described in Dear Colleague Letter FP-07-12, and which were used by the
Department in its initial determination of whether entities qualified
for eligible not-for-profit holder status. The requirements would
include submission of a certification signed by the State or non-profit
entity's Chief Executive Officer (CEO), as well as a certification or
opinion signed by the State or non-profit entity's external legal
counsel or the attorney general of the State. Both submissions would be
required to include copies of documents that provide the basis for the
certification or opinion.
The certification or opinion of the external legal counsel or State
attorney general, with supporting documentation, would be required to
show that the State or non-profit entity meets one of the four
criteria: (1) Is a constituted entity by operation of State law; (2)
has been designated by the State or one or more political subdivisions
of the State to serve as a qualified scholarship funding corporation
under section 150(d)(2) of the Internal Revenue Code of 1986 (IRC), has
not made the election described under section 150(d)(3) of the IRC, and
is incorporated under State law as a not-for-profit organization; (3)
is incorporated under State law as a not-for-profit organization or
entity described in 150(d)(3) of the IRC; or (4) has in effect a
relationship with an eligible lender under which the lender is acting
as trustee on behalf of the State or non-profit entity. The
certification of the State or non-profit entity's CEO would be required
to state the basis upon which the entity believes it qualifies as an
eligible not-for-profit holder for purposes of SAP as a State entity, a
150(d) entity, a 501(c)(3) entity, or a trustee on behalf of a State
entity, and that the entity, on September 27, 2007, acted as an
eligible lender under section 435(d) of the HEA, other than as a school
lender, or was on that date the sole beneficial owner of a loan
eligible for SAP under the HEA; is not owned or controlled, in whole or
in part, by a for-profit entity; and is the sole beneficial owner of
the loan and income from the loan. The HEA expressly requires the
entity's status to be determined as of the effective date of the CCRAA,
which was September 27, 2007.
Proposed Sec. 682.302(f)(3)(xi) would provide that, to retain
continued eligibility as a not-for-profit holder, the State or the not-
for-profit entity must submit an annual certification signed by the
State or not-for-profit entity's CEO that states that the State or
entity has not altered its status since its prior certification or that
describes any alterations that have taken place since its prior
certification, and, if a non-profit entity, provide copies of its most
recent IRS Form 990.
Reasons: The proposed changes are required to conform current
regulations to changes in the HEA, and to establish procedures for
demonstrating whether an entity qualifies as an eligible not-for-profit
holder. In addition, changes were needed to clarify the standards that
would be used to determine whether a for-profit entity had ownership or
control of the entity or its loans or whether excessive fees were paid
to a trustee engaged by the entity.
The changes to the HEA indicated strong Congressional concern that
only those entities not controlled by for-profit entities could receive
the higher SAP. Control can be exercised directly or indirectly by a
for-profit entity. The Department initially proposed to identify
specific kinds of conduct by a State or non-profit entity that would
indicate that the entity was indirectly controlled by a for-profit
entity. One proposed provision would have required the not-for-profit
holder to use a survey to determine the market rate for fee-paid
services used by the not-for-profit holder to determine whether the
particular not-for-profit holder's fee payments were excessive. The
Department proposed to view excessive fee payments for services as a
possible indication that a for-profit entity receiving fee payments
from the not-for-profit entity effectively controlled the not-for-
profit holder and was diverting SAP-related benefits through the
excessive fee payments. Additionally, the Department proposed that a
not-for-profit holder be subject to an ongoing transaction-based
analysis of its student loan financing arrangements, again to determine
whether payments made by the not-for-profit holder to acquire loans or
received by that entity for the sale of its loans exceed the sale price
paid or received by other entities in the purchase or sale of similar
loans.
The Department determined, after extensive discussions with non-
Federal negotiators familiar with not-for-profit loan holders, that a
survey of fees would be impractical for a not-for-profit holder to
conduct on an ongoing basis, and that market fluctuations affected the
cost of services to such an extent that it would be an unreliable
indicator of any indirect control by another entity. The Department
instead agreed to measure whether fees are excessive by simply
comparing the fees a not-for-profit entity pays on its eligible loans
to what it pays on its ineligible loans.
Similarly, the same non-Federal negotiators argued that each
student loan financing transaction was subject to marketplace
volatility and that the nature of the student loan paper subject to
sale or acquisition (e.g., default risk,
[[Page 37704]]
loan amount, or loan maturity) dictated the associated costs and was
therefore an equally unreliable indicator of indirect control of a not-
for-profit holder. The Department also consulted with individuals who
had knowledge of capital financing and with Department of Treasury
staff responsible for oversight of tax-exempt organizations and IRS
Form 990, which is filed annually by tax-exempt organizations and
reflects the activities and supports the tax-exempt status of the
organization. As a result of these discussions, the Department
determined that a not-for-profit entity had little incentive to
undertake questionable activities related to the receipt of increased
special allowance payments that would threaten the tax-exempt status of
the organization.
The Department agreed to determine ``control'' of the not-for-
profit entity based on a measurement of any for-profit entity's control
over the voting rights of the members or shareholders sufficient to
dictate the policies and management of the not-for-profit holder, or
any for-profit entity's ability to place employees with the not-for-
profit holder or secure appointments to the majority of its boards or
committees. The Department also believes that the annual
recertification process adopted in the proposed regulations, the
receipt of the not-for-profit entity's Form 990, and the not-for-profit
entity's quarterly lender financial reports to the Department will
provide a sufficient baseline against which future activities of a not-
for-profit holder can be monitored.
Public Service Loan Forgiveness
Borrower Eligibility for Loan Forgiveness (Sec. 685.219(c))
Statute: Section 455(m) of the HEA, which governs the William D.
Ford Direct Loan Program, was amended to create a new loan forgiveness
program for public service employees. Under section 455(m)(1) of the
HEA, the Secretary will forgive the outstanding principal balance and
accrued interest on a borrower's eligible Direct Loan if the borrower
satisfies the following conditions:
The borrower is not in default on the loan.
The borrower makes 120 monthly payments on the loan after
October 1, 2007, under one or more specified repayment plans.
The borrower is employed in a public service job at the
time that loan forgiveness is requested and granted, and during the
period the borrower makes the required 120 monthly payments.
Proposed Regulations: Proposed Sec. 685.219(c)(1) would parallel
the statutory requirements and would require the borrower to make 120
separate, full, qualifying monthly payments within 15 days of the
scheduled payment due date while the borrower is employed full-time in
a public service job to be eligible for this program. The qualifying
120 payments would not have to be consecutive.
To be considered a qualifying payment for loan forgiveness, each
payment would have to be made under one or more of the following
repayment plans:
The IBR plan.
The ICR plan.
The Direct Loan standard repayment plan.
Any other repayment plan if the monthly payment amount is
not less than the amount the borrower would have paid under the Direct
Loan standard repayment plan.
For a payment to count towards the forgiveness period, the borrower
would have to have been employed full-time by a public service
organization when the payment was made. For borrowers with a
contractual or employment period of less than 12 months, qualifying
payments would have to have been made each month for all 12 months.
This requirement is primarily intended to address teachers who work on
an academic year basis. Although teachers on this type of schedule
typically work for only 9 months out of the year, they would still be
required to make payments on their loans during the summer vacation
period. This provision would also apply to other individuals who might
work on a similar type of schedule.
The proposed regulations would acknowledge full-time service in an
AmeriCorps position as equivalent to employment in a public service
job. The proposed regulations also would treat an AmeriCorps education
award used for loan repayment of a Direct Loan as qualifying payments
to meet the 120-payment requirement. The number of qualifying monthly
payments would be calculated for this purpose by dividing the lump sum
AmeriCorps education award used for Direct Loan repayment by the amount
of the borrower's scheduled monthly payment on the loan.
Reasons: The proposed regulations implement the basic statutory
framework for the public service loan forgiveness program.
After much discussion concerning the many types of public service
jobs that might qualify a borrower for public service loan forgiveness,
the negotiators decided not to define specific job types that might
qualify. Instead, they decided it would be clearer and more efficient
to define the types of organizations that would qualify as eligible
employers for purposes of public service loan forgiveness, and base
eligibility for the forgiveness on the type of organization that
employs the borrower. Accordingly, the proposed regulations define the
term ``public service organization.''
AmeriCorps members receive an award for service performed annually
(the Segal Education Award) that can be used to make a lump sum payment
on a Federal student loan. The negotiators determined that it would be
appropriate and consistent with considering AmeriCorps service as
qualifying service for this purpose to allow use of the education award
received for that service as a basis for deriving qualifying payments
on a Direct Loan that would count towards the 120 monthly payments
required for loan forgiveness.
Definitions (Sec. 685.219(b))
Statute: For purposes of the public service loan forgiveness
program, section 455(m)(3)(A) of the HEA defines ``eligible Federal
Direct Loan'' as a Direct Stafford Loan, a Direct PLUS Loan, a Direct
Unsubsidized Stafford Loan, or a Direct Consolidation Loan.
Section 455(m)(3)(B) of the HEA defines ``public service job'' as:
(1) A full-time job in a number of public service occupations and
fields; (2) a full-time job at a non-profit organization that satisfies
the requirements of section 501(c)(3) of the IRC; or (3) a full-time
faculty member at a Tribal college or university as provided in section
316(b) of the HEA, or other faculty teaching in high-needs areas as
determined by the Secretary. The statute does not define any other term
for the purposes of this program.
Proposed Regulations: Proposed Sec. 685.219(b) would define
several terms for purposes of implementing the public service loan
forgiveness program. The defined terms would include ``Employee or
employed,'' ``Full-time,'' ``Public Interest Law,'' and ``Public
Service organization''.
Under the proposed regulations:
``Employee or employed'' would mean an individual who is
hired and paid by a public service organization.
``Full-time'' would mean working in qualifying employment
in one or more jobs for the greater of--
(1)(i) An annual average of at least 30 hours per week; or
[[Page 37705]]
(ii) For a contractual or employment period of at least 8 months,
an average of 30 hours per week; or
(2) The number of hours the employer considers full-time.
Vacation or leave time provided by the employer would not be
considered in determining the average hours worked on an annual or
contract basis.
``Public interest law'' would refer to legal services
provided by a public service organization that are funded in whole or
in part by a local, State, Federal, or Tribal government.
``Public service organization'' would mean:
(1) A Federal, State, local, or Tribal government organization,
agency, or entity;
(2) A public child or family service agency;
(3) A non-profit organization that qualifies under section
501(c)(3) of the IRC that is exempt from taxation under section 501(a)
of the IRC;
(4) A Tribal college or university; or
(5) A private organization that--
(i) Provides the following public services: Emergency management,
military service, public safety, law enforcement, public interest law
services, public child care, public service for individuals with
disabilities and the elderly, public health, public education, public
library services, school library, or other school-based services; and
(ii) Is not a business organized for profit, a labor union, a
partisan political organization, or an organization engaged in
religious activities, unless the qualifying activities are unrelated to
religious instruction, worship services, or any form of proselytizing.
Reasons: The proposed definitions are needed to clarify program
eligibility and public service work requirements for borrowers who wish
to seek public service loan forgiveness.
Some of the non-Federal negotiators proposed definitions that would
extend eligibility to individuals in certain jobs (e.g., public
defenders) by specifically identifying them in the definition of public
interest law, regardless of the nature of their employer or the funding
source of their salaries. The negotiators determined that this would be
inconsistent with the statutory intent of the definition of the term
``public service job'' and the fact that the legislative history
surrounding this section of the CCRAA spoke to recognizing individuals
in ``public sector jobs.'' Some of the non-Federal negotiators also
argued that the definitions should not limit the eligibility of
individuals. In particular, negotiators were concerned that the
definition of the term ``full-time'' could make it difficult for
teachers to qualify for loan forgiveness.
The term ``Employee or employed'' includes only those individuals
who are hired and paid by a public service organization. The term would
not include individuals who are contracted to work for the organization
or individuals who are hired by a for-profit company that has a
contract with the public service organization.
The term ``full-time'' would be defined to recognize the varied
full-time work schedules that can exist and the fact that there are no
Federal or generally applicable State standards for what constitutes
full-time employment. Under the proposed regulations, a borrower would
be considered to be employed full-time if the borrower works an annual
average of 30 hours per week, an average of 30 hours per week during a
contractual or employment period of at least 8 months, or for the
number of hours the employer considers full-time. The 30-hour standard
is the same full-time standard used for purposes of title IV student
loan unemployment deferment eligibility, which requires a borrower to
be seeking but unable to find full-time employment of at least 30 hours
per week. The definition is broad enough to include individuals who
might not work 30 hours each week, but who meet that standard using an
annual average of their weekly hours. Consequently, teachers and others
with contractual or employment periods that include an acknowledged
break period during which they could still be considered employed would
meet the definition for full-time.
The term ``Public Interest Law'' limits such services to services
that are supported in whole or in part by a government.
The term ``public service organization'' would be derived largely
from the statutory definition of ``public service job,'' but is
clarified to include certain non-profit organizations that are not
qualified under 501(c)(3) of the IRC, but that meet the other statutory
requirements and qualify as public service employers under the HEA.
Loan Forgiveness (Sec. 685.219(d) and (e))
Statute: Section 455(m)(2) of the HEA provides that at the
conclusion of the borrower's employment period in a public service job
during which the borrower has made 120 qualifying payments under one or
more qualifying repayment plans, the Secretary will cancel the
outstanding loan principal and accrued interest on the borrower's loan.
Proposed Regulations: Proposed Sec. 685.219(d) and (e) would
provide that, after making the qualifying 120 monthly payments, a
borrower could request loan forgiveness on a form provided by the
Secretary. If the Secretary determines that the borrower qualifies for
loan forgiveness, the Secretary would cancel the outstanding principal
balance and accrued interest on the borrower's loan and notify the
borrower of those actions. If the Secretary determines that the
borrower is ineligible for the loan forgiveness, the Secretary would
notify the borrower of that determination.
Reasons: Although the proposed regulations implement the statutory
requirements, some of the non-Federal negotiators recommended that the
Department provide more assistance to a borrower seeking public service
loan forgiveness by providing for annual borrower submission and
Departmental review and retention of the form provided by the Secretary
that would be certified by the borrower's employer. The negotiators
believed that this approach would provide timely confirmation to the
borrower that all requirements for loan forgiveness (provided the
borrower made the qualified monthly payments) were satisfied for that
year. The Department considered the negotiators' suggestion, but
decided not to adopt this approach for several reasons. First, this
suggestion would be operational rather than a regulatory issue. Second,
tracking and reviewing documents on an annual basis for potentially
thousands of borrowers, many of whom might not remain in public service
employment or who may never meet the eligibility requirements for final
loan forgiveness, would be a complex and costly administrative process.
Finally, as a policy matter, the Department believes it is the
borrower's responsibility to gather and maintain the documents to
support his or her eligibility for this Federal benefit.
Loan Consolidation (Sec. Sec. 682.201 and 685.220(d))
Statute: Section 428C(a)(3)(B) and (b)(5) of the HEA provide that a
borrower who has a FFEL loan or a FFEL Consolidation Loan, but who
wishes to use the public service loan forgiveness program, can obtain a
Direct Consolidation Loan. These provisions are effective July 1, 2008.
Current Regulations: Sections 682.201(e) and 685.220(d)(1) provide
that a FFEL borrower can obtain a Direct Consolidation Loan only if:
(1) The borrower is unable to obtain a FFEL consolidation loan; (2) the
borrower is
[[Page 37706]]
unable to obtain a FFEL consolidation loan with income sensitive
repayment terms acceptable to the borrower; or (3) the borrower's FFEL
consolidation loan is submitted to the guaranty agency for default
aversion and the borrower wants to obtain a Direct Consolidation Loan
to make payments under the ICR plan.
Proposed Regulations: The proposed regulations would amend Sec.
685.220(d) to provide that a FFEL borrower can obtain a Direct
Consolidation loan for the purpose of using the public service loan
forgiveness program. The Department is proposing a conforming change to
Sec. 682.201(e)(5).
Reasons: The proposed regulations implement statutory requirements.
Conforming and Technical Amendments (34 CFR Parts 682, 685)
Statute: The CCRAA made conforming amendments to sections 428C and
455(d) of the HEA to include in these sections certain provisions of
the IBR plan, the public service loan forgiveness program, and the ICR
plan. The HEA does not specifically address conforming or technical
amendments to the Department's regulations that are needed to implement
statutory provisions.
Proposed Regulations: The proposed regulations in 34 CFR parts 682
and 685 contain statutory and regulatory conforming and technical
amendments.
Reasons: The proposed conforming and technical amendments are
needed to reflect and implement statutory provisions or are otherwise
needed to harmonize program regulations. These conforming and technical
amendments were discussed with the negotiating committee and consensus
was reached on the amendments.
Appendix
The following Appendix will not appear in the Code of Federal
Regulations:
Appendix A to the Preamble--Partial Financial Hardship
Example: Borrower's AGI = $50,000, Family Size = 5, Borrower's
Total Loans = $25,000, Borrower is a resident of Virginia.
Step 1: Determine the poverty guideline associated with the
borrower's family size and State of residence. Using the 2008 HHS
poverty guidelines, which are available at http://aspe.hhs.gov/poverty/08poverty.shtml, the borrower's poverty guideline is
$24,800.
Step 2: Multiply the poverty guideline by 150%
$24,800 x 150% = $37,200
Step 3: Subtract the result in Step 2 from AGI.
$50,000 - $37,200 = $12,800
Step 4: Calculate 15% of the amount obtained in Step 3. This is
the annual amount of the borrower's income-based payment.
15% x $12,800 = $1,920
Step 5: Determine the annual payment on the total amount of the
borrower's loans based on a standard 10-year repayment schedule and
the applicable interest rate. In this example, the total amount of
the borrower's loans is $25,000, and the interest rate is 6.8%. The
annual payment is $3,452.40.
Step 6: Since the annual payment amount in Step 5 ($3,452.40) is
greater than the annual income-based payment amount in Step 4
($1,920), the borrower has a partial financial hardship.
Step 7: To calculate the borrower's monthly income-based
payment, divide the result in Step 4 by 12.
$1,920 / 12 = $160
Step 8: If a borrower's loans are held by more than one loan
holder, each loan holder needs to adjust the amount of the
borrower's monthly income-based payment by multiplying the payment
by the percentage of the total amount of loans owed to the holder.
In this case, assume the borrower owes $20,000 to Bank A and the
remaining $5,000 to Bank B. Bank A's percentage of the borrower's
total loan amount is 80% ($20,000 / $25,000). The borrower's monthly
income-based payment for Bank A would be 80% x $160, or $128.
Executive Order 12866
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the OMB.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action likely to result in a rule that may
(1) Have an annual effect on the economy of $100 million or more, or
adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local or
Tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule); (2) create serious
inconsistency or otherwise interfere with an action taken or planned by
another agency; (3) materially alter the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raise novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive order.
Pursuant to the terms of the Executive order, it has been
determined this proposed regulatory action will have an annual effect
on the economy of more than $100 million. Therefore, this action is
``economically significant'' and subject to OMB review under section
3(f)(1) of Executive Order 12866. In accordance with the Executive
order, the Secretary has assessed the potential costs and benefits of
this regulatory action and has determined that the benefits justify the
costs.
Need for Federal Regulatory Action
These proposed regulations are needed to implement provisions of
the HEA, as amended by the CCRAA, that established a new IBR plan for
FFEL and Direct Loan borrowers, revised the conditions under which a
FFEL or Direct Loan borrower could qualify for a loan deferment due to
economic hardship, changed the terms of a number of military service
deferments, created a loan forgiveness program in the Direct Loan
Program for borrowers who perform public service, and established a
separate special allowance rate formula for not-for-profit loan
holders.
Proposed Regulation's Discretionary Provisions
The Secretary has limited discretion in implementing the provisions
of the CCRAA; in most cases these proposed regulations directly reflect
specific statutory requirements. Policy choices were made in a small
number of areas. Those areas are listed below, followed by a discussion
of the alternatives considered and final policy choices made.
Minimum payment under IBR: The CCRAA does not establish a minimum
payment that must be made by a borrower under the IBR plan.
Procedures for Establishing IBR Eligibility: The CCRAA requires the
Department to establish procedures for annually determining whether a
borrower qualifies for IBR; these procedures must include verifying the
borrower's annual income and the annual amount due on the borrower's
loans.
Loan Forgiveness Processing and Payment: The CCRAA does not address
procedures for IBR loan forgiveness processing and payment with respect
to FFEL loan holders and guaranty agencies.
Loan Forgiveness: The CCRAA provides that the Department repays or
cancels the outstanding balance and accrued interest on an eligible
loan for a borrower who has participated in IBR for a period not to
exceed 25 years and
[[Page 37707]]
met certain requirements. The statute does not set a minimum for the
period of years a borrower can be in IBR and have their loan forgiven.
SAP for Income-Based Loans: For loans being repaid under IBR, the
CCRAA requires the special allowance payment to be calculated
separately on the principal balance of the loan and on any unpaid
accrued interest. The statute does not specify the precise elements
that must be included in this calculation.
Economic Hardship Deferment: The CCRAA changed the eligibility
criteria under which a borrower may qualify for an economic hardship
deferment. In implementing this provision, the Secretary has the
discretion to implement additional criteria through regulations.
Definition of Full-Time Employment: The CCRAA requires borrowers to
have worked full-time in a qualifying occupation to be eligible for the
public service loan forgiveness program; however, the statute does not
include a definition of full-time employment.
The following section addresses the alternatives that the Secretary
considered in implementing these discretionary portions of the CCRAA
provisions. These alternatives are also discussed in the Reasons
sections of this preamble related to the specific regulatory
provisions.
Regulatory Alternatives Considered
Minimum payment under IBR: As noted above, the CCRAA does not set
minimum payment levels under the IBR plan. As discussed in the Reasons
section of the preamble related to this provision, the Department
initially proposed to the non-Federal negotiators a provision requiring
a $5.00 minimum monthly payment, which is the minimum monthly payment
used in the Direct Loan Program ICR plan. Under that plan, a minimum
payment of $5.00 is required whenever the borrower's calculated monthly
payment is greater than zero but equal to or less than $5.00. Non-
Federal negotiators argued that a $5.00 minimum monthly payment (or any
payment amount over zero) would violate the statute's 15 percent
payment cap. Department negotiators agreed that allowing zero payment
amounts would avoid this problem. (The Department determined that this
approach had no budgetary impact.) Recognizing that requiring a small
payment may be inefficient given the administrative costs, the
negotiators agreed, and the Department is therefore proposing to
establish a minimum monthly payment of $10.00 whenever the calculated
monthly payment is between $5.00 and $10.00.
Procedures for Establishing IBR Eligibility: As discussed in more
detail earlier in this preamble, the establishment of IBR eligibility
is largely dependent on a borrower providing consent for a loan holder
to obtain tax information from the IRS. Non-Federal negotiators
recommended that the Department allow borrowers to provide consent to
disclose income information for multiple years. The Department agreed
to this conceptually, but noted that the forms used for this purpose
are IRS forms and that the Department could not regulate the period of
time that these consent forms would cover. The Direct Loan ICR form
allows consent to be granted for 5 years. The burden associated with
completing this form was estimated at 12 minutes. Should IRS adopt a
similar form for IBR, loan holders' administrative costs would be
significantly reduced. The Department is interested in obtaining any
data that could be used to quantify this assessment.
Under the Department's initial proposal at the beginning of the
negotiating process, borrowers who failed to provide annual information
on family size when they provide their consent would automatically be
deemed ineligible to participate in IBR and would be placed in another
repayment plan. The non-Federal negotiators recommended, and the
Department agreed, that under these circumstances a borrower's family
size should be set at one, allowing loan holders to recalculate IBR
eligibility for the upcoming year. The approach adopted is consistent
with Department practice in administering the ICR plan. However, the
Department specifically seeks comment on whether family size should
instead default to the number previously certified by the borrower. The
Department's initial baseline budget estimates in this area were based
on ICR procedures, so the adopted alternative would result in no cost
beyond this baseline. The Department did not attempt to calculate the
budget impact of the initial proposal; however, we believe the overall
impact to the budget would not have been substantially different than
this proposed policy, since borrowers would have been assigned to
another repayment plan.
Loan Forgiveness Processing and Payment: While the CCRAA did not
establish procedures for FFEL loan holders and guaranty agencies to
follow in processing loan forgiveness claims and payments for IBR
borrowers, the non-Federal negotiators supported including such
requirements in the proposed regulations to provide clear guidelines
for FFEL loan holders and guaranty agencies administering the IBR plan.
Accordingly, the proposed regulations would establish deadlines related
to processing of loan forgiveness claims, notifying borrowers of their
eligibility for loan forgiveness, and the handling of loan forgiveness
payments. These proposed regulations are consistent with current FFEL
regulations for other claim payment transactions between loan holders
and guaranty agencies and, as such, should not represent a significant
additional administrative burden for lenders and guaranty agencies.
This new benefit represents a new collection under the Paperwork
Reduction Act. A separate 60-day Federal Register notice, including
burden estimates, will be published to solicit comment on this form
once it is developed.
Loan Forgiveness: In the CCRAA, Congress gave the Secretary
discretion to set a period not to exceed 25 years during which a
borrower must meet certain requirements to qualify for loan forgiveness
at the end of such period. The CCRAA did not provide that qualifying
payments made prior to July 1, 2009, the date this statutory amendment
becomes effective, would count when determining whether a borrower met
the relevant requirements during this time period. Some non-Federal
negotiators suggested that qualifying payments made by a borrower at
any time before July 1, 2009, should count, and that the forgiveness
period should be shortened to 20 years. In assessing these suggested
alternatives, the Department determined that both would result in
substantially increased Federal costs. Reducing the forgiveness period
to 20 years, for example, would increase Federal costs by nearly $600
million over 10 years when compared to the baseline established by
initial estimates of CCRAA costs, which assumed a forgiveness period of
25 years. Under OMB memorandum M-05-13, any regulatory action that
increases the costs to the Federal government must be offset by
corresponding cost savings; as no corresponding offsets to these
proposals were available, it was not possible to include them in the
proposed regulations. In addition, if retroactive payments counted for
purposes of meeting the loan forgiveness requirements, loans holders
would find it difficult, if not impossible, to determine a beginning
date before July 1, 2009, since there was no expectation of loan
forgiveness and, therefore, no need to track and maintain
[[Page 37708]]
data on individual loan payments in the manner required for IBR
purposes. A compromise was ultimately agreed to under which retroactive
payments made by borrowers in the ICR plan would be counted when
calculating the IBR forgiveness period. This approach avoids both
additional Federal costs (since ICR borrowers are already on a path to
loan forgiveness) and administrative hurdles, since ICR is available
only in the Direct Loan Program, for which the Department has readily
available payment data.
SAP for Income-Based Loans: Initially, the Department recommended
calculating SAP rates related to accrued interest on loans repaid under
the IBR plan in the same manner that is used to calculate rates for a
loan's principal balance. Some non-Federal negotiators noted that
accrued interest on an IBR loan is only capitalized under limited
circumstances. They stated that the lender's yield on the principal
balance of these loans would be less than that obtained on a similar
loan where accrued interest is capitalized. These negotiators also
noted that, under the Department's approach, the lender's yield on a
loan in repayment under IBR would be reduced further because the
special allowance rate for the unpaid accrued interest would be reduced
by the applicable interest rate of the loan. The Department agreed.
Economic Hardship Deferment: Under the CCRAA, economic hardship for
the purpose of qualifying for a student loan deferment is defined
through an income threshold of 150 percent of the poverty guideline
applicable to the borrower's family size. This approach replaced
previous criteria under which borrowers were eligible if they earned
100 percent of the poverty guideline for a family of two or if their
Federal educational debt burden exceeded 20 percent of their adjusted
gross income when adjusted gross income minus debt burden is less than
220 percent of the poverty guideline for a family of two.
Under the HEA, the Secretary has discretion to establish additional
eligibility criteria for economic hardship deferments through
regulation. The Department is proposing to exercise this discretion to
retain the ``20/220'' rule described above for a limited time. First
established in regulations published on November 1, 2007, retaining
this provision would allow borrowers to continue to qualify for an
economic hardship deferment until July 1, 2009, when the newly created
IBR plan becomes effective. Borrowers in an economic hardship deferment
under the 20/220 provision that began prior to July 1, 2009, would
continue in that status for one year from the start of the deferment
period. Some of the non-Federal negotiators were concerned that
eliminating the rule after July 1, 2009, would adversely affect medical
students with large student loans. Data from the National Postsecondary
Student Aid Survey indicate 91.2 percent of students beyond their third
year of medical school have Federal student loans, with an average
outstanding balance of $109,572. Nearly three-quarters of these
students have Federal student loan debt of at least $75,000. Under the
20/220 provision, a significant number of these borrowers qualify for
an economic hardship deferment during their internship and residency;
under this deferment they would make no payments for up to 3 years,
with interest paid by the government on Stafford Loans during that
period. In the absence of the 20/220 provision, many of these borrowers
would not qualify for a deferment and would therefore have to begin
repaying their loans while completing their training in relatively low-
paying positions. In light of these concerns, negotiators asked the
Department to extend the 20/220 provision indefinitely. Such an
extension would be prohibitively expensive, with estimated 10-year
costs of over $1.1 billion. This estimate, based on a review of
Department data on borrower incomes and debt burdens, reflects an
estimated 30 percent increase in loan volume qualifying for economic
hardship deferment over the amount assumed under baseline estimates. In
addition, the Department noted that many high-debt, low-income
borrowers under the IBR plan will not be required to make monthly loan
payments; others will have monthly payment amounts well below those
normally calculated under a standard repayment plan. All borrowers have
access to either the IBR or the ICR plan in the Direct Loan Program.
The Department does not have borrower-level income data by profession
and so cannot estimate aggregate payment amounts under these plans for
medical students affected by these regulations. After considering all
these factors, the Department declined to use its authority to extend
the 20/220 provision beyond July 1, 2009.
Definition of Full-Time Employment: The CCRAA did not include a
definition of the term ``full-time,'' when describing the type of
employment that would qualify a borrower for the public service loan
forgiveness program. Accordingly, we are proposing a definition in this
NPRM.
After consulting with the Department of Labor, the Department
determined that there is no Federal or generally applicable State
standard for what constitutes full-time employment. Subsequent
discussions considered the wide variety of full-time work schedules
available. Negotiators agreed to a definition under which an individual
who works an annual average of 30 hours per week, an average of 30
hours per week during a contractual or employment period of at least 8
months, or for the number of hours the employer considers full-time,
would be considered a full-time employee. This proposed definition is
consistent with the standard used to determine a borrower's eligibility
for a student loan unemployment deferment, which requires a borrower to
be seeking but unable to find full-time employment of at least 30 hours
per week. The proposed definition also could include employment that is
less than 30 hours each week, but which averages 30 hours a week over
the course of a year. Under the proposed definition, teachers and other
individuals engaged in public service employment who have a contractual
or employment period that includes an acknowledged break period during
which they remain employed could be considered to be employed full-
time.
Benefits
Benefits provided in these regulations include: The provision of
more flexible repayment options for student loan borrowers, expanded
eligibility for economic hardship deferments for borrowers with large
families, additional deferment benefits for military personnel, and the
provision of loan forgiveness for public service employees. The Federal
taxpayer also benefits from reduced costs related to the reduction of
SAP paid to not-for-profit loan holders in the FFEL Program. These
benefits all flow directly from statutory changes included in the
CCRAA; the Department does not believe these benefits are materially
affected by discretionary choices exercised by the Department in
developing these regulations. As discussed in greater detail under Net
Budget Impacts, these proposed provisions result in net costs to the
government of $3.3 billion over 2008-2012.
Costs
Because entities affected by these proposed regulations already
participate in the title IV, HEA programs, these lenders, guaranty
agencies, and schools must already have systems and procedures in place
to meet program eligibility requirements. These proposed regulations
generally would require
[[Page 37709]]
discrete changes in specific parameters associated with existing
guidance--such as the use of new criteria to calculate eligibility for
deferments or determine SAP--rather than wholly new requirements.
Accordingly, entities wishing to continue to participate in the student
aid programs have already incurred most of the administrative costs
related to implementing these proposed regulations. Marginal costs over
this baseline are primarily related to one-time system changes that,
while possibly significant in some cases, are an unavoidable cost of
continued program participation. In assessing the potential impact of
these proposed regulations, the Department recognizes that certain
provisions--primarily the provision of an IBR plan--are likely to
increase workload for some program participants. (This additional
workload is discussed in more detail under the Paperwork Reduction Act
of 1995 section of this preamble. These workload analyses indicate an
overall increase of 217,297 hours as a result of this NPRM.) Additional
workload would normally be expected to result in estimated costs
associated with either the hiring of additional employees or
opportunity costs related to the reassignment of existing staff from
other activities. In this case, however, these costs are not expected
to be significant because the Department estimates that participation
by FFEL borrowers in the IBR plan will be extremely limited.
The Department is particularly interested in comments on possible
administrative burdens related to the proposed regulations. In a number
of areas, such as the administrative activities required for FFEL
lenders in establishing an IBR option, non-Federal negotiators raised
concerns about possible administrative burden associated with
provisions included in these proposed regulations. Given the limited
data available, however, the Department is particularly interested in
comments and supporting information related to possible burden stemming
from the proposed regulations. Estimates included in this notice will
be reevaluated based on any information received during the public
comment period.
IBR and Economic Hardship Deferment Changes. The Department
estimates that the proposed regulatory changes related to IBR and
economic hardship deferments would result in $4.5 billion in additional
Federal costs over fiscal years 2008-2012. ($3.0 billion of these costs
are associated with loans made prior to 2008.) These costs are almost
entirely related to IBR, as the proposed changes in the economic
hardship deferment--liberalizing the family-size criteria while
eliminating the debt burden test--largely cancelled one another out.
With respect to the IBR plan, the Department reviewed Direct Loan
servicing system data on participation in the ICR plan and assumed
borrowers participating or estimated to participate in ICR who meet the
IBR eligibility criteria would stop participating in the ICR plan and
choose to participate in the more generous IBR plan. Assumptions were
derived by applying percentages based on historical participation in
the ICR plan to loan volume forecasts for future years. Using this
approach, we estimate that 126,000 borrowers in the FY 2009 loan cohort
would select the IBR plan, and that of these borrowers, 44,000 would
eventually have at least a portion of their loan forgiven after 25
years. By the 2012 cohort, projected growth in loan volume increase
these figures to 146,000 and 52,000, respectively.
Public Service Loan Forgiveness. The Department estimates the
public service loan forgiveness provisions in these proposed
regulations would increase Federal costs by $1.5 billion over FY 2008-
2012. (Of these costs, $1.2 billion is associated with loans made prior
to 2008.) This estimate was based on an analysis of public sector job
participation by student loan borrowers using information from
Department Direct Loan systems and data compiled by the Census Bureau
through its Current Population Surveys. These data indicated 32.6
percent of individuals between the ages of 21 and 28 were employed in
public service positions that meet the statutory eligibility percent
criteria. This age range was chosen to best capture the population of
borrowers most likely to take advantage of this benefit. The Department
was unable to obtain data on how long individuals remain employed in
qualifying positions. In the absence of data to the contrary, and to
estimate the maximum government exposure under this provision, the
Department assumed all individuals would work the full 10 years needed
to receive the benefit. Given the requirement that borrowers be making
payments throughout the qualifying employment period, it was assumed
that only borrowers choosing the IBR or ICR plan would have balances
eligible for forgiveness after 10 years. The Department assumed the
distribution of borrowers choosing these repayment plans was consistent
with the population as a whole as indicated by the Census data.
Accordingly, the Department's cost estimation model was run assuming
remaining balances would be forgiven after 10 years for 32.6 percent of
ICR and IBR borrowers.
SAP for Not-for-Profit Entities. The Department estimates the not-
for-profit holder SAP provisions will reduce Federal costs by $2.9
billion over FY 2008-2012. These estimates are based on forecasts of
commercial paper rates prepared by OMB and loan volume assumptions
developed by the Department using data from the FFEL lender payment
system and publicly available information on lender characteristics.
Initial estimates prepared following the passage of the CCRAA assumed
12.4 percent of new FFEL loan volume will be held by not-for-profit
loan holders; this percentage increased to 16.2 percent when adjusted
for Public Law 110-109, as implemented by this NPRM, which removed the
requirement that eligible not-for-profit holders be eligible lenders
under section 435(d) of the HEA. To determine the cost of this change,
the Department's loan cost model was run applying the not-for-profit
SAP rates to the revised percentage of loan volume.
Net Budget Impacts
The CCRAA provisions implemented by these proposed regulations are
estimated to have a net budget impact of $650 million in 2008 and $9.2
billion over FY 2008-2012. Consistent with the requirements of the
Credit Reform Act of 1990, 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 OMB's Credit Subsidy
Calculator. (This calculator will also be used for re-estimates of
prior-year costs, which will be performed each year beginning in FY
2009). 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
[[Page 37710]]
regulations. That said, however, in developing the Accounting Statement
included below, the Department consulted with OMB on how to integrate
our discounting methodology with the discounting methodology
traditionally used in developing regulatory impact analyses.
Absent evidence on 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:
Proprietary schools, two-year schools, freshmen/sophomores at four-year
schools, juniors/seniors at four-year schools, and graduate students.
Risk categories have separate assumptions based on the historical
pattern of behavior--for example, the likelihood of default or the
likelihood to use statutory deferment or discharge benefits--of
borrowers in each category.
Assumptions, Limitations, and Data Sources
Because these proposed regulations would largely restate statutory
requirements that would be self-implementing in the absence of
regulatory action, impact estimates provided in the preceding section
reflect a pre-statutory baseline in which the CCRAA changes implemented
in these proposed regulations do not exist. Costs have been quantified
for five years. In general, these estimates should be considered
preliminary; they will be reevaluated in light of any comments or
information received by the Department prior to the publication of the
final regulations. The final regulations will incorporate this
information in a more robust analysis.
In developing these estimates, a wide range of data sources were
used, including data from the National Student Loan Data System,
operational and financial data from Department of Education systems,
and data from a range of surveys conducted by the National Center for
Education Statistics such as the 2004 National Postsecondary Student
Aid Survey, the 1994 National Education Longitudinal Study, and the
1996 Beginning Postsecondary Student Survey. Data from other sources,
such as the Census Bureau, were also used. Data on administrative
burden at participating schools, lenders, guaranty agencies, and third-
party servicers are extremely limited; accordingly, as noted above, the
Department is particularly interested in comments in this area.
Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and
explain burdens specifically associated with information collection
requirements. See the heading Paperwork Reduction Act of 1995.
Accounting Statement
As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of these proposed
regulations. This table provides our best estimate of the changes in
Federal student aid payments as a result of these proposed regulations.
Expenditures are classified as transfers from the Federal government to
student loan borrowers (for the IBR, loan deferment, and loan
forgiveness provisions) and from student loan holders to the Federal
government (for the SAP provisions).
Table 2.--Accounting Statement: Classification of Estimated Expenditures
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers:
Federal Government to Student Loan $1.357 billion.
Borrowers.
Federal Government To Student Loan 568 million.
Holders.
--------------------------------
Total.......................... 1.925 billion.
------------------------------------------------------------------------
Clarity of the Regulations
Executive Order 12866 and the Presidential memorandum ``Plain
Language in Government Writing'' requires each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 682.209 Repayment of a loan.)
Could the description of the proposed regulations in the
``Supplementary Information'' section of this preamble be more helpful
in making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
To send any comments that concern how the Department could make
these proposed regulations easier to understand, see the instructions
in the ADDRESSES section of this preamble.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education, lenders, and guaranty agencies that participate in
title IV, HEA programs and individual students and loan borrowers. The
U.S. Small Business Administration Size Standards define these
institutions as ``small entities'' if they are for-profit or nonprofit
institutions with total annual revenue below $5,000,000 or if they are
institutions controlled by governmental entities with populations below
50,000. Guaranty agencies are State and private nonprofit entities that
act as agents of the Federal government, and as such are not considered
``small entities'' under the Regulatory Flexibility Act. Individuals
are also not defined as ``small entities'' under the Regulatory
Flexibility Act.
A significant percentage of the lenders and schools participating
in the Federal student loan programs meet the
[[Page 37711]]
definition of ``small entities.'' While these lenders and schools fall
within the SBA size guidelines, the proposed regulations do not impose
significant new costs on these entities.
The Secretary invites comments from small institutions and lenders
as to whether they believe the proposed changes would have a
significant economic impact on them and, if so, requests evidence to
support that belief.
Paperwork Reduction Act of 1995
Proposed Sec. Sec. 674.34, 682.205, 682.209, 682.210, 682.211,
682.215, 682.302, 685.204, 685.205, 685.219, 685.220, and 685.221
contain information collection requirements. Under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department has submitted
a copy of these sections to OMB for its review.
Sections 674.34(h)-(i), 682.210(t)-(u), and 685.204(e)-(f)--Deferment
of Repayment--Federal Perkins Loan, NDSLs, Defense Loans, FFEL, and
Direct Loans
The proposed regulations amend the provisions related to the
military service deferment and the post-active duty student deferment
in the Federal Perkins, FFEL, and Direct Loan Programs.
The proposed changes regarding the post-active duty student
deferment would result in an increase in the burden hours associated
with the current Federal Perkins/FFEL/Direct Loan military deferment
request form cleared under OMB Control Number 1845-0080. The current
military deferment request form covers only the military service
deferment. The form will be revised to cover both the military service
deferment and the post-active duty student deferment. The Department
expects to submit a revised deferment request form for OMB clearance by
October 2008.
Section 682.205(h)--Disclosure Requirements for Lenders
These proposed regulations provide that, at the time of offering a
borrower a loan and at the time of offering a borrower repayment
options, the lender must provide the borrower with a notice that
informs the borrower of the availability of income-sensitive and IBR
plans, except for parent PLUS borrowers and Consolidation Loan
borrowers whose Consolidation Loan paid off one or more parent PLUS
Loans. This information may be provided in a separate notice or as part
of the other disclosures required by this section.
The Department has determined that this modification to the current
notification requirements would not increase the burden associated with
Sec. 682.205 and the associated collection, OMB Control No. 1845-0020.
Section 682.209(a)--Repayment of a Loan
The proposed regulations would add the IBR plan as a repayment
option for FFEL borrowers and require lenders to take certain actions
when a borrower fails to select a repayment plan within 45 days of the
lender notification.
The Department has determined that this modification to the current
notification requirements would not increase the burden associated with
Sec. 682.209 and the associated collection, OMB Control No. 1845-0020.
Section 682.211(f)--Forbearance
The proposed regulations would provide for a period of forbearance,
not to exceed 60 days, necessary for the lender to collect and process
documentation supporting the borrower's eligibility for loan
forgiveness under the IBR program. The lender must notify the borrower
that the requirement to make payments on the loans for which
forgiveness was requested has been suspended pending approval of the
forgiveness by the guaranty agency.
The proposed addition of this new type of forbearance under the IBR
plan is estimated to increase the burden hours for lenders and guaranty
agencies by 31,414 hours under OMB Control Number 1845-0020. (Note:
This is an administrative forbearance and does not require an OMB-
approved form.)
Section 682.215--Income-Based Repayment Plan
The proposed regulations provide that a borrower may elect the IBR
plan only if the borrower has a partial financial hardship. Under this
plan, the borrower's aggregate monthly loan payments would be limited
to no more than 15 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. If a borrower no longer has a
partial financial hardship, the borrower may continue to make payments
under the IBR plan, but the loan holder must recalculate the borrower's
monthly repayment. If the borrower no longer wishes to pay under the
IBR plan, the borrower must pay under a standard repayment plan as
calculated by the loan holder.
The proposed regulations provide that a loan holder would require
the borrower, in order to establish his or her eligibility for the IBR
plan, to provide written consent to the disclosure of AGI and other tax
return information by the IRS to the loan holder. The borrower also
would be required to annually certify his or her family size; otherwise
the loan holder would assume a family size of one. To determine whether
a borrower qualifies for loan forgiveness after 25 years, the loan
holder must make a determination that the borrower has established
eligibility for loan forgiveness by making payments for 25 years, or,
that through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments. The loan holder is required, no later than 60 days after it
makes the determination that the borrower is eligible for loan
forgiveness, to request payment from the guaranty agency. Within 45
days of receiving the loan holder's request for payment, the guaranty
agency must determine if the borrower meets the eligibility
requirements for loan forgiveness and must notify the loan holder. If
the guaranty agency determines that the borrower is eligible for loan
forgiveness, it must pay the loan holder within the same 45-day period.
The holder must notify the borrower within 30 days of being notified by
the guaranty agency.
We estimate that the proposed regulation will increase burden for
borrowers, lenders and guaranty agencies by 185,778 hours, under new
OMB Control Number 1845-XXXX.
Section 682.302(x)--Eligible Not-For-Profit Holder
The proposed regulations would require a State, non-profit entity,
or eligible lender trustee to provide to the Secretary a certification
on the State or non-profit entity's letterhead signed by the State or
non-profit entity's CEO which states the basis upon which the entity
qualifies as a State or non-profit entity. The submission must include
documentation establishing the entity's State or non-profit status. In
addition, the submission must include the name and lender
identification number for which the eligible not-for-profit designation
is being certified. For an entity establishing non-profit status under
section 150(d) of the IRC, the submission must include copies of the
requests of the State or political subdivision or subdivisions thereof,
or requirements described in section 150(d) of the IRC, and the CEO's
additional certification that the entity has not elected to cease its
status as a qualified scholarship funding corporation. A separately
submitted certification or opinion by the State or non-profit entity's
external legal counsel
[[Page 37712]]
or the office of the attorney general of the State, must be submitted
with supporting documentation that shows that the State or non-profit
entity is a constituted State entity by operation of specific State
law, has been designated by the State or one or more political
subdivisions of the State to serve as a qualified scholarship funding
corporation, and is incorporated under State law as a not-for-profit
organization, or is an entity described in section 501(c)(3) of the
IRC, or has in effect a relationship with an eligible lender under
which the lender is acting as trustee on behalf of the State or non-
profit entity.
Under the proposed regulations, once an entity has been approved as
an eligible not-for-profit holder, the entity must provide to the
Secretary an annual certification on the State or non-profit entity's
letterhead signed by the CEO, which includes the name and lender
identification number(s) of the entities for which designation is being
recertified. The annual certification must state that the State or non-
profit entity has not altered its status as a State or non-profit
entity since its prior certification to the Secretary and that it
continues to satisfy the requirements of an eligible not-for-profit
holder either in its own right or through a trust agreement with an
eligible lender trustee. A copy of its IRS Form 990--Return of
Organization Exempt From Income Tax, if applicable, must be submitted
at the same time the entity files that return with the IRS as a part of
the annual certification.
Within 10 days of becoming aware of the occurrence of a change that
may result in a State or non-profit entity that has been designated an
eligible not-for-profit holder, either directly or through an eligible
lender trustee, losing that eligibility, the State or non-profit entity
must submit details of the change to the Secretary.
We estimate that the proposed regulation will increase burden for
States, non-profit entities and eligible lender trustees by 105 hours
in the new OMB Control Number 1845-XXXX.
Section 685.205(a)--Forbearance
The proposed regulations would provide for loan forbearance for a
borrower who qualifies for a post-active duty student deferment, but
does not qualify for a military service or other deferment, and is
engaged in active State duty for a period of more than 30 consecutive
days.
The proposed addition of a new type of forbearance will increase
the burden hours associated with OMB Control Number 1845-0031, the
Direct Loan Program General Forbearance Request form. The current form
will be revised to cover the new forbearance condition. The Department
expects to submit the revised form for clearance by October 2008.
Section 685.219--Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program created by the CCRAA is
intended to encourage individuals to enter and continue in full-time
public service employment by forgiving the remaining balance of their
eligible Direct loans after they satisfy the public service and loan
payment requirements of this section.
The burden associated with the proposed regulations for this
program will be reported in the paperwork clearance package for a new
public service loan forgiveness application form under the new OMB
Control Number 1845-XXX3 that the Department will develop. Because no
borrowers will be eligible to apply for loan forgiveness under this
program until 2017, the Department has not yet established a timeline
for developing a loan forgiveness application.
Section 685.220--Consolidation
The proposed regulation permits a borrower to consolidate a FFEL
Consolidation Loan into the Federal Direct Loan Program for the purpose
of participating in the Public Service Loan Forgiveness Program.
We estimate that the expected increase in the number of FFEL
Program borrowers who wish to consolidate into the Federal Direct Loan
Program for the purpose of using the public loan forgiveness program
will increase the burden hours associated with OMB Control Number 1845-
0053 (Direct Consolidation Loan Application and Promissory Note). The
Department will submit an OMB 83-C indicating the increased burden
associated with this collection by October 2008.
Section 685.221--Income-Based Repayment Plan
The proposed regulations would provide that a borrower may elect
the IBR plan only if the borrower has a partial financial hardship.
Under this plan, the borrower's aggregate monthly loan payments would
be limited to no more than 15 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. If a borrower no longer
has a partial financial hardship, the borrower may continue to make
payments under the IBR plan, but the Secretary must recalculate the
borrower's monthly repayment. If the borrower no longer wishes to pay
under the IBR plan, the borrower must pay under the standard repayment
plan as calculated by the Secretary.
The proposed regulations provide that the Secretary would require a
borrower, in order to establish his or her eligibility for the IBR
plan, to provide written consent to the disclosure of AGI and other tax
return information by the IRS to the Secretary. The borrower annually
certifies his or her family size; otherwise the Secretary assumes a
family size of one. To qualify for loan forgiveness after 25 years, a
determination must be made that the borrower has established
eligibility for loan forgiveness by making payments for 25 years, or
that through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments.
The Department plans to revise the current collection approved
under OMB Control Number 1845-0017, the Direct Loan Program Income
Contingent Repayment Plan Consent to Disclosure of Tax Information, so
that it may also be used to collect the income information needed for
the Income-Based Repayment Plan. The resulting increased burden
associated with OMB Control Number 1845-0017 will be reported in the
paperwork clearance package for the revised form. The Department
expects to submit the revised form for clearance by October 2008.
Collection of Information
------------------------------------------------------------------------
Information
Regulatory section collection Collection
------------------------------------------------------------------------
674.34, 682.210, and 685.204 This proposed OMB 1845-0080. This
regulation will be a revision
incorporates of an existing
previous collection. A
interpretive separate 60-day
guidance related to Federal Register
the military notice will be
service deferment published to
and the active duty solicit comment on
student deferment. the revised form
once it is
developed. The
revised form will
be submitted for
clearance by
October 2008.
[[Page 37713]]
682.205..................... This proposed OMB 1845-0020. There
regulation is no change in
establishes the burden.
disclosure
requirements for
lenders.
682.209..................... This proposed OMB 1845-0020. There
regulation adds is no change in
income-based burden
repayment plans
available to FFEL
borrowers.
682.211..................... This proposed OMB 1845-0020. This
regulation will be a revision
establishes the of an existing
timeframe that a collection which is
lender has to being submitted to
collect and process OMB with this NPRM.
required
documentation.
682.215..................... This proposed OMB 1845-XXX1. This
regulation provides will be a new
for the collection collection which is
of the borrower's being submitted to
income information OMB with this NPRM.
from the IRS and to
obtain an annual
certification from
the borrower who
elects an income-
based repayment
plan.
682.302..................... This proposed OMB 1845-XXX2. This
regulation requires will be a new
the submission of collection which is
documentation by a being submitted to
State, non-profit OMB with this NPRM.
entity, or an
eligible lender
trustee to the
Secretary to
establish
eligibility for not-
for-profit holder
status.
685.205..................... This proposed OMB 1845-0031. This
regulation provides will be a revision
for the collection of an existing
of information to collection. A
determine if a separate 60-day
Direct loan Federal Register
borrower who is not notice will be
eligible for a post- published to
active duty loan solicit comment on
deferment may the revised form
receive a once it is
forbearance. developed. The
revised form will
be submitted for
clearance by
October 2008.
685.219..................... This proposed OMB 1845-XXX3. This
regulation will be a new
establishes a new collection. A
Public Service Loan separate 60-day
Forgiveness program. Federal Register
notice will be
published to
solicit comment on
this form once it
is developed.
Because no
borrowers will be
eligible to apply
for loan
forgiveness under
this program until
2017, the
Department has not
yet established a
timeline for
development of the
new form.
685.220..................... This proposed OMB 1845-0053. This
regulation provides will increase the
for the burden associated
consolidation of with an existing
FFEL loans into collection. The
Direct increase will be
Consolidation loans reported on OMB
for the purpose of Form 83-C by
using the Public October 2008.
Service Loan
Forgiveness program.
685.221..................... This proposed OMB 1845-0017. This
regulation provides will be a revision
for the collection of an existing
of the borrower's collection. A
income information separate 60-day
from the IRS and to Federal Register
obtain an annual notice will be
certification from published to
the borrower who solicit comment on
elects an income- the revised form
based repayment once it is
plan. developed. The
revised form will
be submitted for
clearance by
October 2008.
------------------------------------------------------------------------
Intergovernmental Review
These programs are not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.
Assessment of Educational Impact
In accordance with section 441 of the General Education Provisions
Act, 20 U.S.C.1221e-4, the Secretary particularly requests comments on
whether these proposed regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Electronic Access to This Document
You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/news/fedregister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
Note: 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 on GPO Access at: http://www.gpoaccess.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program; 84.038 Federal Perkins Loan Program;
84.268 William D. Ford Federal Direct Loan Program)
List of Subjects in 34 CFR 674,682 and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student Aid, vocational education.
Dated: June 18, 2008.
Margaret Spellings,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend 34 CFR chapter IV as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
1. The authority citation for part 674 continues to read as
follows:
Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless
otherwise noted.
2. Section 674.34 is amended by:
A. In the introductory text of paragraph (e), removing the
reference ``(e)(6)'' from the cross-reference in the parenthetical
phrase that appears after the word ``time'' and adding, in its place,
the reference ``(e)(5)'', and removing the words ``through (e)(6)'' and
adding, in their place, the words ``through (e)(5)''.
B. In paragraph (e)(1), removing the word ``FDSL'' and adding, in
its place, ``Federal Direct Loan Program'', and adding the word ``the''
before the words ``FFEL programs''.
C. In paragraph (e)(3)(ii), removing the words ``poverty line
applicable to the borrower's family size, as determined in accordance
with section 673(2) of the Community Service Block Grant Act'' and
adding, in its place, the words ``poverty guideline applicable to the
borrower's family size as published annually by the Department of
Health
[[Page 37714]]
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''.
D. Removing paragraph (e)(5).
E. Redesignating paragraphs (e)(6), (e)(7), (e)(8), (e)(9), and
(e)(10) as paragraphs (e)(5), (e)(6), (e)(7), (e)(8), and (e)(9)
respectively.
F. In newly redesignated paragraph (e)(6), removing the words ``or
(e)(5)''.
G. In newly redesignated paragraph (e)(7), removing the words ``,
or (e)(5)'', removing the punctuation ``,'' after the reference
``(e)(3)'', and adding the word ``and'' after the reference ``(e)(3)''.
H. In newly redesignated paragraph (e)(8), adding ``(i)'' after the
number ``(8)'' and removing the words ``and (e)(5)''.
I. Adding new paragraph (e)(8)(ii).
J. In newly redesignated paragraph (e)(9), removing the words ``and
(e)(5)''.
K. In paragraph (h)(1), adding the heading ``Military service
deferment'' before the paragraph designation ``(1)'' and adding the
punctuation ``,'' after the word ``principal'' and after the word
``accrue''.
L. In paragraph (h)(4), removing the word ``section'' and adding,
in its place, the word ``paragraph''.
M. Revising paragraph (h)(6).
N. Adding new paragraph (h)(7).
O. Adding a heading to paragraph (i).
P. In paragraph (i)(1), revising the introductory text.
Q. In paragraph (i)(1)(ii), adding the words ``, on at least a
half-time basis,'' after the word ``enrolled''.
R. Revising paragraph (i)(2).
S. In paragraph (i)(3), adding the words ``, on at least a half-
time basis,'' after the word ``status'' each time it appears.
T. Adding new paragraph (i)(4).
U. In paragraph (j), removing the words ``paragraph (j)'' and
adding, in their place, the words ``paragraph (k)''.
The revisions and additions read as follows:
Sec. 674.34 Deferment of repayment--Federal Perkins loans, NDSLs and
Defense loans.
* * * * *
(e) * * *
(8)(i) For purposes of paragraphs (e)(3) of this section, a
borrower is considered to be working full-time if the borrower is
expected to be employed for at least three consecutive months at 30
hours per week.
(ii) For purposes of paragraph (e)(3)(ii) of this section, family
size means the number that is determined by counting the borrower, the
borrower's spouse, and the borrower's children if the children receive
more than half their support from the borrower. A borrower's family
size includes other individuals if, at the time the borrower requests
the economic hardship deferment, 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. Support includes
money, gifts, loans, housing, food, clothes, car, medical and dental
care, and payment of college costs.
* * * * *
(h) * * *
(6) For a borrower whose active duty service includes October 1,
2007, or begins on or after that date, the deferment period ends 180
days after the demobilization date for each period of service described
in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
(7) Without supporting documentation, a military service deferment
may be granted to an otherwise eligible borrower for a period not to
exceed 12 months from the date of the qualifying eligible service based
on a request from the borrower or the borrower's representative.
* * * * *
(i) Post-active duty student deferment. (1) Effective October 1,
2007, a borrower of a Federal Perkins loan, an NDSL, or a Defense loan
serving on active duty military service on that date, or who begins
serving on or after that date need not pay principal, and interest does
not accrue for up to 13 months following the conclusion of the
borrower's active duty military service and initial grace period if-- *
* *
(2) As used in paragraph (i)(1) of this section ``Active duty''
means active duty as defined in section 101(d)(1) of title 10, United
States Code, for at least a 30-day period, except that--
(i) Active duty includes active State duty for members of the
National Guard under which the Governor activates National Guard
personnel based on State statute or policy and the activities of the
National Guard are paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
the Governor is authorized, with the approval of the President or the
U.S. Secretary of Defense, to order a member to State active duty and
the activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty for training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed
in such a position is reassigned to active duty under paragraph
(i)(2)(i) of this section or full-time National Guard duty under
paragraph (i)(2)(ii) of this section.
* * * * *
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment under both paragraphs (h) and
(i) of this section, the 180-day post-mobilization military service
deferment period and the 13-month post-active duty student deferment
period apply concurrently.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
3. The authority citation for part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2 unless otherwise noted.
4. Section 682.201 is amended by:
A. In paragraph (e)(3), removing the word ``and'' at the end of the
paragraph.
B. In paragraph (e)(4), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, the words, ``; and''.
C. Adding a new paragraph (e)(5) to read as follows:
Sec. 682.201 Eligible borrowers.
* * * * *
(e) * * *
(5) A FFEL borrower may consolidate his or her loans (including a
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan
Program for the purpose of using the Public Service Loan Forgiveness
Program.
5. Section 682.205 is amended by revising paragraph (h)(1) to read
as follows:
Sec. 682.205 Disclosure requirements for lenders.
* * * * *
(h) * * *
(1) At the time of offering a borrower a loan and at the time of
offering a borrower repayment options, the lender must provide the
borrower with a notice that informs the borrower of the availability of
income-sensitive and, except for parent PLUS borrowers and
Consolidation Loan borrowers whose Consolidation Loan paid off one or
more parent PLUS Loans, income-based repayment plans. This information
may be provided in a separate notice or as part of the other
disclosures required by this section. The notice must inform the
borrower--
[[Page 37715]]
(i) That the borrower is eligible for income-sensitive repayment
and may be eligible for income-based repayment, including through loan
consolidation;
(ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
(iii) Of where and how the borrower may obtain more information
concerning income-sensitive and income-based repayment plans.
* * * * *
6. Section 682.209 is amended by:
A. Revising paragraph (a)(6)(iii).
B. Revising paragraph (a)(6)(iv).
C. Revising paragraph (a)(6)(v).
D. Redesignating paragraphs (a)(6)(x) and (a)(6)(xi) as (a)(6)(xi)
and (a)(6)(xii), respectively.
E. Adding a new paragraph (a)(6)(x).
F. In newly redesignated paragraph (a)(6)(xi), adding the words ``,
or at any time in the case of a borrower in an income-based repayment
plan'' immediately after the word ``annually''.
G. In paragraph (a)(8), adding the words ``, except in the case of
payments made under an income-based repayment plan.'' immediately after
the words ``five dollars'' the first time those words appear.
H. In paragraph (b)(1), removing the word ``The'' at the beginning
of the sentence and adding, in its place, the words ``Except in the
case of payments made under an income-based repayment plan, the''.
I. In paragraph (b)(2)(ii), in the second sentence, removing the
words ``borrower coupon book'' and adding, in their place, ``borrower's
coupon book''.
J. In paragraph (c)(1)(i), removing the word ``or'' the first time
it appears and adding the words ``, or income-based'' immediately after
the word ``extended''.
The revisions and additions read as follows:
Sec. 682.209 Repayment of a loan.
* * * * *
(a) * * *
(6) * * *
(iii) Not more than six months prior to the date that the
borrower's first payment is due, the lender must offer the borrower a
choice of a standard, income-sensitive, income-based, graduated, or, if
applicable, an extended repayment schedule.
(iv) Except in the case of an income-based repayment schedule, the
repayment schedule must require that each payment equal at least the
interest that accrues during the interval between scheduled payments.
(v) The lender shall require the borrower to repay the loan under a
standard repayment schedule described in paragraph (a)(6)(vi) of this
section if the borrower--
(A) Does not select an income-sensitive, income-based, graduated,
or, if applicable, an extended repayment schedule within 45 days after
being notified by the lender to choose a repayment schedule;
(B) Chooses an income-sensitive repayment schedule, but does not
provide the documentation requested by the lender under paragraph
(a)(6)(viii)(C) of this section within the time period specified by the
lender; or
(C) Chooses an income-based repayment schedule, but does not
provide the income documentation requested by the lender under Sec.
682.215(e)(1)(i) within the time period specified by the lender.
* * * * *
(x) Under an income-based repayment schedule, the borrower repays
the loan in accordance with Sec. 682.215.
* * * * *
7. Section 682.210 is amended by:
A. Revising paragraph (s)(6)(iii)(B).
B. Removing paragraphs (s)(6)(iv), (s)(6)(v), and (s)(6)(vii).
C. Redesignating paragraphs (s)(6)(vi), (s)(6)(viii), (s)(6)(ix),
(s)(6)(x) and (s)(6)(xi) as paragraphs (s)(6)(iv), (s)(6)(v),
(s)(6)(vi), (s)(6)(vii), (s)(6)(viii) respectively.
D. In newly redesignated (s)(6)(v), removing the words ``through
(v)''.
E. In newly redesignated (s)(6)(vi), removing the words ``through
(v)''.
F. Adding a new paragraph (s)(6)(ix).
G. In paragraph (t)(1), removing the word ``an'' and adding, in its
place, the word ``a'' and by removing the word ``loans'' and adding, in
its place, the word ``loan''.
H. In paragraph (t)(2), removing the word ``The'' at the beginning
of the sentence, and adding, in its place, the words ``For a borrower
whose active duty service includes October 1, 2007, or begins on or
after that date, the'' and by removing the words ``for the service''
and adding, in their place, the words ``for each period of service''.
I. In paragraph (t)(6), removing the word ``section'' and adding,
in its place, the word ``paragraph''.
J. Adding new paragraph (t)(9).
K. Revising the heading of paragraph (u) and the introductory text
to paragraph (u)(1).
L. In paragraph (u)(1)(ii), adding the words ``, on at least a
half-time basis,'' after the word ``enrolled''.
M. Revising paragraph (u)(2).
N. In paragraph (u)(3), adding the words ``, on at least a half-
time basis,'' after the word ``status'' each time it appears.
O. Redesignating paragraph (u)(4) as (u)(5).
P. Adding new paragraph (u)(4).
The revisions and additions read as follows:
Sec. 682.210 Deferment.
* * * * *
(s)(6) * * *
(iii) * * *
(B) An amount equal to 150 percent of the poverty guideline
applicable to the borrower's family size as published annually by the
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.
* * * * *
(ix) For purposes of paragraph (s)(6)(iii)(B) of this section,
family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children if the
children receive more than half their support from the borrower. A
borrower's family size includes other individuals if, at the time the
borrower requests the economic hardship deferment, 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. Support includes
money, gifts, loans, housing, food, clothes, car, medical and dental
care, and payment of college costs.
* * * * *
(t) * * *
(9) Without supporting documentation, a military service deferment
may be granted to an otherwise eligible borrower for a period not to
exceed the initial 12 months from the date the qualifying eligible
service began based on a request from the borrower or the borrower's
representative.
(u) Post-active duty student deferment. (1) Effective October 1,
2007, a borrower who receives a FFEL Program loan and is serving on
active duty on that date, or begins serving on or after that date, is
entitled to receive a post-active duty student deferment for 13 months
following the conclusion of the borrower's active duty military service
and any applicable grace period if--* * *
(2) As used in paragraph (u)(1) of this section, ``active duty''
means active duty as defined in section 101 (d)(1) of title 10, United
States Code for at least a 30-day period, except that--
(i) Active duty includes active State duty for members of the
National Guard
[[Page 37716]]
under which a Governor activates National Guard personnel based on
State statute or policy and the activities of the National Guard are
paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
a Governor is authorized, with the approval of the President or the
U.S. Secretary of Defense, to order a member to State active duty and
the activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty for training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed
in such a position is reassigned to active duty under paragraph
(u)(2)(i) of this section or full-time National Guard duty under
paragraph (u)(2)(ii) of this section.
* * * * *
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment, the 180-day post-mobilization
military service deferment period and the 13-month post-active duty
student deferment period apply concurrently.
* * * * *
8. Section 682.211 is amended by:
A. Adding a new paragraph (f)(13).
B. Adding a new paragraph (f)(14).
C. In paragraph (h)(2)(ii)(C), removing the punctuation at the end
and adding, in its place, ``; and''.
D. Adding new paragraph (h)(2)(iii).
The additions read as follows:
Sec. 682.211 Forbearance.
* * * * *
(f) * * *
(13) For a period not to exceed 60 days necessary for the lender to
collect and process documentation supporting the borrower's eligibility
for loan forgiveness under the income-based repayment program. The
lender must notify the borrower that the requirement to make payments
on the loans for which forgiveness was requested has been suspended
pending approval of the forgiveness by the guaranty agency.
(14) For a period of delinquency at the time a borrower makes a
change to the repayment plan.
* * * * *
(h) * * *
(2) * * *
(iii) In yearly increments (or a lesser period equal to the actual
period for which the borrower is eligible) when a member of the
National Guard who qualifies for a post-active duty student deferment,
but does not qualify for a military service deferment or other
deferment, is engaged in active State duty as defined in Sec.
682.210(u)(2)(i) and (ii) for a period of more than 30 consecutive
days, beginning--
(A) On the day after the grace period expires for a Stafford loan
that has not entered repayment; or
(B) On the day after the borrower ceases enrollment, for a FFEL
loan in repayment.
9. Redesignate Sec. 682.215 as Sec. 682.216.
10. Add a new Sec. 682.215 to read as follows:
Sec. 682.215 Income-based repayment plan.
(a) Definitions. As used in this section--(1) Adjusted gross income
(AGI) means the borrower's adjusted gross income as reported to the
Internal Revenue Service. For a married borrower filing jointly, AGI
includes both the borrower's and spouse's income. For a married
borrower filing separately, AGI includes only the borrower's income.
(2) Eligible loan means any outstanding loan made to a borrower
under the FFEL and Direct Loan programs except for a FFEL or Direct
PLUS Loan made to a parent borrower or a FFEL or Direct Consolidation
Loan that repaid a FFEL or Direct PLUS Loan made to a parent borrower.
(3) Family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children if the
children receive more than half their support from the borrower. A
borrower's family size includes other individuals if, at the time the
borrower certifies family size the other individuals--
(i) Live with the borrower; and
(ii) 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.
(4) Partial financial hardship means a circumstance in which the
annual amount due on all of a borrower's eligible loans, as calculated
under a standard repayment plan based on a 10-year repayment period,
exceeds 15 percent of the difference between the borrower's AGI and 150
percent of the poverty guideline for the borrower's family size.
(5) 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.
(b) Repayment plan. (1) A borrower may elect the income-based
repayment plan only if the borrower has a partial financial hardship.
Except as provided under paragraph (b)(1)(i), (b)(1)(ii), and
(b)(1)(iii) of this section, the borrower's aggregate monthly loan
payments are limited to no more than 15 percent of the amount by which
the borrower's AGI exceeds 150 percent of the poverty line income
applicable to the borrower's family size, divided by 12. The loan
holder adjusts the calculated monthly payment if--
(i) The total amount of the borrower's eligible loans includes
loans not held by the loan holder, in which case the loan holder
determines the borrower's adjusted monthly payment by multiplying the
calculated payment by the percentage of the total outstanding principal
amount of eligible loans that are held by the loan holder;
(ii) The calculated amount is less than $5.00, in which case the
borrower's monthly payment is $0.00; or
(iii) The calculated amount is equal to or greater than $5.00 but
less than $10.00, in which case the borrower's monthly payment is
$10.00.
(2) A borrower with eligible loans held by two or more loan holders
must request income-based repayment from each loan holder if the
borrower wants to repay all of his or her eligible loans under an
income-based repayment plan.
(3) If a borrower elects an income-based repayment plan, the loan
holder must, unless the borrower requests otherwise, require that all
eligible loans owed by the borrower to that holder be repaid under the
income-based repayment plan.
(4) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's subsidized Stafford Loans or
the subsidized portion of the borrower's Federal Consolidation loan,
the Secretary pays to the holder the remaining accrued interest for a
period not to exceed three consecutive years from the date the borrower
initially began repayment on each loan under the income-based repayment
plan. On a Consolidation Loan that repays loans on which the Secretary
has paid accrued interest under this section, the three-year period
includes the period for which the Secretary paid accrued interest on
the underlying loans. The three-year period does not include any period
during which the borrower
[[Page 37717]]
receives an economic hardship deferment.
(5) Except as provided in paragraph (b)(4) of this section, accrued
interest is capitalized at the time the borrower chooses to leave the
income-based repayment plan or no longer has a partial financial
hardship.
(6) If the borrower's monthly payment amount is not sufficient to
pay any principal due, the payment of that principal is postponed until
the borrower chooses to leave the income-based repayment plan or no
longer has a partial financial hardship.
(7) The special allowance payment to a lender during the period in
which the borrower has a partial financial hardship under an income-
based repayment plan is calculated on the principal balance of the loan
and any accrued interest unpaid by the borrower.
(8) The repayment period for a borrower under an income-based
repayment plan may be greater than 10 years.
(c) Payment application and prepayment. (1) The loan holder shall
apply any payment made under an income-based repayment plan in the
following order:
(i) Accrued interest.
(ii) Collection costs.
(iii) Late charges.
(iv) Loan principal.
(2) The borrower may prepay the whole or any part of a loan at any
time without penalty.
(3) If the prepayment amount equals or exceeds the monthly payment
amount under the repayment schedule established for the loan, the loan
holder shall apply the prepayment consistent with the requirements of
Sec. 682.209(b)(2)(ii).
(d) Changes in the payment amount. (1) If a borrower no longer has
a partial financial hardship, the borrower may continue to make
payments under the income-based repayment plan but the loan holder must
recalculate the borrower's monthly payment. The loan holder also
recalculates the monthly payment for a borrower who chooses to stop
making income-based payments. In either case, as a result of the
recalculation--
(i) The maximum monthly amount that the borrower may be required to
repay is the amount the borrower would have paid under the FFEL
standard repayment plan based on a 10-year repayment period on the
borrower's eligible loans that were outstanding at the time the
borrower began repayment on the loans with that holder under the
income-based repayment plan; and
(ii) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(2) If a borrower no longer wishes to pay under the income-based
repayment plan, the borrower must pay under the FFEL standard repayment
plan and the loan holder recalculates the borrower's monthly payment
based on--
(i) The time remaining under the maximum ten-year repayment period
for the amount of the borrower's loans that were outstanding at the
time the borrower discontinued paying under the income-based repayment
plan; or
(ii) For a Consolidation Loan, the applicable repayment period
remaining specified in Sec. 682.209(h)(2) for the total amount of that
loan and the balance of other student loans that was outstanding at the
time the borrower discontinued paying under the income-based repayment
plan.
(e) Eligibility documentation and verification. (1) The loan holder
determines whether a borrower has a partial financial hardship to
qualify for the income-based repayment plan for the year the borrower
elects the plan and for each subsequent year that the borrower remains
on the plan. To make this determination, the loan holder requires the
borrower to--
(i)(A) Provide written consent to the disclosure of AGI and other
tax return information by the Internal Revenue Service to the loan
holder. The borrower provides consent by signing a consent form and
returning it to the loan holder;
(B) If the borrower's AGI is not available, or the loan holder
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, the loan holder may use other
documentation provided by the borrower to verify income; and
(ii) Annually certify the borrower's family size. If the borrower
fails to certify family size, the loan holder must assume a family size
of one for that year.
(2) The loan holder designates the repayment option described in
paragraph (d)(1) of this section for any borrower who selects the
income-based repayment plan but--
(i) Fails to provide or renew the required written consent for
income verification; or
(ii) Withdraws consent and does not select another repayment plan.
(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25
years, the borrower must have participated in the income-based
repayment plan and satisfied at least one of the following conditions
during that period--
(i) Made reduced monthly payments under a partial financial
hardship as provided under paragraph (b)(1) of this section. Monthly
payments of $0.00 qualify as reduced monthly payments as provided in
paragraph (b)(1)(ii) of this section;
(ii) Made reduced monthly payments after the borrower no longer had
a partial financial hardship or stopped making income-based payments as
provided in paragraph (d)(1) of this section;
(iii) Made monthly payments under any repayment plan, that were not
less than the amount required under the FFEL standard repayment plan
described in Sec. 682.209(a)(6)(vi) with a 10-year repayment period;
(iv) Made monthly payments under the FFEL standard repayment plan
described in Sec. 682.209(a)(6)(vi) based on a 10-year repayment
period for the amount of the borrower's loans that were outstanding at
the time the borrower first selected the income-based repayment plan;
or
(v) Received an economic hardship deferment on eligible FFEL loans.
(2) As provided under paragraph (f)(4) of this section, the
Secretary repays any outstanding balance of principal and accrued
interest on FFEL loans for which the borrower qualifies for forgiveness
if the guaranty agency determines that--
(i) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (f)(1) of this section,
including a monthly amount of $0.00 as provided in paragraph (b)(1)(ii)
of this section; and
(ii)(A) The borrower made those monthly payments each year for a
25-year period; or
(B) Through a combination of monthly payments and economic hardship
deferments, the borrower made the equivalent of 25 years of payments.
(3) For a borrower who qualifies for the income-based repayment
plan, the beginning date for the 25-year period is--
(i) For a borrower who has a FFEL Consolidation Loan, the date the
borrower made a payment or received an economic hardship deferment on
that loan, before the date the borrower qualified for income-based
repayment. The beginning date is the date the borrower made the payment
or received the deferment, but no earlier than July 1, 2009;
(ii) For a borrower who has one or more other eligible FFEL loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower
made that payment or received the deferment on
[[Page 37718]]
that loan, but no earlier than July 1, 2009;
(iii) For a borrower who did not make a payment or receive an
economic hardship deferment on the loan under paragraph (f)(3)(i) or
(ii) of this section, the date the borrower made a payment under the
income-based repayment plan on the loan; or
(iv) If the borrower consolidates his or her eligible loans, the
date the borrower made a payment on the FFEL Consolidation Loan that
met the conditions in (f)(1) after qualifying for the income-based
repayment plan.
(4) If a borrower satisfies the loan forgiveness requirements, the
Secretary repays the outstanding balance and accrued interest on the
FFEL Consolidation Loan described in paragraph (f)(3)(i), (iii), or
(iv) of this section or other eligible FFEL loans described in
paragraph (f)(3)(ii) or (iv) of this section.
(g) Loan forgiveness processing and payment. (1) No later than 60
days after the loan holder determines that a borrower qualifies for
loan forgiveness under paragraph (f) of this section, the loan holder
must request payment from the guaranty agency.
(2) If the loan holder requests payment from the guaranty agency
later than 60 days after the 25-year repayment period required for
forgiveness, interest that accrues on the discharged amount after the
expiration of the 60-day filing period is ineligible for reimbursement
by the Secretary, and the holder must repay all interest and special
allowance received on the discharged amount for periods after the
expiration of the 60-day filing period. The holder cannot collect from
the borrower any interest that is not paid by the Secretary under this
paragraph.
(3)(i) Within 45 days of receiving the holder's request for
payment, the guaranty agency must determine if the borrower meets the
eligibility requirements for loan forgiveness under this section and
must notify the holder of its determination.
(ii) If the guaranty agency approves the loan forgiveness, it must,
within the same 45-day period required under paragraph (g)(3)(i) of
this section, pay the holder the amount of the forgiveness.
(4) After being notified by the guaranty agency of its
determination of the eligibility of the borrower for loan forgiveness,
the holder must, within 30 days, inform the borrower of the
determination and, if appropriate, that the borrower's repayment
obligation on the loans for which income-based forgiveness was
requested is satisfied. The lender must also provide the borrower with
information on the required handling of the forgiveness amount.
(5)(i) The holder must apply the proceeds of the income-based
repayment loan forgiveness amount to satisfy the outstanding balance on
those loans for which income-based forgiveness was requested; or
(ii) If the forgiveness amount exceeds the outstanding balance on
the eligible loans subject to forgiveness, the loan holder must refund
the excess amount to the guaranty agency.
(6) If the guaranty agency does not pay the forgiveness claim, the
lender will continue the borrower in repayment on the loan. The lender
is deemed to have exercised forbearance of both principal and interest
from the date the borrower's repayment obligation was suspended until a
new payment due date is established.
(7) In the case of a forgiveness applied to a defaulted loan held
by the guaranty agency, the Secretary pays the guaranty agency a
percentage of the amount forgiven that is equal to the complement of
the reinsurance percentage paid on the loan. The payment may also
include interest that accrues on the forgiven amount from the date on
which the guaranty agency received payment from the Secretary on the
default claim to the date on which the guaranty agency determines that
the borrower is eligible for the income-based repayment plan loan
forgiveness discharge.
(Authority: 20 U.S.C. 1098e)
11. Section 682.300 is amended by:
A. In paragraph (b)(1)(ii), removing the word ``and'' at the end of
the sentence.
B. In paragraph (b)(1)(iii), removing the punctuation ``.'' and
adding, in its place ``; and'' at the end of the sentence.
C. Adding a new paragraph (b)(1)(iv).
D. In paragraph (b)(2)(vii), removing the word ``or'' at the end of
the sentence.
E. In paragraph (b)(2)(viii), removing the word `` or'' at the end
of the sentence.
F. In paragraph (b)(2)(ix), removing the punctuation ``.'' and
adding in its place ``; or'' at the end of the sentence.
G. Adding a new paragraph (b)(2)(x).
The additions read as follows:
Sec. 682.300 Payment of interest benefits on Stafford and
Consolidation loans.
* * * * *
(b) * * *
(1) * * *
(iv) During a period that does not exceed three consecutive years
from the date a borrower initially began repayment under an income-
based repayment plan, if the borrower's monthly payment amount under
the plan is not sufficient to pay the accrued interest on the
borrower's loan or on the qualifying portion of the borrower's
Consolidation Loan.
* * * * *
(2) * * *
(x) The date the borrower's payment under the income-based
repayment plan is sufficient to pay the accrued interest on the
borrower's loan or the qualifying portion of the borrower's
Consolidation Loan.
* * * * *
12. Section 682.302 is amended by:
A. Revising paragraph (a).
B. Adding a heading to paragraph (f)(3).
C. Revising the introductory text of paragraph (f)(3)(i).
D. Revising paragraph (f)(3)(i)(D).
E. Redesignating paragraphs (f)(3)(ii), (f)(3)(iii), (f)(3)(iv),
(f)(3)(v), and (f)(3)(vi) as paragraphs (f)(3)(iii), (f)(3)(v),
(f)(3)(vii), (f)(3)(viii), and (f)(3)(ix), respectively.
F. Adding new paragraph (f)(3)(ii).
G. Revising redesignated paragraph (f)(3)(iii).
H. Adding new paragraph (f)(3)(iv).
I. Revising redesignated paragraph (f)(3)(v).
J. Adding new paragraph (f)(3)(vi).
K. Revising redesignated paragraph (f)(3)(vii).
L. Revising redesignated paragraph (f)(3)(viii).
M. Revising redesignated paragraph (f)(3)(ix).
N. Adding new paragraphs (f)(3)(x), (f)(3)(xi), and (f)(3)(xii).
O. Redesignating paragraph (f)(4) as (f)(3)(xiii).
P. Revising redesignated paragraph (f)(3)(xiii).
The revisions and additions read as follows:
Sec. 682.302 Payment of special allowance on FFEL loans.
(a) General. The Secretary pays a special allowance to a lender on
an eligible FFEL loan. The special allowance is a percentage of the
average unpaid principal balance of a loan, including capitalized
interest computed in accordance with paragraphs (c) and (f) of this
section. Special allowance is also paid on the unpaid accrued interest
of a loan covered by Sec. 682.215(b)(7) computed in the same manner as
in paragraphs (c) and (f), as applicable, except for this purpose the
applicable interest rate shall be deemed to be zero.
* * * * *
(f) * * *
(3) Eligible not-for-profit holder. (i) For purposes of this
section, the term
[[Page 37719]]
``eligible not-for-profit holder'' means an eligible lender under
section 435(d) of the Act (except for a school) that requests special
allowance payments from the Secretary and that is-- * * *
(D) A trustee acting as an eligible lender on behalf of a State,
political subdivision, authority, agency, instrumentality, or other
entity described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or
(f)(3)(i)(C) of this section, other than a school that is a lender
under Sec. 682.200 (``Lender''), regardless of whether that State,
political subdivision, authority, agency, instrumentality, or other
entity is an eligible lender under section 435(d) of the Act.
* * * * *
(ii) For purposes of paragraph (f)(3) of this section, the term
``State or non-profit entity'' means an entity that is not a school and
that is described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or
(f)(3)(i)(C) of this section, regardless of whether such entity is an
eligible lender under section 435(d) of the Act.
(iii) An entity that otherwise qualifies under paragraph (f)(3)(i)
of this section shall not be considered an eligible not-for-profit
holder unless such lender--
(A) Was a State or non-profit entity and an eligible lender under
section 435(d) of the Act, other than a school lender, and had made or
acquired on or before September 27, 2007, a FFELP Loan, unless the
State waives this requirement under paragraph (f)(3)(iv) of this
section; or
(B) Is acting as an eligible lender trustee on behalf of a State or
non-profit entity that was the sole beneficial owner of a loan eligible
for a special allowance payment on September 27, 2007.
(iv) Subject to the provisions of section 435(d)(1)(D) of the Act,
a State may waive the requirement of paragraph (f)(3)(iii)(A) of this
section to identify a new eligible not-for-profit holder pursuant to a
written application filed in accordance with paragraph (f)(3)(x) of
this section, for the purposes of carrying out a public purpose of the
State, except that a State may not designate a trustee for this
purpose.
(v) A State or non-profit entity, and a trustee to the extent
acting on behalf of such an entity, shall not be an eligible not-for-
profit holder if the State or non-profit entity is owned or controlled,
in whole or in part, by a for-profit entity. A for-profit entity has
ownership and control of a State or non-profit entity, for purposes of
this paragraph if--
(A) The for-profit entity is a member or shareholder of a State or
non-profit entity that is a membership or stock corporation, and the
for-profit entity has sufficient power to control the State or non-
profit entity;
(B) The for-profit entity employs or appoints individuals that
together constitute a majority of the State or non-profit entity's
board of trustees or directors, or a majority of such board's audit
committee, executive committee, or compensation committee; or
(C) For a State or non-profit entity that has no board of trustees
or directors and associated committees of such, the for-profit entity
is authorized by law, agreement, or otherwise to approve decisions by
the entity regarding its audits, investments, hiring, retention, or
compensation of officials, unless the Secretary determines that the
particular authority to approve such decisions is not likely to affect
the integrity of those decisions.
(vi) For purposes of paragraph (f)(3) of this section--
(A) A for-profit entity has sufficient power to control a State or
non-profit entity if it possesses directly, or represents, either alone
or together with other persons, under a voting trust, power of
attorney, proxy, or similar agreement, one or more persons who hold,
individually or in combination with the other person represented or the
persons representing them, a sufficient voting percentage of the
membership interests or voting securities to direct or cause the
direction of the management and policies of the State or non-profit
entity.
(B) An individual is deemed to be employed or appointed by a for-
profit entity if the for-profit entity employs a family member, as
defined in Sec. 600.21(f), of that individual, unless the Secretary
determines that the particular nature of the family member's employment
is not likely to affect the integrity of decisions made by the board or
committee member.
(C) ``Beneficial owner'' (including ``beneficial ownership'' and
``owner of a beneficial interest'') means the entity that has those
rights with respect to the loan or income from the loan that are the
normal incidents of ownership, including the right to receive, possess,
use, and sell or otherwise exercise control over the loan and the
income from the loan, subject to any rights granted and limitations
imposed in connection with or related to the granting of a security
interest described in paragraph (f)(3)(ix) of this section, and subject
to any limitations on such rights under the Act as a result of such
entity not qualifying as an eligible lender or holder under the Act.
(D) ``Sole owner'' means the entity that has all the rights
described in paragraph (f)(3)(vi)(C) of this section, which may be
subject to the rights and limitations described in paragraph
(f)(3)(vi)(C), to the exclusion of any other entity, with respect both
to a loan and the income from a loan.
(vii) No State or non-profit entity, and no trustee to the extent
acting on behalf of such a State or non-profit entity, shall be an
eligible not-for-profit holder with respect to any loan, or income from
any loan on which payment is claimed at the rate established under
paragraph (f)(2) of this section, unless such State or non-profit
entity is the sole owner of the beneficial interest in such loan and
the income from such loan.
(viii) (A) A trustee described in paragraph (f)(3)(i)(D) of this
section shall not receive compensation as consideration for acting as
an eligible lender on behalf of a State or non-profit entity in excess
of reasonable and customary fees paid for providing the particular
service or services which the trustee undertakes to provide to such
entity.
(B) Fees are reasonable and customary, for purposes of this
paragraph, if they do not exceed the amounts received by the trustee
for similar services with regard to similar portfolios of loans of that
State or non-profit entity that are not eligible to receive special
allowance payments at the rate established under paragraph (f)(2) of
this section, or if they do not exceed an amount as determined by such
other method requested by the State or non-profit entity that the
Secretary considers reliable.
(C) Loans owned by the State or non-profit entity for which the
trustee receives fees in excess of the amount permitted by paragraph
(f)(3)(viii) of this section cease to qualify for a special allowance
payment at the rate prescribed under paragraph (f)(2) of this section.
(ix) For purposes of paragraph (f)(3) of this section, if a State
or non-profit entity, or a trustee acting on its behalf, grants a
security interest in, or otherwise pledges as collateral, a loan, or
the income from a loan, to secure a debt obligation for which such
State or non-profit entity is the issuer of that debt obligation, the
State or non-profit entity shall not, by such action--
(A) Be deemed to be owned or controlled, in whole or in part, by a
for-profit entity; or
(B) Lose its status as the sole owner of a beneficial interest in a
loan and the income from a loan.
(x) Not-for-profit holder eligibility determination. A State or
non-profit entity that seeks to qualify as an eligible not-for-profit
holder, either in its own right or through a trust agreement with
[[Page 37720]]
an eligible lender trustee, must provide to the Secretary--
(A) A certification on the State or non-profit entity's letterhead
signed by the State or non-profit entity's Chief Executive Officer
(CEO) which--
(1) States the basis upon which the entity qualifies as a State or
non-profit entity;
(2) Includes documentation establishing its status as a State or
non-profit entity;
(3) Includes the name and lender identification number(s) of the
entities for which designation is being certified; and
(4) For an entity establishing status under section 150(d) of the
Internal Revenue Code of 1986, includes copies of the requests of the
State or political subdivision or subdivisions thereof or requirements
described in section 150(d)(2) of the Code and the CEO's additional
certification that the entity has not elected under section 150(d)(3)
of the Code to cease its status as a qualified scholarship funding
corporation.
(B) A separately submitted certification or opinion by the State or
non-profit entity's external legal counsel or the office of the
attorney general of the State, with supporting documentation that shows
that the State or non-profit entity--
(1) Is a constituted State entity by operation of specific State
law;
(2) Has been designated by the State or one or more political
subdivisions of the State to serve as a qualified scholarship funding
corporation under section 150(d)(2) of the Code, has not made the
election described under section 150(d)(3) of the Code, and is
incorporated under State law as a not-for-profit organization;
(3) Is incorporated under State law as a not-for-profit
organization or is an entity described in section 501(c)(3) of the
Code; or
(4) Has in effect a relationship with an eligible lender under
which the lender is acting as trustee on behalf of the State or non-
profit entity.
(xi) Annual certification by eligible not-for-profit holder. A
State or non-profit entity that seeks to retain its eligibility as an
eligible not-for-profit holder, either in its own right or through a
trust agreement with an eligible lender trustee, must annually provide
to the Secretary--
(A) A certification on the State or non-profit entity's letterhead
signed by the State or non-profit entity's Chief Executive Officer
(CEO) which--
(1) Includes the name and lender identification number(s) of the
entities for which designation is being recertified;
(2) States that the State or non-profit entity has not altered its
status as a State or non-profit entity since its prior certification to
the Secretary, or, if it has altered its status, describes any such
alterations; and
(3) States that the State or non-profit entity continues to satisfy
the requirements of an eligible not-for-profit holder, as defined in
this section, either in its own right or through a trust agreement with
an eligible lender trustee; and
(B) A copy of its IRS Form 990, if applicable, at the same time it
files that return with the Internal Revenue Service.
(xii) Not-for-profit holder change of status. Within 10 business
days of becoming aware of the occurrence of a change that may result in
a State or non-profit entity that has been designated an eligible not-
for-profit holder, either directly or through an eligible lender
trustee, losing that eligibility, the State or non-profit entity must--
(A) Submit details of the change to the Secretary; and
(B) Cease billing for special allowance at the rate established
under paragraph (f)(2) of this section for the period from the date of
the change that may result in it no longer being eligible for the rate
established under paragraph (f)(2) of this section to the date of the
Secretary's determination that such entity has not lost its eligibility
as a result of such change; provided, however, that in the quarter
following the Secretary's determination that such eligible not-for-
profit holder has not lost its eligibility, the eligible not-for-profit
holder may submit a billing for special allowance during the period
from the date of the change to the date of the Secretary's
determination equal to the difference between special allowance at the
rate established under paragraph (f)(2) of this section and the amount
it actually billed at the rate established under paragraph (f)(1) of
this section.
(xiii) In the case of a loan for which the special allowance
payment is calculated under paragraph (f)(2) of this section and that
is sold by the eligible not-for-profit holder holding the loan to an
entity that is not an eligible not-for-profit holder, the special
allowance payment for such loan shall, beginning on the date of the
sale, no longer be calculated under paragraph (f)(2) and shall be
calculated under paragraph (f)(1) of this section instead.
13. Section 682.304 is amended by:
A. Redesignating paragraph (d)(2) as paragraph (d)(3).
B. Adding a new paragraph (d)(2).
C. In newly designated paragraph (d)(3), removing the words
``paragraph (d)(1)'' and adding, in their place, the words ``paragraphs
(d)(1) and (2)''.
The addition reads as follows:
Sec. 682.304 Method of computing interest benefits and special
allowance.
* * * * *
(d) * * *
(2) To compute the average daily balance of unpaid accrued interest
for purposes of special allowance on loans covered by Sec.
682.215(b)(7), the lender adds the unpaid accrued interest on such
loans for each eligible day of the quarter, divides this sum by the
number of days in the quarter, and rounds the result to the nearest
whole dollar. The resulting figure is the average daily balance for the
quarter for qualifying loans at the applicable interest rate.
* * * * *
14. Section 682.405 is amended by:
A. Revising paragraph (b)(4) to read as follows:
Sec. 682.405 Loan rehabilitation agreement.
* * * * *
(b) * * *
(4) An eligible lender purchasing a rehabilitated loan must
establish a repayment schedule that meets the same requirements that
are applicable to other FFEL Program loans of the same loan type as the
rehabilitated loan and must permit the borrower to choose any
statutorily available repayment plan for that loan type. The lender
must treat the first payment made under the nine payments as the first
payment under the applicable maximum repayment term, as defined under
Sec. 682.209(a) or (h). For Consolidation loans, the maximum repayment
term is based on the balance outstanding at the time of loan
rehabilitation.
* * * * *
Sec. 682.410 [Amended]
15. Section 682.410 is amended by:
A. In paragraph (b)(5)(vi)(G), adding the words ``, which must
include consideration of the borrower's eligibility for income-based
repayment,'' immediately after the words ``satisfactory to the
agency''.
B. In paragraph (b)(9)(i)(D), adding the words ``, which must
include consideration of the borrower's eligibility for income-based
repayment'' immediately after the words ``to the agency''.
Sec. 682.411 [Amended]
16. Section 682.411 is amended, in paragraph (d)(1), by adding the
words ``, income-based repayment'' immediately after the words
``income-sensitive repayment''.
[[Page 37721]]
Sec. 682.604 [Amended]
17. Section 682.604 is amended by:
A. In paragraph (g)(2)(ii), removing the words ``and income-
sensitive'' and adding, in their place, the words ``income sensitive,
and income-based''.
B. In paragraph (g)(2)(v), adding the words ``forgiveness or''
immediately after the words ``full or partial'', and adding the words
``, including forgiveness or discharge benefits available to a FFEL
borrower who consolidates his or her loan into the Direct Loan
program'' immediately after the words ``of a loan''.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
18. The authority citation for part 685 continues to read as
follows:
Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.
19. Section 685.204 is amended by:
A. Adding a heading to paragraph (e).
B. In paragraph (e)(2), removing the word ``The'' and adding, in
its place, the words ``For a borrower whose active duty service
includes October 1, 2007, or begins on or after that date, the'' before
the word ``deferment'' and by adding the words ``each period of''
before the words ``service described''.
C. In paragraph (e)(6), removing the word ``section'' and adding in
its place the word ``paragraph''.
D. Adding a new paragraph (e)(7).
E. In paragraph (f), adding the heading ``Post-Active Duty Student
Deferment'' before the paragraph designation ``(1)''.
F. In paragraph (f)(1)(ii), adding the words ``on at least a half-
time basis'' after the word ``enrolled''.
G. Revising paragraph (f)(2).
H. In paragraph (f)(3), adding the words ``on at least a half-time
basis'' after the word ``status'' each time it appears and the words
``grace period or the'' before the words ``13-month''.
I. Adding new paragraph (f)(4).
J. In paragraph (h)(1), removing the word ``granted''.
The revision reads as follows:
Sec. 685.204 Deferment.
* * * * *
(e) Military service deferment.
* * * * *
(7) Without supporting documentation, the military service
deferment will be granted to an otherwise eligible borrower for a
period not to exceed 12 months from the date of the qualifying eligible
service based on a request from the borrower or the borrower's
representative.
(f) Post-Active Duty Deferment.
* * * * *
(2) As used in paragraph (f)(1) of this section, ``Active Duty''
means active duty as defined in section 101(d)(1) of title 10, United
States Code, except that--
(i) Active duty includes active State duty for members of the
National Guard under which a Governor activates National Guard
personnel based on State statute or policy and the activities of the
National Guard are paid for with State funds;
(ii) Active duty includes full-time National Guard duty under which
a Governor is authorized, with the approval of the President or the
U.S. Secretary of Defense, to order a member to State active duty and
the activities of the National Guard are paid for with Federal funds;
(iii) Active duty does not include active duty training or
attendance at a service school; and
(iv) Active duty does not include employment in a full-time,
permanent position in the National Guard unless the borrower employed
in such a position is reassigned to active duty under paragraph
(f)(2)(i) of this section or full-time National Guard duty under
paragraph (f)(2)(ii) of this section.
* * * * *
(4) If a borrower qualifies for both a military service deferment
and a post-active duty student deferment, the 180-day post-mobilization
deferment period and the 13-month post-active duty student deferment
period apply concurrently.
* * * * *
20. Section 685.205 is amended by:
A. Adding a new paragraph (a)(7) to read as follows:
Sec. 685.205 Forbearance.
* * * * *
(a) * * *
(7) The borrower is a member of the National Guard who qualifies
for a post-active duty student deferment, but does not qualify for a
military service or other deferment, and is engaged in active State
duty for a period of more than 30 consecutive days, beginning--
(i) On the day after the grace period expires for a Direct
Subsidized Loan or Direct Unsubsidized Loan that has not entered
repayment; or
(ii) On the day after the borrower ceases enrollment on at least a
half-time basis, for a Direct Loan in repayment.
* * * * *
21. Section 685.208 is amended by:
A. Revising paragraph (a).
B. Adding a new paragraph (m).
The revisions and addition read as follows:
Sec. 685.208 Repayment plans.
(a) General. (1) Borrowers who entered repayment before July 1,
2006. (i) A borrower may repay a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct Subsidized Consolidation Loan, or a Direct
Unsubsidized Consolidation Loan under the standard repayment plan, the
extended repayment plan, the graduated repayment plan, the income
contingent repayment plan, or the income-based repayment plan, in
accordance with paragraphs (b), (d), (f), (k), and (m) of this section,
respectively.
(ii) A borrower may repay a Direct PLUS Loan or a Direct PLUS
Consolidation Loan under the standard repayment plan, the extended
repayment plan, or the graduated repayment plan, in accordance with
paragraphs (b), (d), and (f) of this section, respectively.
(2) Borrowers entering repayment on or after July 1, 2006. (i) A
borrower may repay a Direct Subsidized Loan or a Direct Unsubsidized
Loan under the standard repayment plan, the extended repayment plan,
the graduated repayment plan, the income contingent repayment plan, or
the income-based repayment plan, in accordance with paragraphs (b),
(e), (g), (k), and (m) of this section, respectively.
(ii)(A) A Direct PLUS Loan that was made to a graduate or
professional student borrower may be repaid under the standard
repayment plan, the extended repayment plan, the graduated repayment
plan, the income contingent repayment plan, or the income-based
repayment plan in accordance with paragraphs (b), (e), (g), (k), and
(m) of this section, respectively.
(B) A Direct PLUS Loan that was made to a parent borrower may be
repaid under the standard repayment plan, the extended repayment plan,
or the graduated repayment plan, in accordance with paragraphs (b),
(e), and (g) of this section, respectively.
(iii) A borrower may repay a Direct Consolidation Loan under the
standard repayment plan, the extended repayment plan, the graduated
repayment plan, the income contingent repayment plan, or, unless the
Direct Consolidation Loan repaid a parent Direct PLUS Loan or a parent
Federal PLUS Loan, the income-based repayment plan, in accordance with
paragraphs (c), (e), (h), (k), and (m) of this section, respectively. A
Direct Consolidation Loan that repaid a parent Direct PLUS Loan or a
parent Federal PLUS Loan may not be repaid under the income-based
repayment plan.
(iv) No scheduled payment may be less than the amount of interest
accrued on the loan between monthly payments,
[[Page 37722]]
except under the income contingent repayment plan, the income-based
repayment plan, or an alternative repayment plan.
(3) The Secretary may provide an alternative repayment plan in
accordance with paragraph (l) of this section.
(4) All Direct Loans obtained by one borrower must be repaid
together under the same repayment plan, except that--
(i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan
that is not eligible for repayment under the income-contingent
repayment plan or the income-based repayment plan may repay the Direct
PLUS Loan or Direct Consolidation Loan separately from other Direct
Loans obtained by the borrower; and
(ii) A borrower of a Direct PLUS Consolidation Loan that entered
repayment before July 1, 2006 may repay the Direct PLUS Consolidation
Loan separately from other Direct Loans obtained by that borrower.
(5) Except as provided in Sec. 685.209 and Sec. 685.221 for the
income contingent or income-based repayment plan, the repayment period
for any of the repayment plans described in this section does not
include periods of authorized deferment or forbearance.
* * * * *
(m) Income-based repayment plan. (1) Under this repayment plan, the
required monthly payment for a borrower who has a partial financial
hardship is limited to no more than 15 percent of the amount by which
the borrower's AGI exceeds 150 percent of the poverty guideline
applicable to the borrower's family size, divided by 12. The Secretary
determines annually whether the borrower continues to qualify for this
reduced monthly payment based on the amount of the borrower's eligible
loans, AGI, and poverty guideline.
(2) The specific provisions governing the income-based repayment
plan are in Sec. 685.221.
22. Section 685.209 is amended by revising paragraph (c)(4) to read
as follows:
Sec. 685.209 Income contingent repayment plan.
* * * * *
(c) * * *
(4) Repayment period. (i) The maximum repayment period under the
income contingent repayment plan is 25 years.
(ii) The repayment period includes--
(A) Periods in which the borrower makes payments under the income-
contingent repayment plan on loans that are not in default;
(B) Periods in which the borrower makes reduced monthly payments
under the income-based repayment plan or a recalculated reduced monthly
payment after the borrower no longer has a partial financial hardship
or stops making income-based payments, as provided in Sec.
685.221(d)(i);
(C) Periods in which the borrower made monthly payments under the
standard repayment plan after leaving the income-based repayment plan
as provided in Sec. 685.221(d)(2);
(D) Periods in which the borrower makes payments under the standard
repayment plan described in Sec. 685.208(b);
(E) For borrowers who entered repayment before October 1, 2007, and
if the repayment period is not more than 12 years, periods in which the
borrower makes monthly payments under the extended repayment plans
described in Sec. 685.208(d) and (e), or the standard repayment plan
described in Sec. 685.208(c);
(F) Periods after October 1, 2007, in which the borrower makes
monthly payments under any other repayment plan that are not less than
the amount required under the standard repayment plan described in
Sec. 685.208(b); or
(G) Periods of economic hardship deferment after October 1, 2007.
* * * * *
23. Section 685.210 is amended by revising paragraph (b)(2) to read
as follows:
Sec. 685.210 Choice of repayment plan.
* * * * *
(b) * * *
(2)(i) A borrower may not change to a repayment plan that has a
maximum repayment period of less than the number of years the loan has
already been in repayment, except that a borrower may change to either
the income contingent or income-based repayment plan at any time.
(ii) If a borrower changes plans, the repayment period is the
period provided under the borrower's new repayment plan, calculated
from the date the loan initially entered repayment. However, if a
borrower changes to the income contingent repayment plan or the income-
based repayment plan, the repayment period is calculated as described
in Sec. 685.209(c)(4) or Sec. 685.221(b)(6), respectively.
* * * * *
24. Section 685.211 is amended by:
A. Revising paragraph (a) introductory text and (a)(1).
B. Revising paragraph (d)(3)(ii).
The revisions read as follows:
Sec. 685.211 Miscellaneous repayment provisions.
(a) Payment application and prepayment. (1) Except as provided for
the income-based repayment plan under Sec. 685.221(c)(1), the
Secretary applies any payment first to any accrued charges and
collection costs, then to any outstanding interest, and then to
outstanding principal.
* * * * *
(d) * * *
(3) * * *
(ii) If a borrower defaults on a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct Consolidation Loan, or a student Direct
PLUS Loan--
(A) The Secretary may designate the income contingent repayment
plan for the borrower; or
(B) If the borrower qualifies, the borrower may select the income-
based repayment plan.
* * * * *
25. Section 685.212 is amended by:
A. Redesignating paragraph (i) as paragraph (j).
B. Adding new paragraph (i) to read as follows:
Sec. 685.212 Discharge of a loan obligation.
* * * * *
(i) Public Service Loan Forgiveness Program. If a borrower meets
the requirements in Sec. 685.219, the Secretary cancels the remaining
principal and accrued interest of the borrower's eligible Direct
Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, and Direct
Consolidation Loan.
* * * * *
26. A new Sec. 685.219 is added to read as follows:
Sec. 685.219 Public Service Loan Forgiveness Program.
(a) General. The Public Service Loan Forgiveness Program is
intended to encourage individuals to enter and continue in full-time
public service employment by forgiving the remaining balance of their
Direct loans after they satisfy the public service and loan payment
requirements of this section.
(b) Definitions. The following definitions apply to this section:
AmeriCorps position means a position approved by the Corporation
for National and Community Service under section 123 of the National
and Community Service Act of 1990 (42 U.S.C. 12573).
Eligible Direct loan means a Direct Subsidized Loan, Direct
Unsubsidized Loan, Direct PLUS loan, or a Direct Consolidation loan.
Employee or employed means an individual who is hired and paid by a
public service organization.
[[Page 37723]]
Full-time (1) means working in qualifying employment in one or more
jobs for the greater of--
(i)(A) An annual average of at least 30 hours per week, or
(B) For a contractual or employment period of at least 8 months, an
average of 30 hours per week; or
(ii) The number of hours the employer considers full-time.
(2) Vacation or leave time provided by the employer is not
considered in determining the average hours worked on an annual or
contract basis.
Government employee means an individual who is employed by a local,
State, Federal, or Tribal government.
Law enforcement means service performed by an employee of a public
service organization that is publicly funded and whose principal
activities pertain to crime prevention, control or reduction of crime,
or the enforcement of criminal law.
Military service, for uniformed members of the U.S. Armed Forces or
the National Guard, means ``active duty'' service or ``full-time
National Guard duty'' as defined in section 101(d)(1) and (d)(5) of
title 10 in the United States Code, but does not include active duty
for training or attendance at a service school. For civilians,
``Military service'' means service on behalf of the U.S. Armed Forces
or the National Guard performed by an employee of a public service
organization.
Public interest law refers to legal services provided by a public
service organization that are funded in whole or in part by a local,
State, Federal, or Tribal government.
Public service organization means:
(1) A Federal, State, local, or Tribal government organization,
agency, or entity;
(2) A public child or family service agency;
(3) A non-profit organization under section 501(c)(3) of the
Internal Revenue Code that is exempt from taxation under section 501(a)
of the Internal Revenue Code;
(4) A Tribal college or university; or
(5) A private organization that--
(i) Provides the following public services: Emergency management,
military service, public safety, law enforcement, public interest law
services, public child care, public service for individuals with
disabilities and the elderly, public health, public education, public
library services, school library or other school-based services; and
(ii) Is not a business organized for profit, a labor union, a
partisan political organization, or an organization engaged in
religious activities, unless the qualifying activities are unrelated to
religious instruction, worship services, or any form of proselytizing.
(c) Borrower eligibility. (1) A borrower may obtain loan
forgiveness under this program if he or she--
(i) Is not in default on the loan for which forgiveness is
requested;
(ii) Is employed full-time by a public service organization or
serving in a full-time AmeriCorps position--
(A) When the borrower makes the 120 monthly payments described
under paragraph (c)(1)(iii) of this section;
(B) At the time of application for loan forgiveness, and
(C) At the time the remaining principal and accrued interest are
forgiven;
(iii) Makes 120 separate monthly payments after October 1, 2007, on
eligible Direct loans for which forgiveness is sought. Except as
provided in paragraph (c)(2) of this section for a borrower in an
AmeriCorps position, the borrower must make the monthly payments within
15 days of the scheduled due date for the full scheduled installment
amount; and
(iv) Makes the required 120 monthly payments under one or more of
the following repayment plans--
(A) Except for a Parent PLUS borrower, an income-based repayment
plan, as determined in accordance with Sec. 685.221;
(B) Except for a Parent PLUS borrower, an income-contingent
repayment plan, as determined in accordance with Sec. 685.209;
(C) A standard repayment plan, as determined in accordance with
Sec. 685.208(b); or
(D) Any other repayment plan if the monthly payment amount paid is
not less than what would have been paid under the Direct Loan standard
repayment plan described in Sec. 685.208(b).
(2) If a borrower uses all or part of a Segal Education Award
received after a year of AmeriCorps service to make a lump sum payment
on an eligible loan for which the borrower is seeking forgiveness, the
Secretary considers the borrower to have made qualifying payments equal
to the lesser of--
(i) The number of payments resulting after dividing the amount of
the lump sum payment from the Segal Education Award by the monthly
payment amount the borrower would have made under paragraph (c)(1)(iv)
of this section; or
(ii) Twelve payments.
(d) Forgiveness Amount. The Secretary forgives the principal and
accrued interest that remains on all eligible loans for which loan
forgiveness is requested by the borrower. The Secretary forgives this
amount after the borrower makes the 120 monthly qualifying payments
under paragraph (c) of this section.
(e) Application. (1) After making the 120 monthly qualifying
payments on the eligible loans for which loan forgiveness is requested,
a borrower may request loan forgiveness on a form provided by the
Secretary.
(2) If the Secretary determines that the borrower meets the
eligibility requirements for loan forgiveness under this section, the
Secretary--
(i) Notifies the borrower of this determination; and
(ii) Forgives the outstanding balance of the eligible loans.
(3) If the Secretary determines that the borrower does not meet the
eligibility requirements for loan forgiveness under this section, the
Secretary notifies the borrower of that determination.
(Authority: 20 U.S.C. 1087e(m))
27. Section 685.220 is amended by:
A. Redesignating paragraph (d)(1)(i)(B)(3) as (d)(1)(i)(B)(4).
B. In newly redesignated paragraph (d)(1)(i)(B)(4), adding the
words ``is in default or'' after the word ``that''.
C. Adding new paragraph (d)(1)(i)(B)(3).
D. Adding new paragraph (d)(1)(i)(B)(5).
E. In paragraph (d)(1)(ii)(A), removing the word ``a'' and adding,
in its place, the words ``the grace'' before the word ``period''.
F. In paragraph (d)(1)(ii)(D), adding the words ``, or the income-
based repayment plan described in Sec. 685.208(m),'' after the
reference to ``Sec. 685.220(k)'' and the words ``or Sec. 685.221(e)''
after the reference to ``Sec. 685.209(d)(5)''.
The additions read as follows:
Sec. 685.220 Consolidation.
* * * * *
(d) * * *
(1) * * *
(i) * * *
(B) * * *
(3) The borrower wishes to use the Public Service Loan forgiveness
program;
* * * * *
(5) The borrower has a FFEL Consolidation Loan and the borrower
wants to consolidate that loan into the Federal Direct Loan Program for
purposes of using the Public Service Loan Forgiveness Program.
* * * * *
28. A new Sec. 685.221 is added to read as follows:
[[Page 37724]]
Sec. 685.221 Income-based repayment plan.
(a) Definitions. As used in this section--
(1) Adjusted gross income (AGI) means the borrower's adjusted gross
income as reported to the Internal Revenue Service. For a married
borrower filing jointly, AGI includes both the borrower's and spouse's
income. For a married borrower filing separately, AGI includes only the
borrower's income.
(2) Eligible loan means any outstanding loan made to a borrower
under the FFEL or Direct Loan programs except for a FFEL or Direct PLUS
Loan made to a parent borrower or a FFEL or Direct Consolidation Loan
that repaid a FFEL or Direct PLUS Loan made to a parent borrower.
(3) Family size means the number that is determined by counting the
borrower, the borrower's spouse, and the borrower's children if the
children receive more than half their support from the borrower. A
borrower's family size includes other individuals if, at the time the
borrower certifies family size, the other individuals--
(i) Live with the borrower; and
(ii) 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.
(4) Partial financial hardship means a circumstance in which the
annual amount due on all of a borrower's eligible loans, as calculated
under a standard repayment plan based on a 10-year repayment period,
exceeds 15 percent of the difference between the borrower's AGI and 150
percent of the poverty guideline for the borrower's family size.
(5) 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.
(b) Terms of the repayment plan. (1) A borrower may select the
income-based repayment plan only if the borrower has a partial
financial hardship. Except as provided under paragraph (b)(2) of this
section, the borrower's aggregate monthly loan payments are limited to
no more than 15 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.
(2) The Secretary adjusts the calculated monthly payment if--
(i) The total amount of the borrower's eligible loans are not
Direct Loans, in which case, the Secretary determines the borrower's
adjusted monthly payment by multiplying the calculated payment by the
percentage of the total amount of eligible loans that are Direct Loans;
(ii) The calculated amount is less than $5.00, in which case the
borrower's monthly payment is $0.00; or
(iii) The calculated amount is equal to or greater than $5.00 but
less than $10.00, in which case the borrower's monthly payment is
$10.00.
(3) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's Direct Subsidized loan or
the subsidized portion of a Direct Consolidation Loan, the Secretary
does not charge the borrower the remaining accrued interest for a
period not to exceed three consecutive years from the date the borrower
began repayment of the loans under the income-based repayment plan for
that loan. On a Direct Consolidation Loan that repays loans on which
the Secretary has not charged the borrower accrued interest, the three-
year period includes the period for which the Secretary did not charge
the borrower accrued interest on the underlying loans. This three-year
period does not include any period during which the borrower receives
an economic hardship deferment.
(4) Except as provided in paragraph (b)(3) of this section, accrued
interest is capitalized at the time a borrower chooses to leave the
income-based repayment plan or no longer has a partial financial
hardship.
(5) If the borrower's monthly payment amount is not sufficient to
pay any of the principal due, the payment of that principal is
postponed until the borrower chooses to leave the income-based
repayment plan or no longer has a partial financial hardship.
(6) The repayment period for a borrower under the income-based
repayment plan may be greater than 10 years.
(c) Payment application and prepayment. The Secretary applies any
payment made under an income-based repayment plan in the following
order:
(1) Accrued interest.
(2) Collection costs.
(3) Late charges.
(4) Loan principal.
(d) Changes in the payment amount. (1) If a borrower no longer has
a partial financial hardship, the borrower may continue to make
payments under the income-based repayment plan, but the Secretary
recalculates the borrower's monthly payment. The Secretary also
recalculates the monthly payment for a borrower who chooses to stop
making income-based payments. In either case, as result of the
recalculation--
(i) The maximum monthly amount that the borrower may be required to
repay is the amount the borrower would have paid under the standard
repayment plan based on the amount of the borrower's eligible loans
that were outstanding at the time the borrower began repayment on the
loans under the income-based repayment plan; and
(ii) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(2) If a borrower no longer wishes to pay under the income-based
payment plan, the borrower must pay under the standard repayment plan
and the Secretary recalculates the borrower's monthly payment based
on--
(i) A maximum ten-year repayment period for the amount of the
borrower's loans that were outstanding at the time the borrower
discontinued paying under the income-based repayment plan; or
(ii) For a Direct Consolidation Loan, the applicable repayment
period specified in Sec. 685.208(j) for the amount of the borrower's
loan that was outstanding at the time the borrower discontinued paying
under the income-based repayment plan.
(e) Eligibility documentation and verification. (1) The Secretary
determines whether a borrower has a partial financial hardship to
qualify for the income-based repayment plan for the year the borrower
selects the plan and for each subsequent year that the borrower remains
on the plan. To make this determination, the Secretary requires the
borrower to--
(i)(A) Provide written consent to the disclosure of AGI and other
tax return information by the Internal Revenue Service to the
Secretary. The borrower provides consent by signing a consent form and
returning it to the Secretary;
(B) If a borrower's AGI is not available, or the Secretary believes
that the borrower's reported AGI does not reasonably reflect the
borrower's current income, the Secretary may use other documentation
provided by the borrower to verify income; and
(ii) Annually certify the borrower's family size. If the borrower
fails to certify family size, the Secretary assumes a family size of
one for that year.
(2) The Secretary designates the repayment option described in
[[Page 37725]]
paragraph (d)(1) of this section for any borrower who selects the
income-based repayment plan but--
(i) Fails to provide or renew the required written consent for
income verification; or
(ii) Withdraws consent and does not select another repayment plan.
(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25
years, a borrower must have participated in the income-based repayment
plan and satisfied at least one of the following conditions during that
period:
(i) Made reduced monthly payments under a partial financial
hardship as provided in paragraph (b)(1) or (2) of this section,
including a monthly payment amount of $0.00, as provided under
paragraph (b)(2)(ii) of this section.
(ii) Made reduced monthly payments after the borrower no longer had
a partial financial hardship or stopped making income-based payments as
provided in paragraph (d) of this section.
(iii) Made monthly payments under any repayment plan, that were not
less than the amount required under the Direct Loan standard repayment
plan described in Sec. 685.208(b).
(iv) Made monthly payments under the Direct Loan standard repayment
plan described in Sec. 685.208(b) based on the amount of the
borrower's loans that were outstanding at the time the borrower first
selected the income-based repayment plan.
(v) Paid Direct Loans under the income-contingent repayment plan.
(vi) Received an economic hardship deferment on eligible Direct
Loans.
(2) As provided under paragraph (f)(4) of this section, the
Secretary cancels any outstanding balance of principal and accrued
interest on Direct loans for which the borrower qualifies for
forgiveness if the Secretary determines that--
(i) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (f)(1) of this section,
including a monthly payment amount of $0.00, as provided under
paragraph (b)(2)(ii) of this section; and
(ii)(A) The borrower made those monthly payments each year for a
25-year period, or
(B) Through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments.
(3) For a borrower who qualifies for the income-based repayment
plan, the beginning date for the 25-year period is--
(i) If the borrower made payments under the income contingent
repayment plan, the date the borrower made a payment on the loan under
that plan at any time after July 1, 1994;
(ii) If the borrower did not make payments under the income
contingent repayment plan--
(A) For a borrower who has a Direct Consolidation Loan, the date
the borrower made a payment or received an economic hardship deferment
on that loan, before the date the borrower qualified for income-based
repayment. The beginning date is the date the borrower made the payment
or received the deferment, but no earlier than July 1, 2009;
(B) For a borrower who has one or more other eligible Direct Loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower
made that payment or received the deferment on that loan, but no
earlier than July 1, 2009;
(C) For a borrower who did not make a payment or receive an
economic hardship deferment on the loan under paragraph (f)(3)(ii)(A)
or (B) of this section, the date the borrower made a payment under the
income-based repayment plan on the loan;
(D) If the borrower consolidates his or her eligible loans, the
date the borrower made a payment on the Direct Consolidation Loan after
qualifying for the income-based repayment plan; or
(E) If the borrower did not make a payment or receive an economic
hardship deferment on the loan under paragraph (f)(3)(i) or (ii) of
this section, determining the date the borrower made a payment under
the income-based repayment plan on the loan.
(4) If the Secretary determines that a borrower satisfies the loan
forgiveness requirements, the Secretary cancels the outstanding balance
and accrued interest on the Direct Consolidation Loan described in
paragraph (f)(3)(i), (iii) or (iv) of this section or other eligible
Direct Loans described in paragraph (f)(3)(ii) or (iv) of this section.
(Authority: 20 U.S.C. 1098e)
29. Section 685.304 is amended by:
A. Revising paragraph (b)(4)(ii).
B. Revising paragraph (b)(4)(vi).
The revisions read as follows:
Sec. 685.304 Counseling borrowers.
* * * * *
(b) * * *
(4) * * *
(ii) Review for the student borrower available repayment options
including the standard repayment, extended repayment, graduated
repayment, income contingent repayment, and income-based repayment
plans, and loan consolidation.
* * * * *
(vi) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial forgiveness or discharge of a loan;
* * * * *
[FR Doc. E8-14140 Filed 6-30-08; 8:45 am]
BILLING CODE 4000-01-P