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Issue Paper #2

Proposed Regulatory Language

Loans Group

Issue: Changes to the Income-Based Repayment (IBR) Plan

Statutory Cite: §493C

Regulatory Cites: §§682.215 and 685.221

Summary of Change:

The proposed regulatory language incorporates statutory changes to the IBR plan that were made by 

the SAFRA Act included in the Health Care and Reconciliation Act of 2010, and adds new provisions 

related to notification of income documentation requirements, repayment options after leaving the IBR 

plan, and the IBR loan forgiveness process.

Change:

See “Proposed Regulatory Language for Issue Paper 2, Loans Group.”
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PROPOSED REGULATORY LANGUAGE FOR ISSUE PAPER 2, LOANS GROUP.

§ 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 defaulted loan, 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, including unborn children who will be born during the year the 

borrower certifies family size, if the children receive more than half their support from the borrower. A 

borrower's family size includes other individuals if, at the time the borrower certifies family size, the 

other individuals—

(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) New borrower means an individual who has no outstanding balance on a FFEL Program or Direct 

Loan Program loan on July 1, 2014, or who has no outstanding balance on such a loan on the date he or 

she obtains a loan after July 1, 2014.

(4)(5) Partial financial hardship means a circumstance in which—

(i) For an unmarried borrower or a married borrower who files an individual Federal tax return, the 

annual amount due on all of the borrower's eligible loans, as calculated under a standard repayment 

plan based on a 10-year repayment period, using the greater of the amount due at the time the 

borrower initially entered repayment or at the time the borrower elects the income-based repayment 
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plan, exceeds 15 percent or, for a new borrower, 10 percent of the difference between the borrower's 

AGI and 150 percent of the poverty guideline for the borrower's family size; or

(ii) For a married borrower who files a joint Federal tax return with his or her spouse, the annual 

amount due on all of the borrower's eligible loans and, if applicable, the spouse's eligible loans, as 

calculated under a standard repayment plan based on a 10-year repayment period, using the greater of 

the amount due at the time the loans initially entered repayment or at the time the borrower or spouse 

elects the income-based repayment plan, exceeds 15 percent or, for a new borrower, 10 percent of the 

difference between the borrower's and spouse's AGI, and 150 percent of the poverty guideline for the 

borrower's family size.

(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. The borrower's aggregate monthly loan payments are limited 

to no more than 15 percent or, for a new borrower, 10 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) Except for borrowers provided for in paragraph (b)(1)(ii) of this section, 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 the borrower’s eligible loans that are held by 

the loan holder;

(ii) Both the borrower and the borrower's spouse have eligible loans and filed a joint Federal tax 

return, in which case the loan holder determines—

(A) Each borrower's percentage of the couple's total eligible loan debt;
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(B) The adjusted monthly payment for each borrower by multiplying the calculated payment by the 

percentage determined in paragraph (b)(1)(ii)(A) of this section; and

(C) If the borrower's loans are held by multiple holders, the borrower's adjusted monthly payment 

by multiplying the payment determined in paragraph (b)(1)(ii)(B) of this section by the percentage of the 

total outstanding principal amount of the borrower’s eligible loans that are held by the loan holder;

(iii) The calculated amount under paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of this section is less than 

$5.00, in which case the borrower's monthly payment is $0.00; or

(iv) The calculated amount under paragraph (b)(1), (b)(1)(i), or (b)(1)(ii) of this section is equal to or 

greater than $5.00 but less than $10.00, in which case the borrower's monthly payment is $10.00.

(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. Each loan holder must apply the payment calculation rules in paragraphs 

(b)(1)(iii) and (iv) of this section to loans they hold.

(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 established repayment period start date on each loan repaid 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 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.
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(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 a monthly payment amount of $10.00 or more 

under the repayment schedule established for the loan, the loan holder shall apply the prepayment 

consistent with the requirements of §682.209(b)(2)(ii).

(4) If the prepayment amount exceeds the monthly payment amount of $0.00 under the repayment 

schedule established for the loan, the loan holder shall apply the prepayment consistent with the 

requirements of paragraph (c)(1) of this section.

(d) Changes in the payment amount. (1) If a borrower no longer has a partial financial hardship, the 

borrower may continue to make payments under the income-based repayment plan but the 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—
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(i) The maximum monthly amount that the loan holder may require the borrower to repay is the 

amount the borrower would have paid under the FFEL standard repayment plan based on a 10-year 

repayment period 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) Except as provided in paragraph (d)(2)(ii) of this section, Tthe time remaining under the maximum 

ten10-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 §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.

(3) A borrower who no longer wishes to repay under the income-based repayment plan and who is 

required to repay under the FFEL standard repayment plan in accordance with paragraph (d)(2) of this 

section may request a change to a different repayment plan after making one full monthly payment 

under the FFEL standard 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; or 

(B) Provide other documentation, acceptable to the loan holder, of the borrower’s AGI; and
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(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.

(B)(iii) 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)(i) For each subsequent year that a borrower remains on the income-based repayment plan, the 

loan holder must notify the borrower in writing of the requirements in paragraphs (e)(1) of this section 

no later than 60 days prior to the date the borrower will be re-evaluated to determine whether he or 

she continues to have a partial financial hardship.

(ii) The notification described in paragraph (e)(2)(i) must inform the borrower of –

(A) The date by which the borrower must comply with the requirements described in paragraphs

(e)(1)(i) and (ii) of this section; and 

(B) The consequences if the borrower does not comply with these requirements by the specified 

date.

(2)(3) 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 renew the required written consent for income verificationDoes not provide the written 

consent or other documentation described in paragraph (e)(1)(i) or (iii) of this section within 60 days of 

the date provided to the borrower in accordance with paragraph (e)(2)(ii)(A) of this section; or

(ii) Withdraws consent and does not select another repayment plan.

(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 years or, for a new borrower, after 

20 years, the borrower must have participated in the income-based repayment plan and satisfied at 

least one of the following conditions during that the applicable loan forgiveness period—
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(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 §682.209(a)(6)(vi) with a 10-year 

repayment period for the amount of the borrower’s loans that were outstanding at the time the loans 

initially entered repayment;

(iv) Made monthly payments under the FFEL standard repayment plan described in 

§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 the applicable loan 

forgiveness period; or

(B) Through a combination of monthly payments and economic hardship deferments, the borrower 

made the equivalent of 25 years of payments or, for a new borrower, the equivalent of 20 years of 

payments.

(3) For a borrower who qualifies for the income-based repayment plan, the beginning date for the 

25-yearapplicable loan forgiveness period is—
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(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 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.

(5) A borrower repaying a defaulted loan is not considered to be repaying under a qualifying 

repayment plan for the purpose of loan forgiveness, and any payments made on a defaulted loan are 

not counted toward the 25-yearapplicable loan forgiveness period.

(g) Loan forgiveness processing and payment. (1) The loan holder determines when a borrower has 

met the loan forgiveness requirements under paragraph (f) of this section and does not require the 

borrower to submit a request for loan forgiveness. No later than 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 the period specified in 

paragraph (g)(1) of this section, interest that accrues on the discharged amount after the expiration of 

the 60-day filing period is ineligible for reimbursement by the Secretary, and the holder must repay all 

interest and special allowance received on the discharged amount for periods after the expiration of the 
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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 –

(i), iInform 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.; and

(ii) The lender must also pProvide the borrower with general information on the required 

handlingcurrent treatment of the forgiveness amount for tax purposes and refer the borrower to the 

Internal Revenue Service for further information.

(5)(i) The holder must apply the proceeds of the income-based repayment loan forgiveness 

amountpayment from the guaranty agency under paragraph (g)(3)(ii) to satisfy the outstanding balance 

on those loans for whichsubject to 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. Unless the denial of the forgiveness claim was due to an error by the lender, the 

lender may capitalize any interest accrued and not paid during this period, in accordance with 

§682.202(b).

(7) The loan holder must promptly return to the sender any payment received on a loan after the 

guaranty agency pays the loan holder the amount of loan forgiveness.
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§ 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 defaulted loan, 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, including unborn children who will be born during the year the 

borrower certifies family size, if the children receive more than half their support from the borrower. A 

borrower's family size includes other individuals if, at the time the borrower certifies family size, the 

other individuals—

(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) New borrower means an individual who has no outstanding balance on a Direct Loan Program or 

FFEL Program loan on July 1, 2014, or who has no outstanding balance on such a loan on the date he or 

she obtains a loan after July 1, 2014.

(4)(5) Partial financial hardship means a circumstance in which—

(i) For an unmarried borrower or a married borrower who files an individual Federal tax return, the 

annual amount due on all of the borrower's eligible loans, as calculated under a standard repayment 

plan based on a 10-year repayment period, using the greater of the amount due at the time the 
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borrower initially entered repayment or at the time the borrower elects the income-based repayment 

plan, exceeds 15 percent or, for a new borrower, 10 percent of the difference between the borrower's 

AGI and 150 percent of the poverty guideline for the borrower's family size; or

(ii) For a married borrower who files a joint Federal tax return with his or her spouse, the annual 

amount due on all of the borrower's eligible loans and, if applicable, the spouse's eligible loans, as 

calculated under a standard repayment plan based on a 10-year repayment period, using the greater of 

the amount due at the time the loans initially entered repayment or at the time the borrower or spouse 

elects the income-based repayment plan, exceeds 15 percent or, for a new borrower, 10 percent of the 

difference between the borrower's and spouse's AGI, and 150 percent of the poverty guideline for the 

borrower's family size.

(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. The borrower's aggregate monthly loan payments are 

limited to no more than 15 percent or, for a new borrower, 10 percent of the amount by which the 

borrower's AGI exceeds 150 percent of the poverty guideline applicable to the borrower's family size, 

divided by 12.

(2) The Secretary adjusts the calculated monthly payment if—

(i) Except for borrowers provided for in paragraph (b)(2)(ii) of this section, the total amount of the 

borrower's eligible loans are not Direct Loans, in which case the Secretary determines the borrower's 

adjusted monthly payment by multiplying the calculated payment by the percentage of the total 

outstanding principal amount of the borrower’s eligible loans that are Direct Loans;

(ii) Both the borrower and borrower's spouse have eligible loans and filed a joint Federal tax return, 

in which case the Secretary determines—

(A) Each borrower's percentage of the couple's total eligible loan debt;
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(B) The adjusted monthly payment for each borrower by multiplying the calculated payment by the 

percentage determined in paragraph (b)(2)(ii)(A) of this section; and

(C) If the borrower's loans are held by multiple holders, the borrower's adjusted monthly Direct 

Loan payment by multiplying the payment determined in paragraph (b)(2)(ii)(B) of this section by the 

percentage of the total outstanding principal amount of the borrower’s eligible loans that are Direct 

Loans;

(iii) The calculated amount under paragraph (b)(1), (b)(2)(i), or (b)(2)(ii) of this section is less than 

$5.00, in which case the borrower's monthly payment is $0.00; or

(iv) The calculated amount under paragraph (b)(1), (b)(2)(i), or (b)(2)(ii) of this section is equal to or 

greater than $5.00 but less than $10.00, in which case the borrower's monthly payment is $10.00.

(3) If the borrower's monthly payment amount is not sufficient to pay the accrued interest on the 

borrower's Direct Subsidized loan or the subsidized portion of a Direct Consolidation Loan, the Secretary 

does not charge the borrower the remaining accrued interest for a period not to exceed three 

consecutive years from the established repayment period start date on that loan under the incomebased repayment plan. On a Direct Consolidation Loan that repays loans on which the Secretary has not 

charged the borrower accrued interest, the three-year period includes the period for which the 

Secretary did not charge the borrower accrued interest on the underlying loans. This three-year period 

does not include any period during which the borrower receives an economic hardship deferment.

(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:
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(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 Secretary requires the borrower to repay is the amount 

the borrower would have paid under the standard repayment plan based on a 10-year repayment 

period using the amount of the borrower's eligible loans that were was outstanding at the time the 

borrower began repayment on the loans under the income-based repayment plan; and

(ii) The borrower's repayment period based on the recalculated payment amount may exceed 10 

years.

(2) 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) Except as provided in paragraph (d)(2)(ii) of this section, Tthe 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 Direct Consolidation Loan, the applicable repayment period specified in §685.208(j) for the 

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.

(2) A borrower who no longer wishes to repay under the income-based repayment plan and who is 

required to repay under the Direct Loan standard repayment plan in accordance with paragraph (d)(2) of 
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this section may request a change to different repayment plan after making one full monthly payment 

under the Direct Loan standard 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, or 

(B) Provide other documentation, acceptable to the Secretary, of the borrower’s AGI; 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.

(B)(iii) 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)(i) For each subsequent year that a borrower remains on the income-based repayment plan, the 

Secretary notifies the borrower in writing of the requirements described in paragraphs (e)(1)(i) and (ii) 

of this section no later than 60 days prior to the date the borrower will be re-evaluated to determine 

whether he or she continues to have a partial financial hardship.

(ii) The notification described in paragraph (e)(2)(i) of this section informs the borrower of –

(A) The date by which the borrower must comply with the requirements described in paragraphs 

(e)(1)(i) and (ii) of this section; and

(B) The consequences if the borrower does not comply with these requirements by the specified 

date.
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(2)(3) The Secretary 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 renew the required written consent for income verificationDoes not provide the written 

consent or other documentation described in paragraph (e)(1)(i) or (iii) of this section within 60 days of 

the date provided to the borrower in accordance with paragraph (e)(2)(ii)(A) of this section; or

(ii) Withdraws consent and does not select another repayment plan.

(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 years or, for a new borrower, after 

20 years, a borrower must have participated in the income-based repayment plan and satisfied at least 

one of the following conditions during thatthe applicable loan forgiveness 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 §685.208(b) for the amount of the 

borrower’s loans that were outstanding at the time the loans initially entered repayment.

(iv) Made monthly payments under the Direct Loan standard repayment plan described in 

§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—
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(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-yearthe applicable loan 

forgiveness period, or

(B) Through a combination of monthly payments and economic hardship deferments, the borrower 

has made the equivalent of 25 years of payments or, for a new borrower, the equivalent of 20 years of 

payments.

(3) For a borrower who qualifies for the income-based repayment plan, the beginning date for the 

25-yearapplicable loan forgiveness period is—

(i) If the borrower made payments under the income contingent repayment plan, the date the 

borrower made a payment on the loan under that plan at any time after July 1, 1994;

(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 that met the requirements in paragraph (f)(1) of this section after 

qualifying for the income-based repayment plan; or
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(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) A borrower repaying a defaulted loan is not considered to be repaying under a qualifying 

repayment plan for the purposes of loan forgiveness, and any payments made on a defaulted loan are 

not counted toward the applicable loan forgiveness period. 

(4)(5)(i) If the Secretary determines that a borrower has satisfied satisfies the loan forgiveness 

requirements on an eligible loan, the Secretary cancels the outstanding balance and accrued interest on 

that loan. 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.

(ii) The Secretary determines when a borrower has met the loan forgiveness requirements under 

paragraph (f) of this section and does not require the borrower to submit a request for loan forgiveness. 

(iii) After determining that a borrower has satisfied the loan forgiveness requirements, the Secretary 

–

(A) Notifies the borrower that the borrower’s obligation on the loans is satisfied; and

(B) Provides the borrower with general information on the current treatment of the forgiveness 

amount for tax purposes and refers the borrower to the Internal Revenue Service for further 

information.
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Issue Paper #3

Proposed Regulatory Language

Loans Group

Issue: FFEL Lender Repayment Disclosures: Borrowers Who Are Having Difficulty 

Making Payments and Borrowers Who Are 60-Days Delinquent 

Statutory Cite: §433(e)(3)

Regulatory Cites: §682.205(c)(4) and (5)

Summary of Change:

The proposed regulatory language amends the FFEL lender disclosure requirements for borrowers who 

are having difficulty making payments and borrowers who are 60 days delinquent by: (1) exempting 

lenders from the requirement to send a disclosure to a borrower who has notified the lender that he or 

she is having difficulty making payments if prior contact with the borrower has already resolved the 

borrower’s problem, and (2) changing the timeframe for sending the 60-day delinquent disclosure from 

five days (calendar days) after the date the borrower becomes 60 days delinquent to five business days 

after that date. 

Change:

§682.205 Disclosure requirements for lenders.

* * * * *

(c) * * *

(4) Required disclosures for borrowers having difficulty making payments.(i) Except as provided in 

paragraph (ii) of this subsection, Tthe lender shall provide a borrower who has notified the lender that 

he or she is having difficulty making payments with--

(iA) A description of the repayment plans available to the borrower, and how the borrower may 

request a change in repayment plan;

(iBi) A description of the requirements for obtaining forbearance on the loan and any costs 

associated with forbearance; and

(Ciii) A description of the options available to the borrower to avoid default and any fees or costs 

associated with those options.

(ii) A repayment disclosure is not required if the borrower’s difficulty has been resolved through 

contact with the borrower resulting from an earlier disclosure or other communication between the 

lender and the borrower.

(5) Required disclosures for borrowers who are 60-days delinquent in making payments on a loan. (i) 

The lender shall provide to a borrower who is 60 days delinquent in making required payments a notice 

of--

(A) The date on which the loan will default if no payment is made;
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(B) The minimum payment the borrower must make, as of the date of the notice, to avoid default, 

including the payment amount needed to bring the loan current or payment in full;

(C) A description of the options available to the borrower to avoid default, including deferment and 

forbearance and any fees and costs associated with those options;

(D) Any options for discharging the loan that may be available to the borrower; and

(E) Any additional resources, including nonprofit organizations, advocates and counselors, including 

the Department of Education's Student Loan Ombudsman, the lender is aware of where the borrower 

may obtain additional advice and assistance on loan repayment.

(ii) The notice must be sent within five business days of the date the borrower becomes 60 days 

delinquent, unless the lender has sent such a notice within the previous 120 days.

 * * * * *
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Issue Paper #4

Proposed Regulatory Language

Loans Group 

Issue: Forbearance Provisions for Borrowers Receiving Department of Defense Student 

Loan Repayment Benefits 

Statutory Cite: §428(c)(3)

Regulatory Cites: §§682.211(h)(2)(ii)(B) and 685.205

Summary of Change:

Current FFEL regulations require a lender to grant forbearance to a borrower who is performing service 

that qualifies the borrower for partial loan repayment under the Student Loan Repayment Programs 

administered by the Department of Defense under 10 U.S.C. 2171. Current Direct Loan regulations do 

not include this forbearance provision. The proposed regulatory language amends the FFEL forbearance 

provision to cover borrowers who are performing service that qualifies them for loan repayment under 

other student loan repayment programs administered by the Department of Defense, and adds the 

same forbearance provision to the Direct Loan regulations.

Change:

§682.211 Forbearance.

* * * * *

(h) * * *

(2) Borrowers who are not medical or dental interns or residents, and endorsers. Upon receipt of a 

request and sufficient supporting documentation from an endorser (if applicable), or from a borrower 

(other than a borrower who is serving in a medical or dental internship or residency described in 

paragraph (h)(1) of this section), a lender shall grant forbearance--

(i) In increments up to one year, for periods that collectively do not exceed three years, if--

(A) The borrower or endorser is currently obligated to make payments on Title IV loans; and

(B) The amount of those payments each month (or a proportional share if the payments are due less 

frequently than monthly) is collectively equal to or greater than 20 percent of the borrower's or 

endorser's total monthly income;

(ii) In yearly increments (or a lesser period equal to the actual period during which the borrower is 

eligible) for as long as a borrower--

(A) Is serving in a national service position for which the borrower receives a national service 

educational award under the National and Community Service Trust Act of 1993;

(B) Is performing the type of service that would qualify the borrower for a partial repayment of his 

or her loan under the Student Loan Repayment Programs administered by the Department of Defense 
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under 10 U.S.C. 2171 or any other student loan repayment programs administered by the Department 

of Defense; or

* * * * *

(4) Documentation. (i) * * *

(ii) Before granting a forbearance to a borrower or endorser under paragraph (h)(2)(ii)(B) of this 

section, the lender shall require the borrower or endorser to submit documentation showing the 

beginning and ending dates that the Department of Defense considers the borrower to be eligible for a 

partial repayment of his or her loan under the Student Loan Repayment Programs.

* * * * *

§685.205 Forbearance.

(a) General. “Forbearance” means permitting the temporary cessation of payments, allowing an 

extension of time for making payments, or temporarily accepting smaller payments than previously 

scheduled. The borrower has the option to choose the form of forbearance. Except as provided in 

paragraph (b)(9) of this section, if payments of interest are forborne, they are capitalized. The Secretary 

grants forbearance if the borrower or endorser intends to repay the loan but requests forbearance and 

provides sufficient documentation to support this request, and--

(1) The Secretary determines that, due to poor health or other acceptable reasons, the borrower or 

endorser is currently unable to make scheduled payments;

(2) The borrower's payments of principal are deferred under Sec. 685.204 and the Secretary does 

not subsidize the interest benefits on behalf of the borrower;

(3) The borrower is in a medical or dental internship or residency that must be successfully 

completed before the borrower may begin professional practice or service, or the borrower is serving in 

a medical or dental internship or residency program leading to a degree or certificate awarded by an 

institution of higher education, a hospital, or a health care facility that offers postgraduate training;

(4) The borrower is serving in a national service position for which the borrower is receiving a 

national service education award under title I of the National and Community Service Act of 1990; or

(5) The borrower--

(i) Is performing the type of service that would qualify the borrower for loan forgiveness under the 

requirements of the teacher loan forgiveness program in Sec. 685.217; and

(ii) Is required, by the Secretary, before a forbearance is granted under Sec. 685.205(a)(5)(i) to--

(A) Submit documentation for the period of the annual forbearance request showing the beginning 

and ending dates that the borrower is expected to perform, for that year, the type of service described 

in Sec. 685.217(c); and

(B) Certify the borrower's intent to satisfy the requirements of Sec. 685.217(c).

(6) For not more than three years during which the borrower or endorser--
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(i) Is currently obligated to make payments on loans under title IV of the Act; and

(ii) The sum of these payments each month (or a proportional share if the payments are due less 

frequently than monthly) is equal to or greater than 20 percent of the borrower's or endorser's total

monthly gross income.

(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.

(8) [SEE ISSUE PAPER #6 FOR PROPOSED NEW (a)(8)]

(9) (i) The borrower is performing the type of service that would qualify the borrower for a partial 

repayment of his or her loan under the Student Loan Repayment Programs administered by the 

Department of Defense under 10 U.S.C. 2171 or any other student loan repayment programs 

administered by the Department of Defense. 

(ii) To receive a forbearance under this paragraph, the borrower must submit documentation 

showing the time period during which the Department of Defense considers the borrower to be eligible 

for a partial repayment of his or her loan under a student loan repayment program.

* * * * *
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Issue Paper #5

Proposed Regulatory Language

Loans Group

Issue: Borrowers who are Delinquent when Authorized Forbearance is Granted 

Statutory Cite: §428(c)(3)

Regulatory Cites: §§682.211(f) and 685.205(b) 

Summary of Change:

The proposed regulatory language amends the FFEL administrative forbearance provisions to allow a 

lender to grant forbearance to a borrower who is delinquent at the beginning of a period of nonmandatory authorized forbearance and makes a corresponding change in the Direct Loan forbearance 

provisions. 

Change:

§682.211 Forbearance.

* * * * *

(f) A lender may grant forbearance, upon notice to the borrower or if applicable, the endorser, with 

respect to payments of interest and principal that are overdue or would be due--

(1) For a properly granted period of deferment for which the lender learns the borrower did not 

qualify;

(2) Upon the beginning of an authorized deferment period under Sec. 682.210, an authorized period 

of forbearance, or an administrative forbearance period as specified under paragraph (f)(11) or (i)(2) of 

this section;

(3) For the period beginning when the borrower entered repayment without the lender's knowledge 

until the first payment due date was established;

(4) For the period prior to the borrower's filing of a bankruptcy petition as provided in Sec. 

682.402(f);

(5) For the periods described in Sec. 682.402(c) in regard to the borrower's total and permanent 

disability;

(6) Upon receipt of a valid identity theft report as defined in section 603(q)(4) of the Fair Credit 

Reporting Act (15 U.S.C. 1681a) or notification from a credit bureau that information furnished by the 

lender is a result of an alleged identity theft as defined in Sec. 682.402(e)(14), for a period not to exceed 

120 days necessary for the lender to determine the enforceability of the loan. If the lender determines 

that the loan does not qualify for discharge under Sec. 682.402(e)(1)(i)(C), but is nonetheless 

unenforceable, the lender must comply with Sec. Sec. 682.300(b)(2)(ix) and 682.302(d)(1)(viii).

(7) For a period not to exceed an additional 60 days after the lender has suspended collection 

activity for the initial 60-day period required pursuant to Sec. 682.211(i)(6) and Sec. 682.402(b)(3), when 
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the lender receives reliable information that the borrower (or student on whose behalf a parent has 

borrowed a PLUS Loan) has died;

(8) For periods necessary for the Secretary or guaranty agency to determine the borrower's 

eligibility for discharge of the loan because of an unpaid refund, attendance at a closed school or false 

certification of loan eligibility, pursuant to Sec. 682.402(d) or (e), or the borrower's or, if applicable, 

endorser's bankruptcy, pursuant to Sec. 682.402(f);

(9) For a period of delinquency at the time a loan is sold or transferred, if the borrower or endorser 

is less than 60 days delinquent on the loan at the time of sale or transfer;

(10) For a period of delinquency that may remain after a borrower ends a period of deferment or 

mandatory forbearance until the next due date, which can be no later than 60 days after the period 

ends;

(11) For a period not to exceed 60 days necessary for the lender to collect and process 

documentation supporting the borrower's request for a deferment, forbearance, change in repayment 

plan, or consolidation loan. Interest that accrues during this period is not capitalized;

(12) For a period not to exceed 3 months when the lender determines that a borrower's ability to 

make payments has been adversely affected by a natural disaster, a local or national emergency as 

declared by the appropriate government agency, or a military mobilization;

(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; or

(15) For PLUS loans first disbursed before July 1, 2008, to align repayment with a borrower's PLUS 

loans that were first disbursed on or after July 1, 2008, or with Stafford Loans that are subject to a grace 

period under Sec. 682.209(a)(3). The notice specified in paragraph (f) introductory text of this section 

must inform the borrower that the borrower has the option to cancel the forbearance and continue 

paying on the loan.

* * * * *

§685.205 Forbearance.

* * * * *

(b) Administrative forbearance. In certain circumstances, the Secretary grants forbearance without 

requiring documentation from the borrower. These circumstances include but are not limited to--

(1) A properly granted period of deferment for which the Secretary learns the borrower did not 

qualify;

(2) The period for which payments are overdue at the beginning of an authorized deferment or 

forbearance period;
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(3) The period beginning when the borrower entered repayment without the Secretary's knowledge 

until the first payment due date was established;

(4) The period prior to a borrower's filing of a bankruptcy petition;

(5) A period after the Secretary receives reliable information indicating that the borrower (or the 

student in the case of a Direct PLUS Loan obtained by a parent borrower) has died, or the borrower has 

become totally and permanently disabled, until the Secretary receives documentation of death or total 

and permanent disability;

(6) Periods necessary for the Secretary to determine the borrower's eligibility for discharge--

(i) Under Sec. 685.214;

(ii) Under Sec. 685.215;

(iii) Under Sec. 685.216;

(iv) Under Sec. 685.217; or

(v) Due to the borrower's or endorser's (if applicable) bankruptcy;

(7) A period of up to three years in cases where the effect of a variable interest rate on a fixedamount or graduated repayment schedule causes the extension of the maximum repayment term;

(8) A period during which the Secretary has authorized forbearance due to a national military 

mobilization or other local or national emergency;

(9) A period of up to 60 days necessary for the Secretary to collect and process documentation 

supporting the borrower's request for a deferment, forbearance, change in repayment plan, or 

consolidation loan. Interest that accrues during this period is not capitalized; or

(10) For Direct PLUS Loans first disbursed before July 1, 2008, to align repayment with a borrower's 

Direct PLUS Loans that were first disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 

Direct Unsubsidized Loans that have a grace period in accordance with Sec. 685.207(b) or (c). The 

Secretary notifies the borrower that the borrower has the option to cancel the forbearance and 

continue paying on the loan.

(c) Period of forbearance. (1) The Secretary grants forbearance for a period of up to one year.

(2) The forbearance is renewable, upon request of the borrower, for the duration of the period in 

which the borrower meets the condition required for the forbearance.

* * * * *
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Issue Paper #6

Proposed Regulatory Language

Loans Group

Issue: Forbearance for Post-270 day Defaulted Loan Borrowers Prior to Lender Claim 

Payment or Transfer to ED Default Collections 

Statutory Cite: §428(c)(3) 

Regulatory Cites: §§682.211(d) and 685.205 

Summary of Change:

Under the current FFEL regulations, if a borrower is in default but the lender has not yet submitted a 

default claim to the guaranty agency, the lender may grant forbearance to the borrower to eliminate the 

default or reduce the level of delinquency. The terms of the forbearance agreement require the 

borrower to sign a new agreement to repay the debt. Defaulted Direct Loan borrowers are not required 

to sign a new repayment agreement when forbearance is granted under the same circumstances. The 

proposed changes clarify the current FFEL regulatory provision and add the same requirement to the 

Direct Loan forbearance regulations.

Change:

§682.211 Forbearance.

* * * * *

(d) A guaranty agency may authorize a lender to grant forbearance to permit a borrower or 

endorser to resume honoring the agreement to repay the debt after default but prior to claim payment. 

The terms of the forbearance agreement in this situation must include a new signed repayment 

agreement to repay the debt or other written affirmation of the borrower’s obligation to repay the debt

signed by the borrower.

* * * * *

§685.205 Forbearance.

(a) General. “Forbearance” means permitting the temporary cessation of payments, allowing an 

extension of time for making payments, or temporarily accepting smaller payments than previously 

scheduled. The borrower has the option to choose the form of forbearance. Except as provided in 

paragraph (b)(9) of this section, if payments of interest are forborne, they are capitalized. The Secretary 

grants forbearance if the borrower or endorser intends to repay the loan but requests forbearance and 

provides sufficient documentation to support this request, and--

(1) The Secretary determines that, due to poor health or other acceptable reasons, the borrower or 

endorser is currently unable to make scheduled payments; 

(2) The borrower's payments of principal are deferred under Sec. 685.204 and the Secretary does 

not subsidize the interest benefits on behalf of the borrower;
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(3) The borrower is in a medical or dental internship or residency that must be successfully 

completed before the borrower may begin professional practice or service, or the borrower is serving in 

a medical or dental internship or residency program leading to a degree or certificate awarded by an 

institution of higher education, a hospital, or a health care facility that offers postgraduate training;

(4) The borrower is serving in a national service position for which the borrower is receiving a 

national service education award under title I of the National and Community Service Act of 1990; or

(5) The borrower--

(i) Is performing the type of service that would qualify the borrower for loan forgiveness under the 

requirements of the teacher loan forgiveness program in Sec. 685.217; and

(ii) Is required, by the Secretary, before a forbearance is granted under Sec. 685.205(a)(5)(i) to--

(A) Submit documentation for the period of the annual forbearance request showing the beginning 

and ending dates that the borrower is expected to perform, for that year, the type of service described 

in Sec. 685.217(c); and

(B) Certify the borrower's intent to satisfy the requirements of Sec. 685.217(c).

(6) For not more than three years during which the borrower or endorser--

(i) Is currently obligated to make payments on loans under title IV of the Act; and

(ii) The sum of these payments each month (or a proportional share if the payments are due less 

frequently than monthly) is equal to or greater than 20 percent of the borrower's or endorser's total 

monthly gross income.

(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.

(8) The Secretary may grant a forbearance to permit a borrower or endorser to resume honoring the 

agreement to repay the debt after default. The terms of the forbearance agreement in this situation 

must include a new repayment agreement or other written affirmation of the borrower’s obligation to 

repay the debt signed by the borrower.

(b) Administrative forbearance. In certain circumstances, the Secretary grants forbearance without 

requiring documentation from the borrower. These circumstances include but are not limited to--

(1) A properly granted period of deferment for which the Secretary learns the borrower did not 

qualify;

(2) The period for which payments are overdue at the beginning of an authorized deferment period;
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(3) The period beginning when the borrower entered repayment without the Secretary's knowledge 

until the first payment due date was established;

(4) The period prior to a borrower's filing of a bankruptcy petition;

(5) A period after the Secretary receives reliable information indicating that the borrower (or the 

student in the case of a Direct PLUS Loan obtained by a parent borrower) has died, or the borrower has 

become totally and permanently disabled, until the Secretary receives documentation of death or total 

and permanent disability;

(6) Periods necessary for the Secretary to determine the borrower's eligibility for discharge--

(i) Under Sec. 685.214;

(ii) Under Sec. 685.215;

(iii) Under Sec. 685.216;

(iv) Under Sec. 685.217; or

(v) Due to the borrower's or endorser's (if applicable) bankruptcy;

(7) A period of up to three years in cases where the effect of a variable interest rate on a fixedamount or graduated repayment schedule causes the extension of the maximum repayment term;

(8) A period during which the Secretary has authorized forbearance due to a national military 

mobilization or other local or national emergency;

(9) A period of up to 60 days necessary for the Secretary to collect and process documentation 

supporting the borrower's request for a deferment, forbearance, change in repayment plan, or 

consolidation loan. Interest that accrues during this period is not capitalized; or

(10) For Direct PLUS Loans first disbursed before July 1, 2008, to align repayment with a borrower's 

Direct PLUS Loans that were first disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 

Direct Unsubsidized Loans that have a grace period in accordance with Sec. 685.207(b) or (c). The 

Secretary notifies the borrower that the borrower has the option to cancel the forbearance and 

continue paying on the loan.

(c) Period of forbearance. (1) The Secretary grants forbearance for a period of up to one year.

(2) The forbearance is renewable, upon request of the borrower, for the duration of the period in 

which the borrower meets the condition required for the forbearance.

* * * * *
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Issue Paper #7

Proposed Regulatory Language

Loans Group

Issue: Minimum Loan Period for Transfer Students in Non-Term and Certain NonStandard Term Programs

Statutory Cite: N/A

Regulatory Cites: §685.301(a)(9) [refers to §685.301(a)(9) as contained within the second Editorial 

Note following §685.301 in 34 CFR Part 685, revised as of July 1, 2011]

Summary of Change:

The proposed regulatory language amends the provision that specifies the minimum period for which a 

school may originate a Direct Loan in the case of a student who transfers from one school to another 

school, and the new school measures academic progress in clock hours, or measures academic progress 

in credit hours but does not use a semester, trimester, or quarter system and does not have terms that 

are substantially equal in length with no term less than 9 weeks in length. The revised provision removes 

the current limitation in paragraph (a)(9)(ii) that allows such a school to originate a loan for a period that 

is less than the length of the student’s program at the new school or the academic year at the new 

school only if the new school accepts transfer credits or hours from the prior school. The proposed 

revised language also makes a technical correction by removing the word “application” from paragraph 

(a)(9)(i).

Change:

§ 685.301 Origination of a loan by a Direct Loan Program school.

(a) * * *

(9)(i) The minimum period of enrollment for which a school may originate a Direct Loan application 

is—

(A) At a school that measures academic progress in credit hours and uses a semester, trimester, or 

quarter system, or has terms that are substantially equal in length with no term less than nine weeks in 

length, a single academic term (e.g., a semester or quarter); or

(B) Except as provided in paragraph (a)(9)(ii) or (iii) of this section, at a school that measures 

academic progress in clock hours, or measures academic progress in credit hours but does not use a 

semester, trimester, or quarter system and does not have terms that are substantially equal in length 

with no term less than nine weeks in length, the lesser of—

(1) The length of the student's program (or the remaining portion of that program if the student has 

less than the full program remaining) at the school; or
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(2) The academic year as defined by the school in accordance with 34 CFR 668.3.

(ii) For a student who transfers into a school with credit or clock hours from another school, and the 

prior school originated or certified a loan for a period of enrollment that overlaps the period of 

enrollment at the new school, the new school may originate a loan for the remaining portion of the 

program or academic year. In this case the school may originate a loan for an amount that does not 

exceed the remaining balance of the student's annual loan limit.

(iii) For a student who completes a program at a school, where the student's last loan to complete 

that program had been for less than an academic year, and the student then begins a new program at 

the same school, the school may originate a loan for the remainder of the academic year. In this case 

the school may originate a loan for an amount that does not exceed the remaining balance of the 

student's annual loan limit at the loan level associated with the new program.
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Issue Paper #8

Proposed Regulatory Language

Loans Group

Issue: “Reasonable and Affordable” Payment Standard for Rehabilitation of Defaulted 

Direct Loan and FFEL Program Loans 

Statutory Cites: §428F(a) 

Regulatory Cites: §§682.405(b)(1)(iii) and 685.211(f) 

Summary of Change:

The proposed regulatory language requires “reasonable and affordable” rehabilitation payments for 

FFEL and Direct Loan borrowers to be calculated by using the current procedures for determining 

rehabilitation payment amounts in the FFEL and Direct Loan programs. If a borrower objects to the 

monthly payment amount, the proposed regulations require a guaranty agency or the Secretary to 

recalculate the reasonable and affordable payment amount using the monthly payment amount that 

would be calculated under IBR. However, the payment amount calculated under the IBR formula may 

not be less than $5.

Change: 

§ 682.405 Loan rehabilitation agreement.

* * * * *

(b) Terms of agreement. In the loan rehabilitation agreement, the guaranty agency agrees to ensure 

that its loan rehabilitation program meets the following requirements at all times:

(1) A borrower may request rehabilitation of the borrower's defaulted loan held by the guaranty 

agency. In order to be eligible for rehabilitation of the loan, the borrower must voluntarily make at least 

nine of the ten payments required under a monthly repayment agreement.

(i) Each of which payment is—

(A) Made voluntarily,

(B) In the full amount required, and

(C) Received within 20 days of the due date for the payment, and

(ii) All nine payments are received within a ten-month period that begins with the month in which 

the first required due date falls and ends with the ninth consecutive calendar month following that 

month.

(iii) For the purposes of this section, the determination of reasonable and affordable by the guaranty 

agency or its agents must—

(A) Include a consideration of the borrower's and spouse's disposable income and reasonable and 

necessary expenses including, but not limited to, housing, utilities, food, medical costs, work-related 

expenses, dependent care costs and other Ttitle IV repayment;
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(B) Not be a required minimum payment amount, e.g. $50, if the agency determines that a smaller 

amount is reasonable and affordable based on the borrower's total financial circumstances. The agency 

must include documentation in the borrower's file of the basis for the determination if the monthly 

reasonable and affordable payment established under this section is less than $50 or the monthly 

accrued interest on the loan, whichever is greater. However, $50 may not be the minimum payment for 

a borrower if the agency determines that a smaller amount is reasonable and affordable; and

(C) Be based on the documentation provided by the borrower or other sources including, but not be

limited to—

( 1 ) Evidence of current income (e.g., proof of welfare benefits, Social Security benefits, child 

support, veterans' benefits, Supplemental Security Income, Workmen's Compensation, two most recent 

pay stubs, most recent copy of U.S. income tax return, State Department of Labor reports);

( 2 ) Evidence of current expenses (e.g., a copy of the borrower's monthly household budget, on a 

form provided by the guaranty agency); and

( 3 ) A statement of the unpaid balance on all FFEL loans held by other holders.

(iv) The guaranty agency must provide the borrower with a written statement confirming the 

borrower's reasonable and affordable payment amount, as determined by the agency, and explaining 

any other terms and conditions applicable to the required series of payments that must be made before 

the borrower's account can be considered for repurchase by an eligible lender. The statement must 

inform the borrower of the effects of having the loans rehabilitated ( e.g. , removal of the record of 

default from the borrower’s credit history, possibility of increased monthly payments). The statement 

must inform the borrower of the amount of the collection costs to be added to the unpaid principal at 

the time of the sale. The collection costs may not exceed 18.5 percent of the unpaid principal and 

accrued interest at the time of the sale. The statement must inform the borrower that the borrower 

may object to the terms and conditions of the rehabilitation agreement, and explain the method and 

timeframe for objecting to the terms and conditions of the rehabilitation agreement.

(v) If the borrower objects to the monthly payment amount determined under paragraph (b)(1)(iii) 

of this section, the guaranty agency must recalculate the payment amount. The guaranty agency must 

follow the monthly payment calculation rules in §682.215(b)(1) to determine a borrower’s recalculated 

reasonable and affordable payment amount , except that if the recalculated amount under 

§682.215(b)(1) is less than $5, the borrower’s recalculated monthly rehabilitation payment is $5.

(vi) The guaranty agency must provide the borrower with a written statement confirming the 

borrower’s recalculated reasonable and affordable payment amount.

(vii) If the borrower objects to the monthly payment amount determined under paragraph (b)(1)(iii) 

of this section, but does not provide the documentation required to calculate a monthly payment 

amount under §682.215(b)(1) , no rehabilitation agreement exists between the borrower and the 

guaranty agency, and the rehabilitation does not proceed.

(iviii) The agency must include any payment made under §682.401(b)(4) in determining whether the 

nine out of ten payments required under paragraph (b)(1) of this section have been made.

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(ixv) A borrower may request that the monthly payment amount be adjusted due to a change in the 

borrower's total financial circumstances only upon providing the documentation specified in paragraph 

(b)(1)(iii)(C) of this section.

(vi) A guaranty agency must provide the borrower with a written statement confirming the 

borrower's reasonable and affordable payment amount, as determined by the agency, and explaining 

any other terms and conditions applicable to the required series of payments that must be made before 

a borrower's account can be considered for repurchase by an eligible lender. The statement must inform 

borrowers of the effects of having their loans rehabilitated ( e.g. , credit clearing, possibility of increased 

monthly payments). The statement must inform the borrower of the amount of the collection costs to 

be added to the unpaid principal at the time of the sale. The collection costs may not exceed 18.5 

percent of the unpaid principal and accrued interest at the time of the sale.

(vii) A guaranty agency must provide the borrower with an opportunity to object to terms of the 

rehabilitation of the borrower's defaulted loan.

(2) For the purposes of this section, payment in the full amount required means payment of an 

amount that is reasonable and affordable, based on the borrower's total financial circumstances, as 

agreed to by the borrower and the agency. Voluntary payments are those made directly by the 

borrower and do not include payments obtained by Federal offset, garnishment, income or asset 

execution, or after a judgment has been entered on a loan. A guaranty agency must attempt to secure a 

lender to purchase the loan at the end of the 9- or 10-month payment period as applicable.

(3) Upon the sale of a rehabilitated loan to an eligible lender—

(i) The guaranty agency must, within 45 days of the sale—

(A) Provide notice to the prior holder of such sale, and

(B) Request that any consumer reporting agency to which the default was reported remove the 

record of default from the borrower's credit history.

(ii) The prior holder of the loan must, within 30 days of receiving the notification from the guaranty 

agency, request that any consumer reporting agency to which the default claim payment or other 

equivalent record was reported remove such record from the borrower's credit history.

(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 §682.209(a) or (h). For 

Consolidation loans, the maximum repayment term is based on the balance outstanding at the time of 

loan rehabilitation.

* * * * * 
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§ 685.211 Miscellaneous repayment provisions.

* * * * * 

(f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, except for a loan on which a 

judgment has been obtained, is rehabilitated if the borrower makes nine voluntary, reasonable, and 

affordable monthly payments within 20 days of the due date during ten consecutive months. The 

amount of such a payment is determined on the basis of the borrower's total financial circumstances.

The Secretary determines the amount of a borrower’s reasonable and affordable payment on the basis 

of a borrower’s total financial circumstances.

(2) The Secretary provides the borrower with a written statement confirming the borrower's 

reasonable and affordable payment amount, as determined by the Secretary, and explaining any other 

terms and conditions applicable to the required series of payments that must be made before the 

borrower's account can be rehabilitated. The statement informs the borrower that the borrower may 

object to the terms and conditions of the rehabilitation agreement, and explains the method and 

timeframe for objecting to the terms and conditions of the rehabilitation agreement.

(3) If the borrower objects to the monthly payment amount determined under paragraph (f)(1) of 

this section, the Secretary recalculates the payment amount by using the monthly payment calculation 

rules in §685.221(b)(1) and §685.221(b)(2), except that if the calculated amount under these sections is 

less than $5, the monthly rehabilitation payment is $5.

(4) The Secretary provides the borrower with a written statement confirming the borrower’s 

recalculated reasonable and affordable payment amount.

(5) If the borrower objects to the monthly payment amount determined under paragraph (f)(1) of 

this section, but does not provide the documentation required to calculate a monthly payment amount 

under §685.221(b)(1) and §685.221(b)(2) , no rehabilitation agreement exists between the borrower 

and the Secretary, and the rehabilitation does not proceed.

(6)If a defaulted loan is rehabilitated, the Secretary instructs any consumer reporting agency to 

which the default was reported to remove the default from the borrower's credit history.

(27) A defaulted Direct Loan on which a judgment has been obtained may not be rehabilitated.

(38) A Direct Loan obtained by fraud for which the borrower has been convicted of, or has pled nolo 

contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program assistance may not be 

rehabilitated.

(49) Effective for any defaulted Direct Loan that is rehabilitated on or after August 14, 2008, the 

borrower cannot rehabilitate the loan again if the loan returns to default status following the 

rehabilitation.
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Issue Paper #9

Proposed Regulatory Language

Loans Group

Issue: Rehabilitation of Defaulted Direct Loan and FFEL Program Loans: Treatment of 

Borrowers Subject to Administrative Wage Garnishment 

Statutory Cite: §428F(a) 

Regulatory Cites: §§682.405(a)(2)(i) and 685.211(f) 

Summary of Change:

The proposed regulatory language requires a guaranty agency to withdraw administrative wage 

garnishment for a FFEL borrower who makes five, monthly, qualifying payments under a loan 

rehabilitation agreement. In the Direct Loan program, the Department withdraws administrative wage 

garnishment after the five, monthly, qualifying rehabilitation payments. In both loan programs, the 

borrower may obtain this benefit only one time.

Change:

§ 682.405 Loan rehabilitation agreement.

(a) General. (1) A guaranty agency that has a basic program agreement must enter into a loan 

rehabilitation agreement with the Secretary. The guaranty agency must establish a loan rehabilitation 

program for all borrowers with an enforceable promissory note for the purpose of rehabilitating 

defaulted loans, except for loans for which a judgment has been obtained, loans on which a default 

claim was filed under §682.412, and loans on which the borrower has been convicted of, or has pled 

nolo contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program assistance, so 

that the loan may be purchased, if practicable, by an eligible lender and removed from default status.

(2) A loan is considered to be rehabilitated only after—

(i) The borrower has made and the guaranty agency has received nine of the ten payments required 

under a monthly repayment agreement.

(A) Each of which payments is—

( 1 ) Made voluntarily;

( 2 ) In the full amount required; and

( 3 ) Received within 20 days of the due date for the payment, and

(B) All nine payments are received within a 10-month period that begins with the month in which 

the first required due date falls and ends with the ninth consecutive calendar month following that 

month, and

(ii) The loan has been sold to an eligible lender.
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(3) If a borrower’s loan is being collected by administrative wage garnishment while the borrower is 

making monthly payments on the same loan under a loan rehabilitation agreement, the guaranty agency 

must stop collecting the loan by administrative wage garnishment after the borrower makes five 

qualifying monthly payments under the rehabilitation agreement. A borrower may only obtain the 

benefit of this paragraph with respect to withdrawal of administrative wage garnishment once.

(34) After the loan has been rehabilitated, the borrower regains all benefits of the program, 

including any remaining deferment eligibility under section 428(b)(1)(M) of the Act, from the date of the 

rehabilitation. Effective for any loan that is rehabilitated on or after August 14, 2008, the borrower 

cannot rehabilitate the loan again if the loan returns to default status following the rehabilitation.

* * * * *

§ 685.211 Miscellaneous repayment provisions.

* * * * * 

(f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, except for a loan on which a 

judgment has been obtained, is rehabilitated if the borrower makes nine voluntary, reasonable, and 

affordable monthly payments within 20 days of the due date during ten consecutive months. The 

amount of such a payment is determined on the basis of the borrower's total financial circumstances. If 

a defaulted loan is rehabilitated, the Secretary instructs any consumer reporting agency to which the 

default was reported to remove the default from the borrower's credit history.

(2) A defaulted Direct Loan on which a judgment has been obtained may not be rehabilitated.

(3) A Direct Loan obtained by fraud for which the borrower has been convicted of, or has pled nolo 

contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program assistance may not be 

rehabilitated.

(4) If a borrower’s loan is being collected by administrative wage garnishment while the borrower is 

making monthly payments on the same loan under a loan rehabilitation agreement, the Secretary stops 

collecting the loan by administrative wage garnishment after the borrower makes five qualifying 

monthly payments under the rehabilitation agreement. A borrower may only obtain the benefit of this 

paragraph with respect to withdrawal of administrative wage garnishment once.

(45) Effective for any defaulted Direct Loan that is rehabilitated on or after August 14, 2008, the 

borrower cannot rehabilitate the loan again if the loan returns to default status following the 

rehabilitation.
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Issue Paper #10

Proposed Regulatory Language

Loans Group

Issue: Participation Rate Index Appeal for Single Cohort Default Rate Loss of Eligibility 

to Participate in the Direct Loan Program 

Statutory Cite: N/A

Regulatory Cites: 34 CFR 668 Subpart N-Cohort Default Rates; §§668.204(c)(1), 668.206(a)(1) and 

668.214(a)(1)

Summary of Change:

The proposed change amends the participation rate for an institution’s participation rate index appeal of 

a single year sanction using a three year cohort default rate.

Change:

§668.204 Draft cohort default rates and your ability to challenge before official cohort default rates 

are issued.

* * * * *

(c)(1)(i) Participation rate index challenges. (1)(i) You may challenge an anticipated loss of eligibility 

under §668.206(a)(1), based on one cohort default rate over 40 percent, if your participation rate index 

for that cohort’s fiscal year is equal to or less than 0.06015 0.0832.

* * * * *

§668.206 Consequences of cohort default rates on your ability to participate in Title IV, HEA 

programs.

(a)(1) End of participation. (1) Except as provided in paragraph (e) of this section, you lose your 

eligibility to participate in the FFEL and Direct Loan programs 30 days after you receive our notice that 

your most recent cohort default rate for fiscal year 2011 or later is greater than 40 percent.

* * *

(e) Request for adjustments and appeals. (1) A loss of eligibility under this section does not take 

effect while your request for adjustment or appeal, as listed in §668.208(a), is pending, provided your 

request for adjustment or appeal is complete, timely, accurate, and in the required format.

(2) Eligibility continued under paragraph (e)(1) of this section ends if we determine that none of the 

requests for adjustments and appeals you have submitted qualify you for continued eligibility under 

§668.208. Loss of eligibility takes effect on the date that you receive notice of our determination on your 

last pending request for adjustment or appeal.

(3) You do not lose eligibility under this section if we determine that your request for adjustment or 

appeal meets all requirements of this subpart and qualifies you for continued eligibility under §668.208.

* * * * *
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§668.214 Participation rate index appeals.

(a) Eligibility. (1) You may appeal a notice of a loss of eligibility under Sec. 668.206(a)(1), based on 

one cohort default rate over 40 percent, if your participation rate index for that cohort's fiscal year is 

equal to or less than 0.06015 0.0832.

(2) You may appeal a notice of a loss of eligibility under Sec. 668.206(a)(2), based on three cohort 

default rates of 30 percent or greater, if your participation rate index is equal to or less than 0.0625 for 

any of those three cohorts' fiscal years.

(3) You may appeal potential placement on provisional certification under Sec. 668.16(m)(2)(i) based 

on two cohort default rates that fail to satisfy the standard of administrative capability in Sec. 

668.16(m)(1)(ii) if your participation rate index is equal to or less than 0.0625 for either of the two 

cohorts' fiscal years.

(b) Calculating your participation rate index. (1) Except as provided in paragraph (b)(2) of this 

section, your participation rate index for a fiscal year is determined by multiplying your cohort default 

rate for that fiscal year by the percentage that is derived by dividing--

(i) The number of students who received an FFELP or a Direct Loan Program loan to attend your 

institution during a period of enrollment, as defined in 34 CFR 682.200 or 685.102, that overlaps any 

part of a 12-month period that ended during the 6 months immediately preceding the cohort's fiscal 

year, by 

(ii) The number of regular students who were enrolled at your institution on at least a half-time 

basis during any part of the same 12-month period.

(2) If your cohort default rate for a fiscal year is calculated as an average rate under Sec. 

68.202(d)(2), you may calculate your participation rate index for that fiscal year using either that 

average rate or the cohort default rate that would be calculated for the fiscal year alone using the 

method described in Sec. 668.202(d)(1).

(c) Deadline for submitting an appeal. You must send us your appeal under this section, including all 

supporting documentation, within 30 days after you receive—

(1) Notice of your loss of eligibility; or

(2) Notice of a second cohort default rate that equals or exceeds 30 percent but is less than or equal 

to 40 percent and that, in combination with an earlier rate, potentially subjects you to provisional 

certification under Sec. 668.16(m)(2)(i).

(d) Determination. (1) You do not lose eligibility under Sec. 668.206 and we do not place you on 

provisional certification, if we determine that you meet the requirements for a participation rate index 

appeal.

(2) If we determine that your participation rate index for a fiscal year is equal to or less than 0.06015

0.0832 or 0.0625, under paragraph (d)(1) of this section, we also excuse you from any subsequent loss of 

eligibility under Sec. 668.206(a)(2) or placement on provisional certification under Sec. 668.16(m)(2)(i) 

that would be based on the official cohort default rate for that fiscal year.

* * * * *