**Issue Paper #1**

**Loans Group**

**Final Consensus Language: Contextual Format**

**03/30/2012**

**Issue:**Changes to the Income Contingent Repayment (ICR) Plan

**Statutory Cites:**§455(d)(1)(d) and 455(e)

**Regulatory Cites:**§§685.208(k) and 685.209

**Summary of Change:**

The proposed regulatory language creates a new ICR plan based on the President’s “Pay As You Earn” initiative and makes technical corrections and other minor changes to the current ICR plan regulations, including the addition of provisions related to notification of income documentation requirements and the ICR loan forgiveness process. 

**Change:**

See “Proposed Regulatory Language for Issue Paper 1, Loans Group.”

**PROPOSED REGULATORY LANGUAGE FOR ISSUE PAPER 1, LOANS GROUP**

**§ 685.209   Income-contingent repayment plans.**

(a)  *ICR-A plan:*The ICR-A plan is an income-contingent repayment plan for eligible new borrowers. (1) *Definitions.*  As used in this section -- 

(i)  *Adjusted gross income (AGI)*means the borrower's adjusted gross income as reported to the Internal Revenue Service.  For a married borrower filing jointly, AGI includes both the borrower's and spouse's income.  For a married borrower filing separately, AGI includes only the borrower's income.

(ii)  *Eligible loan*means any outstanding loan made to a borrower under the Direct Loan Program or the FFEL Program except for a defaulted loan, a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower, or a Direct Consolidation Loan or Federal Consolidation Loan that repaid a Direct PLUS Loan or Federal PLUS Loan made to a parent borrower.

(iii)  *Eligible new borrower*means an individual who -- 

(A)  Has no outstanding balance on a Direct Loan Program Loan or a FFEL Program loan as of October 1, 2007, or who has no outstanding balance on such a loan on the date he or she receives a new loan after October 1, 2007; and

(B)(*1*)  Receives a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or student Direct PLUS Loan on or after October 1, 2011; or

(*2*)  Receives a Direct Consolidation Loan based on an application received on or after October 1, 2011, except that a borrower is not considered an eligible new borrower if the Direct Consolidation Loan repays a loan that would otherwise make the borrower ineligible under paragraph (a)(1)(iii)(A) of this section.

(iv)  *Family size*means the number that is determined by counting the borrower, the borrower's spouse, and the borrower's children, including unborn children who will be born during the year the borrower certifies family size, if the children receive more than half their support from the borrower.  A borrower's family size includes other individuals if, at the time the borrower certifies family size, the other individuals -- 

(A)  Live with the borrower; and

(B)  Receive more than half their support from the borrower and will continue to receive this support from the borrower for the year the borrower certifies family size.  Support includes money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs.

(v)  *Partial financial hardship*means a circumstance in which --

(A)  For an unmarried borrower or a married borrower who files an individual Federal tax return, the annual amount due on all of the borrower's eligible loans, as calculated under a standard repayment plan based on a 10-year repayment period, using the greater of the amount due at the time the borrower initially entered repayment or at the time the borrower elects the ICR-A plan, exceeds 10 percent of the difference between the borrower's AGI and 150 percent of the poverty guideline for the borrower's family size; or

(B)  For a married borrower who files a joint Federal tax return with his or her spouse, the annual amount due on all of the borrower's eligible loans and, if applicable, the spouse's eligible loans, as calculated under a standard repayment plan based on a 10-year repayment period, using the greater of the amount due at the time the loans initially entered repayment or at the time the borrower or spouse elects the ICR-A plan, exceeds 10 percent of the difference between the borrower's and spouse's AGI, and 150 percent of the poverty guideline for the borrower's family size.

(vi)  *Poverty guideline*refers to the income categorized by State and family size in the poverty guidelines published annually by the United States Department of Health and Human Services pursuant to 42 U.S.C. 9902(2).  If a borrower is not a resident of a State identified in the poverty guidelines, the poverty guideline to be used for the borrower is the poverty guideline (for the relevant family size) used for the 48 contiguous States.

(2)  *Terms of the ICR-A repayment plan.*(i) A borrower may select the ICR-A plan only if the borrower has a partial financial hardship.  The borrower's aggregate monthly loan payments are limited to no more than 10 percent of the amount by which the borrower's AGI exceeds 150 percent of the poverty guideline applicable to the borrower's family size, divided by 12.

(ii)  The Secretary adjusts the calculated monthly payment if -- 

(A)  Except for borrowers provided for in paragraph (a)(2)(ii)(B) of this section, the total amount of the borrower's eligible loans are not Direct Loans, in which case the Secretary determines the borrower's adjusted monthly payment by multiplying the calculated payment by the percentage of the total outstanding principal amount of the borrower’s eligible loans that are Direct Loans;

(B)  Both the borrower and borrower's spouse have eligible loans and filed a joint Federal tax return, in which case the Secretary determines -- 

(*1*)  Each borrower's percentage of the couple's total eligible loan debt;

(*2*)  The adjusted monthly payment for each borrower by multiplying the calculated payment by the percentage determined in paragraph (a)(2)(ii)(B)(*1*) of this section; and

(*3*)  If the borrower's loans are held by multiple holders, the borrower's adjusted monthly Direct Loan payment by multiplying the payment determined in paragraph (a)(2)(ii)(B)(*2*) of this section by the percentage of the total outstanding principal amount of the borrower’s eligible loans that are Direct Loans;

(C)  The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), or (a)(ii)(2)(B) of this section is less than $5.00, in which case the borrower's monthly payment is $0.00; or

(D)  The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A), or (a)(ii)(2)(B) of this section is equal to or greater than $5.00 but less than $10.00, in which case the borrower's monthly payment is $10.00.

(iii)  If the borrower's monthly payment amount is not sufficient to pay the accrued interest on the borrower's Direct Subsidized loan or the subsidized portion of a Direct Consolidation Loan, the Secretary does not charge the borrower the remaining accrued interest for a period not to exceed three consecutive years from the established repayment period start date on that loan under the ICR-A plan.  On a Direct Consolidation Loan that repays loans on which the Secretary has not charged the borrower accrued interest, the three-year period includes the period for which the Secretary did not charge the borrower accrued interest on the underlying loans.  This three-year period does not include any period during which the borrower receives an economic hardship deferment.

(iv)(A)  Except as provided in paragraph (a)(2)(iii) of this section, accrued interest is capitalized -- 

(*1*)  When a borrower is determined to no longer have a partial financial hardship; or 

(*2*)  At the time a borrower chooses to leave the ICR-A plan.

(B)(*1*)  The amount of accrued interest capitalized under paragraph (a)(2)(iv)(A)(*1*) is limited to 10 percent of the original principal balance at the time the borrower entered repayment under the ICR-A plan.  

(*2*)  After the amount of accrued interest reaches the limit described in paragraph (a)(2)(iv)(B)(*1*) of this section, interest continues to accrue, but is not capitalized while the borrower remains on the ICR-A plan.

(v)  If the borrower's monthly payment amount is not sufficient to pay any of the principal due, the payment of that principal is postponed until the borrower chooses to leave the ICR-A plan or no longer has a partial financial hardship.

(vi)  The repayment period for a borrower under the ICR-A plan may be greater than 10 years.

(3)  *Payment application and prepayment.*(i) The Secretary applies any payment made under the ICR-A plan in the following order:

(A)  Accrued interest.

(B)  Collection costs.

(C)  Late charges.

(D)  Loan principal.

(ii)  The borrower may prepay all or part of a loan at any time without penalty, as provided under §685.211(a)(2).

(iii)  If the prepayment amount equals or exceeds a monthly payment amount of $10.00 or more under the repayment schedule established for the loan, the Secretary applies the prepayment consistent with the requirements of §685.211(a)(3).

(iv)  If the prepayment amount exceeds a monthly payment amount of $0.00 under the repayment schedule established for the loan, the Secretary applies the prepayment consistent with the requirements of paragraph (a)(3)(i) of this section.

(4)  *Changes in the payment amount.*(i) If a borrower no longer has a partial financial hardship, the borrower may continue to make payments under the ICR-A 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 contingent payments. In either case, as result of the recalculation -- 

(A)  The maximum monthly amount that the Secretary requires the borrower to repay is the amount the borrower would have paid under the standard repayment plan based on a 10-year repayment period using the amount of the borrower's eligible loans that was outstanding at the time the borrower began repayment on the loans under the ICR-A plan; and

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

(ii)  A borrower who no longer wishes to repay under the ICR-A plan may change to a different repayment plan in accordance with §685.210(b).

(5)  *Eligibility documentation, verification, and notifications.*(i)(A) The Secretary determines whether a borrower has a partial financial hardship to qualify for the ICR-A plan for the year the borrower selects the plan and for each subsequent year that the borrower remains on the plan. To make this determination, the Secretary requires the borrower to provide documentation, acceptable to the Secretary, of the borrower’s AGI;

(B)  If the borrower's AGI is not available, or if the Secretary believes that the borrower's reported AGI does not reasonably reflect the borrower's current income, provide other documentation to verify income; and 

(C)  Annually certify the borrower's family size.  If the borrower fails to certify family size, the Secretary assumes a family size of one for that year.

(ii)  After making a determination that a borrower has a partial financial hardship to qualify for the ICR-A plan for the year the borrower initially elects the plan and for each subsequent year that the borrower has a partial financial hardship, the Secretary sends the borrower a written notification that provides the borrower with -- 

(A)  The borrower’s scheduled monthly payment amount, as calculated under paragraph (a)(2) of this section, and the time period during which this scheduled monthly payment amount will apply (“annual payment period”);

(B)  Information about the requirement for the borrower to annually provide the information described in paragraph (a)(5)(i) of this section, if the borrower chooses to remain on the ICR-A plan after the initial year on the plan, and an explanation that the borrower will be notified in advance of the date by which the Secretary must receive this information; 

(C)  An explanation of the consequences, as described in paragraphs (a)(5)(i)(C) and (a)(5)(v) of this section, if the borrower does not provide the required information; and

(D)  Information about the borrower’s option to request, at any time during the borrower’s current annual payment period, that the Secretary recalculate the borrower’s monthly payment amount if the borrower’s financial circumstances have changed and the income amount that was used to calculate the borrower’s current monthly payment no longer reflects the borrower’s current income.  If the Secretary recalculates the borrower’s monthly payment amount based on the borrower’s request, the Secretary sends the borrower a written notification that includes the information described in paragraphs (a)(5)(ii)(A) through (D) of this section.

(iii)  For each subsequent year that a borrower who currently has a partial financial hardship remains on the ICR-A plan, the Secretary notifies the borrower in writing of the requirements in paragraph (a)(5)(i) of this section no later than 60 days and no earlier than 90 days prior to the date specified in paragraph (a)(5)(iii)(A) of this section.  The notification provides the borrower with --

(A)  The date, no earlier than 35 days before the end of the borrower’s annual payment period, by which the Secretary must receive all of the documentation described in paragraph (a)(5)(i) of this section (“annual deadline”); and

(B)  The consequences if the Secretary does not receive the information within 10 days following the annual deadline  specified in the notice, including the borrower’s new monthly payment amount as determined under paragraph (a)(4)(i) of this section, the effective date for the recalculated monthly payment amount, and the fact that unpaid accrued interest will be capitalized in accordance with paragraph (a)(2)(iv) of this section.

(iv)  Each time the Secretary makes a determination that a borrower no longer has a partial financial hardship for a subsequent year that the borrower wishes to remain on the plan, the Secretary sends the borrower a written notification that provides the borrower with -- 

(A)  The borrower’s recalculated monthly payment amount, as determined in accordance with paragraph (a)(4)(i) of this section;

(B)  An explanation that unpaid interest will be capitalized in accordance with paragraph (a)(2)(iv) of this section;

(C)  Information about the borrower’s option to request, at any time, that the Secretary redetermine whether the borrower has a partial financial hardship, if the borrower’s financial circumstances have changed and the income amount used to determine that the borrower no longer has a partial financial hardship does not reflect the borrower’s current income, and an explanation that the borrower will be notified annually of this option.  If the Secretary determines that the borrower again has a partial financial hardship, the Secretary recalculates the borrower’s monthly payment in accordance with paragraph (a)(2)(i) of this section and sends the borrower a written notification that includes the information described in paragraphs (a)(5)(ii)(A) through (D) of this section.

(v)  For each subsequent year that a borrower who does not currently have a partial financial hardship remains on the ICR-A plan, the Secretary sends the borrower a written notification that includes the information described in paragraph (a)(5)(iv)(C) of this section.

(vi)  If a borrower who is currently repaying under another repayment plan selects the ICR-A plan but does not provide the documentation described in paragraphs (a)(5)(i) of this section, or if the Secretary determines that the borrower does not have a partial financial hardship, the borrower remains on his or her current repayment plan.

(vii)  The Secretary designates the repayment option described in paragraph (a)(4)(i) of this section if a borrower who is currently repaying under the ICR-A repayment plan remains on the plan for a subsequent year but the Secretary does not receive the documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days of the specified annual deadline. 

(viii)  If the Secretary receives the documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days of the specified annual deadline, the Secretary maintains the borrower’s current scheduled monthly payment amount until the new scheduled monthly payment amount is determined.  If the new monthly payment amount is less than the borrower’s previously calculated ICR-A monthly payment amount, and the borrower made payments at the previously calculated amount after the end of the most recent annual payment period, the Secretary makes the appropriate adjustment to the borrower’s account.  Notwithstanding the requirements of §685.211(b)(3), unless the borrower requests otherwise the Secretary applies the excess payment amounts made after the end of the most recent annual payment period in accordance with the requirements of §685.209(a)(3)(i).

(ix)(A)  If the Secretary receives the documentation described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10 days after the specified annual deadline and the borrower’s monthly payment amount is recalculated in accordance with paragraph (a)(4)(i) of this section, the Secretary grants forbearance with respect to payments that are overdue or would be due at the time the new calculated ICR-A monthly payment amount is determined, if the new monthly payment amount is $0.00 or is less than the borrower’s previously calculated income-based monthly payment amount.  Interest that accrues during the portion of this forbearance period that covers payments that are overdue after the end of the prior annual payment period is not capitalized.

(B)  Any payments that the borrower continued to make at the previously calculated payment amount after the end of the prior annual payment period and before the new monthly payment amount is calculated are considered to be qualifying payments for purposes of §685.219, provided that the payments otherwise meet the requirements described in §685.219(c)(1).

(6)  *Loan forgiveness.*(i) To qualify for loan forgiveness after 20 years, a borrower must have participated in the ICR-A plan and satisfied at least one of the following conditions during that period:

(A)  Made reduced monthly payments under a partial financial hardship as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this section, including a monthly payment amount of $0.00, as provided under paragraph (a)(2)(ii)(C) of this section.

(B)  Made reduced monthly payments after the borrower no longer had a partial financial hardship or stopped making income-contingent payments as provided in paragraph (a)(4)(i) of this section.

(C)  Made monthly payments under any repayment plan, that were not less than the amount required under the Direct Loan standard repayment plan described in §685.208(b) for the amount of the borrower’s loans that were outstanding at the time the loans initially entered repayment.

(D)  Made monthly payments under the Direct Loan standard repayment plan described in §685.208(b).

(E)  Made monthly payments under the ICR-B plan described in paragraph (b) of this section or the income-based repayment plan described in §685.221, including a calculated monthly payment amount of $0.00.

(F)  Received an economic hardship deferment on eligible Direct Loans.

(ii)  As provided under paragraph (a)(6)(v) of this section, the Secretary cancels any outstanding balance of principal and accrued interest on Direct loans for which the borrower qualifies for forgiveness if the Secretary determines that -- 

(A)  The borrower made monthly payments under one or more of the repayment plans described in paragraph (a)(6)(i) of this section, including a monthly payment amount of $0.00, as provided under paragraph (a)(2)(ii)(C) of this section; and

(B)(*1*)  The borrower made those monthly payments each year for a 20-year period; or

(*2*)  Through a combination of monthly payments and economic hardship deferments, the borrower has made the equivalent of 20 years of payments.

(iii)  For a borrower who qualifies for the ICR-A plan, the beginning date for the 20-year period is -- 

(A)  If the borrower made payments under the ICR-B plan described in paragraph (b) of this section or the income-based repayment plan described in §685.221, the earliest date the borrower made a payment on the loan under one of those plans at any time after October 1, 2007; 

(B)  If the borrower did not make payments under the ICR-B plan described in paragraph (b) of this section or the income-based repayment plan described in §685.221 -- 

(*1*)  For a borrower who has an eligible Direct Consolidation Loan, the date the borrower made a payment or received an economic hardship deferment on that loan, before the date the borrower qualified for the ICR-A plan. The beginning date is the date the borrower made the payment or received the deferment after October 1, 2007;

(*2*)  For a borrower who has one or more other eligible Direct Loans, the date the borrower made a payment or received an economic hardship deferment on that loan.  The beginning date is the date the borrower made that payment or received the deferment on that loan after October 1, 2007;

(*3*)  For a borrower who did not make a payment or receive an economic hardship deferment on the loan under paragraph (a)(6)(iii)(B)(*1*) or (a)(6)(iii)(B)(*2*) of this section, the date the borrower made a payment on the loan under the ICR-A plan;

(*4*)  If the borrower consolidates his or her eligible loans, the date the borrower made a payment on the Direct Consolidation Loan that met the requirements of paragraph (a)(6)(i) of this section; or

(*5*)  If the borrower did not make a payment or receive an economic hardship deferment on the loan under paragraph (a)(6)(iii)(A) or (a)(6)(iii)(B) of this section, the date the borrower made a payment on the loan under the ICR-A plan.

(iv)  Any payments made on a defaulted loan are not made under a qualifying repayment plan and are not counted toward the 20-year forgiveness period.

(v)(A)  When the Secretary determines that a borrower has satisfied the loan forgiveness requirements under paragraph (a)(6) of this section on an eligible loan, the Secretary cancels the outstanding balance and accrued interest on that loan.  No later than 6 months prior to the anticipated date that the borrower will meet the forgiveness requirements, the Secretary sends the borrower a written notice that includes -- 

(*1*)  An explanation that the borrower is approaching the date that he or she is expected to meet the requirements to receive loan forgiveness;

(*2*)  A reminder that the borrower must continue to make the borrower’s scheduled monthly payments; and

(*3*)  General information on the current treatment of the forgiveness amount for tax purposes, and instructions for the borrower to contact the Internal Revenue Service for more information.

(B)  The Secretary determines when a borrower has met the loan forgiveness requirements in paragraph (a)(6) of this section and does not require the borrower to submit a request for loan forgiveness.

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

(*1*)  Notifies the borrower that the borrower’s obligation on the loans is satisfied;  

(*2*)  Provides the borrower with the information described in paragraph (b)(6)(v)(A)(*1*)(*iii*) of this section; and

(3)  Returns to the sender any payment received on a loan after loan forgiveness has been granted.

(b) *ICR-B plan:*The ICR-B plan is an income-contingent repayment plan under which a borrower’s monthly payment amount is generally based on the total amount of the borrower’s Direct Loans, family size, and Adjusted Gross Income.

(1)  *Repayment amount calculation.*(i)  The amount the borrower would repay is based upon the borrower's Direct Loan debt when the borrower's first loan enters repayment, and this basis for calculation does not change unless the borrower obtains another Direct Loan or the borrower and the borrower's spouse obtain approval to repay their loans jointly under paragraph (b)(2)(ii) of this section.  If the borrower obtains another Direct Loan, the amount the borrower would repay is based on the combined amounts of the loans when the last loan enters repayment.  If the borrower and the borrower's spouse repay the loans jointly, the amount the borrowers would repay is based on both borrowers' Direct Loan debts at the time they enter joint repayment.

(ii)  The annual amount payable by a borrower under the ICR-B plan is the lesser of—

(A)  The amount the borrower would repay annually over 12 years using standard amortization multiplied by an income percentage factor that corresponds to the borrower's AGI as shown in the income percentage factor table in a notice published annually by the Secretary in the Federal Register; or

(B)  20 percent of discretionary income.

(iii)(A)  For purposes of paragraph (b) of this section, discretionary income is defined as a borrower's AGI minus the amount of the poverty guideline as defined in paragraph (b)(1)(iii)(B) of this section.   If a borrower provides documentation acceptable to the Secretary that the borrower has more than one person in the borrower's family, the Secretary applies the HHS Poverty Guidelines for the borrower's family size.

(B)  For purposes of paragraph (b) of this section, the term “poverty guideline” refers to the income categorized by State and family size in the poverty guidelines published annually by the United States Department of Health and Human Services pursuant to 42 U.S.C. 9902(2).  If a borrower is not a resident of a State identified in the poverty guidelines, the poverty line to be used for the borrower is the poverty guideline (for the relevant family size) used for the 48 contiguous States.

(iv)  For exact incomes not shown in the income percentage factor table in the annual notice published by the Secretary, an income percentage factor is calculated, based upon the intervals between the incomes and income percentage factors shown on the table.

(v)  Each year, the Secretary recalculates the borrower's annual payment amount based on changes in the borrower's AGI, the variable interest rate, the income percentage factors in the table in the annual notice published by the Secretary, and updated HHS Poverty Guidelines (if applicable).

(vi)  If a borrower's monthly payment is calculated to be greater than $0 but less than or equal to $5.00, the amount payable by the borrower shall be $5.00.

(vii)  For purposes of the annual recalculation described in paragraph (b)(1)(v) of this section, after periods in which a borrower makes payments that are less than interest accrued on the loan, the payment amount is recalculated based upon unpaid accrued interest and the highest outstanding principal loan amount (including amount capitalized) calculated for that borrower while paying under the ICR-B plan.

(viii)  For each calendar year, the Secretary publishes in the Federal Register a revised income percentage factor table reflecting changes based on inflation.  This revised table is developed by changing each of the dollar amounts contained in the table by a percentage equal to the estimated percentage changes in the Consumer Price Index (as determined by the Secretary) between December 1995 and the December next preceding the beginning of such calendar year.

(ix)  Examples of the calculation of monthly repayment amounts and tables that show monthly repayment amounts for borrowers at various income and debt levels are included in the annual notice published by the Secretary.

(x)  At the beginning of the repayment period under the ICR-B plan, the borrower must make monthly payments of the amount of interest that accrues on the borrower’s Direct Loan until the Secretary calculates the borrower’s monthly payment amount on the basis of the borrower’s income.

(2)  *Treatment of married borrowers.*(i)(A) For a married borrower who files a joint Federal tax return with his or her spouse, the AGI for both spouses is used to calculate the monthly payment amount under the ICR-B plan. 

(B)  For a married borrower who files a Federal income tax return separately from his or her spouse, only the borrower’s AGI is used to determine the monthly payment amount under the ICR-B plan. 

(ii)  Married borrowers may repay their loans jointly.  The outstanding balances on the loans of each borrower are added together to determine the borrowers' payback rate under paragraph (b)(1) of this section.

(iii)  The amount of the payment applied to each borrower's debt is the proportion of the payments that equals the same proportion as that borrower's debt to the total outstanding balance, except that the payment is credited toward outstanding interest on any loan before any payment is credited toward principal.

(3)  *Other features of the ICR-B plan*-- (i) *Alternative documentation of income.*If a borrower's AGI is not available or if, in the Secretary's opinion, the borrower's reported AGI does not reasonably reflect the borrower's current income, the Secretary may use other documentation of income provided by the borrower to calculate the borrower's monthly repayment amount.

(ii)  *Adjustments to repayment obligations.*The Secretary may determine that special circumstances, such as a loss of employment by the borrower or the borrower's spouse, warrant an adjustment to the borrower's repayment obligations.

(iii)  *Repayment period.*(A) The maximum repayment period under the ICR-B plan is 25 years.

(B)  The repayment period includes—

(*1*)  Periods in which the borrower makes payments under the ICR-B plan on loans that are not in default;

(*2*)  Periods in which the borrower makes reduced monthly payments under the income-based repayment plan or a recalculated reduced monthly payment after the borrower no longer has a partial financial hardship or stops making income-based payments, as provided in §685.221(d)(1)(i);

(*3*)  Periods in which the borrower made monthly payments under the standard repayment plan after leaving the income-based repayment plan as provided in §685.221(d)(2);

(*4*)  Periods in which the borrower makes payments under the standard repayment plan described in §685.208(b);

(*5*)  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 §§685.208(d) and (e), or the standard repayment plan described in §685.208(c);

(*6*)  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 §685.208(b); or

(*7*)  Periods of economic hardship deferment after October 1, 2007.

(C)  If a borrower repays more than one loan under the ICR-B plan, a separate repayment period for each loan begins when that loan enters repayment.

(D)  If a borrower has not repaid a loan in full at the end of the 25-year repayment period under the ICR-B plan, the Secretary cancels the outstanding balance and accrued interest on that loan.  No later than 6 months prior to the anticipated date that the borrower will meet the forgiveness requirements, the Secretary sends the borrower a written notification that includes -- 

(*1*)  An explanation that the borrower is approaching the date that he or she is expected to meet the requirements to receive loan forgiveness;

(*2*)  A reminder that the borrower must continue to make the borrower’s scheduled monthly payments; and

(*3*)  General information on the current treatment of the forgiveness amount, and instructions for the borrower to contact the Internal Revenue Service for more information. 

(E)  The Secretary determines when a borrower has met the loan forgiveness requirements under paragraph (b)(3)(iii)(D) of this section and does not require the borrower to submit a request for loan forgiveness.  After determining that a borrower has satisfied the loan forgiveness requirements, the Secretary --

(*1*)  Notifies the borrower that the borrower’s obligation on the loans is satisfied; 

(*2*)  Provides the information described in paragraph (b)(3)(iii)(D)(*3*) of this section; and

(*3*)  Returns to the sender any payment received on a loan after loan forgiveness has been granted. 

(v)  *Limitation on capitalization of interest.*If the amount of a borrower's monthly payment is less than the accrued interest, the unpaid interest is capitalized until the outstanding principal amount is 10 percent greater than the original principal amount.  After the outstanding principal amount is 10 percent greater than the original amount, interest continues to accrue but is not capitalized.  For purposes of this paragraph, the original amount is the amount owed by the borrower when the borrower enters repayment.

(vi)  *Notification of terms and conditions.*When a borrower elects or is required by the Secretary to repay a loan under the ICR-B plan, and for each subsequent year that the borrower remains on the plan, the Secretary sends the borrower a written notification that provides the terms and conditions of the plan, including -- 

(A)  The borrower’s scheduled monthly payment amount as calculated under paragraph (b)(1) or (b)(3)(vii)(D) of this section, as applicable, and the time period during which this scheduled monthly payment will apply (“annual payment period”);

(B)  Information about the requirement for the borrower to annually provide the information described in paragraph (b)(3)(vii)(A) of this section, if the borrower chooses to remain on the ICR-B plan after the initial year on the plan, and an explanation that the borrower will be notified in advance of the date by which the Secretary must receive the information; 

(C)  That if the borrower believes that special circumstances warrant an adjustment to the borrower's repayment obligations, as described in paragraph (b)(3)(iii) of this section, the borrower may contact the Secretary and obtain the Secretary's determination as to whether an adjustment is appropriate; and

(D)  An explanation of the consequences, as described in paragraph (b)(3)(vii)(D) of this section, if the borrower does not provide the required information.

(vii) *Documentation of income.*(A)  For the initial year that a borrower selects the ICR-B plan and for each subsequent year that the borrower remains on the plan, the borrower must provide  acceptable documentation, as determined by the Secretary, of the borrower’s AGI to the Secretary for purposes of calculating a monthly repayment amount and servicing and collecting a loan under the plan. 

(B)  For each subsequent year that a borrower remains on the ICR-B plan, the Secretary notifies the borrower in writing of the requirement described in paragraph (b)(3)(vii)(A) of this section no later than 60 days and no earlier than 90 days prior to the date specified in paragraph (b)(3)(vii)(B)(1) of this section.  The notification provides the borrower with -- 

(*1*)  The date, no earlier than 35 days before the end of the borrower’s annual payment period, by which the Secretary must receive the documentation described in paragraph (b)(3)(vii)(A) of this section (“annual deadline”); and

(2)  The consequences if the Secretary does not receive the information within 10 days following the annual deadline specified in the notice, including the borrower’s new monthly payment amount as determined under paragraph (b)(3)(vii)(D) of this section, and the effective date for the recalculated monthly payment amount.

(C)  The Secretary designates the standard repayment plan for a borrower who initially selects the ICR-B plan but does not comply with the requirement in paragraph (b)(3)(vii)(A) of this section.

(D)  If, during a subsequent year that a borrower remains on the ICR-B plan, the Secretary does not receive the documentation described in paragraph (b)(3)(vii)(A) of this section within 10 days of the specified annual deadline, the Secretary recalculates the borrower’s required monthly payment amount.  The maximum recalculated monthly amount the Secretary requires the borrower to repay is the amount the borrower would have paid under the standard repayment plan based on a 10-year repayment period using the amount of the borrower’s loans that was outstanding at the time the borrower began repayment under the ICR-B plan. The repayment period based on the recalculated payment may exceed 10 years.

(E)  If the Secretary receives the documentation described in paragraph (b)(3)(vii)(A) of this section within 10 days of the specified annual deadline, the Secretary maintains the borrower’s current scheduled monthly payment amount until the new scheduled monthly payment amount is determined.  If the new calculated monthly payment amount is less than the borrower’s previously calculated monthly payment amount, and the borrower made payments at the previously calculated amount after the end of the most recent annual payment period, the Secretary makes the appropriate adjustment to the borrower’s account.  The Secretary applies the excess payment amounts made after the end of the most recent annual payment period in accordance with the requirements of §685.211(a)(1), unless the borrower requests otherwise.

(F)(*1*)  If the Secretary receives the documentation described in paragraph (b)(3)(vii)(A) of this section more than 10 days after the specified annual deadline and the borrower’s monthly payment amount is recalculated in accordance with paragraph (b)(3)(vii)(D) of this section, the Secretary grants forbearance with respect to payments that are overdue or would be due at the time the new calculated monthly payment amount is determined, if the new monthly payment amount is $0.00 or is less than the borrower’s previously calculated monthly payment amount.  Interest that accrues during the portion of this forbearance period that covers payments that are overdue after the end of the prior annual payment period is not capitalized.

(*2*)  Any payments that the borrower continued to make at the previously calculated payment amount after the end of the prior annual payment period and before the new monthly payment amount is calculated are considered to be qualifying payments for purposes of §685.219, provided that the payments otherwise meet the requirements described in §685.219(c)(1).

(G)  If a borrower defaults and the Secretary designates the ICR-B plan for the borrower but the borrower fails to comply with the requirement in paragraph (b)(3)(vii)(A) of this section, the Secretary mails a notice to the borrower establishing a repayment schedule for the borrower.

� The HHS Poverty Guidelines are available from the Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services (HHS), Room 438F, Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201

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