Issue Paper 3

Session 2: February 5-8, 2018

Issue: Debt Calculations

Statutory Cites: 20 U.S.C. § 1221e-3; 20 U.S.C. § 3474; 20 U.S.C. § 1231a; 20 U.S.C. 

§§ 1001(b)(1), 1002(b)(1)(A)(i), (c)(1)(A); 20 U.S.C. § 1088(b)

Regulatory Cites: 34 CFR §§668.404

Summary of

Changes: We propose to use an amortization period of 15 years in the D/E rate 

calculation for all educational programs, regardless of the program length. We propose using the 

annual statutory interest rate on Federal Direct Unsubsidized Loans that were in effect during the 

last award year of a cohort period. We propose to exclude private educational debt and debt 

owed to the institution from the calculation of a student’s debt in the D/E rate. We propose to no 

longer exclude from the numerator and the denominator of the D/E rates calculation students 

who have one or more title IV loans in a military related deferment status. We also propose to 

remove the language related to transition period due to other proposals made related to sanctions 

and that transition rates are not needed as programs are receiving actual D/E rate calculations. 

We also propose to require that a student be enrolled for at least 60 days for that individual to be 

counted as an exclusion to the D/E rate calculations As noted in the regulatory language of Issue 

Paper 1, we propose to use a single two-year cohort period in calculating D/E rates and remove

the four-year cohort rate. 

§668.404 Calculating D/E rates.

(a) General. Except as provided in paragraph (f) of this section, for each award year, 

the Secretary calculates D/E rates for a GEan educational program as follows:

(1) Discretionary income rate = annual loan payment/( / (the higher of the mean or 

median annual earnings−( – (1.5 ×x Poverty Guideline)). For the purposes of this paragraph, the 

Secretary applies the Poverty Guideline for the calendar year immediately following the calendar 

year for which annual earnings are obtained under paragraph (c) of this section.

(2) Annual earnings rate = annual loan payment/ / the higher of the mean or median 

annual earnings.

(b) Annual loan payment. The Secretary calculates the annual loan payment for a GEan 

educational program by—--
(1)(i) Determining the median loan debt of the students who completed the program 

during the cohort period, based on the lesser of the loan debt incurred by each student as 

determined under paragraph (d)(1) of this section and the total amount for tuition and fees and 

books, equipment, and supplies for each student as determined under paragraph (d)(23) of this 

section;

(ii) Removing, if applicable, the appropriate number of highest loan debts as described in 

§668.405(e)(2); and

(iii) Calculating the median of the remaining amounts.

(2))(i) Amortizing the median loan debt—

(i)(A) Over a 10-year repayment period for a program that leads to an undergraduate 

certificate, a post-baccalaureate certificate, an associate degree, or a graduate certificate;

(B) Over over a 15-year repayment period for a program that leads to a bachelor's degree or a 

master's degree; or. 

(C) Over a 20-year repayment period for a program that leads to a doctoral or firstprofessional degree; and

(ii) Using an annual interest rate that is the average of Using the annual statutory interest 

rates on Federal Direct Unsubsidized Loans that were in effect during—

(A) The three-year period prior to the end the last award year of the cohort period, for 

undergraduate certificate programs, post-baccalaureate certificate programs, and associate degree 

programs. For these programs. In determining the rate, the Secretary uses thewill use--
(A) The Federal Direct Unsubsidized Loan interest rate applicable to undergraduate 

students; for undergraduate certificate programs, post-baccalaureate certificate programs, 

bachelor’s degree programs, and associate degree programs; or

(B) The three-year period prior to the end of the cohort period, for graduate certificate 

programs and master's degree programs. For these programs, the Secretary uses the Federal 

Direct Unsubsidized Loan interest rate applicable to graduate students;

(C) The six-year period prior to the end of the cohort period, for bachelor's degree for

graduate certificate programs, master’s degree programs, doctoral programs, and first 

professional degree programs. For these programs, the Secretary uses the Federal Direct 

Unsubsidized Loan interest rate applicable to undergraduate students; and

(D) The six-year period prior to the end of the cohort period, for doctoral programs and first 

professional degree programs. For these programs, the Secretary uses the Federal Direct 

Unsubsidized Loan interest rate applicable to graduate students.

NOTE TO PARAGRAPH (B)(2)(II): For example, for an undergraduate certificate program, if 

the two-year cohort period is award years 2010-2011 and 2011-2012, the interest rate would be 

the average of the interest rates for the years from 2009-2010 through 2011-2012.

(c) Annual earnings. (1) The Secretary obtains from the Social Security 

Administration (SSA), under §668.405, the most currently available mean and median annual 

earnings of the students who completed the GEeducational program during the cohort period and

who are not excluded under paragraph (e) of this section; and
(2) The Secretary uses the higher of the mean or median annual earnings to calculate the 

D/E rates.

(d) Loan debt and assessed charges. (1) In determiningThe Secretary will determine the 

loan debt for a student, using the Secretary includes—

(i) The amount of title IV loans that the student borrowed (total amount disbursed less 

any cancellations or adjustments) for enrollment in the GE program (Federal PLUS Loans made 

to parents of dependent students, Direct PLUS Loans made to parents of dependent students, and 

Direct Unsubsidized Loans that were converted from TEACH Grants are not included);).

(ii) Any private education loans as defined in 34 CFR 601.2, including private education 

loans made by the institution, that the student borrowed for enrollment in the program and that 

were required to be reported by the institution under §668.411; and

(iii) The amount outstanding, as of the date the student completes the program, on any other 

credit (including any unpaid charges) extended by or on behalf of the institution for enrollment 

in any GE program attended at the institution that the student is obligated to repay after 

completing the GE program, including extensions of credit described in clauses (1) and (2) of the 

definition of, and excluded from, the term “private education loan” in 34 CFR 601.2;

(2) The Secretary (2) The Secretary may elect to include in the calculation institutional 

loan debt, private loan debt, tuition and fees and books and supplies by publishing notice of such 

election, and the manner in which institutions must report such information, in the Federal 

Register.
(3) The Secretary attributes all of the loan debt incurred by the student, and attributes 

the amount reported for the student under §668.411(a)(2)(iv) and (v), for enrollment in any—--

(i) Undergraduate GEeducational program at the institution to the highest credentialed 

undergraduate GE program subsequently completed by the student at the institution as of the end 

of the most recently completed award year prior to the calculation of the draft D/E rates under 

this section; and

(ii) Graduate GEeducational program at the institution to the highest credentialed 

graduate GE program completed by the student at the institution as of the end of the most 

recently completed award year prior to the calculation of the draft D/E rates under this section; 

and

(3)4) The Secretary excludes any loan debt incurred by the student for enrollment in 

educational programs at other institutions. However, the Secretary may include loan debt 

incurred by the student for enrollment in GEeducational programs at any other institutions if the 

institution and the other institutions are under common ownership or control, as determined by 

the Secretary in accordance with 34 CFR 600.31.

(e) Exclusions. The Secretary excludes a student from both the numerator and the 

denominator of the D/E rates calculation if the Secretary determines that—--

(1) One or more of the student's title IV loans were in a military-related deferment status at 

any time during the calendar year for which the Secretary obtains earnings information under 

paragraph (c) of this section;
(2) One or more of the student's (1) One or more of the student’s title IV loans are under 

consideration by the Secretary, or have been approved, for a discharge on the basis of the 

student'sstudent’s total and permanent disability, under 34 CFR 674.61, 682.402, or 685.212;

(3)2) The student was enrolled for at least 60 days in any other eligible program at the 

institution or at another institution during the calendar year for which the Secretary obtains 

earnings information under paragraph (c) of this section;

(4)3) For undergraduate GE programs, the student completed a higher credentialed 

undergraduate GE program at the institution subsequent to completing the program as of the end 

of the most recently completed award year prior to the calculation of the draft D/E rates under 

this section;

(5)4) For graduate GE programs, the student completed a higher credentialed graduate 

GE program at the institution subsequent to completing the program as of the end of the most 

recently completed award year prior to the calculation of the draft D/E rates under this section; or

(6)5) The student died.

(f) D/E rates not issued. The Secretary does not issue draft or final D/E rates for a 

GEan educational program under §668.405 if—--

(1) After applying the exclusions in paragraph (e) of this section, fewer than 3010

students completed the program during the two-year cohort period and fewer than 30 students 

completed the program during the four-year cohort period; or

(2) SSA does not provide the mean and median earnings for the program as provided 

under paragraph (c) of this section.
(g) Transition period. (1) The transition period is determined by the length of the GE 

program for which the Secretary calculates D/E rates under this subpart. The transition period 

is—

(i) The first five award years for which the Secretary calculates D/E rates under this subpart 

if the length of the program is one year or less;

(ii) The first six award years for which the Secretary calculates D/E rates under this subpart 

if the length of the program is between one and two years; and

(iii) The first seven award years for which the Secretary calculates D/E rates if the length of 

the program is more than two years.

(2) If a GE program is failing or in the zone based on its draft D/E rates for any award year 

during the transition period, the Secretary calculates transitional draft D/E rates for that award 

year by using—

(i) The median loan debt of the students who completed the program during the most 

recently completed award year; and

(ii) The earnings used to calculate the draft D/E rates under paragraph (c) of this section.

(3) For any award year for which the Secretary calculates transitional draft D/E rates for a 

program, the Secretary determines the final D/E rates for the program based on the lower of the 

draft or transitional draft D/E rates.
(4) An institution may challenge or appeal the draft or transitional draft D/E rates, or both, 

under the procedures in §668.405 and §668.406, respectively.

(Authority: 20 U.S.C. 1001, 1002, 1088, 1094)