Vol. 77 Thursday, 

No. 212 November 1, 2012 

Part II 

Department of Education 

34 CFR Parts 674, 682, and 685 

Federal Perkins Loan Program, Federal Family Education Loan Program, 

and William D. Ford Federal Direct Loan Program; Final Rule 


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66088 Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 

DEPARTMENT OF EDUCATION 

34 CFR Parts 674, 682, and 685 

RIN 1840–AD05 

[Docket ID ED–2012–OPE–0010] 

Federal Perkins Loan Program, Federal 

Family Education Loan Program, and 

William D. Ford Federal Direct Loan 

Program 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Final regulations. 

SUMMARY: The Secretary amends the 

Federal Perkins Loan (Perkins Loan) 

program, Federal Family Education 

Loan (FFEL) program, and William D. 

Ford Federal Direct Loan (Direct Loan) 

program regulations. These final 

regulations implement a new IncomeContingent Repayment (ICR) plan in the 

Direct Loan program based on the 

President’s ‘‘Pay As You Earn’’ 

repayment initiative, incorporate recent 

statutory changes to the Income-Based 

Repayment (IBR) plan in the Direct Loan 

and FFEL programs, and streamline and 

add clarity to the total and permanent 

disability (TPD) discharge process for 

borrowers in loan programs under title 

IV of the Higher Education Act of 1965, 

as amended (HEA). These final 

regulations implementing a new ICR 

plan and the statutory changes to the 

IBR plan will assist borrowers in 

repaying their loans while the changes 

to the TPD discharge process will 

reduce burden for borrowers who are 

disabled and seeking a discharge of their 

title IV debt. 

DATES: Effective date: These regulations 

are effective July 1, 2013. 

Implementation dates: For 

implementation dates, see the 

Implementation Date of These 

Regulations section of the 

SUPPLEMENTARY INFORMATION. 

FOR FURTHER INFORMATION CONTACT: For 

further information related to the Pay As 

You Earn repayment plan, and the IBR 

and ICR plans, Pamela Moran or Jon Utz 

at (202) 502–7732 or (202) 377–4040 or 

by email at: Pamela.Moran@ed.gov or 

Jon.Utz@ed.gov. For information related 

to Total and Permanent Disability 

Discharge, Gail McLarnon or Brian 

Smith at (202) 219–7048 or (202) 502– 

7551 or by email at 

Gail.McLarnon@ed.gov or 

Brian.Smith@ed.gov. If you use a 

telecommunications device for the deaf 

(TDD) or a text telephone (TTY), call the 

Federal Relay Service (FRS), toll free, at 

1–800–877–8339. 

Individuals with disabilities can 

obtain this document in an accessible 

format (e.g., braille, large print, 

audiotape, or compact disc) on request 

to the contact person listed under FOR

FURTHER INFORMATION CONTACT. 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

Purpose of This Regulatory Action: 

The combination of increased 

enrollment and rising tuition has 

contributed to a significant increase in 

student loan debt among Americans. 

The ability of recent college graduates to 

find immediate employment with wages 

adequate enough to repay this debt has 

been challenging. 

For Federal student loan borrowers 

who suffer from a total and permanent 

disability, the Department’s current TPD 

discharge process has led to 

inconsistencies in determining their 

eligibility for discharge and created 

undue hardship. 

Based on the results of the negotiated 

rulemaking process and the advice and 

recommendations submitted by 

individuals and organizations in public 

hearing testimony and in written 

comments submitted to the Department, 

the final regulations will create a new 

Income-Contingent Repayment (ICR) 

plan in the Direct Loan program based 

on the President’s ‘‘Pay As You Earn’’ 

repayment initiative, incorporate recent 

statutory changes to the Income-Based 

Repayment (IBR) plan in the Direct Loan 

and FFEL programs, and streamline and 

add clarity to the TPD discharge process 

for borrowers in the title IV, HEA loan 

programs. 

Summary of the Major Provisions of 

This Regulatory Action: The final 

regulations will— 

• Create a new ICR plan (the Pay As 

You Earn repayment plan) in the Direct 

Loan program based on the President’s 

Pay As You Earn repayment initiative. 

The regulations support the 

administration’s goal of making the 

statutory improvements made by the 

SAFRA Act included in the Health Care 

and Reconciliation Act of 2010 (Pub. L. 

111–152) to the IBR plan available to 

some borrowers earlier than July 1, 

2014, and make technical corrections 

and 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. 

• Amend the regulations governing 

the IBR plan to incorporate statutory 

changes made by the SAFRA Act and 

add new provisions related to 

notification of income documentation 

requirements, repayment options after 

leaving the IBR plan, and the IBR loan 

forgiveness process. 

• Revise the Perkins Loan and FFEL 

program regulations to permit borrowers 

to apply directly to the Department for 

a TPD discharge. In the Direct Loan 

program, borrowers would continue to 

apply directly to the Department for 

TPD discharges, as they do under the 

current Direct Loan regulations. 

• Revise the Perkins, FFEL, and 

Direct Loan program regulations to 

permit a TPD discharge based on a 

borrower’s Social Security 

Administration (SSA) notice of award 

for Social Security Disability Insurance 

(SSDI) benefits or Supplemental 

Security Income (SSI) benefits 

indicating that the borrower’s eligibility 

for disability benefits will be reviewed 

on a five- to seven-year schedule. This 

five- to seven-year review schedule 

classifies the borrower as permanently 

impaired—medical improvement not 

expected. Borrowers will still be subject 

to the three-year discharge review that 

is currently in place. 

• Make conforming changes 

throughout the Perkins, FFEL, and 

Direct Loan program regulations 

referencing the use of an SSA disability 

notice of award in the TPD process. 

• Reinstate a title IV loan discharged 

based on the borrower’s TPD if the 

borrower receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or the borrower’s continuing 

disability review will no longer be the 

five- to seven-year period indicated in 

the SSA disability notice of award. 

• Require a Perkins, FFEL, or Direct 

Loan borrower to notify the Secretary, 

during the three-year period following a 

TPD discharge, if the borrower has been 

notified by the SSA that the borrower is 

no longer disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA disability notice of 

award. 

• Modify regulations in the Perkins 

Loan, FFEL, and Direct Loan programs 

to provide more detailed information to 

borrowers in letters explaining why a 

disability discharge has been denied. 

• Define the term ‘‘borrower’s 

representative’’ for purposes of the 

disability discharge application process 

and state that references to a borrower 

or a veteran in the TPD discharge 

regulations include a borrower’s 

representative or a veteran’s 

representative. 

• Specify that the Department will 

deny a disability discharge application 

and collection will resume on the 

borrower’s loans if the borrower 

receives a disbursement of a new title IV 

loan or receives a new grant under the 

Teacher Education Assistance for 

College and Higher Education (TEACH) 


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grant program made on or after the date 

the physician certified the borrower’s 

disability discharge application or on or 

after the date the Secretary receives the 

borrower’s SSA disability notice of 

award and before the date the 

Department makes a decision on the 

borrower’s application for a TPD 

discharge. 

• Specify that if a borrower’s Perkins, 

FFEL, or Direct Loan program loan is 

reinstated, it returns to the status that it 

would have had if the TPD discharge 

application had not been received. 

• Make corresponding changes to the 

TPD application process based on a 

certification from the Department of 

Veterans Affairs. 

Chart 1 summarizes the final 

regulations and related benefits, costs, 

and transfers that are discussed in more 

detail in the Regulatory Impact Analysis 

of this preamble. The Department 

estimates that approximately 1.6 million 

borrowers could take advantage of the 

Pay As You Earn repayment plan with 

another million borrowers being 

affected by the statutory changes to the 

IBR plan reflected in these regulations. 

Significant benefits of these final 

regulations include a streamlined 

process for TPD discharges, enhanced 

notifications related to TPD, IBR, and 

ICR application and servicing processes, 

and reduced monthly payments for 

borrowers in partial financial hardship 

(PFH) status as a result of using a lower 

PFH threshold of 10 percent. The net 

budget impact of the regulations is $2.1 

billion over the 2012 to 2021 loan 

cohorts. 

CHART 1—SUMMARY OF THE PROPOSED REGULATIONS

Issue and key features Benefits Cost/transfers 

Income-Contingent Repayment (34 CFR part 685): 

Establishes the Pay As You Earn repayment plan with features of IBR 

as revised by SAFRA for new borrowers on or after 10/1/2007 with 

a loan disbursement made on or after 10/1/2011. The Pay As You 

Earn repayment plan retains a cap on interest capitalization from 

current ICR.

Enhanced cash management option 

for borrowers.

Estimated net budget impact of $2.1 billion over 

the 2012–2021 loan cohorts. 

Establishes threshold for PFH at 10 percent for Pay As You Earn repayment plan borrowers.Reduced payments and shorter forgiveness period may encourage 

acknowledgement and payment of 

debt.

Loan forgiveness after 20 years of qualifying payments compared to 

25 years under current regulations.

Reduced monthly payments may 

allow greater participation in the 

economy.

Retains current ICR program as ICR ...................................................... An income-driven repayment option 

remains available to all borrowers.

Establishes process for borrower notification and processing of loan 

forgiveness by loan holders.

Income-Based Repayment (34 CFR part 685): 

Incorporates statutory changes from SAFRA ......................................... Benefits mirror those associated with 

proposed ICR changes.

Threshold for PFH reduced from 15 percent to 10 percent for new borrowers after 7/1/2014.

Loan forgiveness after 20 years of qualifying payments compared to 

25 years under current regulations.

Income-Based Repayment (34 CFR part 685, 34 CFR part 682): 

A smaller payment amount made under a forbearance can qualify as 

the single payment made in standard repayment plan for borrower 

leaving IBR to select another repayment plan.

Improved notifications around annual 

recertification of income may reduce number of borrowers removed from PFH for paperwork 

reasons.

No net budget impact from 

proposed regulations. 

Modified notification and income documentation requirements for borrowers in IBR.Estimated paperwork compliance costs of approximately $570,000 annually. 

Establishes process for borrower notification and processing of loan 

forgiveness by loan holders.

Total and Permanent Disability (34 CFR 674.61; 34 CFR 682.402; 34 CFR 

685.213): 

Creates single discharge application process through the Department 

for all of a borrower’s FFEL, Direct, and Perkins loans.

Simplifies process for borrowers ....... Estimated paperwork compliance burden of approximately $725,000. 

Specifies that borrower’s representative will receive all notifications 

and can be involved in all aspects of the process.

Departmental processing should increase consistency of TPD determinations.

Enhanced notifications, including more detailed reasons for denials 

and information about options for reapplying.

Process changes could reduce reinstatements for paperwork reasons.

Revised treatment of payments made following a TPD discharge ........ Simplifies application process for 

borrowers and the Department.

Creation of standard form for reporting income during 3-year post-discharge monitoring period.


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66090 Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 

CHART 1—SUMMARY OF THE PROPOSED REGULATIONS—Continued 

Issue and key features Benefits Cost/transfers 

Allows for acceptance of an SSA disability notice of award for Social 

Security Disability Insurance or Supplemental Security Income benefits as proof of a borrower’s TPD if the notice indicates that the 

SSA will review the borrower’s continuing eligibility for benefits once 

every five to seven years, thus indicating that the borrower’s disability is in the medical improvement not expected category. The 

borrower would still be subject to the three-year post discharge 

monitoring period.

On July 17, 2012 the Secretary 

published a notice of proposed 

rulemaking (NPRM) for these programs 

in the Federal Register (77 FR 42086). 

The final regulations contain several 

changes from the NPRM. We fully 

explain the changes in the Analysis of 

Comments and Changes section of the 

preamble that follows. 

Implementation Date of These 

Regulations 

Section 482(c) of the HEA requires 

that regulations affecting programs 

under title IV of the HEA be published 

in final form by November 1 prior to the 

start of the award year (July 1) to which 

they apply. However, that section also 

permits the Secretary to designate any 

regulation as one that an entity subject 

to the regulations may choose to 

implement earlier and the conditions for 

early implementation. 

Consistent with the Department’s 

objective to provide critical information 

to and improve servicing processes for 

borrowers who repay under the IBR 

plan, the Secretary is exercising his 

authority under section 482(c) to 

designate the following new and 

amended regulations included in this 

document for early implementation 

beginning on November 1, 2012 at the 

discretion of each loan holder, as 

appropriate: 

(1) Section 682.209(a)(6)(v)(C). 

(2) Section 682.211(f)(16). 

(3) Section 682.215(d). 

(4) Section 682.215(e). 

The Secretary intends to implement 

the regulations governing the Pay As 

You Earn repayment plan as soon as 

possible. We will publish a separate 

Federal Register notice to announce 

when the plan becomes available to 

borrowers. 

Analysis of Comments and Changes 

In response to the Secretary’s 

invitation in the NPRM, 2,892 parties 

submitted comments on the proposed 

regulations. An analysis of the 

comments and of the changes in the 

regulations since publication of the 

NPRM follows. 

We group major issues according to 

subject, with appropriate sections of the 

regulations referenced in parentheses. 

We discuss other substantive issues 

under the sections of the proposed 

regulations to which they pertain. 

Generally, we do not address technical 

and other minor changes. 

Total and Permanent Disability 

Discharge 

General Comments 

Comments: Many commenters 

supported the Department’s proposed 

rules that allow a borrower to submit 

one application directly to the 

Department for a TPD discharge on all 

of the borrower’s loans rather than to 

submit an application to each loan 

holder. The commenters also stated that 

the proposed changes to the discharge 

process would make it easier for 

disabled borrowers to provide the 

Department information necessary to 

make a loan discharge determination. 

Discussion: The Department 

appreciates the commenters’ support. 

Changes: None. 

Comments: Many individual 

commenters suggested a range of 

modifications to the proposed TPD 

regulations that would require statutory 

change. Some commenters suggested 

that private student loans should be 

discharged if the borrower is 

determined to be TPD. Other 

suggestions were: 

• Eliminate the post-discharge 

monitoring period of a borrower’s 

income following a TPD discharge; 

• Do not treat loan amounts 

discharged based on the borrower’s 

permanent and total disability as 

income for Federal tax purposes; 

• Do not reinstate a title IV loan that 

was discharged due to TPD if the 

borrower has annual earnings from 

employment that exceed the poverty 

line if the earnings are not related to the 

degree financed by the discharged loan; 

and 

• Require credit reporting agencies to 

remove references to TPD discharges 

from a borrower’s credit report. 

Discussion: We appreciate the 

commenters’ suggestions; however, 

absent congressional action to amend 

the HEA or other pertinent laws, the 

Department generally does not have the 

authority to make these changes. The 

Federal Government does not have 

authority to require the discharge of a 

private student loan. 

The post-discharge monitoring of a 

borrower’s earned income is required 

under section 437(a)(1)(A)(ii) of the 

HEA when FFEL and, by extension, 

Direct Loans are discharged due to the 

borrower’s TPD. Since the standard for 

TPD discharges is the same in all of the 

title IV loan programs, we believe that 

it is appropriate to require that the 

income of Perkins Loan borrowers be 

monitored and that the Perkins Loan be 

reinstated if the borrower’s income 

exceeds the poverty line in the same 

manner as Direct Loan and FFEL 

program loans. 

The treatment of loan amounts 

discharged based on the borrower’s TPD 

as income for Federal tax purposes is 

governed by the Federal tax code, not 

the HEA. 

Section 437(a)(1)(A)(ii) of the HEA 

requires reinstatement of a FFEL or 

Direct Loan discharged due to the 

borrower’s TPD if the borrower’s earned 

income exceeds the poverty line. The 

HEA does not distinguish between how 

the income is earned. 

Finally, sections 430A(a)(5) and 

463(c)(2)(C) of the HEA require FFEL 

and Perkins Loan holders, respectively, 

to report to credit reporting agencies 

when a FFEL or Perkins Loan is 

discharged due to TPD. This 

requirement applies to Direct Loans in 

accordance with section 455(a)(1) of the 

HEA. Section 605(a)(4) of the Fair Credit 

Reporting Act requires credit reporting 

agencies to report the disability 

discharge on the borrower’s credit 

report for seven years. 

Changes: None. 

Comments: Many commenters 

indicated that they believed that the 

statutory definition of TPD added to the 

HEA by the Higher Education 

Opportunity Act of 2008 (HEOA) (Pub. 


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L. 110–315) is very similar to the 

definition used in the disability benefit 

programs administered by the Social 

Security Administration (SSA). The 

commenters expressed the belief that, 

by including a similar definition of the 

term ‘‘total and permanent disability’’ in 

the HEA, Congress showed that it 

intended for the Department to align its 

TPD determinations more closely with 

the SSA’s determinations of permanent 

disability status to reduce the TPD 

application burden on borrowers 

already determined to be permanently 

disabled by the SSA. The commenters 

requested that the Department accept 

existing SSA disability determinations 

when making a determination that a 

borrower is TPD for title IV loan 

discharge purposes. The commenters 

stated that using SSA disability 

determinations, along with the proposed 

rule to allow borrowers to submit a 

single TPD application to the 

Department rather than submit separate 

discharge applications to each of their 

lenders, would further streamline the 

Department’s TPD discharge process 

and reduce burden on borrowers, the 

Department, and loan holders. 

One commenter urged the Department 

to consider borrowers eligible for a TPD 

discharge if the borrower, at a 

minimum, met the SSA definition of 

‘‘Medical Improvement Not Expected’’ 

or ‘‘Medical Improvement Possible’’ 

after a period of at least 60 months. 

Another commenter noted that when 

the Department transitioned to a single 

servicer for TPD application purposes 

and before the Department adopted the 

current TPD discharge process, the 

Department considered, but decided 

against, adopting a TPD process under 

which borrowers could provide proof of 

an SSA disability determination in the 

form of an SSA disability notice of 

award indicating when the borrower’s 

next SSA medical review would occur 

as evidence that the borrower was 

totally and permanently disabled for 

title IV loan discharge purposes. The 

commenter urged the Department to 

reconsider this decision. 

Finally, several commenters noted 

that the Department already accepts 

disability determinations from the 

Department of Veterans Affairs (VA) 

when making the determination that a 

title IV borrower is eligible for a TPD 

discharge and urged the Department to 

do the same with SSA disability 

determinations. 

Discussion: Upon consideration of 

these comments and internal 

deliberations, we have determined that 

we will accept the specific SSA notice 

of award for Social Security Disability 

Insurance (SSDI) benefits or 

Supplemental Security Income (SSI) 

benefits as proof of a borrower’s TPD if 

the notice indicates that the SSA will 

review the borrower’s continuing 

eligibility for SSDI or SSI benefits once 

every five to seven years. Sections 

437(a) and 464(c)(1)(F) of the HEA 

provide for the discharge of a borrower’s 

title IV loans if the borrower becomes 

totally and permanently disabled in 

accordance with the Secretary’s 

regulations, or if the borrower is unable 

to engage in any substantial gainful 

activity by reason of any medically 

determinable physical or mental 

impairment that can be expected to 

result in death, has lasted for a 

continuous period of not less than 60 

months (five years), or can be expected 

to last for a continuous period of not 

less than 60 months (five years). In two 

related final regulations published in 

the Federal Register on October 28, 

2009 (74 FR 55626), and on October 29, 

2009 (74 FR 55972), we included the 

specific statutory substantial gainful 

activity standard in our regulations at 

§§ 674.51(aa) and 682.200(b). Section 

674.51(x) of the Department’s October 

28, 2009, final regulations and 

§ 682.200(b) of the Department’s 

October 29, 2009, final regulations both 

defined ‘‘substantial gainful activity’’ to 

mean a level of work performed for pay 

or profit that involves doing significant 

physical or mental activities, or a 

combination of both. We do not use an 

earnings standard to determine 

substantial gainful activity. However, if 

a title IV borrower has received a TPD 

discharge and, within three years after 

the loan is discharged, the borrower 

earns income from employment that 

exceeds 100 percent of the poverty 

guideline for a family of two ($1,275 per 

month in the 48 contiguous states, 

$1,577 per month in Alaska, and $1,451 

per month in Hawaii) in a year, the 

borrower is not considered to have been 

disabled and the loan repayment 

obligation is reinstated. 

The SSA defines the term ‘‘disability’’ 

to mean the inability of an individual to 

engage in any substantial gainful 

activity by reason of any medically 

determinable physical or mental 

impairment that can be expected to 

result in death or that has lasted or can 

be expected to last for a continuous 

period of not less than 12 months (42 

U.S.C. 423). Upon making a disability 

determination based on this standard, 

the SSA is required by law to conduct 

disability reviews to determine the 

continuing eligibility of an individual 

for SSDI or SSI benefits where a finding 

has been made that such disability is 

permanent at such times as the 

Commissioner of Social Security 

determines to be appropriate (42 U.S.C. 

421). The SSA has promulgated 

regulations to meet this statutory 

requirement under 20 CFR 404.1590 and 

20 CFR 416.990. (20 CFR Part 404 and 

20 CFR Part 416 govern the SSDI and 

SSI programs, respectively). 

Specifically, under 20 CFR 404.1590(d) 

and 20 CFR 416.990(d) of the SSA 

regulations, if an individual’s 

impairment is expected to improve, 

generally the SSA reviews the 

individual’s eligibility for disability 

benefits at intervals from six to 18 

months following its most recent 

decision. This status is referred to as 

‘‘medical improvement expected diary’’ 

under 20 CFR 404.1590(c) and 20 CFR 

416.990(c) of the SSA regulations. If an 

individual’s disability is not considered 

permanent but is such that any medical 

improvement is possible, the SSA 

reviews the individual’s continuing 

eligibility for disability benefits at least 

once every three years under 20 CFR 

404.1590(d) and 20 CFR 416.990(d), 

unless SSA determines the requirement 

should be waived under 20 CFR 

404.1590(g) or 20 CFR 416.990(g). This 

type of disability is considered a 

‘‘nonpermanent impairment’’ under 20 

CFR 404.1590(c) and 20 CFR 416.990(c) 

of SSA regulations. Finally, if an 

individual’s disability is considered a 

‘‘permanent impairment,’’ the SSA 

reviews an individual’s eligibility for 

benefits no less frequently than once 

every seven years, but no more 

frequently than once every five years 

under § 404.1590(d) and § 416.990(d). 

SSA regulations at 20 CFR 404.1590(c) 

and 20 CFR 416.990(c) use the term 

‘‘permanent impairment’’ to refer to a 

case in which any medical improvement 

in an individual’s impairment is not 

expected. The SSA uses the term 

‘‘permanent impairment’’ to mean an 

extremely severe condition determined 

on the basis of the SSA’s experience in 

administering the disability programs to 

be at least static, but more likely to be 

progressively disabling either by itself 

or by reason of impairment 

complications and unlikely to improve 

so as to permit the individual to engage 

in substantial gainful activity. SSA may 

also consider the interaction of the 

individual’s age, impairment 

consequences and lack of recent 

attachment to the labor market in 

determining whether an impairment is 

permanent. Regardless of an 

individual’s classification, the SSA will 

conduct an immediate continuing 

disability review if a question of 

continuing disability is raised that 

meets any of the provisions of 20 CFR 


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404.1590(b) or 20 CFR 416.990(b). When 

the SSA notifies an individual that he 

or she is eligible for disability benefits, 

the notice also tells the individual when 

he or she can expect the first continuing 

disability review. 

The SSA regulations, at 20 CFR 

404.1572 and 20 CFR 416.910, use the 

term ‘‘substantial gainful activity’’ to 

describe a level of work activity and 

earnings. ‘‘Substantial work activity’’ 

involves doing significant physical or 

mental activities. ‘‘Gainful work 

activity’’ is either work performed for 

pay or profit or work of a nature 

generally performed for pay or profit. 

Substantial gainful activity is also 

indicated by earnings averaging over 

$1,010 per month (for the year 2012) for 

individuals whose impairment is 

anything other than blindness. The 

formula for determining substantial 

gainful activity for individuals who are 

blind is set forth in 42 U.S.C. 423, see 

also 20 CFR 404.1584, Social Security 

Ruling 12–1p. The formula for 

determining substantial gainful activity 

for individuals who are not blind is 

similar to that used for individuals who 

are blind and is provided in 20 CFR 

404.1574 and 20 CFR 404.1575. 

Although the Department’s definition 

of ‘‘substantial gainful activity’’ does not 

precisely mirror the SSA’s definition, 

we agree that they are substantially 

similar. For example, both agencies 

require that an individual must be 

unable to engage in any substantial 

gainful activity by reason of a medically 

determinable physical or mental 

impairment in order to be determined 

disabled. Both agencies also define 

substantial gainful activity to mean a 

level of work performed for pay or profit 

that involves doing significant physical 

or mental activities or a combination of 

both. Both agencies allow an individual 

to engage in minimal levels of 

employment after receiving a disability 

determination as long as such 

employment does not exceed a specified 

dollar amount. And while it is unclear 

whether Congress intended for the 

Department to align its TPD 

determinations with the determination 

of permanent disability made by the 

SSA, we acknowledge that the standard 

a borrower must meet to establish 

eligibility for a title IV TPD discharge 

under section 437(a)(1) is substantially 

similar to the SSA’s regulatory scheme 

governing a ‘‘permanent impairment’’ in 

20 CFR 404.1590 and 20 CFR 416.990. 

Section 437(a)(3) of the HEA 

explicitly provides the Secretary with 

the authority to provide the appropriate 

safeguards with regard to TPD. In light 

of this authority, the substantial 

similarity between the SSA and TPD 

statutory standards, and the burden 

reduction for applicants that will result 

from making this change, we have 

decided to allow a borrower to submit, 

as proof of the borrower’s TPD, an SSA 

determination of permanent 

impairment-medical improvement not 

expected in the form of a SSDI or SSI 

notice of award that informs a borrower 

that his or her eligibility for SSA 

disability benefits will be reviewed no 

less frequently than once every seven 

years and no more frequently than once 

every five years (the five/seven year 

category). 

We chose to accept only the five/ 

seven year category as proof of TPD as 

opposed to the SSA’s continuing 

disability review standard of every sixto 18-months or every three years to 

meet the Department’s standard for TPD 

discharge purposes because the latter 

two standards indicate medical 

improvement expected or that medical 

improvement is possible, respectively, 

under 20 CFR 404.1590(c) and 20 CFR 

416.990 of SSA’s regulations. Medical 

improvement is expected in cases where 

a borrower’s impairment can be treated 

and recovery can be anticipated. 

Medical improvement is possible where 

a borrower’s impairment does not rise to 

the level of severity of an impairment 

that is considered permanent. 

These regulations, along with 

regulations to allow borrowers to submit 

a single TPD application to the 

Department rather than separate 

discharge applications to each of their 

lenders, will further streamline the 

Department’s TPD process and reduce 

burden on the Department as well as on 

borrowers who have already obtained 

such SSA documentation. Specifically, 

if we review the borrower’s TPD 

application and the SSA notice of award 

for SSDI or SSI benefits specifies that 

the borrower will be reviewed no less 

frequently than once every seven years 

and no more frequently than once every 

five years for the purpose of establishing 

the borrower’s continued eligibility for 

SSDI or SSI benefits, we will consider 

the borrower’s title IV loans discharged 

as of the date we receive the SSA notice 

of award. The borrower would not be 

required to submit a certification by a 

physician that the borrower is TPD; the 

SSA notice of award for SSDI or SSI 

benefits alone will suffice as proof of the 

borrower’s TPD. 

We use the date the Secretary receives 

the borrower’s SSA notice of award for 

SSDI or SSI benefits to ensure, for the 

program integrity purposes described 

below, that a borrower who receives a 

discharge based on an application 

supported by an SSA notice of award for 

SSDI or SSI benefits would still be 

subject to the three-year post-discharge 

monitoring period and the borrower 

responsibilities after discharge. Also, 

because a borrower who submits such a 

notice of award is not required to obtain 

a physician’s certification (the date of 

which is used as the date of discharge), 

the date we receive an SSA notice of 

award for SSDI or SSI benefits is the 

earliest possible date we can use to 

discharge a borrower’s loan without the 

benefit of the physician’s certification 

date that is contained in the borrower’s 

TPD application under the current 

process and which we use as the official 

TPD discharge date if the Secretary 

approves the borrower’s application. We 

are making conforming changes 

throughout the Perkins, FFEL, and 

Direct Loan regulations to reflect the use 

of the SSA notice of award for SSDI or 

SSI benefits in the process. 

In accepting the SSA notice of award 

for SSDI or SSI benefits, we must also 

preserve the integrity of the TPD 

process. In the past, we have not used 

the SSA’s SSDI and SSI disability 

determinations in the TPD discharge 

process because the SSA’s decisions on 

whether to do a disability review are not 

binding on the agency. As stated above, 

the SSA, with some exceptions, 

conducts an immediate continuing 

disability review if there is any evidence 

that raises a question as to whether an 

individual’s disability continues. These 

exceptions, in 20 CFR 404.1590(h) and 

(i) and 20 CFR 416.990(h) and (i), are 

crafted narrowly—for example, if an 

individual is working and has received 

SSDI benefits for at least 24 months, the 

SSA will not start a continuing 

disability review based solely on an 

individual’s activity if he or she is 

currently entitled to widow’s or 

widower’s insurance benefits based on 

disability. To maintain the integrity of 

the TPD process when accepting an SSA 

notice of award for SSDI or SSI benefits 

indicating that a borrower’s medical 

review will be conducted in five to 

seven years as proof of a borrower’s 

disability for title IV discharge 

purposes, we are adding a provision to 

the Perkins, FFEL, and Direct Loan 

program regulations requiring the 

reinstatement of a borrower’s obligation 

to repay a loan that was discharged due 

to TPD if, within three years after the 

date the discharge was granted, the 

borrower receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

contained in the SSA notice of award 

for SSDI or SSI benefits. This reflects 

the fact that any continuing disability 


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review done less frequently than five to 

seven years indicates a change in the 

borrower’s permanent disability status. 

We are also adding §§ 674.61(b)(7), 

682.402(c)(7), and 685.213(b)(8) to 

require borrowers, during the three-year 

monitoring period following the date 

the borrower’s loan is discharged, to 

promptly notify the Secretary if the 

borrower receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

contained in the SSA notice of award 

for SSDI or SSI benefits. Again, this 

would indicate that the SSA has 

changed the borrower’s classification of 

impairment from permanent 

impairment-medical improvement not 

expected to another status. 

We do not agree with the commenter 

who recommended that the Department 

consider borrowers eligible for a TPD 

discharge if the borrower was 

determined by the SSA to be eligible for 

disability benefits with a continuing 

disability review schedule of every three 

years. This review schedule represents 

the status of nonpermanent impairment 

under which medical improvement is 

possible. We do not believe this SSA 

status rises to the level of severity 

required to meet the Department’s 

definition of total and permanent 

disability because this status does not 

result in death or meet the disability 

longevity standards in the HEA. If, 

however, a borrower can provide 

documentation proving that he or she 

has been in this nonpermanent 

impairment status for at least five years, 

we will consider such evidence in 

determining whether the borrower has 

engaged in any substantial gainful 

activity for a period of at least 60 

months (five years) under our current 

TPD standards. Of course, we will 

continue to accept TPD applications 

from borrowers under our current 

process that requires the borrower’s 

application to contain a certification by 

a physician, who is a doctor of medicine 

or osteopathy legally authorized to 

practice in a State, that the borrower is 

TPD as defined in Department of 

Education regulations. Thus, a borrower 

who has not received an SSA notice of 

award for SSDI or SSI benefits may still 

be eligible for a TPD under other 

provisions of these final regulations. 

Lastly, sections 437(a)(2) and 

464(c)(1)(F)(iv) of the HEA authorize the 

Department to accept disability 

determinations from the VA when 

making the determination that a title IV 

borrower is eligible for a TPD discharge. 

The HEA does not specifically authorize 

the Department to accept SSA disability 

determinations but rather gives the 

Secretary the authority to provide the 

appropriate safeguards with regard to 

TPD. We believe that allowing 

borrowers to submit an SSA notice of 

award for SSDI or SSI benefits 

indicating a five- to seven-year review 

period as proof of the borrower’s TPD in 

conjunction with other applicable 

Department regulations provides these 

safeguards, and, for the reasons 

explained in this section, is consistent 

and aligns with the statutory language 

in the HEA. This change with regard to 

SSA determinations will further 

streamline and simplify the TPD process 

and ease regulatory burden for both 

applicants and the Department. 

Changes: We are making conforming 

amendatory changes throughout the 

Perkins, FFEL, and Direct Loan final 

regulations to incorporate the use of an 

SSA notice of award for SSDI or SSI 

benefits in the process of determining 

whether borrowers have a TPD for the 

purposes of the discharge of their title 

IV loans. Specifically, we are providing 

in §§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), 

and 685.213(b)(2) that a borrower may 

submit an SSA notice of award for SSDI 

or SSI benefits indicating that the 

borrower’s next scheduled disability 

review will be within five to seven years 

as proof of the borrower’s TPD. 

We are also providing in 

§§ 674.61(b)(3)(i), 682.402(c)(3)(i), and 

685.213(b)(4)(i) that if, after reviewing a 

borrower’s completed application, the 

Secretary finds that the SSA notice of 

award for SSDI or SSI benefits indicates 

that the borrower has a permanent 

disability, the borrower is considered 

TPD as of the date the Secretary 

received the SSA disability notice of 

award. Final §§ 674.61(b)(3)(iii) and 

682.402(c)(3)(iii) provide that in 

notifying the borrower’s lenders that the 

borrower has been approved for a TPD 

discharge, the Secretary includes the 

date the Secretary received the SSA 

notice of award for SSDI or SSI benefits. 

Final §§ 674.61(b)(3)(v), 

682.402(c)(3)(iii), and 685.213(b)(4)(iii) 

provide that any payments on a loan 

received after the date the Secretary 

received the SSA notice of award for 

SSDI or SSI benefits are returned to the 

person who made them. Final 

§§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 

685.213(b)(4)(iv) state that if the SSA 

notice of award for SSDI or SSI benefits 

provided by the borrower does not 

support the conclusion that the 

borrower is TPD, the Secretary notifies 

the borrower and the lender that the 

discharge has been denied. We are 

amending §§ 674.61(b)(4), 682.402(c)(4), 

and 685.213(b)(5) to provide that if a 

borrower received a title IV loan or 

TEACH grant before the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits and a 

disbursement of that loan or grant is 

made during the period from the date 

the Secretary received the SSA notice of 

award until the date the Secretary grants 

a TPD discharge, the processing of the 

discharge application will be suspended 

until the borrower returns the 

disbursement. We are amending 

§§ 674.61(b)(5), 682.402(c)(5), and 

685.213(b)(6) to provide that if a 

borrower receives a disbursement of a 

new title IV loan or receives a new 

TEACH grant made on or after the date 

the Secretary received the SSA notice of 

award for SSDI or SSI benefits and 

before the date the Secretary grants a 

discharge, the Secretary denies the 

discharge application and collection 

resumes on the loans. We are amending 

§§ 674.61(b)(7), 682.402(c)(6), and 

685.213(b)(7) to provide that the 

Secretary reinstates a borrower’s 

obligation to repay a loan that was 

discharged due to TPD if, within three 

years after the date the discharge was 

granted, the borrower receives a notice 

from the SSA indicating that the 

borrower is no longer disabled or the 

borrower’s continuing disability review 

will no longer be the five- to seven-year 

period contained in the SSA notice of 

award for SSDI or SSI benefits. We are 

amending §§ 674.61(b)(7), 682.402(c)(7), 

and 685.213(b)(8) to require borrowers, 

during the three-year monitoring period 

following the date the borrower’s loan is 

discharged, to promptly notify the 

Secretary if the borrower received a 

notice from the SSA indicating that the 

borrower is no longer disabled or the 

borrower’s continuing disability review 

will no longer be the five- to seven-year 

period contained in the SSA notice of 

award for SSDI or SSI benefits. Lastly, 

we are amending § 682.402(c)(8) to 

require that once the Secretary approves 

the borrower’s TPD application, and the 

lender receives a claim payment from 

the guaranty agency, the lender must 

return to the sender any payments 

received by the lender after the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits. 

Borrower Representatives (34 CFR 

674.61(b)(1), 682.402(c)(1), and 

685.213(a)(4)) 

Comments: One commenter expressed 

support for the regulations in 

§§ 674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), 

and 685.213(a)(4) that provide for a 

borrower’s or veteran’s representative to 

act on behalf of the borrower or veteran, 

but noted that the regulations refer to a 

representative as an ‘‘individual.’’ The 

commenter asked if the representative 


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could be a law firm or a legal aid society 

rather than an individual. The 

commenter noted that personnel at law 

firms or legal aid societies change, and 

it would reduce burden on the borrower 

if the borrower or veteran did not have 

to authorize a different individual as a 

representative as a result of a personnel 

change at a law firm or legal aid society. 

Another commenter asked whether 

the authorization of a representative had 

to come from the borrower or veteran. 

This commenter asked whether a court 

could authorize a representative to act 

on behalf of the borrower or veteran. 

A third commenter expressed 

concerns over the Department’s current 

process for sending notices to 

borrowers’ representatives. In this 

commenter’s experience, the 

Department does not consistently send 

notices to borrower’s representatives. 

The commenter urged the Department to 

improve the process for sending such 

notices as soon as possible. 

Discussion: Under the regulations as 

proposed and finalized, an ‘‘individual’’ 

could include a law firm or legal aid 

society authorized to act on the 

borrower’s or veteran’s behalf without 

identifying a specific individual within 

that law firm or legal aid society as the 

representative. We agree that the 

authorization could be provided 

through such means as a Power of 

Attorney or a court order. The 

Department will review the validity of 

such authorizations on a case-by-case 

basis to determine if the authorization 

meets applicable legal requirements. 

Since October 1, 2010, the 

Department has taken steps to identify 

TPD discharge requests in which the 

borrower listed a representative. When 

the borrower lists a representative, we 

send notices related to the TPD 

discharge application to those borrower 

representatives, as well as to the 

borrowers. The Department will 

continue to do so under the new TPD 

discharge process. Borrowers who 

submitted TPD applications prior to 

October 1, 2010, may request that a 

borrower representative be added to 

their account at any time. 

Changes: None. 

Disability Discharge Application 

Process (34 CFR 674.61(b)(2), 

682.402(c)(2), and 685.213(b)) 

Comments: One commenter 

recommended that all of a borrower’s 

loan holders be notified of a borrower’s 

request for a TPD discharge after the 

borrower submits a single TPD 

discharge application. 

Another commenter recommended 

that if one lender discharges a 

borrower’s loans due to TPD, all of the 

borrower’s other title IV loans should be 

automatically discharged. 

One commenter recommended that 

we streamline what the commenter 

described as an ‘‘extremely daunting’’ 

application process for TPD discharges. 

Similarly, another commenter requested 

that the Department make it easier for 

borrowers with disabilities to seek TPD 

discharges. 

Discussion: The Department 

appreciates the concerns expressed by 

the commenters regarding the current 

TPD discharge process. Consistent with 

the NPRM, these final regulations reflect 

the recommendations made by the 

commenters. Sections 674.61(b)(2), 

682.402(c)(2), and 685.213(b) establish a 

single application process in which the 

borrower will submit one TPD discharge 

application to the Department. The 

Department has one contractor 

employed to handle TPD discharges and 

that servicer will be the sole office 

receiving these TPD discharge 

applications. Once the Department is 

notified that the borrower intends to 

apply for a TPD discharge, we will 

notify all of the borrower’s title IV loan 

holders and instruct them to suspend 

collection activity on the borrower’s 

loans for 120 days. If the Department 

determines that the borrower qualifies 

for a TPD discharge, the Department 

will notify all of the borrower’s title IV 

loan holders and instruct them to assign 

the borrower’s loans to the Department. 

After the Department accepts the loan 

assignments, the Department will 

discharge the loans unless the 

processing of the discharge request is 

suspended or denied under 

§ 674.61(b)(4), 674.61(b)(5), 

682.402(c)(4), 682.402(c)(5), 

685.213(b)(5), or 685.213(b)(6). We 

believe that the streamlined disability 

discharge application process will 

alleviate many of the difficulties 

borrowers have encountered in applying 

for TPD discharges. 

Changes: None. 

Comments: Sections 674.61(b)(2)(ii) 

and 682.402(c)(2)(ii) of the Perkins and 

FFEL regulations specify that if a 

borrower notifies the Secretary that the 

borrower intends to apply for a TPD 

discharge, the Secretary provides the 

borrower with the information needed 

to apply for the discharge and informs 

the borrower that the suspension of 

collection activity will end after 120 

days if the borrower does not submit the 

TPD discharge application within that 

timeframe. One commenter noted that 

these requirements were not included in 

proposed § 685.213(b)(1), the 

comparable section of the Direct Loan 

regulations, and asked if there was a 

specific reason for the difference. 

Discussion: The Department will 

provide the same information and 

notifications required under the Perkins 

and FFEL regulations to Direct Loan 

borrowers. We agree that to provide 

consistency with the Perkins and FFEL 

regulations these requirements should 

be included in the Direct Loan 

regulations as well. 

Changes: We have revised 

§ 685.213(b)(1) of the Direct Loan 

regulations to state that the Secretary 

will provide borrowers with the 

information needed to apply for a TPD 

discharge and inform the borrower that 

collection will resume on the borrower’s 

loan after 120 days if the borrower does 

not submit a TPD discharge application. 

Comments: One commenter 

recommended that the Department grant 

TPD discharges retroactively as of the 

application date, so that both voluntary 

and involuntary payments made after 

that date would be refunded to the 

borrower. 

Discussion: Sections 

674.61(b)(3)(i)(A), 682.402(c)(3)(i)(A), 

and 685.213(b)(4)(i)(A) specify that if 

the Department determines that the 

borrower is totally and permanently 

disabled, the borrower is considered 

totally and permanently disabled ‘‘as of 

the date the physician certified the 

borrower’s application.’’ It is more 

beneficial to the borrower to use the 

physician certification date than the 

application date, because the physician 

certification date is earlier than the 

application date. 

Changes: None. 

Suspension of Collection Activity (34 

CFR 674.61(b)(2)(ii)(C), 674.61(b)(2)(vi), 

682.402(c)(2)(ii)(C), 682.402(c)(2)(vi), 

685.213(b)(1) and 685.213(b)(3)(i)) 

Comments: One commenter 

recommended that the Department 

cease collection on a borrower’s title IV 

loans upon receipt of a TPD discharge 

application. Another commenter 

recommended that the Department 

confirm that the indefinite suspension 

of collection activity—which occurs 

after the Secretary receives the 

borrower’s TPD discharge application— 

is not dependent on whether the 

application is complete. A similar 

comment stated that it is not clear how 

incomplete applications received after 

the 120-day suspension of the collection 

period are treated. This commenter gave 

an example in which a borrower 

submits an incomplete application on 

day 119 of the suspension of collection 

activity, but does not file the complete 

application until day 130. The 

commenter asked if, under those 

circumstances, collection activity would 

resume on day 121, or if the incomplete 


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application would be sufficient to keep 

the suspension of collection in place. 

One commenter also noted that 

§§ 674.61(b)(2)(ix), 682.402(c)(2)(ix), 

and 685.213(b)(3) describe the contents 

of the notice that the Department sends 

to the borrower upon receipt of the 

disability discharge application. This 

commenter asked if this notice is sent 

for incomplete applications, or if it is 

only sent once the borrower has 

submitted a completed application. 

In addition, some commenters 

recommended that Treasury Offset 

Program (TOP) offsets and 

administrative wage garnishment 

(AWG) collection activity on the loan 

cease during the suspension of 

collection activity. 

Discussion: The final regulations in 

§§ 674.61(b)(2)(ii)(C), 

682.402(c)(2)(ii)(C), and 685.213(b)(1) 

provide that the 120-day suspension of 

collection begins on the date the 

borrower notifies the Secretary of the 

borrower’s intent to apply for a TPD 

discharge. Collection ceases based on a 

borrower’s notification to the 

Secretary—which could be a verbal 

notification—and does not require 

submission of an application. 

The Secretary notifies the lenders of 

the second, indefinite period of 

suspension of collection activity after 

the Secretary receives the TPD discharge 

application, as specified in 

§§ 674.61(b)(2)(vi), 682.402(c)(2)(vi), 

and 685.213(b)(3)(i). If the application is 

incomplete, the Secretary contacts the 

borrower, or the physician who certified 

the application, and asks for the missing 

information, as provided by 

§§ 674.61(b)(2)(vii), 682.402(c)(2)(vii), 

and 685.213(b)(3)(ii). The second, 

indefinite suspension of a collection 

activity is not dependent on the TPD 

discharge application containing all of 

the information needed for the Secretary 

to conduct the eligibility review, as 

more detailed medical information 

regarding the borrower’s disability may 

be collected during the period of 

suspension of collection activity. 

However, the application must contain 

sufficient information for the Secretary 

to begin review of the application, such 

as the borrower’s identifying 

information, physician’s contact 

information, and the physician 

certification required under 

§§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), 

and 685.213(b)(2)(i). The application 

must be provided to the Secretary 

within 90 days of the date the physician 

certifies the application under 

§§ 674.61(b)(2)(v), 682.402(c)(2)(v), and 

685.213(b)(3). If the application arrives 

without the physician certification or 

certification date, the Secretary cannot 

determine if the 90-day requirement has 

been met. An application missing this 

information would not meet the 

requirements of §§ 674.61(b)(2)(vi), 

682.402(c)(2)(vi), or 685.213(b)(3). 

Borrowers who file a TPD discharge 

application will receive a different 

notice depending on whether collection 

activity is suspended. Thus, if the 

application does not meet the basic 

requirement of including a physician 

certification and certification date 

(unless the borrower submits an 

application that includes acceptable VA 

or SSA documentation as proof of the 

borrower’s TPD), the borrower would 

receive a notice informing the borrower 

that suspension of collection will not 

continue. The borrower would receive a 

notice requesting the missing 

information, and notifying the borrower 

that collection activity will resume on 

the loan if the information is not 

provided before the end of the 120-day 

period of suspension. 

We discussed the effect of the 

suspension of collection activity on 

payments collected through AWG and 

TOP in the NPRM. The Department 

disagrees with the recommendation that 

AWG and TOP payments be included in 

the suspension of collection activity. 

Borrowers who apply for a TPD 

discharge must, by definition, be unable 

to engage in substantial gainful activity. 

Thus, these borrowers would not be 

earning wages and would not generally 

be subject to AWG. With regard to TOP, 

given the administrative effort and 

timing issues associated with 

suspending TOP, we do not believe it is 

in the best interests of the taxpayers to 

suspend TOP based solely on the filing 

of the TPD discharge application. 

Notifying the Department of the intent 

to file a TPD discharge request does not 

necessarily demonstrate that a borrower 

is TPD. Suspending TOP based on such 

a notification might encourage frivolous 

TPD discharge requests submitted solely 

to suspend TOP. If a borrower’s loan 

account has been certified for TOP, the 

Secretary or the guaranty agency is not 

required to stop TOP offsets while the 

borrower is preparing to submit the TPD 

discharge application or during the 

Secretary’s review of the TPD discharge 

request. The Secretary or the guaranty 

agency may, however, stop or reduce 

TOP offsets during this period if it 

believes such action is warranted under 

the borrower’s circumstances. 

Changes: None. 

Comments: One commenter expressed 

concern that the notice of suspension of 

collection activity from the Department 

might not reach the appropriate office in 

the case of a multi-campus system with 

a central collection office. If the notice 

of suspension is sent to the specific 

campus, rather than to the central 

collection office for all of the campuses, 

the collection office would not know to 

suspend collection for a borrower who 

obtained a Perkins Loan for attendance 

at the school. The commenter noted that 

the National Student Loan Data System 

(NSLDS) listing for such a borrower 

would show the specific campus as the 

loan holder, not the central collection 

office. 

Discussion: The Department is aware 

of the issues that may arise with multicampus systems with a centralized 

collection office. Under the new TPD 

discharge process, if a borrower notifies 

us of the intent to apply for a TPD 

discharge, we will contact the 

borrower’s title IV loan holders listed on 

the NSLDS. Unless the loan has been 

assigned to the Department, the holder 

of a Perkins Loan is always the school 

that awarded the loan to the borrower. 

As we implement the new 

streamlined TPD discharge process, the 

Department will work with multicampus systems that have centralized 

collection offices to find strategies to 

address this problem. 

Changes: None. 

Comments: One commenter stated 

that during the negotiated rulemaking 

sessions non-Federal negotiators 

proposed modifying the administrative 

forbearance regulations for the FFEL 

program to allow guaranty agencies to 

retroactively grant administrative 

forbearances to borrowers. This would 

eliminate delinquencies occurring 

before the borrower notified the 

Department of the intent to apply for a 

TPD discharge. When the Department 

decided to split the proposed 

regulations into two separate regulatory 

packages, the administrative forbearance 

provision was not included in the 

NPRM to these final regulations. The 

commenter noted that including the 

administrative forbearance provision in 

a subsequent rulemaking will create a 

period of time where guaranty agencies 

will not be able to eliminate a prior 

delinquency with an administrative 

forbearance. Delinquent borrowers 

whose 120-day suspension period 

expires, or whose TPD discharge 

application is denied before the 

effective date of the second set of 

regulations resulting from these 

negotiations, will resume repayment 

after the suspension periods at the same 

delinquency status. This commenter 

recommended that the Department 

provide clear guidance that would allow 

a borrower to exit a TPD suspension 

period in a nondelinquent status, 

regardless of the status of the loan at the 

time the suspension of collection 


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activity began, until the changes to the 

administrative forbearance regulations 

are published and are in effect. 

Discussion: The NPRM that would 

contain this revision to the 

administrative forbearance provisions 

has not yet been published. 

Consequently, there has been no 

opportunity for public comment on an 

NPRM that includes this revision. The 

Department believes that it would be 

inappropriate to establish such an 

administrative forbearance through 

subregulatory guidance prior to 

publication of the proposed regulatory 

change in an NPRM, receipt of public 

comment, and publication of a final 

regulation. In addition, we have no 

evidence that this has created a 

significant problem for borrowers 

seeking TPD discharges under our 

current regulations. 

Changes: None. 

TPD Discharge Application Denial and 

Re-evaluation (34 CFR 674.61(b)(3)(vi), 

674.61(b)(3)(vii), 682.402(c)(3)(v), 

682.402(c)(3)(vi), 685.213(b)(4)(iv), and 

685.213(b)(4)(v)) 

Comments: One commenter asked if 

the references in proposed 

§§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 

685.213(b)(4)(iv) to the ‘‘certification 

provided by the borrower’’ meant the 

physician’s certification on the TPD 

application form. If so, the commenter 

asked us to change the reference to the 

‘‘physician’s certification.’’ The 

commenter also asked us to make the 

same change in the corresponding 

regulations for the veteran’s disability 

discharge process. 

Discussion: The references to a 

‘‘certification provided by the borrower’’ 

in proposed §§ 674.61(b)(3)(vi), 

682.402(c)(3)(v), and 685.213(b)(4)(iv) 

do refer to the physician certification. 

We agree with the commenter and have 

revised these provisions in the final 

regulations to make this explicit. 

However, the corresponding language in 

§§ 674.61(c), 682.402(c)(9), and 

685.213(c) covering the veteran’s 

disability discharge process refers to 

documentation from the Department of 

Veteran’s Affairs not to a physician’s 

certification, and does not need to be 

revised. 

Changes: We have replaced 

‘‘certification provided by the borrower’’ 

with ‘‘physician’s certification’’ in 

§§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 

685.213(b)(4)(iv). 

Comments: The proposed regulations 

in §§ 674.61(b)(3)(vii), 682.402(c)(3)(vi), 

and 685.213(b)(4)(v) would allow a 

borrower to request a re-evaluation of 

the borrower’s TPD discharge 

application within 12 months of 

receiving the Secretary’s decision 

denying the application. The proposed 

rules specified that the request for a reevaluation must include information 

that was not available at the time of the 

borrower’s prior application. One 

commenter noted, however, that the 

information might have been available 

at the time of the prior application but 

might not have been included in the 

application for any number of reasons. 

The commenter recommended replacing 

the words ‘‘not available’’ with ‘‘not 

included’’ for these regulatory 

provisions. 

In addition, commenters asked the 

Department to confirm that a FFEL or 

Perkins loan holder will not provide a 

new period of suspension of collection 

activity during the re-evaluation period, 

unless advised otherwise by the 

Department. 

Discussion: We agree with the 

recommendation to revise the language, 

although, since detailed information is 

not included in the TPD discharge 

application itself, we have revised the 

new language. 

In response to the second comment 

noted above, we confirm that the 

borrower does not receive a second 

period of suspension when a TPD 

discharge is being re-evaluated. 

Changes: We have replaced ‘‘not 

available’’ with ‘‘not provided to the 

Secretary in connection with the prior 

application’’ in §§ 674.61(b)(3)(vii), 

682.402(c)(3)(vi), and 685.213(b)(4)(v) of 

the final regulations. 

Treatment of Disbursements of Title IV 

Loans and TEACH Grants or Receipt of 

New Title IV Loans and TEACH Grants 

After Date of Physician’s Certification 

(34 CFR 674.61(b)(4) and (b)(5), 

682.402(c)(4) and (c)(5), and 

685.213(b)(5) and (b)(6)) 

Comments: The proposed regulations 

in §§ 674.61(b)(4), 682.402(c)(4), and 

685.213(b)(5) stipulated that if a 

borrower receives a title IV loan or 

TEACH grant before the date the 

physician certified the TPD discharge 

application, and disbursement of the 

loan or grant is made after the date of 

the physician’s certification and before 

the date the loan is discharged, the 

processing of the discharge request is 

suspended until the borrower returns 

the disbursement. One commenter 

noted that this regulatory requirement 

could be easily misunderstood. The 

commenter asked the Department to 

clarify what it means by a borrower 

‘‘receiving’’ a loan or grant prior to the 

loan or grant being disbursed. The 

commenter asked if this requirement 

refers to a loan that is partially 

disbursed before the physician’s 

certification, and a subsequent 

disbursement is made after the date of 

the certification. Alternatively, the 

commenter asked if by ‘‘received’’ the 

Department means originated or 

awarded. 

Discussion: The commenter’s second 

interpretation is correct. In the context 

of these regulations, we are referring to 

a situation in which the loan or grant 

has been originated or awarded prior to 

the physician certification date. The 

provision is intended to apply to 

situations in which a student has 

established eligibility for a title IV loan 

or TEACH grant, the loan or grant is 

approved, and the process for 

disbursing the funds has started. The 

Department believes that a student in 

this situation should not be denied the 

TPD discharge. However, the student 

must return the disbursed funds before 

the TPD discharge may be granted. 

Changes: None. 

Comments: The proposed regulations 

in §§ 674.61(b)(5), 682.402(c)(5), and 

685.213(b)(6) provided that if a 

borrower receives a disbursement of a 

new title IV loan or receives a TEACH 

grant made on or after the date the 

physician certified the TPD discharge 

application, the Department denies the 

TPD discharge application and 

collection resumes on the borrower’s 

loans. One commenter asked if this 

refers to situations in which a title IV 

loan or TEACH grant was originated or 

awarded on or after the date of the 

physician’s certification and is 

disbursed before the date the discharge 

is granted. 

Discussion: The commenter’s 

understanding of the provision is 

correct. This provision is intended to 

address borrowers who actively request 

or apply for a new title IV loan or 

TEACH grant after the date of the 

physician’s certification. In applying for 

a loan or requesting a TEACH grant the 

student commits to repay the loan or 

perform the required teaching service. 

This commitment contradicts the 

borrower’s claim in the TPD discharge 

application that the borrower is too 

disabled to work. Borrowers seeking a 

discharge on existing loans while taking 

out new loans should not receive the 

benefit of a TPD discharge. 

Changes: None. 

Conditions for Reinstatement of a Loan 

and Borrower’s Responsibilities After a 

Total and Permanent Disability 

Discharge (34 CFR 674.61(b)(6), 

674.61(b)(7), 682.402(c)(6), 

682.402(c)(7), 685.213(b)(7), and 

685.213(b)(8)) 

Comments: The regulations in 

§§ 674.61(b)(6)(i)(A), 682.402(c)(6)(i)(A), 


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and 685.213(b)(7)(i)(A) provide that a 

loan that has been discharged based on 

the borrower’s TPD is reinstated if, 

within three years after the discharge 

date, the borrower has annual earnings 

from employment that exceed 100 

percent of the poverty guideline for a 

family of two. One commenter 

recommended that, in some cases, the 

Department should examine a 

borrower’s income for the three years 

prior to the TPD discharge, rather than 

the three years after the discharge. 

Another commenter recommended 

that the Department allow part-time 

work for disability discharge recipients. 

A third commenter echoed this 

comment, and added that full-time work 

on a short-term basis should also be 

allowed. 

In addition, the proposed regulations 

in §§ 674.61(b)(7), 682.402(c)(7), and 

685.213(b)(8) provided that, for a threeyear period after the borrower receives 

a TPD discharge, the borrower must: 

notify the Department of any changes in 

address or telephone number; notify the 

Department if the borrower’s annual 

earnings exceed the poverty level; and 

provide the Department, upon request, 

with documentation of the borrower’s 

earnings. One commenter asked what 

the consequences are for a borrower 

who does not provide the requested 

documentation. 

Discussion: Under both the current 

and proposed TPD discharge regulations 

and these final regulations, the 

monitoring of the borrower’s income 

only occurs after the discharge has been 

granted. The post-discharge monitoring 

of a borrower’s earned income is 

required by section 437 of the HEA. 

The proposed and final regulations in 

§§ 674.61(b)(6), 682.402(c)(6), and 

685.213(b)(7) treat earnings during the 

three-year post-discharge monitoring 

period as an indicator that a borrower is 

no longer TPD. A borrower’s loans are 

reinstated if the borrower’s annual 

earnings are greater than 100 percent of 

the poverty line for a family of two, as 

published annually by the Department 

of Health and Human Services. This 

standard allows the borrower to attempt 

part-time or short-term full-time work 

without raising a question about the 

borrower’s disability, if the earnings 

from such work for the year do not 

exceed the threshold. Earnings in excess 

of these amounts indicate that the 

borrower is sufficiently able to engage in 

substantial gainful activity, and does not 

meet the definition of ‘‘totally and 

permanently disabled.’’ 

A borrower who does not provide the 

required documentation (particularly 

income documentation) will have his or 

her loans reinstated and will be required 

to resume payment on the loan. 

Changes: None. 

FFEL Lender and Guaranty Agency 

Actions (34 CFR 682.402(c)(8), 

682.402(g)(2), and 682.402(k)(2)) 

Comments: Several commenters 

requested that the Department state in 

this preamble to the final regulations 

that the guarantor of the loans for which 

the borrower has submitted a TPD 

discharge application may request and 

receive from the Department, on a caseby-case basis, any information that may 

be needed to assist the borrower during 

the TPD discharge process. These 

commenters noted that the guaranty 

agency may be a trusted contact for a 

disabled borrower, and may have 

worked with the borrower in the past 

with respect to default prevention 

activities or ombudsman interactions. 

Discussion: These regulations are 

intended to centralize the TPD 

discharge process and to enable 

borrowers to receive TPD discharges 

more easily. One way that the 

regulations accomplish this is by 

minimizing the role of guaranty 

agencies and loan holders in the TPD 

discharge process. We do not envision 

guaranty agencies or lenders having a 

significant role in the processing of TPD 

discharge requests under the new 

process. Because the role of guaranty 

agencies will be limited, we do not 

believe that it is necessary for guaranty 

agencies to receive information from the 

Department regarding specific TPD 

discharge requests beyond the 

documentation already specified in the 

regulations. 

We note that an individual borrower 

who considers a guaranty agency to be 

a trusted contact may choose to provide 

a copy of the TPD discharge application 

or any communications that the 

borrower receives from the Department 

to the guaranty agency. 

Changes: None. 

Comments: Some commenters noted 

that the regulatory language agreed to 

during the negotiated rulemaking 

process would modify the current 

requirements for a guaranty agency to 

file a disability claim. Currently, 

§ 682.402(g)(1)(iv) requires a guaranty 

agency to include a copy of the certified 

TPD discharge application with the 

disability claim. Under the new TPD 

discharge process in this final rule, the 

guaranty agency will not receive a copy 

of the TPD discharge application. Under 

final § 682.402(g)(1)(iv), the guaranty 

agency will only receive the notice from 

the Department informing the lender 

that the borrower is eligible for a TPD 

discharge. The commenters noted that 

the regulatory language approved during 

the negotiated rulemaking process 

would replace the reference to the TPD 

discharge form. The commenters stated 

that proposed § 682.402(g)(1)(iv) 

incorrectly retained the requirement 

that the TPD discharge application be 

submitted with the disability claim. The 

commenters requested that the final 

regulations be modified to conform to 

the agreement reached during 

negotiations. 

These commenters also requested that 

the final regulations modify Appendix D 

of 34 CFR Part 682 to remove language 

stating that the Department does not 

reimburse a guaranty agency for a 

disability claim if the lender has 

violated due diligence or timely filing 

requirements. The commenters viewed 

this as a conforming change to the 

proposed regulations. 

Some commenters recommended that 

the Department revise proposed 

§ 682.402(c)(8)(i)(E) that established 

assignment deadlines for loans held by 

the guaranty agency at the time the 

borrower applies for a disability 

discharge. The NPRM proposed to 

require the guaranty agency to assign 

the loan to the Secretary within 45 days 

of the date that the guaranty agency 

receives notice that the borrower 

qualifies for a TPD discharge. The 

commenters recommended that the loan 

be assigned within 45 days of the date 

the Secretary pays the remaining 

disability claim amount to the guaranty 

agency. 

Discussion: The language approved by 

the negotiating committee and 

referenced by the commenters was 

included in the NPRM. However, in 

finalizing the NPRM, we did not replace 

§ 682.402(g)(1)(iv) in its entirety. 

Instead, we amended that section 

through an instruction. The revision is 

reflected as instruction 6.B at 77 FR 

42133. The instruction that was 

included in the NPRM, and is included 

in these final regulations, does not need 

to be modified. 

During the negotiated rulemaking 

process, non-Federal negotiators did not 

suggest that the Department waive the 

due diligence requirements for 

disability discharge claims under the 

new process for TPD discharges. This 

change was not discussed during the 

negotiated rulemaking process or agreed 

to by the Department. Further, the 

NPRM did not propose changing the 

current regulatory language in 

§ 682.402(k)(2) stating that the 

Department only pays a disability claim 

to a guaranty agency ‘‘after the agency 

has paid a default claim to the lender 

thereon and received payment under its 

reinsurance agreement’’ or the current 


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requirement in § 682.402(k)(2)(v) that 

the Department only reimburses a 

guaranty agency on a disability claim if 

‘‘the guaranty agency has exercised due 

diligence in the collection of the loan.’’ 

Nor did the NPRM propose changes to 

current § 682.406(a), which specifies 

that a guaranty agency only receives a 

reinsurance payment from the 

Department on a loan ‘‘if the lender 

exercised due diligence in making, 

disbursing, and servicing the loan as 

prescribed by the rules of the agency.’’ 

The changes to Appendix D that the 

commenters request as a conforming 

change with the NPRM would actually 

be inconsistent with the proposed and 

final regulations. 

In these final regulations, 

§ 682.402(c)(3)(iii) states that, after the 

Department determines that a borrower 

is totally and permanently disabled, the 

Department ‘‘directs each lender to 

submit a disability claim to the guaranty 

agency * * * .’’ Section 

682.402(c)(8)(i)(B) requires a guaranty 

agency to pay the claim ‘‘if the claim 

satisfies the requirements of 

§ 682.402(g)(1).’’ To clarify that the 

disability claim must meet all of the due 

diligence requirements, we have 

modified this language to specify that 

the claim must meet the requirements of 

§ 682.406 as well. 

The purpose of these regulations is to 

streamline and speed up the process for 

granting TPD discharges as much as 

possible. Therefore, we decline the 

recommendation from the guaranty 

agencies that they not be required to 

assign a TPD claim to the Department 

until the remaining reinsurance claim 

amount has been paid by the 

Department. The borrower’s discharge 

should not be delayed while the 

Department and the guaranty agencies 

complete their financial transactions. 

We note that, under the final 

regulations, the guaranty agency would 

have 45 days to submit a claim to the 

Department for reimbursement before it 

is required to assign the loan to the 

Department. 

Changes: We have revised 

§§ 682.402(c)(8)(i)(B) and 

682.402(c)(9)(xii)(B) to state that a 

guaranty agency must pay a disability 

claim if the claim satisfies the 

requirements of §§ 682.402(g)(1) and 

682.406. 

Implementation and Forms 

Development 

Comments: Some commenters urged 

the Department to implement the 

proposed reforms to the TPD discharge 

process earlier than the July 1, 2013, 

effective date of the regulations, to the 

extent possible. 

Conversely, another commenter 

recommended that the revised TPD 

discharge application not be made 

available to borrowers before the July 1, 

2013, effective date to minimize 

borrower confusion and ensure an 

orderly transition to the new discharge 

process. In addition, the latter 

commenter recommended that the 

Department be prepared to accept both 

versions of the TPD discharge 

application—the current version and the 

revised version—as of the July 1, 2013, 

effective date, so that borrowers who 

have completed the current version of 

the TPD discharge application may also 

benefit from the streamlined TPD 

discharge process. 

One commenter recommended that 

the Department implement the thirdparty release form that borrowers would 

use to identify borrower representatives 

as soon as possible. 

Discussion: Due to the complexity of 

the changes made by these final 

regulations, the Department has 

determined that implementation of the 

new TPD discharge process before the 

July 1, 2013, effective date is not 

feasible. The new process will require 

extensive systems and process changes 

by the Department, guaranty agencies, 

and loan holders and servicers before 

the new TPD discharge process can be 

implemented. 

The Department does not address 

implementation of forms in final 

regulations. Forms developed or revised 

as a result of these final regulations will 

be made available for public comment 

through the Paperwork Reduction Act 

forms clearance process. After the forms 

have been approved by OMB, the forms 

will be made available to program 

participants through Dear Colleague 

Letters or Electronic Announcements. 

Deadline dates for forms 

implementation, and any transition 

period between the current TPD 

discharge application and the new TPD 

discharge application, will be 

announced in the Dear Colleague Letter 

or Electronic Announcement 

implementing the new and revised TPD 

discharge forms. 

Changes: None. 

Additional Comments 

Comments: Several commenters 

stated that navigating the TPD discharge 

process is stressful and urged the 

Department to streamline the process by 

providing a one-stop Web site where 

borrowers can get information about the 

process. 

One commenter recommended that 

the Department forgive loans of 

individuals caring for permanently 

disabled veterans and to accept the VA’s 

determination of permanent disability. 

One commenter asked the Department 

to allow borrowers who are 

experiencing dire economic hardship 

because of health and disability issues 

to modify their loan terms or restructure 

their loans to ease the burden of 

repayment. 

Discussion: The Department 

maintains a TPD discharge Web site at 

the following link: http:// 

www.disabilitydischarge.com/Pages/ 

General.aspx?id=80 

The Web site provides information on 

the TPD discharge process for 

borrowers, loan holders, physicians, and 

veterans. The Web site allows 

individuals to set up user accounts and 

can be used to help borrowers, loan 

holders, and physicians navigate the 

TPD discharge process. The Web site 

will be updated with new information, 

revised forms, and other information 

that will be helpful to borrowers as the 

new streamlined process is 

implemented. 

The recommendations that the 

Department forgive loans for individuals 

caring for disabled veterans and allow 

borrowers who are experiencing 

financial hardship due to health or 

disability issues to modify or restructure 

their title IV loans are outside the 

Department’s statutory authority. 

However, we note that there are other 

avenues for borrowers who are 

experiencing dire economic 

circumstances due to health issues or 

disabilities. Economic hardship 

deferments, unemployment deferments, 

and forbearances are generally available 

to borrowers in the Perkins, FFEL, and 

Direct Loan programs. In addition, 

Direct Loan and FFEL borrowers can use 

the income-based or income-contingent 

repayment plans discussed elsewhere in 

this preamble. 

Changes: None. 

Income-Based and Income-Contingent 

Repayment Plans: General Comments 

Comments: One commenter suggested 

that we adopt more consumer-friendly 

names for the two income-contingent 

repayment plans designated as ‘‘ICR–A’’ 

and ‘‘ICR–B’’ in proposed § 685.209. In 

light of the fact that the President’s ‘‘Pay 

As You Earn’’ repayment initiative has 

been widely publicized, the commenter 

suggested that it may be helpful to 

clarify for borrowers that the ICR–A 

repayment plan is in fact the Pay As 

You Earn initiative. 

Another commenter strongly urged 

the Department to consider using a more 

descriptive and less confusing name 

than ICR–A and suggested ‘‘Pay As You 

Earn’’ as an appropriate alternative. This 


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commenter believed that borrowers will 

have difficulty understanding the 

differences between the similarly named 

income-driven repayment plans and 

noted that the proposed ICR–A plan is 

much more like the current IBR plan 

than the proposed ICR–B plan. 

The majority of commenters 

expressed strong support for the 

Secretary’s proposed regulations, 

especially the proposed implementation 

of the President’s ‘‘Pay As You Earn’’ 

repayment initiative as a new type of 

income-contingent repayment plan, in 

light of rising student loan debt and the 

difficulty some borrowers experience 

repaying their student loans. Many of 

the commenters noted that the proposed 

regulations would make it easier and 

more affordable for Federal student loan 

borrowers to repay their loans. A few 

commenters stated that all of the 

income-driven repayment plans should 

be discontinued because they believed 

that these plans are a poor use of 

taxpayer funds, encourage students to 

enroll in substandard educational 

programs, encourage students to borrow 

more than necessary, and absolve 

borrowers of their responsibility to 

repay their student loans in full. 

Discussion: During the negotiated 

rulemaking sessions we invited 

suggestions for naming the two incomecontingent repayment plans described 

in proposed § 685.209, but did not 

receive any recommendations at that 

time. We explained in the NPRM that 

the proposed regulations would create a 

new income-contingent repayment plan 

based on the President’s Pay As You 

Earn initiative that would be called the 

ICR–A plan, and that the existing 

income-contingent repayment plan 

would be retained, with certain changes, 

as the ICR–B plan. We agree with the 

commenters’ recommendation that we 

adopt more descriptive and consumerfriendly names for these repayment 

plans and believe the most appropriate 

approach would be to use a distinctive 

name for the new plan that is based on 

the Pay As You Earn initiative and leave 

the name of the current incomecontingent repayment plan unchanged. 

The Department appreciates the 

numerous comments we received in 

support of the proposed regulations. 

With regard to the comments 

recommending that the income-driven 

repayment plans be discontinued, we 

note that the IBR and ICR plans were 

established by Congress to assist 

borrowers in repaying their student loan 

debt, and the Pay As You Earn 

repayment plan is based on a 

presidential initiative to help borrowers 

reduce their monthly student loan 

payments. We believe these repayment 

options provide a significant benefit to 

borrowers and taxpayers by helping 

borrowers better manage their student 

loan debt and avoid default. 

Changes: We have revised § 685.209 

by redesignating the plan called ‘‘ICR– 

A’’ in the NPRM as the ‘‘Pay As You 

Earn repayment plan,’’ and by 

redesignating the plan called ‘‘ICR–B’’ 

in the NPRM as the ‘‘income-contingent 

repayment (ICR) plan.’’ References to 

the ‘‘income-contingent repayment 

plans’’ in other sections of the Direct 

Loan program regulations may mean 

either the Pay As You Earn repayment 

plan or the ICR plan, since both plans 

are presented in § 685.209 as incomecontingent repayment plans. Where it is 

necessary to distinguish between the 

two plans in other sections of the Direct 

Loan program regulations, the 

regulations refer to the incomecontingent repayment plan described in 

§ 685.209(a) (the Pay As You Earn 

repayment plan) or the incomecontingent repayment plan described in 

§ 685.209(b) (the ICR plan). 

Comments: Many individual 

commenters suggested various changes 

to the proposed regulations that would 

require amendments to the HEA. These 

recommended changes included— 

(1) Allowing private education loans 

to be repaid under the IBR and ICR 

plans; 

(2) Allowing private education loans 

to be consolidated together with Federal 

student loans; 

(3) Allowing parent PLUS loan 

borrowers to repay their loans under the 

IBR and ICR plans; 

(4) Making changes to the IBR plan 

that will be available to new borrowers 

on or after July 1, 2014, available to all 

borrowers; 

(5) Not taxing loan amounts forgiven 

under the IBR and ICR plans; 

(6) Extending the length of time that 

borrowers with disabilities are eligible 

for the interest subsidy provided in the 

IBR and proposed Pay As You Earn 

repayment plans; 

(7) Reducing the maximum IBR 

payment amount to five percent of 

adjusted gross income (AGI); 

(8) Counting payments made prior to 

entering IBR toward the 25-year IBR 

loan forgiveness period; 

(9) Allowing borrowers to separate 

joint consolidation loans in cases of 

divorce, separation, spousal 

abandonment, or remarriage; 

(10) Allowing defaulted borrowers to 

repay under IBR; 

(11) Providing restructured loans for 

disabled borrowers and for borrowers 

that meet other criteria; 

(12) Reducing the interest rates 

charged on Federal student loans, or 

charging no interest; and 

(13) Basing the determination of PFH 

for IBR eligibility purposes on factors 

other than eligible loan debt, AGI, and 

family size; some of the suggested 

factors that commenters recommended 

for consideration in determining 

whether a borrower has a PFH and other 

suggested changes were— 

• Each borrower’s unique individual 

expenses; 

• Regional cost-of-living differences; 

• Use of net pay or net taxable 

income, rather than AGI; 

• Modification of the poverty 

guidelines currently in use; 

• Adjustment of PFH determinations 

based on whether the borrower is listed 

as the ‘‘head of household’’ on his or her 

income tax return; 

• Inclusion of private student loan 

debt; and 

• Lower-income qualifications for 

PFH status. 

Discussion: We appreciate the many 

comments we received recommending 

changes that the commenters believe 

would benefit borrowers and improve 

the administration of the title IV loan 

programs. However, the suggested 

changes would require Congress to 

make changes to the HEA or other laws. 

The following paragraphs identify the 

statutory provisions that limit the 

Department’s ability to adopt the 

recommended changes in items (1) 

through (13). 

With respect to items (1) and (2), the 

HEA does not govern the terms and 

conditions of private education loans. 

Congress could not legally require that 

the IBR or ICR plans be made available 

for private education loans or provide 

for the consolidation of such loans into 

a Direct Consolidation Loan because it 

cannot change the terms of private 

contracts. 

With respect to item (3), section 

493C(b)(1) of the HEA limits eligibility 

for IBR to ‘‘a borrower of any loan made, 

insured, or guaranteed under part B or 

D (other than an excepted PLUS loan or 

excepted consolidation loan).’’ Sections 

493C(a)(1) and (a)(2) of the HEA define 

‘‘excepted PLUS loan’’ and ‘‘excepted 

consolidation loan,’’ respectively, as a 

PLUS loan made to a parent on behalf 

of a dependent student, or a 

consolidation loan that repays a PLUS 

loan made to a parent on behalf of a 

dependent student. The Pay As You 

Earn repayment plan is based on the IBR 

plan and includes the same restrictions 

on the types of loans that may be repaid 

under the plan. Section 455(d)(1)(D) of 

the HEA provides that the incomecontingent repayment plan is not 


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available to borrowers of Direct PLUS 

Loans made on behalf of dependent 

students. Therefore, the HEA does not 

permit repayment of PLUS loans made 

to parent borrowers through the IBR or 

ICR plans. 

With respect to item (4), section 

493C(e) of the HEA provides that the 

changes to the IBR plan that reduce the 

maximum repayment timeframe from 25 

years to 20 years and the maximum 

income-based payment amount from 15 

percent of discretionary income to 10 

percent of discretionary income are only 

available to ‘‘new borrowers on and 

after July 1, 2014.’’ 

With respect to item (5), 26 U.S.C. 

108(f) provides that an individual’s 

gross income for tax purposes does not 

include loan amounts forgiven under 

certain types of loan discharge programs 

if the loan amount was discharged on 

the basis that the borrower ‘‘worked for 

a certain period of time in certain 

professions.’’ Based on the Internal 

Revenue Service’s (IRS) interpretation of 

this statutory provision, loan amounts 

forgiven under the IBR, ICR, and Pay As 

You Earn repayment plans must be 

treated as taxable income. The tax 

implications of loan forgiveness are 

addressed in the Internal Revenue Code 

and the regulations of the IRS, and the 

Department has no authority to address 

this issue. 

With respect to item (6), section 

493C(b)(3) of the HEA provides that if 

the calculated income-based payment 

for a borrower repaying under the IBR 

plan does not cover all of the monthly 

interest that accrues, the Secretary pays 

the remaining interest on the borrower’s 

subsidized loans for a period not to 

exceed three years from the date the 

borrower entered repayment under the 

IBR plan, excluding periods of 

economic hardship deferment. The 

Department does not have the authority 

under the HEA to extend this maximum 

three-year interest subsidy period. 

With respect to item (7), section 

493C(a)(3)(B) of the HEA provides that 

a PFH exists when the annual amount 

due on a borrower’s total outstanding 

eligible loan debt, as calculated under a 

standard repayment plan with a 10-year 

repayment period, exceeds 15 percent of 

the difference between the borrower’s, 

and the borrower’s spouse’s (if 

applicable), AGI and 150 percent of the 

poverty line applicable to the borrower’s 

family size. The Department does not 

have the authority to change this 

statutory provision. 

With respect to item (8), section 

493C(b)(7)(B) of the HEA specifies the 

types of qualifying payments that are 

counted toward the maximum 25-year 

IBR repayment period. Payments made 

prior to entering the IBR repayment plan 

are not included. The Secretary does not 

have the authority under the law to 

count other types of payments toward 

the IBR repayment period. 

With respect to item (9), section 

428C(a)(3)(C) of the HEA provided that 

married borrowers are jointly and 

severally liable for the repayment of a 

joint consolidation loan ‘‘without regard 

to any subsequent change that may 

occur in the couple’s marital status.’’ As 

part of the Higher Education 

Reconciliation Act of 2005 (Pub. L. 109– 

171), Congress prohibited the 

origination of any new joint 

consolidation loans, and as a 

consequence of this action, section 

428C(a)(3)(C) was removed from the 

HEA. However, for those joint 

consolidation loans that are still in 

repayment, this statutory provision 

continues to apply. Without a statutory 

change, the Department cannot permit 

the separation of a joint consolidation 

loan for the reasons suggested by the 

commenter. 

With respect to item (10), section 

493C(b)(1) of the HEA permits a 

borrower to elect IBR if the borrower has 

a PFH, ‘‘whether or not the borrower’s 

loan has been submitted to a guaranty 

agency for default aversion or had been 

in default.’’ The HEOA amended the 

prior version of section 493C(b)(1) by 

replacing the term ‘‘or is already in 

default’’ with ‘‘or had been in default.’’ 

This change in the IBR eligibility 

criteria served to prohibit defaulted 

borrowers from participating in IBR, and 

a statutory change would be required to 

once again allow defaulted borrowers to 

select the IBR plan. 

With respect to item (11), no 

provision of the HEA permits the 

Secretary to restructure loans for any 

borrowers. 

With respect to recommendation (12), 

the interest rates charged on loans made 

under the FFEL and Direct Loan 

programs are established by statute in 

sections 427A and 455(b) of the HEA, 

respectively. The Department does not 

have the authority to change these 

statutory provisions. 

With respect to recommendation (13), 

section 493C(a)(3)(B) of the HEA 

specifies the standard for determining 

whether a borrower has a PFH, as 

discussed earlier in connection with 

item (7). Absent a statutory change, the 

Department is unable to make such 

changes. 

Changes: None. 

Use of Electronic and Internet-Based 

Processes for Borrowers Repaying Under 

the IBR, ICR, and Pay As You Earn 

Repayment Plans 

Comments: Many commenters 

requested that the Department make the 

initial application and annual renewal 

process for the IBR, ICR, and Pay As 

You Earn repayment plans more 

efficient through the use of electronic, 

automated, or Internet-based methods. 

Some commenters requested that the 

Department develop an interface with 

the IRS to facilitate a borrower accessing 

and providing required income 

information electronically to the 

borrower’s loan servicer. 

Discussion: The Department has 

recently made an electronic application 

for the IBR plan available to borrowers. 

Specifically, the Department’s 

StudentLoans.gov Web site has been 

modified to allow borrowers to login to 

that site with their Federal Student Aid 

Personal Identification Number (PIN), 

apply for the IBR plan, populate their 

application with the AGI on file with 

the IRS, and submit it electronically to 

their Federal loan servicer. Borrowers 

may also use this process to annually 

provide updated AGI information, as 

required by the IBR regulations. 

Initially, this enhanced functionality 

will only be available to borrowers with 

Direct Loans and FFEL loans that are 

held by the Department, or with 

commercially-held FFEL loans that are 

serviced by an entity that has an 

association with certain members of the 

Department’s federal loan servicer team, 

who wish to apply to repay under the 

IBR plan. The Department plans, 

however, to add a comparable process 

for the ICR and Pay As You Earn 

repayment plans in the near future. In 

addition, the Department also intends to 

eventually establish the electronic 

exchange relationships necessary for all 

servicers of commercially-held FFEL 

loans to participate in the electronic 

application process. 

The Department has also taken steps 

to modify and combine the various 

forms that borrowers currently use to 

request the IBR and ICR plans into a 

single standardized form borrowers can 

use to apply for the IBR, ICR, and Pay 

As You Earn repayment plans and 

provide alternative documentation of 

income, if appropriate, regardless of the 

type of loan or loan holder. The 

Department has greatly simplified the 

form to make it easier to understand and 

complete. The Department anticipates 

that the form will become available for 

borrowers to use by the end of 2012. 

Changes: None. 


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Comments: Many commenters 

suggested that the Department should 

expand eligibility for the Pay As You 

Earn repayment plan (the proposed 

ICR–A plan) to include borrowers other 

than new borrowers as of October 1, 

2007 who receive Direct Loan 

disbursements on or after October 1, 

2011. Many of these commenters felt 

that it was unfair to exclude certain 

borrowers from the Pay As You Earn 

repayment plan. The commenters 

argued that all Federal student loan 

borrowers should have access to all 

repayment plans. 

One commenter suggested basing the 

eligibility criteria for the Pay As You 

Earn repayment plan on academic or 

award years rather than on the fiscal 

year approach taken in the proposed 

regulations. The commenter stated that 

using fiscal years may be confusing to 

borrowers, who are more familiar with 

award or academic years. The 

commenter suggested that if budgetary 

constraints preclude using an award 

year approach, we consider using 

calendar years 2008 and 2012 (January 

1, 2008 and January 1, 2012, 

respectively) instead. 

Discussion: In implementing the 

President’s Pay As You Earn repayment 

initiative, the Department attempted to 

provide the benefit of the initiative to as 

many borrowers as budgetary 

constraints would allow. While the 

Department understands the view of 

some of the commenters that the Pay As 

You Earn repayment plan should be 

available to all Federal student loan 

borrowers, expanding eligibility would 

constitute a significant cost to the 

government. Similarly, defining ‘‘new 

borrower’’ on the basis of award years 

rather than fiscal years would result in 

significant additional costs. 

We understand the commenter’s 

concern that some borrowers may be 

confused by the use of fiscal year dates 

and appreciate the recommendation to 

use calendar years instead. However, 

the Department believes it is preferable 

to make the Pay As You Earn repayment 

plan available to as many borrowers as 

possible. Using calendar years to define 

the group of eligible borrowers would 

exclude borrowers from the Pay As You 

Earn repayment plan who would have 

otherwise been eligible under the 

proposed regulations. For example, a 

borrower who received the first 

disbursement of a loan in the fall of 

2008 and graduated in three and a half 

years, with a final loan disbursement 

occurring on October 15, 2011, would 

not be eligible for the Pay As You Earn 

repayment plan if the regulations 

required the receipt of a Direct Loan 

disbursement on or after January 1, 

2012, rather than on or after October 1, 

2011, as in the proposed regulations. 

Similarly, an otherwise eligible 

borrower who received the first loan in 

November 2007 would qualify under the 

proposed regulations, but would be 

ineligible if the regulations defined new 

borrower as someone who had no 

outstanding loan balance as of January 

1, 2008. We believe making the Pay As 

You Earn repayment plan available to as 

many borrowers as possible is preferable 

to using dates that may be less 

confusing, but that would limit 

eligibility. 

Changes: None. 

Income-Based and Income-Contingent 

Repayment Plans: Initial Determination 

of Eligibility, Annual Income 

Documentation Requirements, and 

Associated Notices 

Comments: One commenter noted 

that under proposed § 682.215(e)(9), 

FFEL program loan holders may grant 

forbearance under certain circumstances 

to a borrower repaying under the IBR 

plan whose required income 

documentation is received more than 10 

days after the specified annual deadline, 

and whose loan payments are overdue 

or would be due at the time the 

borrower’s new income-based monthly 

payment amount is determined. The 

commenter further noted that in the 

preamble to the NPRM the Secretary 

indicated that proposed 

§ 685.221(e)(9)(i) would establish the 

same requirement in the Direct Loan 

program. However, the commenter 

pointed out that proposed 

§ 685.221(e)(9)(i) (and also proposed 

§§ 685.209(b)(3)(vi)(F)(1) and 

685.209(a)(5)(ix)(A) for the ICR and Pay 

As You Earn repayment plans, 

respectively) states that the Secretary 

‘‘grants forbearance’’ whereas the 

corresponding FFEL program regulation 

states that the loan holder ‘‘may grant 

forbearance.’’ The commenter believed 

that the different language in the 

proposed regulations would require the 

Secretary to grant forbearance in the 

Direct Loan program, but make the 

granting of the forbearance optional on 

the part of the loan holder in the FFEL 

program. The commenter recommended 

that the Department revise 

§ 682.215(e)(9) to require FFEL loan 

holders to grant the forbearance under 

the specified conditions. 

The commenter also recommended 

that the Department expand the 

conditions under which the forbearance 

described in proposed §§ 682.215(e)(9), 

685.209(a)(5)(ix)(A), 

685.209(b)(3)(vi)(F)(1), and 

685.221(e)(9)(i) is granted. Under the 

proposed regulations, this forbearance is 

granted only if the borrower’s new 

calculated monthly payment amount is 

$0.00 or is less than the borrower’s 

previously calculated monthly payment 

amount. The commenter recommended 

that the Department revise the 

regulations to include borrowers whose 

new calculated monthly payment 

amount is equal to the borrower’s 

previously calculated monthly payment 

amount. The commenter believed that 

the forbearance should be available to a 

borrower whose new calculated 

monthly payment is equal to the 

borrower’s previous monthly payment 

amount. The commenter suggested that 

a borrower whose financial situation has 

not improved would likely have trouble 

paying the ‘‘permanent standard’’ 

payment amount (which is not based on 

the borrower’s income) that applies 

when a borrower’s income 

documentation is not received within 10 

days of the specified annual deadline. 

Finally, the commenter recommended 

that the regulations be revised to 

provide that the forbearance described 

in proposed §§ 682.215(e)(9), 

685.209(a)(5)(ix)(A), 

685.209(b)(3)(vi)(F)(1), and 

685.221(e)(9)(i) could be granted at the 

discretion of the Secretary or loan 

holder under conditions other than 

those specified in the proposed 

regulations, if a borrower is 

experiencing exceptional circumstances 

such as personal or family health 

emergencies that prevented the 

borrower from submitting the required 

income documentation on time. 

Discussion: With regard to the 

recommendation that § 682.215(e)(9) be 

revised to require FFEL loan holders to 

grant forbearance (instead of specifying 

that the loan holder ‘‘may grant 

forbearance’’), the words ‘‘may grant’’ 

indicate that FFEL program loan holders 

are authorized to grant this forbearance. 

The Department does not have the 

authority to require loan holders to 

grant forbearance under conditions not 

provided for in section 428(c)(3)(A) of 

the HEA. However, the Department 

expects that loan holders will grant 

forbearance to FFEL program borrowers 

under the conditions specified in 

§ 682.215(e)(9). 

The Department declines to modify 

the forbearance regulations to provide a 

forbearance to a borrower who submits 

the required income information more 

than 10 days after the specified annual 

deadline if the borrower’s new 

calculated monthly payment amount is 

equal to the borrower’s previously 

calculated monthly payment amount. 

As discussed in the preamble to the 

NPRM, the Department believes it is 

appropriate to allow a forbearance 


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under limited circumstances, namely if 

a borrower’s new calculated monthly 

payment amount is $0.00 or is less than 

the borrower’s prior calculated monthly 

payment amount. A new calculated 

payment that is $0.00 or less than the 

prior calculated payment amount may 

indicate a worsening of the borrower’s 

financial circumstances that may have 

contributed to the borrower becoming 

delinquent or failing to provide the 

required documentation in a timely 

manner. However, it is not reasonable to 

attribute delinquent payments or failure 

to meet the documentation deadline to 

a borrower’s worsening financial 

situation if the borrower’s new 

calculated payment amount is the same 

as the previously calculated payment 

amount, as this would suggest that there 

has been no significant change in the 

borrower’s financial circumstances. 

Similarly, the Department declines to 

make the recommended change that 

would allow forbearance to be granted 

under conditions other than those 

specified in §§ 682.215(e)(9), 

685.209(a)(5)(ix)(A), 

685.209(b)(3)(vi)(F)(1), and 

685.221(e)(9)(i) if there are exceptional 

circumstances. This approach would be 

inconsistent with the Department’s 

intent to allow forbearance for 

borrowers who fail to submit income 

documentation in a timely manner and 

who are delinquent in making loan 

payments only under limited 

circumstances, and could result in 

inconsistent treatment of borrowers. 

Finally, we note that a borrower who is 

having difficulty making payments but 

who does not qualify for forbearance 

under §§ 682.215(e)(9), 

685.209(a)(5)(ix)(A), 

685.209(b)(3)(vi)(F)(1), and 

685.221(e)(9)(i) would have the option 

of requesting forbearance under 

§§ 682.211(a)(1) or 685.205(a)(1). 

Changes: None. 

Comments: One commenter 

recommended that the Department 

modify the proposed regulations in 

§§ 682.215(e)(2), 685.209(a)(5)(ii), and 

685.221(e)(2) governing the written 

notification that is sent to a borrower 

after the Secretary or the loan holder has 

determined that the borrower has a PFH 

to qualify for the IBR or Pay As You 

Earn repayment plan. Under the 

proposed regulations, this written 

notification would inform the borrower 

of the requirement for the borrower to 

provide certain information annually 

and would explain that the borrower 

will be notified in advance of the date 

by which the Secretary or loan holder 

must receive this information. The 

notification does not include the actual 

deadline date; the specific deadline by 

which the information must be received 

is provided to the borrower in a separate 

notification described in 

§§ 682.215(e)(3)(i), 685.209(a)(5)(iii), 

and 685.221(e)(3)(i) that is sent closer to 

the deadline date. The commenter asked 

the Department to modify proposed 

§§ 682.215(e)(2), 685.209(a)(5)(ii), and 

685.221(e)(2) to require that the first 

written notification include the specific 

annual deadline by which the required 

information must be received, instead of 

simply explaining that the borrower will 

be notified in advance of the deadline 

date. The commenter believed that 

including the actual deadline date in the 

earlier notification would help 

borrowers plan ahead for submitting the 

required information in a timely 

manner. 

Discussion: As discussed in the 

preamble to the NPRM, the Department 

initially proposed during the negotiated 

rulemaking sessions that the annual 

notification reminding borrowers 

repaying under the IBR and Pay As You 

Earn repayment plans of the upcoming 

deadline date for submitting income 

documentation would be sent no later 

than 60 days before the annual deadline 

date established by the Secretary or the 

loan holder. However, some nonFederal negotiators were concerned that 

this approach would allow for the 

notification to be sent too far in advance 

of the annual deadline date for it to be 

effective. In response to that concern, 

the Department proposed the regulatory 

language in the NPRM that specifies that 

the notification of the deadline date for 

submitting income documentation may 

be sent no later than 60 days and no 

earlier than 90 days before the annual 

deadline date. 

The Department believes that 

including the annual deadline date in 

the initial notification required under 

§§ 682.215(e)(2), 685.209(a)(5)(ii), and 

685.221(e)(2), as suggested by the 

commenter, would not be effective or 

helpful to most borrowers, as this 

notification is sent many months in 

advance of the annual deadline date. 

The Department believes the 

requirement for the borrower to be 

notified of the annual deadline date no 

later than 60 days and no earlier than 90 

days before the annual deadline date 

provides sufficient advance notice for 

borrowers to plan for submitting the 

required information on time and will 

be more effective than notifying 

borrowers of the deadline date many 

months in advance. In addition, the 

Department notes that the notification 

required under §§ 682.215(e)(2), 

685.209(a)(5)(ii), and 685.221(e)(2) also 

includes information about the 

borrower’s option to request that the 

loan holder 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 a borrower makes such a request and 

the borrower’s monthly payment is 

recalculated based on updated 

information provided by the borrower, 

there would be an associated change in 

the annual deadline date for submitting 

income information. This could be 

confusing for the borrower if the 

borrower had previously been notified 

of a different annual deadline date. 

Changes: None. 

Comments: One commenter asked the 

Department to modify the proposed 

regulations governing the IBR, ICR, and 

Pay As You Earn repayment plans by 

replacing all references to the 

requirement for income information to 

be received ‘‘within 10 days’’ of the 

annual deadline date with alternative 

language stating that the information 

must be received ‘‘before or within 10 

days’’ of the annual deadline. The 

commenter believed that income 

information received from a borrower 

more than 10 days before the specified 

deadline date should be considered to 

have been received on time. 

Discussion: The regulatory language 

specifying that income information 

must be received by the Secretary or 

loan holder within 10 days of the 

specified annual deadline date provides 

a ‘‘grace period’’ that allows a borrower 

who misses the annual deadline date to 

be considered to have submitted the 

required information on time if the 

information is received by the Secretary 

or the loan holder within 10 days of the 

specified deadline date. This language 

does not mean that income information 

received before the annual deadline date 

is not considered on time. The 

Department encourages borrowers to 

submit the required income information 

prior to the annual deadline. 

Changes: None. 

Comments: One commenter 

recommended that the Department 

revise proposed § 682.215(e)(8)(i), 

which requires a FFEL program loan 

holder to ‘‘promptly’’ determine a 

borrower’s new monthly IBR payment 

amount if the required income 

information is received within 10 days 

of the specified annual deadline date, by 

defining the term ‘‘promptly’’ in order 

to establish specific guidelines on how 

quickly a loan holder must calculate a 

borrower’s new monthly payment 

amount. The commenter noted that the 

corresponding Direct Loan regulations 

do not specify that the Secretary 


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‘‘promptly’’ determines the borrower’s 

new monthly payment amount, though 

the Department noted in the preamble to 

the NPRM that the Secretary would 

apply the same requirements in the 

Direct Loan program. The commenter 

recommended that the Direct Loan 

regulations be revised to clarify that the 

Secretary will ‘‘promptly’’ determine a 

borrower’s new IBR, Pay As You Earn, 

or ICR payment amount if the required 

income documentation is received 

within 10 days of the specified annual 

deadline date. 

Discussion: The Department does not 

believe that it is necessary to define 

‘‘promptly’’ in § 682.215(e)(8)(i). The 

regulations provide that if a borrower’s 

income information is received within 

10 days of the specified annual deadline 

date, but the loan holder does not 

determine the borrower’s new monthly 

payment amount by the end of the 

borrower’s current annual payment 

period, the loan holder must maintain 

the borrower’s current monthly payment 

amount until the new payment amount 

is determined, and the borrower is not 

penalized in any way as a result of the 

loan holder’s failure to make a more 

timely determination of the new 

payment amount. However, the 

Department agrees with the 

recommendation to revise the 

applicable Direct Loan program 

regulations to clarify that if a borrower’s 

income information is received within 

10 days of the specified annual deadline 

date, the Secretary will ‘‘promptly’’ 

determine the borrower’s new monthly 

payment amount. 

Changes: We have amended proposed 

§§ 685.209(a)(5)(viii), 

685.209(b)(3)(vi)(E), and 685.221(e)(8) to 

provide that if the Secretary receives the 

required income information from the 

borrower within 10 days of the specified 

annual deadline date, the Secretary 

‘‘promptly determines the borrower’s 

new scheduled monthly payment 

amount and maintains the borrower’s 

current scheduled monthly payment 

amount until the new scheduled 

monthly payment amount is 

determined.’’ 

Comments: One commenter 

recommended that the Department add 

language to § 685.209(a)(5)(iii)(B) 

clarifying that, for borrowers repaying 

under the Pay As You Earn repayment 

plan whose income information is 

received more than 10 days after the 

specified annual deadline date, unpaid 

interest is not capitalized until the end 

of the borrower’s current annual 

payment period. The NPRM stated that 

interest would be capitalized, but did 

not specify when the capitalization 

would occur. The suggested change 

would make the regulatory language for 

the Pay As You Earn repayment plan 

consistent with the corresponding IBR 

plan regulatory language in 

§§ 682.215(e)(3)(ii) and 685.221(e)(3)(ii). 

Discussion: The Department agrees 

with the commenter’s recommendation. 

Changes: Proposed 

§ 685.209(a)(5)(iii)(B) has been amended 

to clarify that unpaid interest will be 

capitalized ‘‘at the end of the borrower’s 

current annual payment period.’’ 

Comments: One commenter asked the 

Department to revise 

§ 685.209(b)(3)(v)(C) to clarify that if a 

borrower repaying under the ICR plan 

believes that special circumstances 

warrant an adjustment to the borrower’s 

repayment amount, the borrower may 

contact the Secretary at any time during 

the borrower’s current annual payment 

period to request a change in the 

repayment amount. The NPRM 

indicated that the borrower could 

contact the Secretary for a 

determination as to whether an 

adjustment was appropriate, but did not 

clarify that the borrower could make 

such a request at any time during the 

borrower’s current repayment period. 

The proposed change would make the 

regulations for the ICR plan consistent 

with the corresponding IBR and Pay As 

You Earn repayment plan regulations. 

Discussion: We agree with the 

recommended change. 

Changes: We have revised 

§ 685.209(b)(3)(v)(C) to clarify that a 

borrower may request a determination 

from the Secretary as to whether an 

adjustment to the borrower’s payment 

amount is appropriate based on special 

circumstances at any time during the 

borrower’s current annual payment 

period. 

Comments: One commenter 

recommended that the regulations 

governing the ICR plan be revised to 

require that the Secretary inform 

borrowers that they are required to 

annually certify their family size in 

addition to providing income 

information. The commenter noted that 

while the proposed regulations for the 

IBR and Pay As You Earn repayment 

plans require borrowers to annually 

certify family size, and specify that the 

Secretary or the loan holder assumes a 

family size of one if the borrower does 

not do so, the proposed regulations for 

the ICR plan specified only that the 

borrower must annually provide income 

information. To ensure that the 

calculated monthly payment under the 

ICR plan accurately reflects the 

borrower’s current family size, the 

commenter believed that the regulations 

governing the ICR plan should also 

require borrowers to annually certify 

their family size. 

Discussion: Proposed 

§ 685.209(b)(1)(iii)(A) reflected the 

current ICR plan regulations that 

provide that the Secretary applies the 

HHS Poverty Guidelines for the 

borrower’s family size if the borrower 

provides acceptable documentation that 

the borrower’s family includes more 

than one person. In accordance with 

this provision, the Secretary requires 

borrowers to certify family size only at 

the time the borrower initially selects 

the ICR plan and the Secretary then 

continues to use that family size to 

calculate the borrower’s monthly 

payment amount unless the borrower 

reports a change in family size. For 

greater consistency among the incomedriven repayment plans, and to ensure 

that the ICR payment amount reflects 

the borrower’s current family size, the 

Department agrees with the commenter 

that it would be appropriate to require 

borrowers repaying under the ICR plan 

to certify family size upon initially 

selecting the ICR plan and annually 

thereafter, and to specify that the 

Secretary assumes a family size of one 

if the borrower fails to certify family 

size. 

Changes: We have amended proposed 

§ 685.209(b)(3)(vi)(A) by retaining the 

first part of the paragraph as 

introductory text and creating two new 

paragraphs (b)(3)(iv)(A)(1) and 

(b)(3)(iv)(A)(2), respectively. New 

paragraph (b)(3)(iv)(A)(1) contains the 

requirement that was in proposed 

§ 685.209(b)(3)(vi)(A) for the borrower to 

provide documentation of his or her 

AGI. New paragraph (b)(3)(iv)(A)(2) 

requires the borrower to certify family 

size upon initially selecting the ICR 

plan and annually thereafter, and 

explains that the Secretary will assume 

a family size of one if the borrower fails 

to certify family size. In addition, new 

paragraph (b)(3)(iv)(A)(1) has been 

modified by adding a cross-reference to 

the alternative documentation of income 

provision in § 685.209(b)(3)(i) that was 

inadvertently omitted from the 

proposed regulations. Minor conforming 

changes have also been made elsewhere 

in § 685.209. We have also added 

language to § 685.209(b)(1)(iii)(A) 

clarifying that for purposes of the ICR 

plan, family size is defined in 

§ 685.209(a)(1)(iv). 

Comments: One commenter 

recommended that the Department 

modify the proposed IBR, ICR, and Pay 

As You Earn repayment plan regulations 

in §§ 682.215(e)(8), 685.209(a)(5)(viii), 

685.209(b)(3)(vi)(E), and 685.221(e)(8) 

governing the treatment of borrowers 

whose annual income information is 


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received within 10 days after the annual 

deadline. Specifically, the commenter 

recommended that proposed 

§ 682.215(e)(8) be revised to clarify that 

if the loan holder does not calculate the 

borrower’s new monthly payment 

amount by the end of the prior annual 

payment period, and the borrower 

continues to make payments at the 

previously calculated payment amount 

before the new payment amount is 

calculated, those payments would be 

considered to be qualifying payments 

for loan forgiveness purposes, as long as 

the payments otherwise meet the 

eligibility requirements for the 

respective repayment plans. The 

commenter recommended that similar 

language be added to the corresponding 

Direct Loan program regulations in 

§§ 685.209(a)(5)(viii), 

685.209(b)(3)(vi)(E), and 685.221(f), to 

clarify that payments the borrower 

continued to make at the previously 

calculated payment amount would 

count for loan forgiveness purposes. The 

commenter noted that the proposed 

regulations in §§ 685.209(a)(5)(ix)(B), 

685.209(b)(3)(vi)(F)(2), and 

685.221(e)(9)(ii) indicate that, in the 

case of a borrower whose income 

information is received more than 10 

days after the annual deadline, any 

payments that the borrower continues to 

make at the previously calculated 

payment amount after the end of the 

prior annual payment period and before 

the new payment amount is calculated 

would count as qualifying payments for 

purposes of Public Service Loan 

Forgiveness under § 685.219. The 

Department stated in the preamble to 

the NPRM that these payments would 

also count for purposes of IBR plan loan 

forgiveness. The commenter believed 

that the regulations governing the 

treatment of borrowers who submit their 

income information on time should 

likewise clarify that payments a 

borrower continues to make at the 

previously calculated amount before the 

new payment amount is calculated are 

counted for loan forgiveness purposes. 

The commenter also recommended 

that comparable changes be made in 

§§ 682.215(e)(9), 685.209(a)(5)(ix)(B), 

685.209(b)(3)(vi)(F)(2), and 

685.221(e)(9)(ii) to clarify that in the 

case of a borrower whose income 

information is received more than 10 

days after the annual deadline, any 

payments 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 would be considered 

qualifying payments for loan forgiveness 

purposes. The commenter noted that the 

Department clarified in the preamble to 

the NPRM that under proposed 

§ 685.221(e)(9)(ii) any payments the 

borrower continued to make at the 

previously calculated amount would 

count for purposes of IBR loan 

forgiveness, and believed that adding 

this clarification to the regulations for 

all of the income-driven repayment 

plans would encourage borrowers to 

continue making payments, even if they 

miss the annual deadline for submitting 

their required income information. 

Discussion: The Department does not 

believe it is necessary to revise the 

regulations to explicitly state that if a 

borrower’s income information is 

received within 10 days after the 

specified annual deadline date, but the 

Secretary or the loan holder does not 

determine the borrower’s new monthly 

payment amount prior to the end of the 

current annual payment period, 

payments the borrower continues to 

make at the previously calculated 

amount before the new payment amount 

is determined will count for purposes of 

loan forgiveness under the various 

income-driven repayment plans. The 

regulations make it clear that in such 

situations the Secretary or the loan 

holder maintains the borrower’s 

previously calculated payment amount 

until the new payment amount is 

determined, and that the borrower is not 

subject to any adverse consequences as 

a result of the Secretary’s or loan 

holder’s failure to calculate the new 

payment amount in a timely manner. 

Payments the borrower continues to 

make at the previously calculated 

payment amount until the new payment 

amount is calculated are treated for loan 

forgiveness purposes the same as any 

other payments made under the IBR, 

ICR, or Pay As You Earn repayment 

plans. 

Likewise, we do not believe it is 

necessary to make the similar changes 

that were recommended for 

§§ 682.215(e)(9), 685.209(a)(5)(ix)(B), 

685.209(b)(3)(vi)(F)(2), and 

685.221(e)(9)(ii). In the case of a 

borrower whose income information is 

received more than 10 days after the 

annual deadline, and the borrower’s 

monthly payment is converted to the 

permanent standard payment amount, 

any payments that the borrower 

continues to make at the previously 

calculated payment amount are 

qualifying payments made under the 

IBR, ICR, or Pay As You Earn repayment 

plan and count as qualifying payments 

for purposes of loan forgiveness under 

those plans. The proposed regulations 

clarified that payments a Direct Loan 

borrower continues to make at the 

previously calculated amount would 

count for Public Service Loan 

Forgiveness purposes because otherwise 

these payments might be viewed as not 

meeting the eligibility requirements of 

the Public Service Loan Forgiveness 

program. We do not believe this 

clarification is needed with regard to 

counting payments for other loan 

forgiveness purposes. 

We note also that the commenter’s 

recommendation that the FFEL program 

regulations be revised to state that 

payments would count for purposes of 

Direct Loan program IBR, Pay As You 

Earn repayment plan loan forgiveness, 

and ICR loan forgiveness, and a similar 

proposed revision of the Direct Loan 

program regulations to refer to FFEL 

program IBR loan forgiveness would be 

incorrect. Qualifying payments that a 

borrower made on a FFEL program loan 

under the IBR plan are not counted 

toward Direct Loan program IBR, ICR, or 

Pay As You Earn repayment plan loan 

forgiveness. Also, qualifying payments 

that a borrower made on a Direct Loan 

program loan under one of the incomedriven repayment plans do not count 

toward IBR loan forgiveness on the 

borrower’s FFEL program loans. 

Changes: None. 

Comments: Several commenters 

recommended that the Department 

modify the proposed IBR and Pay As 

You Earn repayment plan regulations 

that provide for capitalization of unpaid 

interest if the Secretary or the loan 

holder does not receive a borrower’s 

required annual income information 

within 10 days of the specified annual 

deadline. 

The commenters believed that the 

adverse consequences for borrowers 

whose required information is received 

more than 10 days after the annual 

deadline date (capitalization of unpaid 

interest and conversion of their monthly 

loan payment to the permanent standard 

payment amount) are unduly harsh, 

particularly for borrowers with the 

lowest incomes. One of the commenters 

presented an example in which a 

borrower with $50,000 in loan debt 

chose the IBR plan and had a monthly 

payment amount of zero for the first 

three years because she was 

unemployed and had no income. The 

borrower finds a job paying $45,000 per 

year shortly before the fourth year of 

repayment under IBR, but misses the 

deadline for submitting the required 

annual income information to the loan 

holder. As a result, the borrower’s 

required monthly payment amount 

would increase from zero to more than 

$500 (the permanent standard payment 

amount), and more than $10,000 in 

unpaid interest would be capitalized, 


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significantly increasing the total amount 

the borrower would repay over the IBR 

plan repayment period. The commenter 

felt that this is a harsh and 

disproportionate penalty for missing a 

paperwork submission deadline. To 

address this issue, the commenter 

recommended that the regulations be 

revised to make the ‘‘penalty’’ for 

missing the annual deadline 

proportionate to the amount of time that 

elapses between the end of the most 

recent annual payment period and the 

date the borrower’s income information 

is received. Specifically, the commenter 

proposed that if a borrower’s income 

information is received more than 10 

days after the specified annual deadline, 

only unpaid interest that accrues during 

the period that the borrower’s income 

information is late would be capitalized. 

Two other options suggested by the 

commenter would be to revise the IBR 

regulations to include a limit on the 

amount of unpaid interest that may be 

capitalized, or to authorize loan holders 

to reduce the interest capitalization 

penalty under exceptional 

circumstances. The commenter did not 

provide more detailed recommendations 

concerning these two additional 

options. 

The commenter believed these 

suggested changes would lessen the 

consequences of missing the deadline 

date for the required annual income 

information. The commenter also 

believed that these proposals would 

have little or no budgetary implications 

because the budget baseline for IBR and 

ICR does not include significant revenue 

from large numbers of borrowers 

missing the income documentation 

deadline and having their unpaid 

accrued interest capitalized. The 

commenter stated that until recently, an 

IRS consent process allowed ICR and 

IBR borrowers to provide a multi-year 

consent to allow the Department to 

check their income, effectively 

preventing them from missing the 

annual income documentation deadline 

date. The commenter added that if the 

budget baseline never assumed revenue 

from large numbers of borrowers 

submitting late paperwork and having 

their accrued interest capitalized, 

limiting the capitalization of interest for 

late paperwork would have little to no 

budgetary impact. 

Discussion: We decline to make the 

requested changes. The proposed 

regulations and the Department’s 

current regulations reflect the statutory 

requirement in section 493C(b)(3)(B) of 

the HEA that requires capitalization of 

unpaid interest at the time a borrower 

repaying under the IBR plan elects to no 

longer make income-based payments, or 

is determined to no longer have a PFH. 

Under the current and proposed 

regulations, a borrower who fails to 

provide the annual income information 

required by the Secretary is considered 

to no longer have a PFH, and unpaid 

interest will be capitalized. Under the 

proposed regulations, unpaid interest 

would be capitalized only if the 

Secretary or the loan holder does not 

receive the required income information 

within 10 days after the annual deadline 

for the borrower to submit income 

information. In addition, the HEA (for 

the IBR plan), the current and proposed 

IBR plan regulations, and the proposed 

Pay As You Earn repayment plan 

regulations provide that if a borrower 

elects to discontinue making payments 

that are based on the borrower’s income 

or is determined to no longer have a 

PFH, the borrower’s monthly payment 

amount is recalculated and is no longer 

based on the borrower’s income. In such 

cases, the recalculated payment amount 

is the amount the borrower would pay 

under a 10-year standard repayment 

plan, based on the loan amount the 

borrower owed upon entering 

repayment under the IBR or Pay As You 

Earn repayment plan. In the preamble to 

the NPRM, this recalculated payment 

amount is referred to as the ‘‘permanent 

standard’’ payment amount. 

The proposed regulations provide for 

borrowers to be informed of the annual 

income documentation requirement at 

the time they initially choose the IBR, 

ICR, or Pay As You Earn repayment 

plan. Borrowers are notified of the 

specific deadline for submitting the 

income information no later than 60 

days before the deadline date. In 

addition, the proposed regulations 

include a 10-day ‘‘grace period’’ 

following the specified annual deadline 

date and ensure that borrowers are not 

subject to any adverse consequences if 

their income information is received by 

the end of the grace period. We believe 

that these required notifications and 

borrower protections will significantly 

reduce the number of instances in 

which borrowers are subject to interest 

capitalization and conversion to the 

permanent standard payment amount as 

a result of their failure to submit 

required income information on time. 

As discussed elsewhere in this 

preamble, the Department is also 

planning to implement processes that 

will allow borrowers who select an 

income-driven repayment plan to apply 

electronically and populate the 

application with AGI information 

obtained directly from the IRS, 

eliminating the need for borrowers to 

separately submit documentation of 

AGI. Borrowers will also be able to use 

this process to update their AGI 

information annually, as required by the 

IBR regulations. Although borrowers 

will be provided with ample time and 

opportunity to meet the income 

documentation requirements of the IBR 

plan, compliance with these 

requirements is ultimately the 

borrower’s responsibility. For borrowers 

who do not submit their income 

information on time, capitalization of 

unpaid interest is not a penalty, but 

rather a result of the borrower’s failure 

to comply with the terms and 

conditions of the repayment plan that 

the borrower chose. 

With regard to the suggested option of 

modifying the IBR plan regulations to 

include a cap on the amount of interest 

that may be capitalized, the Department 

does not have the statutory authority 

under the HEA to apply such a cap in 

the IBR plan. Section 493C(b)(3)(B) of 

the HEA requires the capitalization of 

any unpaid interest if a borrower is 

determined to no longer have a PFH or 

chooses to stop making income-based 

payments. The commenter’s other 

recommendations (capitalizing only the 

interest that accrues during the period 

when a borrower’s income information 

is late or giving loan holders discretion 

to limit interest capitalization under 

exceptional circumstances) are also 

inconsistent with the statutory interest 

capitalization requirements that apply 

in the IBR plan. Additionally, giving 

loan holders discretion to limit interest 

capitalization would result in 

inconsistent treatment of borrowers, 

since individual loan holders would 

determine what constitutes an 

exceptional circumstance. 

Finally, the commenter’s 

recommendations would present 

significant operational challenges for 

loan holders and servicers, including 

the Department. In accordance with 

section 493C(c) of the HEA, a borrower 

who is repaying under the IBR plan 

must annually provide income 

information so that the Secretary or loan 

holder may determine the borrower’s 

continued eligibility to make incomebased payments and calculate the 

borrower’s IBR plan payment amount 

for the next annual payment period. 

Section 493C(b)(6) of the HEA provides 

that if a borrower repaying under the 

IBR plan is determined to no longer 

have a PFH or chooses to stop making 

income-based payments, all unpaid 

interest is capitalized. The policy 

reflected in the NPRM is consistent with 

these statutory requirements. Based on 

these same requirements, the systems of 

most loan holders and servicers are 

currently designed to automatically 


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capitalize all unpaid interest at the end 

of a borrower’s current annual payment 

period under the IBR plan and convert 

the borrower’s payment to the 

permanent standard payment amount if 

the borrower has not provided the 

required income information. The 

commenter’s recommendation to limit 

capitalization to the interest that accrues 

during the period when a borrower’s 

income information is late would likely 

require interest capitalization to be 

handled as a manual process on an 

individual borrower basis. Such a 

manual process would not be feasible 

for the Secretary or loan holders to 

implement. 

Changes: None. 

Comments: One commenter 

recommended that the Department 

make two changes to proposed 

§§ 682.215(e)(7), 685.209(a)(5)(vii), 

685.209(b)(3)(vi)(D), and 685.221(e)(7). 

First, the commenter asked the 

Department to add language clarifying 

that in the case of a borrower whose 

income information is received more 

than 10 days after the specified annual 

deadline, and whose monthly payment 

is converted to the permanent standard 

payment amount, the permanent 

standard payment amount will apply 

only until the Secretary or the loan 

holder receives the borrower’s income 

documentation and calculates the new 

monthly payment amount. Second, the 

commenter recommended that 

additional language be added to the 

same sections of the regulations 

clarifying that a borrower’s monthly 

payment will not be converted to the 

permanent standard payment amount if 

the borrower’s income information is 

received more than 10 days after the 

annual deadline, but the Secretary or 

loan holder is able to determine the new 

monthly payment amount before the 

end of the borrower’s current annual 

payment period. The commenter noted 

that this is consistent with what the 

Department said in the preamble to the 

NPRM, and believed that this borrower 

protection should be reflected in the 

regulations. 

Discussion: We do not believe it is 

necessary to state in the regulations that 

the permanent standard payment 

amount applies only until the 

borrower’s new monthly payment 

amount is determined. Sections 

682.215(e)(9), 685.209(a)(5)(ix)(A), 

685.209(b)(3)(vi)(F)(1), and 

685.221(e)(9)(i) make it clear that the 

Secretary or loan holder calculates a 

new monthly payment amount once the 

borrower’s income information is 

received, and it is understood that the 

new payment amount would then 

replace the permanent standard 

payment amount. However, we agree 

with the second change recommended 

by the commenter, for the reasons cited 

by the commenter. 

Changes: We have modified 

§§ 682.215(e)(7), 685.209(a)(5)(vii), 

685.209(b)(3)(vi)(D), and 685.221(e)(7) 

to clarify that in the case of a borrower 

whose income information is received 

more than 10 days after the specified 

annual deadline, the borrower’s 

monthly payment is not converted to 

the permanent standard payment 

amount if the Secretary or the loan 

holder is able to determine the 

borrower’s new monthly payment 

amount before the end of the borrower’s 

current annual payment period. 

Comment: Several commenters 

recommended that the Department 

revise §§ 685.209(a)(5)(vii), (a)(5)(viii) 

and (a)(5)(ix)(A), and 685.221(e)(6), 

(e)(8), and (e)(9) by changing ‘‘and’’ to 

‘‘through.’’ The commenters believed 

that the use of the word ‘‘and’’ in each 

of these paragraphs would suggest that 

a borrower must provide both 

documentation of his or her AGI and 

alternative documentation of income. 

They recommended that the Department 

replace the word ‘‘and’’ with the word 

‘‘through’’ to make it clear that both 

types of income documentation are not 

required. 

Discussion: The proposed language 

cited by the commenters was not 

intended to suggest that a borrower 

must, in all cases, provide both 

documentation of AGI and alternative 

documentation of income. However, we 

do not believe that any changes are 

needed. The language describing 

alternative documentation of income in 

proposed §§ 685.209(a)(5)(i)(B) and 

685.221(e)(1)(ii) makes it clear that 

alternative documentation of income is 

required only if the borrower’s AGI is 

unavailable, or if the Secretary believes 

that the borrower’s reported AGI does 

not reasonably reflect the borrower’s 

current income. The use of the word 

‘‘and’’ in §§ 685.209(a)(5)(vii), 

(a)(5)(viii), and (a)(5)(ix)(A), and 

685.221(e)(6), (e)(8), and (e)(9) does not 

suggest that borrowers are always 

required to provide both types of 

income documentation. In some cases a 

borrower may be required to provide 

only AGI or only alternative 

documentation of income, but in other 

cases a borrower may be required to 

provide both types of income 

documentation (for example, if the 

Secretary believes that the AGI 

information previously provided by the 

borrower does not reasonably reflect the 

borrower’s current income). 

Changes: None. 

Comments: A number of commenters 

recommended that the Department 

change the proposed regulations for the 

Direct Loan program governing the 

treatment of borrowers repaying under 

the IBR, ICR, and Pay As You Earn 

repayment plans whose income 

information is received within 10 days 

of the specified annual deadline, and 

those borrowers whose income 

information is received more than 10 

days after the annual deadline. One 

commenter recommended that, for 

consistency with the corresponding 

FFEL program IBR plan regulations in 

§ 682.215(e)(8)(iii), the proposed Direct 

Loan program regulations in 

§§ 685.209(a)(5)(viii), 

685.209(b)(3)(vi)(E), and 685.221(e)(8) 

should be revised to clarify that if a 

borrower’s new calculated monthly 

payment amount is equal to or greater 

than the borrower’s previously 

calculated monthly payment amount, 

and the borrower continued to make 

payments at the previously calculated 

amount after the end of the most recent 

annual payment period, the Secretary 

does not make any adjustments to the 

borrower’s account to make up for the 

difference between any payments the 

borrower made at a lower previously 

calculated amount and the higher 

current payment amount. Several other 

commenters recommended that the 

Department make this same change in 

§§ 685.209(a)(5)(viii) and 685.221(e)(8), 

and proposed that the Department 

further revise and restructure these 

paragraphs for greater clarity. Using 

§ 685.209(a)(5)(viii) from the proposed 

Pay As You Earn repayment plan 

regulations as an example, these 

commenters proposed to restructure 

§ 685.209(a)(5)(viii) by dividing the 

current single paragraph into 

(a)(5)(viii)(A) and (B). All of the text 

from proposed (a)(5)(viii) would be 

retained with no changes, but most of 

the current text would be placed in new 

paragraph (a)(5)(viii)(A)(1), and new 

paragraphs (a)(5)(viii)(A)(2) and 

(a)(5)(viii)(A)(3) would be added, along 

with a new paragraph (a)(5)(viii)(B). 

New paragraph (a)(5)(viii)(A)(2) would 

clarify that if the borrower’s new 

calculated monthly payment amount is 

equal to or greater than the borrower’s 

previously calculated payment amount, 

and the borrower continued to make 

payments at the previous amount before 

the new payment was calculated, the 

Secretary does not make any 

adjustments to the borrower’s account. 

New paragraph (a)(5)(viii)(A)(3) would 

clarify that payments made by the 

borrower at the previously calculated 

payment amount would be considered 


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qualifying payments for purposes of the 

Public Service Loan Forgiveness 

program under § 685.219, provided that 

the payments otherwise meet the 

requirements of that program. New 

paragraph (a)(5)(viii)(B) would include 

the Department’s clarification in the 

preamble to the NPRM that the new 

annual payment period begins on the 

day after the end of the most recent 

annual payment period. The 

commenters recommended that the 

Department make the same changes in 

§ 685.221(e)(8) of the Direct Loan 

program IBR plan regulations, and that 

similar changes be made in proposed 

§ 682.215(e)(8) of the FFEL program IBR 

plan regulations. 

The same commenters proposed an 

additional change in §§ 685.209(a)(5)(ix) 

and 685.221(e)(9), which govern the 

treatment of borrowers whose income 

information is received more than 10 

days after the specified annual deadline. 

Specifically, the commenters proposed 

to remove §§ 685.209(a)(5)(ix)(B) and 

685.221(e)(9)(ii), which provide that any 

payments that a borrower continued to 

make at the previously calculated 

payment amount after the end of the 

prior annual payment period and before 

the new payment amount is calculated 

are considered to be qualifying 

payments for purposes of the Public 

Service Loan Forgiveness program, 

provided that the payments otherwise 

meet the eligibility requirements of that 

program. The commenters proposed to 

remove these paragraphs from 

§§ 685.209(a)(5)(ix) and 685.221(e)(9) 

and place the same text in new 

§§ 685.209(a)(5)(viii)(A)(3) and 

685.221(e)(8)(i)(C), respectively. 

Discussion: We agree that the 

recommended changes provide greater 

consistency and clarity, except for the 

proposed removal of 

§§ 685.209(a)(5)(ix)(B) and 

685.221(e)(9)(ii). These paragraphs, 

which reflect the consensus language 

agreed to at the conclusion of the 

negotiated rulemaking sessions, clarify 

that even if a borrower misses the 

annual deadline and the borrower’s 

payment is converted to the permanent 

standard payment amount, any 

payments that the borrower continues to 

make at the previously calculated 

income-based 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 

the Public Service Loan Forgiveness 

program. Although we disagree with the 

proposal to remove 

§§ 685.209(a)(5)(ix)(B) and 

685.221(e)(9)(ii), we believe that for 

consistency it would be appropriate to 

add the same clarifying language to the 

regulatory provisions governing the 

treatment of borrowers whose income 

information is received on time, and 

who continue to make payments at the 

previously calculated payment amount 

before the new monthly payment 

amount is determined. 

Changes: We have revised 

§§ 682.215(e)(8), 685.209(a)(5)(viii), and 

685.221(e)(8) as described earlier in the 

Comments and Discussion sections. We 

have also made comparable changes to 

the ICR plan regulations in 

§ 685.209(b)(3)(vi)(E). 

Comments: Several commenters 

recommended that the Department 

restructure proposed §§ 682.215(e)(2) 

and (e)(4) and 685.221(e)(2) and (e)(4) 

for greater clarity. Proposed 

§§ 682.215(e)(2) and 685.221(e)(2) 

specify, in paragraphs (e)(2)(i) through 

(e)(2)(v) of both the FFEL and Direct 

Loan program regulations, the 

information that must be included in a 

written notification to a borrower after 

the Secretary or the loan holder makes 

a determination that a borrower has a 

PFH to qualify for the IBR plan for the 

year the borrower initially selects the 

plan and for any subsequent year that 

the borrower has a PFH. In both the 

FFEL and Direct Loan program 

regulations, proposed paragraph 

(e)(2)(v) states that the written 

notification must include information 

about the borrower’s option to request, 

at any time during the borrower’s 

current annual payment period, that the 

Secretary or the loan holder recalculate 

the borrower’s monthly payment 

amount if the borrower’s financial 

circumstances have changed. The last 

sentence of paragraph (e)(2)(v) states 

that if the Secretary or loan holder 

recalculates the borrower’s payment at 

the borrower’s request, the Secretary or 

loan holder sends the borrower a 

written notification that includes the 

information described in paragraphs 

(e)(2)(i) through (e)(2)(v). 

Proposed §§ 682.215(e)(4) and 

685.221(e)(4) specify, in paragraphs 

(e)(4)(i) through (iii) of both the FFEL 

and Direct Loan program regulations, 

the information that must be included 

in a written notice to the borrower each 

time the Secretary or the loan holder 

makes a determination that a borrower 

no longer has a PFH for a subsequent 

year that the borrower remains on the 

IBR plan. In both the FFEL and Direct 

Loan program regulations, paragraph 

(e)(4)(iii) states that the written 

notification must include information 

about the borrower’s option to request, 

at any time during the borrower’s 

current annual payment period, that the 

Secretary or the loan holder recalculate 

the borrower’s monthly payment 

amount if the borrower’s financial 

circumstances have changed. The last 

sentence of paragraph (e)(4)(iii) states 

that if the Secretary or loan holder 

recalculates the borrower’s payment 

based on the borrower’s request, the 

Secretary or loan holder sends the 

borrower a written notification that 

includes the information described in 

paragraphs (e)(2)(i) through (v). 

The commenters believed that 

§§ 682.215(e)(2)(v) and (e)(4)(iii) and 

685.221(e)(2)(v) and (e)(4)(iii) could, as 

currently structured, be interpreted to 

mean that the written notifications 

required by the introductory text of 

§§ 682.215(e)(2) and (e)(4) and 

685.221(e)(2) and (e)(4) must inform the 

borrower that the Secretary or the loan 

holder will send the borrower another 

written notification if the Secretary 

recalculates the borrower’s payment 

amount based on the borrower’s request. 

To avoid this possible misinterpretation, 

the commenters recommended that the 

last sentences in §§ 682.215(e)(2)(v), 

682.215(e)(4)(iii), 685.221(e)(2)(v), and 

685.221(e)(4)(iii) be placed in separate 

paragraphs, with additional conforming 

changes to the numbering of the 

paragraphs to reflect the suggested 

restructuring. 

Discussion: The recommended 

changes are not necessary. The phrasing 

of the last sentences in 

§§ 682.215(e)(2)(v), 682.215(e)(4)(iii), 

685.221(e)(2)(v), and 685.221(e)(4)(iii) 

(‘‘If the [Secretary/loan holder] 

recalculates * * *’’) makes it clear that 

these sentences describe actions that 

must be taken only if the borrower’s 

payment is recalculated. The written 

notification required by the introductory 

text of §§ 682.215(e)(2) and (e)(4) and 

685.221(e)(2) and (e)(4) does not have to 

inform the borrower that another 

written notification will be sent if the 

borrower’s payment is later recalculated 

based on the borrower’s request. 

Changes: None. 

Comments: Several commenters 

requested clarification regarding 

proposed §§ 682.215(e)(3)(ii) and 

685.221(e)(3)(ii), which provide for the 

Secretary or the loan holder to explain 

to the borrower the consequences if the 

borrower’s income information is not 

received within 10 days following the 

annual deadline. Specifically, the 

commenters asked the Department to 

confirm their understanding, based on 

discussions that took place during the 

negotiated rulemaking sessions, that the 

notification to the borrower would not 

communicate the actual 10-day ‘‘grace 

period’’ following the deadline date. 

Rather, it was the understanding of the 

commenters that the purpose of the 


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notification to the borrower was simply 

to explain the consequences of not 

providing the required income 

information in a timely manner. The 

commenters were concerned that telling 

the borrowers about the extra 10 days 

could lead some borrowers to not mail 

the required information by the 

specified deadline and to miss the extra 

10 days for mail processing time. 

Discussion: Proposed 

§§ 682.215(e)(3)(ii) and 685.221(e)(3)(ii), 

which were approved by the consensus 

of the negotiated rulemaking committee, 

state that the notice must inform the 

borrower of the consequences if the 

Secretary or the loan holder does not 

receive the required income information 

‘‘within 10 days following the annual 

deadline specified in the notice.’’ The 

clear intent of §§ 682.215(e)(3)(ii) and 

685.221(e)(3)(ii) is that the notice must 

inform the borrower of the additional 

10-day period. We note that this is 

consistent with many notices sent to 

borrowers in connection with other 

financial obligations, such as home 

mortgages. For example, most monthly 

mortgage statements specify a date, 

generally 10 to 15 days after the 

payment due date, by which the 

borrower’s payment must be received to 

avoid late charges or other penalties. We 

believe it is in the best interest of the 

borrower to make the borrower aware of 

the additional 10-day period. 

Changes: None. 

Comments: Several commenters 

recommended clarifying changes to 

§§ 682.215(e)(3) and (e)(7). Section 

682.215(e)(3) describes the notification 

that is sent to a borrower who has a PFH 

for a subsequent year under the IBR 

plan; § 682.215(e)(7) describes what 

happens if a borrower who is repaying 

under the IBR plan remains on the plan 

for a subsequent year, but the loan 

holder does not receive the borrower’s 

income information within 10 days of 

the specified annual deadline. The 

commenters recommended that 

§ 682.215(e)(3) be revised to explain 

more clearly that it cannot be known 

whether a borrower will remain on the 

IBR plan with a PFH until the lender 

determines whether the borrower 

qualifies for that subsequent year. They 

recommended that § 682.215(e)(7) be 

restructured and slightly revised to 

more clearly state that a borrower who 

currently has a PFH will be moved to 

the permanent standard payment 

amount upon expiration of the current 

annual payment period if the borrower’s 

income information is not received 

within 10 days of the annual deadline. 

Discussion: We believe that the two 

paragraphs cited by the commenters are 

sufficiently clear as currently written 

and therefore decline to make the 

changes suggested. 

Changes: None. 

Comments: Several commenters 

recommended that the Department add 

a new administrative forbearance 

provision in § 682.211(f) to cover the 

new type of administrative forbearance 

included in proposed § 682.215(e)(9). 

Discussion: We agree with the 

commenter. To ensure consistency and 

completeness in our regulations, we are 

making the proposed change to 

§ 682.211(f). 

Changes: We have revised § 682.211(f) 

by adding a new paragraph (f)(16) that 

addresses the forbearance provision 

described in § 682.215(e)(9). 

Income-Based and Income-Contingent 

Repayment Plans: Eligibility for Interest 

Subsidy on Income-Based and Pay As 

You Earn Repayment Plan Payments of 

Less Than Accrued Interest for 

Borrowers Who Change Plans 

(§§ 685.209(a)(2)(iii) and 685.221(b)(3)) 

Comments: Several commenters asked 

for clarification on the treatment of 

Direct Loan borrowers who change from 

repayment under the IBR plan to 

repayment under the Pay As You Earn 

repayment plan, or the reverse, as it 

relates to the borrower’s eligibility for 

the interest subsidy on the borrower’s 

subsidized Direct Loans. The 

commenters stated that proposed 

§§ 685.209(a)(2)(iii) and 685.221(b)(3) 

appear to require the Department to 

reset the measurement of the borrower’s 

three consecutive years of eligibility for 

this interest subsidy when the borrower 

enters each plan. 

Discussion: The proposed regulations 

did not address the treatment of a 

borrower who leaves the IBR plan and 

enters the Pay As You Earn repayment 

plan, or the reverse. Under these plans, 

if a borrower’s calculated monthly 

payment on a subsidized Direct Loan 

does not cover all accruing interest, the 

Secretary will pay the remaining 

interest that accrues on the loan for up 

to three consecutive years from the date 

the borrower entered the respective 

repayment plan, excluding periods 

during which the borrower has an 

economic hardship deferment. 

However, the intent of the regulations 

was not to provide borrowers who 

change from one plan to the other with 

up to six years of eligibility for the 

interest subsidy. That result would be 

inconsistent with the HEA. Instead, to 

be consistent with the treatment of 

Direct Consolidation loans that repay 

loans that were being repaid under IBR, 

the maximum three-year interest 

subsidy period will include any period 

during which the Secretary did not 

charge the borrower accrued interest 

under the other repayment plan. 

Changes: Sections 685.209(a)(2)(iii) 

and 685.221(b)(3) have been revised to 

state that any period during which the 

Secretary has previously not charged the 

borrower accrued interest on an eligible 

loan under either the IBR or the Pay As 

You Earn repayment plan counts toward 

the maximum three years of subsidy a 

borrower is eligible to receive. 

Determination of Initial Borrower Partial 

Financial Hardship Status and 

Recalculated Payment Amount for 

Borrowers Transferring Between the IBR 

and Pay As You Earn Repayment Plans 

(§§ 685.209(a)(1)(v), 685.209(a)(4), 

685.209(a)(4)(i)(A), 685.221(a)(4), 

685.221(d), and 685.221(d)(1)(i)) 

Comments: Several commenters 

requested clarification on the treatment 

of a borrower who changes from 

repayment under the IBR plan to 

repayment under the Pay As You Earn 

repayment plan, or the reverse, as it 

relates to determining whether the 

borrower has a PFH to initially qualify 

for the respective plan and, if the 

borrower initially qualifies for the plan 

but is later determined to no longer have 

a PFH, determining the borrower’s 

recalculated maximum monthly 

payment amount (the amount referred to 

as the ‘‘permanent standard’’ payment 

amount in the NPRM). The commenters 

noted that the definition of ‘‘partial 

financial hardship’’ in proposed 

§ 685.209(a)(1)(v) provides for 

comparing the amount due on the 

borrower’s eligible loans at the time the 

borrower initially entered repayment 

with the amount due ‘‘at the time the 

borrower elects the ICR–A plan.’’ The 

provision for determining the 

permanent standard payment amount in 

proposed § 685.209(a)(4)(i)(A) provides 

that the borrower’s maximum monthly 

payment (if the borrower no longer has 

a PFH or chooses to stop making 

income-contingent payments) is the 

amount that would be due under a 10- 

year standard plan 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.’’ The commenters stated 

that in a situation where a borrower 

changes from the IBR plan to the Pay As 

You Earn repayment plan, the proposed 

regulations appeared to require the 

Department to recalculate the maximum 

monthly payment amount used for the 

purposes of determining PFH status and 

the permanent standard payment 

amount. If this was not the Department’s 

intent, the commenters recommended 

that the regulations be revised to clarify 

the treatment of a borrower who 


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changes from one repayment plan to the 

other. 

Discussion: The commenters’ 

understanding of the intent of the 

proposed regulations is correct. We 

believe that because a borrower’s 

outstanding eligible loan balance may 

increase as a result of interest 

capitalization after the borrower leaves 

the IBR plan to repay under the Pay As 

You Earn repayment plan (or the 

reverse), the borrower will receive the 

greatest benefit if the Secretary uses the 

greater of the amount due at the time the 

borrower first entered repayment or at 

the time the borrower elects to enter the 

new plan when determining whether 

the borrower has a PFH. We also believe 

that once a borrower has begun 

repayment under either the IBR or the 

Pay As You Earn repayment plan after 

such a transfer, and later becomes 

subject to a change in the maximum 

payment amount under § 685.209(a)(4) 

or § 685.221(d), there is no reason to 

treat the borrower differently from other 

borrowers under the plan when 

recalculating the borrower’s maximum 

payment amount. As a result, the 

recalculated maximum payment amount 

for a borrower repaying under IBR who 

no longer has a PFH or who chooses to 

stop making income-based payments 

would continue to be based on ‘‘the 

amount of the borrower’s eligible loans 

that was outstanding at the time the 

borrower began repayment under the 

income-based repayment plan’’ as 

provided under section 685.221(d)(1)(i). 

For borrowers repaying under the Pay 

As You Earn repayment plan, the 

maximum recalculated payment amount 

under the same circumstances would be 

calculated 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 [Pay As You Earn repayment] 

plan.’’ 

Changes: None. 

Income-Based and Income-Contingent 

Repayment Plans: Payment Issues 

Qualifying Payments for IBR, Pay As 

You Earn, and ICR Loan Forgiveness 

Comments: Several commenters 

requested that the Department clarify 

whether a borrower who changes from 

repayment under the Pay As You Earn 

repayment plan (referred to as ICR–A in 

the NPRM) to repayment under the ICR 

plan (referred to as ICR–B in the NPRM) 

would still be subject to the 20-year 

repayment requirement for loan 

forgiveness that applies under the Pay 

As You Earn repayment plan. These 

same commenters recommended that 

the regulations governing eligible 

payments for ICR forgiveness be revised 

to include payments made under the 

Pay As You Earn repayment plan as 

eligible payments toward the 25 years 

for forgiveness under the ICR plan. 

Discussion: When a borrower transfers 

from the Pay As You Earn repayment 

plan to the ICR plan, the borrower 

becomes subject to the requirements of 

the ICR plan, which provides for 

forgiveness after 25 years of repayment. 

Prior payments made under the Pay As 

you Earn repayment plan would, 

however, count toward the 25 years of 

repayment required for forgiveness 

under the ICR plan. 

Changes: Section 685.209(b)(3)(iii) of 

the proposed regulations governing the 

ICR plan repayment period has been 

revised to specify in new paragraph 

(b)(3)(iii)(3) that the repayment period 

includes periods in which the borrower 

made monthly payments under the Pay 

As You Earn repayment plan, and 

proposed paragraphs (b)(3)(iii)(3)–(7) 

have been redesignated as (b)(3)(iii)(4)– 

(8). 

Comments: Several commenters 

suggested that the proposed regulations 

in § 685.221(f)(1)(iii) governing IBR loan 

forgiveness in the Direct Loan program 

were inconsistent with the statutory 

requirements in section 493C(b)(7)(B)(ii) 

of the HEA and the corresponding FFEL 

regulations at 34 CFR 682.215(f)(1)(iv), 

and recommended that the Direct Loan 

regulations be revised to remove this 

inconsistency. The commenters also 

recommended that the same change be 

made in § 685.209(a)(6)(i)(C), since the 

Pay As You Earn repayment plan is 

largely modeled on the IBR plan. The 

commenters claimed that the proposed 

Direct Loan regulations in 

§ 685.221(f)(1)(iii) are inconsistent with 

the HEA. 

Discussion: We agree with the 

commenters that changes should be 

made in §§ 685.221(f) and 

685.209(a)(6)(i), but disagree with the 

specific change that the commenters 

proposed. Sections 685.221(f)(1)(iii) and 

685.209(a)(6)(i)(C) of the Direct Loan 

regulations should correspond to 

§ 682.215(f)(1)(iii) of the FFEL 

regulations, which reflects section 

493C(b)(7)(B)(iii) of the HEA. Section 

493C(b)(7)(B)(iii) of the HEA governs a 

circumstance under which a borrower 

repays under any repayment plan other 

than the 10-year standard plan and pays 

a monthly payment amount under that 

plan that is not less than what the 

borrower would pay under the standard 

repayment plan over a 10-year period. 

This provision of the HEA does not refer 

to the amount of the borrower’s loans 

that were outstanding at the time the 

loans initially entered repayment under 

the IBR plan. We believe that 

§§ 685.209(a)(6)(i)(D) and 

685.221(f)(1)(iv) of the Direct Loan 

regulations should correspond with 

section 682.215(f)(1)(iv) of the FFEL 

regulations, which reflects section 

493C(b)(7)(B)(ii) of the HEA. As a result, 

we are revising §§ 685.209(a)(6)(i)(C) 

and (D) and 685.221(f)(1)(iii) and (iv) to 

properly align these provisions with the 

HEA and the FFEL regulations. 

Changes: Sections 685.209(a)(6)(i)(C) 

and 685.221(f)(1)(iii) of the Direct Loan 

regulations have been revised to delete 

the words ‘‘for the amount of the 

borrower’s loans that were outstanding 

at the time the loans initially entered 

repayment’’ at the end of the respective 

paragraphs and to substitute in their 

place the words ‘‘with a 10-year 

repayment period.’’ Sections 

685.209(a)(6)(i)(D) and 685.221(f)(1)(iv) 

have also been revised by inserting at 

the end of the respective paragraphs 

before the period: ‘‘For the amount of 

the borrower’s loans that were 

outstanding at the time the borrower 

first selected the Pay As You Earn 

repayment plan’’; and ‘‘for the amount 

of the borrower’s loans that were 

outstanding at the time the borrower 

first selected the income-based 

repayment plan.’’ 

Comments: Many commenters 

requested that the current treatment of 

consolidation loans for purposes of the 

repayment period associated with IBR 

and ICR loan forgiveness be changed 

and that all qualifying payments made 

before and after consolidation should be 

counted towards a borrower’s IBR or 

ICR loan forgiveness if the loans on 

which qualifying payments are made are 

later consolidated. The commenters 

believed that borrowers should be given 

appropriate credit for what may be 

many years of qualifying payments on 

loans that are later consolidated, and 

noted that counting payments made 

prior to consolidation for purposes of 

the three consecutive years of interest 

subsidy on subsidized loans under the 

IBR plan, and as proposed under the 

new Pay As You Earn repayment plan, 

serves as a precedent for such a change. 

Discussion: The conditions and 

qualifying payments that a borrower 

must satisfy for loan forgiveness are in 

section 493C(b)(7) of the HEA, which 

states that ‘‘the Secretary shall repay or 

cancel an outstanding balance of 

principal and interest due on all loans 

made under part B or D’’ if certain 

payment conditions are met on those 

loans. There is no outstanding balance 

of principal and interest due on a loan 

if the loan is repaid through the 

consolidation process and therefore a 

borrower’s payments on a loan that is 

later repaid through consolidation are 


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66110 Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 

considered in calculating the 20- or 25- 

year repayment period necessary for 

forgiveness of a Direct or FFEL 

Consolidation loan. 

Changes: None 

Treatment of Prepayments for Borrowers 

Repaying Under the IBR, ICR, and Pay 

As You Earn Repayment Plans 

Comments: One commenter noted 

that, consistent with § 682.215(c)(2)(4) 

of the current FFEL regulations 

governing the IBR plan, the proposed 

regulations added language to the Direct 

Loan regulations in §§ 685.209(a)(3)(ii)– 

(iv) and 685.221(c)(2)–(4) to clarify that 

borrowers repaying their Direct Loans 

under the IBR and the Pay As You Earn 

repayment plan may prepay their loans 

without penalty. The commenter 

recommended that similar language be 

added to the regulations governing the 

ICR plan. 

The same commenter also observed 

that the proposed regulations allowed a 

different treatment of borrower excess 

payments or prepayments if the 

borrower submits the annual paperwork 

for determination of the borrower’s IBR 

or Pay As You Earn PFH eligibility and 

the recalculation of the borrower’s IBR, 

Pay As You Earn, and ICR scheduled 

monthly payment amount within 10 

days of the specified annual deadline, 

and recommended that this treatment be 

applied to all borrowers repaying loans 

under the IBR and ICR plans. Under the 

proposed regulations, if a borrower’s 

annual paperwork is received within 10 

days of the specified annual deadline, 

the borrower’s current monthly payment 

is maintained until the new scheduled 

monthly payment amount is 

determined. If the new calculated 

scheduled monthly payment amount is 

less than the amount the borrower paid 

while the prior annual payment amount 

was maintained, the loan servicer makes 

appropriate adjustments to the 

borrower’s account that can result in the 

borrower having made excess payments 

during those months. Sections 

682.215(e)(8)(ii), 685.209(a)(5)(viii), 

685.209(b)(vi)(E), and 685.221(e)(8) 

provide that excess payments identified 

retroactively through these adjustments 

will be applied first to accrued interest, 

then to collection costs, then to late 

charges, and finally to loan principal, 

unless the borrower requests otherwise. 

The commenter noted that borrower 

excess payments or prepayments at all 

other times are applied to the borrower’s 

future installment payments by 

advancing the borrower’s next payment 

due date unless the borrower requests 

otherwise. The commenter believed that 

treating prepayment amounts as 

intended for future installment 

payments is not appropriate for 

borrowers repaying under the IBR and 

ICR plans where required payments are 

based on the borrower’s income and 

family size and pointed out that FFEL 

and Direct Loan general prepayment 

regulations already contain an exception 

for IBR in §§ 682.209(b)(1) and 

685.211(a)(1) of the regulations. The 

commenter believed a change in the 

treatment of excess payments for IBR 

and ICR borrowers would encourage 

borrowers to make larger payments and 

repay their loans faster and recommends 

deleting proposed §§ 685.209(a)(3)(iii) 

and 685.221(c)(3) and § 682.215(c)(3) of 

the current FFEL IBR regulations that 

state: ‘‘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) [§ 682.209(b)(2)(ii) in 

FFEL].’’ 

The same commenter also 

recommended that all borrowers be 

allowed to specifically request that their 

excess payments be counted toward 

principal first, rather than be applied 

first to accrued interest, collection costs, 

and late charges, and that regulatory 

provisions governing recalculation of 

payments be modified so that borrowers 

making payments greater than their 

required scheduled monthly payment 

amount are not treated as if they no 

longer have a PFH and are forced to 

make a ‘‘permanent standard’’ payment 

amount. 

Discussion: The application of 

borrower payments under the IBR plan 

is specified in section 493C(b)(2) of the 

HEA and is reflected in § 682.215(c)(1) 

of the FFEL regulations and § 685.221(c) 

of the Direct Loan regulations. Under 

the HEA, payments must be applied first 

toward interest due on the loan, next 

toward any fees due on the loan, and 

then toward the principal of the loan. 

‘‘Fees due on the loan’’ are identified as 

collection costs and late charges in the 

regulations and are the responsibility of 

the borrower. The proposed regulations 

for the Pay As You Earn repayment plan 

would adopt the IBR payment 

application requirements along with 

other features of the IBR plan. Given the 

different payment application 

requirements under IBR and the 

proposed Pay As You Earn repayment 

plan, we believe it is important to 

clarify in the regulations governing 

those plans that borrowers paying under 

these plans may prepay all or part of 

their loans at any time without penalty. 

The ICR plan, however, is not subject 

to these statutory payment application 

requirements. Borrower payments under 

ICR and the other remaining Direct Loan 

repayment plans are applied in 

accordance with § 685.211(a)(1), which 

provides that any payment is first 

applied to any accrued charges and 

collection costs, then to any outstanding 

interest, and then to outstanding 

principal. Section 685.211(a)(2) of the 

Direct Loan regulations provides 

borrowers repaying under ICR and the 

other remaining Direct Loan repayment 

plans the same protection on the ability 

to prepay a loan without penalty at any 

time. As a result, we do not believe the 

change recommended by the commenter 

is needed in the ICR regulations. 

We also disagree that the same 

treatment of excess payments as that 

proposed for IBR, Pay As You Earn, and 

ICR borrowers that submit their annual 

paperwork on time and maintained their 

current payment until a new lower 

annual payment is calculated should be 

applied to all IBR and ICR borrowers at 

all times. The excess payments subject 

to these exception processing provisions 

are the result of adjustments made after 

the borrower’s lower annual payment 

amount is calculated. We believe it is 

important to ensure that excess 

payments identified through such 

adjustments for a retroactive period do 

not affect the integrity of the separate 

payments the borrower has already 

made at the higher annual payment 

amount. We have, therefore, specified in 

the regulations that these payments will 

be applied, unless otherwise requested 

by the borrower, to cover accrued 

interest, other charges, and loan 

principal first. Since many borrowers 

who continue to make on-time, full 

monthly payments at the prior annual 

scheduled payment amount under these 

circumstances will not have outstanding 

accrued interest or other charges, the 

excess funds will be used primarily to 

reduce the loan principal. 

Sections 682.209(b)(2)(ii) and 

685.211(a)(3) provide all FFEL and 

Direct Loan borrowers the opportunity 

to request that excess payment amounts 

or lump sum prepayments not be treated 

as intended for future installment 

payments. These provisions require the 

loan holder or the Department to treat 

a prepayment that equals or exceeds the 

borrower’s scheduled monthly payment 

amount under the borrower’s repayment 

plan as intended for a future installment 

payment by advancing the due date of 

the next payment, unless the borrower 

requests otherwise. As a result, we do 

not believe it is necessary to revise the 

IBR and ICR regulations governing 

prepayments. 

Finally, we disagree that the IBR and 

Pay As You Earn regulations governing 

recalculation of borrower payment 


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amounts need to be modified to prevent 

a borrower who currently has a PFH and 

who makes excess payments from losing 

PFH status and being converted to a 10- 

year standard (permanent standard) 

payment amount. The regulations 

clearly provide that borrowers will be 

determined to no longer have a PFH and 

converted to the permanent standard 

payment amount only based on: (1) The 

loan holder’s annual evaluation of the 

borrower’s income and family size; (2) 

the borrower’s failure to provide the 

required information annually that is 

necessary to determine continued PFH 

status and recalculate the borrower’s 

scheduled monthly payment; (3) the 

borrower’s notice to the loan servicer 

that the borrower no longer chooses to 

make income-based payments; or (4) the 

borrower’s request to leave the IBR or 

Pay As You Earn repayment plan. The 

Secretary encourages borrowers to make 

excess payments if they can and to 

exercise their options under the 

regulations on the treatment of those 

payments. 

Changes: None. 

Leaving the IBR Plan (§§ 682.215(d)(3) 

and 685.221(d)(2)(ii)) 

Comments: Many commenters 

requested that the Department modify 

the IBR regulations to permit borrowers 

to exit the IBR plan without what the 

commenters believe is a prohibitive 

penalty. These commenters requested 

that borrowers not be required to repay 

their loans under the standard 

repayment plan when exiting the IBR 

plan or, if they are required to enter the 

standard plan, that borrowers not be 

required to make a payment under the 

standard repayment plan before being 

allowed to move to another repayment 

plan for which the borrower is eligible. 

Commenters asserted that requiring 

borrowers to exit the IBR plan and enter 

the standard repayment plan, or 

requiring such borrowers to make one 

payment under the standard plan before 

switching to another repayment plan for 

which the borrower is eligible, 

constitutes a prohibitive penalty 

because the borrower’s payment amount 

under the standard repayment plan 

would be far higher than under the IBR 

plan or another repayment plan for 

which the borrower may be eligible. 

These same commenters also 

requested that the FFEL regulations be 

revised to require FFEL holders to grant 

a reduced-payment forbearance to 

borrowers who exit the IBR plan if the 

borrower is unable to make the 

scheduled monthly payment under the 

standard repayment plan. The 

commenters requested this revision to 

ensure that FFEL borrowers would 

receive the same treatment as Direct 

Loan borrowers. In the Direct Loan 

program, the Secretary will grant a 

reduced-payment forbearance to 

borrowers in this circumstance. These 

commenters also requested that the 

Department set a ceiling on the payment 

amount required under the reducedpayment forbearance agreement, require 

that interest accruing during such a 

forbearance period not be capitalized, 

and clarify that the reduced-payment 

forbearance period may be as short as 

the time needed for a borrower to make 

one reduced payment. 

Several commenters also requested 

that the Department clarify that the 

reduced-payment forbearance granted to 

such borrowers could result in a 

payment of any amount greater than $0. 

Discussion: Section 493C(b)(8) of the 

HEA requires a borrower who leaves the 

IBR plan to repay the loans formerly 

repaid under the IBR plan under the 

standard repayment plan. The borrower 

also becomes subject to the maximum 

statutory repayment period under the 

standard plan with the time spent in the 

IBR plan counted against that statutory 

maximum repayment period. The 

Department has interpreted the statutory 

requirement that borrowers exiting the 

IBR plan must repay under the standard 

repayment plan to be satisfied if the 

borrower makes one full monthly 

payment under the standard plan before 

the borrower switches to another 

repayment plan. Because the time spent 

repaying in IBR counts against the 

statutory maximum repayment periods 

applicable to the other repayment plans, 

the outstanding balance of the loan at 

the time the borrower exits the IBR plan 

must be amortized over the remaining 

years available to the borrower under 

the standard plan to determine the 

standard plan payment amount. Any 

unpaid accrued interest the borrower 

may have is also capitalized when the 

borrower leaves the IBR plan. As a 

result, the resulting payment calculated 

for the borrower under the standard 

repayment plan may be quite large. 

Other borrowers whose time repaying 

under IBR already exceeds the 

maximum repayment periods available 

under other repayment plans may not be 

able to leave the IBR plan, which 

provides for a longer repayment period. 

During negotiated rulemaking, the 

Department acknowledged that 

borrowers exiting IBR may be required 

to make a large payment under the 

standard plan before requesting to move 

to another repayment plan. As a result, 

the proposed IBR regulations permit the 

borrower to make a lesser payment 

under a reduced-payment forbearance 

agreement to satisfy the one-payment 

requirement under the standard 

repayment plan. 

With regard to the commenters’ 

request that the Department require 

FFEL loan holders to grant a reducedpayment forbearance to borrowers 

exiting IBR, section 428(c)(3)(A) of the 

HEA requires loan holders to grant 

forbearances in limited circumstances 

specified in the HEA. Otherwise, section 

428(c)(3)(B) of the HEA states that 

lenders may grant forbearance for the 

benefit of the borrower as permitted 

under regulations of the Secretary. 

Under the proposed regulations, FFEL 

holders are authorized to grant reducedpayment forbearances to borrowers in 

these circumstances and we strongly 

recommend and expect that they will do 

so. However, we do not believe that 

under the HEA we can mandate that 

FFEL holders grant forbearances in 

these circumstances. 

With regard to the comments that 

sought clarification on the payment 

amount required under the reducedpayment forbearance for such a 

borrower, the amount of any reducedpayment forbearance is a matter 

negotiated between the borrower and 

the loan holder. The Department 

believes that for these borrowers it can 

be any amount that is greater than $0 

and less than the borrower’s scheduled 

monthly payment under the standard 

repayment plan. For example, one 

approach to determining the reduced 

payment amount in this circumstance 

would be to require the borrower to pay 

the scheduled monthly payment amount 

the borrower would pay under the 

repayment plan the borrower seeks to 

pay under after leaving the standard 

repayment plan. If the borrower is 

eligible for and wants to enter the 

extended repayment plan, the reducedpayment forbearance amount could be 

set at the amount the borrower would 

otherwise be required to pay under the 

extended repayment plan. 

With regard to the commenters’ 

request for clarification that the 

reduced-payment forbearance period 

need not be longer than one month, we 

agree that the forbearance period can be 

limited to the time associated with the 

one required monthly payment under 

the standard repayment plan. Finally, 

because the forbearance is granted while 

the borrower is repaying under the 

standard repayment plan, and not when 

the borrower is transferring to the 

standard repayment plan, there is no 

basis under the for not capitalizing any 

unpaid accrued interest related to the 

forbearance period. 

Changes: None. 


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Income-Based and Income-Contingent 

Repayment Plans: Other Issues 

Treatment of Married Borrowers 

Comments: Several commenters 

requested that the Department remove 

the so-called ‘‘marriage penalty’’ 

associated with the IBR plan. 

Specifically, the commenters objected to 

the requirement that borrowers who are 

married and who file a joint Federal 

income tax returns must include the 

income of both the borrower and the 

borrower’s spouse for use in 

determining eligibility for IBR and 

calculating the scheduled monthly 

payment amount under the plan 

regardless of whether the spouse has 

loans eligible under the plan or requests 

to pay under the plan. Many 

commenters believed that the spouse’s 

income should not be considered 

because the spouse has no legal 

responsibility for repayment of the 

borrower’s debt. Many commenters also 

stated that married borrowers would 

need to decide whether to file their 

Federal income tax returns separately 

and forego the various benefits in the 

Internal Revenue Code associated with 

filing their Federal income tax returns 

jointly with their spouse, or to file their 

Federal income tax returns jointly with 

the prospect that this could result in a 

higher calculated monthly payment 

amount under the plan or making them 

ineligible for IBR. 

Discussion: The treatment of married 

borrowers under IBR is specified in 

section 493C(a)(3)(B)(i) of the HEA, 

which states that the borrower’s and the 

borrower’s spouse’s AGI is used when 

determining a PFH for borrowers who 

are married and file a joint Federal 

income tax return. In addition, section 

493C(d) of the HEA specifies that only 

the borrower’s AGI and eligible Federal 

student loan debt are used if the 

borrower is married, but files a separate 

Federal income tax return. 

Changes: None. 

Comments: Some commenters who 

are married and reside in States that 

treat income and property acquired 

during the marriage as community 

property strongly objected to the fact 

that they are required, as a general 

matter, to pool all community income 

on their Federal income tax return if 

they file their taxes jointly or to split all 

community income equally between 

them if they file their taxes separately, 

thus significantly affecting their 

eligibility for IBR and the calculated 

scheduled monthly payment amount 

under the IBR plan in comparison with 

other married borrowers residing in 

non-community property states. 

Discussion: As described in the 

response to the previous comment on 

married borrowers, the treatment of 

income of married borrowers when 

determining IBR eligibility is specified 

in the HEA. The Department 

acknowledges, however, that 

application of these requirements to 

married borrowers who reside in 

community property states and who file 

separately from their spouse results in a 

different outcome than for similarly 

situated married borrowers residing in 

other states. 

As an example, a married couple 

resides in a community property state 

and has no dependents. The borrower 

earns $40,000 and the spouse earns 

$60,000. They filed their income tax 

returns separately and have no pre-tax 

deductions from pay, no other income, 

and no adjustments to income when 

filing their Federal income tax returns. 

Only the borrower has IBR-eligible 

Federal student loans, which total 

$50,000. Each spouse would be 

considered to have an AGI of $50,000. 

The borrower is eligible for the IBR 

plan, with a calculated monthly 

payment amount of $341.31. If the same 

couple did not reside in a community 

property state and filed separately, the 

borrower would have an AGI of $40,000 

and the spouse an AGI of $60,000. 

Because the borrower’s AGI would only 

be $40,000, the borrower would be 

eligible for the IBR plan, but would have 

a lower IBR scheduled monthly 

payment amount of $216.31. 

The Department understands that 

married borrowers who file their 

Federal income tax returns separately 

from their spouses and who reside in 

community property states may be 

disadvantaged when determining IBR 

eligibility when compared to similarly 

situated married borrowers in noncommunity property states. However, 

§§ 682.215(e)(1)(B) and 

685.221(e)(1)(i)(B) and 

§ 685.209(a)(5)(i)(B) authorize the use of 

alternative documentation of a 

borrower’s income if the Secretary or 

the FFEL loan holder believes the 

borrower’s reported AGI does not 

reasonably reflect the borrower’s current 

income. Because the Department 

believes that it is inequitable to treat 

married borrowers who file their 

Federal income tax returns separately 

differently based on where they reside, 

we encourage FFEL loan holders to use 

alternative documentation of the 

borrower’s income under these 

circumstances. The Department will 

take the same approach with the loans 

it holds. 

Changes: None. 

Notices to Borrowers in Anticipation of 

Receiving Forgiveness Under the IBR, 

ICR, and Pay As You Earn Repayment 

Plans (§§ 682.215(g), 685.209(a)(6)(v)(A), 

685.209(b)(3)(iii)(D), and 685.221(f)(5)) 

Comments: Several commenters 

requested that the Department clarify 

that the notices required to be sent to 

borrowers who are approaching the end 

of the maximum repayment period 

necessary for loan forgiveness under the 

IBR, ICR, or Pay As You Earn repayment 

plans would be based on the 

information available to the loan holder 

at the time that the notice is generated 

and that later circumstances could affect 

the information provided in the notice. 

Discussion: The Department agrees 

that the notices that must be provided 

to borrowers who are approaching loan 

forgiveness under the IBR, ICR, and Pay 

As You Earn repayment plans can only 

be based on information that is available 

to the loan holder at the time the notice 

is sent to the borrower and that the 

timeline for forgiveness could change 

based on borrower behavior after the 

notice is sent. 

Changes: None. 

IBR Plan Maximum Repayment Period 

Comments: Some commenters 

requested that the Department reduce 

the maximum period after which a 

borrower who has repaid under the IBR 

plan may receive forgiveness of the 

borrower’s remaining loan balance from 

25 years to 10 years. A small number of 

other commenters suggested that a 

borrower’s remaining principal balance 

should be automatically forgiven in IBR 

when the original principal balance of 

the loan has been satisfied, regardless of 

the length of time the borrower has been 

in repayment. 

Discussion: The Department 

appreciates these comments and 

understands that commenters want to 

reduce loan burden for borrowers 

paying under IBR. However, the 

Department declines to adopt the 

commenters’ suggestions. Although the 

Department will continue to examine 

this issue, we believe the current HEA 

standard of 25 years of repayment for 

current IBR and ICR borrowers, and 20 

years of repayment for new IBR 

borrowers on or after July 1, 2014, 

reflect the Congress’ view of an 

appropriate repayment period prior to a 

borrower’s receipt of loan forgiveness. 

Changes: None. 

Repayment of FFEL Program Loans 

Under the Income-Based Repayment 

Plan (§ 682.215(b)(3)) 

Comments: Several commenters 

servicing commercially-held FFEL 


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program loans asked the Department to 

clarify how the change to § 682.215(b)(3) 

of the FFEL regulations, which will 

require FFEL borrowers who choose the 

IBR plan to repay all of their loans 

under the IBR plan unless some of the 

borrower’s loans are not eligible for the 

plan, would apply to borrowers already 

repaying under the IBR plan. The 

commenters noted that many FFEL 

borrowers had excluded IBR-eligible 

loans when they entered the IBR plan, 

as permitted by the current FFEL 

regulations. These commenters 

recommended that we continue to 

recognize borrower choices made prior 

to the effective date of the change. The 

commenters noted that not recognizing 

prior borrower choices would require 

revisions to previously agreed-upon 

repayment plans without borrower 

consent or request, and could cause 

borrower confusion, concern, and 

possible defaults. The commenters 

urged the Department to apply the 

change to borrowers who enter the IBR 

plan on or after July 1, 2013. 

Discussion: We agree that a borrower’s 

choice made prior to the effective date 

of the regulatory change should 

continue to be recognized and that the 

change should apply to borrowers who 

begin repayment of a loan under the IBR 

plan on or after July 1, 2013. 

Changes: Section 682.215(b)(3) has 

been revised to specify that the 

requirement that borrowers entering the 

IBR plan repay all of their loans under 

that plan, except for those that are 

ineligible for IBR, applies to borrowers 

who elect the IBR plan on or after July 

1, 2013. 

Spousal Consent for Loan Holder Access 

to NSLDS Information 

(§ 682.215(e)(1)(iii)(A)) 

Comments: Several commenters 

requested that the proposed regulation 

that requires a borrower applying for 

IBR to provide consent to a loan 

holder’s access to the borrower’s 

spouse’s information in the National 

Student Loan Data System (NSLDS) be 

modified to clarify that the borrower’s 

spouse, not the borrower, must 

authorize such access. Other 

commenters recommended that a 

comparable provision be added to the 

IBR and ICR regulations in the Direct 

Loan program. 

Discussion: We agree with the 

commenters that the spouse, not the 

borrower, must authorize a loan holder’s 

access to NSLDS information on the 

spouse’s loans in cases where the lender 

does not hold one of the spouse’s loans 

and would otherwise not have authority 

to access the information. A comparable 

provision is not required in the Direct 

Loan program regulations because the 

Secretary has access to all borrower data 

in NSLDS. 

Changes: Section 682.215(e)(1)(iii)(A) 

has been revised to provide that the 

borrower must ensure that the 

borrower’s spouse has provided the 

necessary consent for the loan holder to 

access NSLDS information on the 

spouse’s eligible loans to determine the 

borrower’s eligibility for IBR. 

Executive Order 12866 

Regulatory Impact Analysis 

Under Executive Order 12866, the 

Secretary must determine whether this 

regulatory action is ‘‘significant’’ and, 

therefore, subject to the requirements of 

the Executive order and subject to 

review by the Office of Management and 

Budget (OMB). Section 3(f) of Executive 

Order 12866 defines a ‘‘significant 

regulatory action’’ as an action likely to 

result in a rule that may— 

(1) Have an annual effect on the 

economy of $100 million or more, or 

adversely affect a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or tribal governments or 

communities in a material way (also 

referred to as an ‘‘economically 

significant’’ rule); 

(2) Create serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency; 

(3) Materially alter the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or 

(4) Raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

stated in the Executive order. 

This regulatory action will have an 

annual effect on the economy of more 

than $100 million because the 

availability of the Pay As You Earn 

repayment plan is estimated to transfer 

from the Federal government to students 

in reduced principal and interest 

payments over the 2012 to 2021 loan 

cohorts approximately $10.6 billion and 

$10.2 billion on a cash basis at 3 percent 

and 7 percent discount rates, 

respectively. As discussed in the Net 

Budget Impacts section, this is expected 

to have a net budget impact of 

approximately $2.1 billion over the 

2012 to 2021 loan cohorts. Therefore, 

this final action is economically 

significant and subject to review by 

OMB under section 3(f) of Executive 

Order 12866. Notwithstanding this 

determination, we have assessed the 

potential costs and benefits—both 

quantitative and qualitative—of this 

regulatory action. The agency believes 

that the benefits justify the costs. 

We have also reviewed these 

regulations pursuant to Executive Order 

13563, which supplements and 

explicitly reaffirms the principles, 

structures, and definitions governing 

regulatory review established in 

Executive Order 12866. To the extent 

permitted by law, Executive Order 

13563 requires that an agency— 

(1) Propose or adopt regulations only 

upon a reasoned determination that 

their benefits justify their costs 

(recognizing that some benefits and 

costs are difficult to quantify); 

(2) Tailor their regulations to impose 

the least burden on society, consistent 

with obtaining regulatory objectives, 

taking into account, among other things, 

and to the extent practicable, the costs 

of cumulative regulations; 

(3) In choosing among alternative 

regulatory approaches, select those 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety, 

and other advantages; distributive 

impacts; and equity); 

(4) To the extent feasible, specify 

performance objectives, rather than 

specifying the behavior or manner of 

compliance that regulated entities must 

adopt; and 

(5) Identify and assess available 

alternatives to direct regulation, 

including providing economic 

incentives to encourage the desired 

behavior, such as user fees or 

marketable permits, or providing 

information upon which choices can be 

made by the public. 

We emphasize as well that Executive 

Order 13563 requires agencies ‘‘to use 

the best available techniques to quantify 

anticipated present and future benefits 

and costs as accurately as possible.’’ In 

its February 2, 2011, memorandum (M– 

11–10) on Executive Order 13563, the 

Office of Information and Regulatory 

Affairs within the Office of Management 

and Budget emphasized that such 

techniques may include ‘‘identifying 

changing future compliance costs that 

might result from technological 

innovation or anticipated behavioral 

changes.’’ 

We are issuing these final regulations 

only upon a reasoned determination 

that their benefits justify their costs. In 

choosing among alternative regulatory 

approaches, we selected those 

approaches that maximize net benefits. 

Based on the analysis below, the 

Department believes that these final 

regulations are consistent with the 

principles in Executive Order 13563. 

We also have determined that this 

regulatory action will not unduly 


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interfere with State, local, and tribal 

governments in the exercise of their 

governmental functions. 

In this regulatory impact analysis we 

discuss the need for regulatory action, 

the potential costs and benefits, net 

budget impacts, assumptions, 

limitations, and data sources, as well as 

regulatory alternatives we considered. 

Elsewhere in this section under 

Paperwork Reduction Act of 1995, we 

identify and explain burdens 

specifically associated with information 

collection requirements. 

The Need for Regulatory Action 

The Department is responsible for 

administration of the Federal student 

loan programs authorized by title IV of 

the HEA. Federal student loans are a 

crucial element in providing important 

opportunities for Americans seeking to 

expand their skills and earn 

postsecondary degrees and certificates. 

One of the Department’s goals is to 

ensure that its regulations promote a 

transparent and consistent 

administration of title IV programs. 

Borrowers should be able to easily 

understand their rights, responsibilities, 

and options. Sometimes statutory 

revisions or Administration priorities 

require the Department to revise its 

policies and regulations. With these 

final regulations, the Department 

enhances the income-driven repayment 

options available to borrowers so 

borrowers can repay their loans, student 

loan debt will be manageable, and 

students will continue to pursue 

postsecondary education that makes 

sense for them. In addition, the 

Department will improve the TPD 

process to increase efficiency and 

consistency in the treatment of 

borrowers. 

The passage of the SAFRA Act (Pub. 

L. 111–152) ended the origination of 

new FFEL program loans and amended 

the statutory provisions governing the 

IBR plan so that the discretionary 

income caps and loan forgiveness 

eligibility periods would be reduced 

effective July 1, 2014, for new borrowers 

who choose the IBR plan. 

Student loan indebtedness and tuition 

costs have become major issues not only 

in the media but at the kitchen table in 

millions of American households. In 

light of recent economic conditions, 

many Americans remain worried that 

postsecondary education is becoming, 

or has become, unaffordable for 

themselves and their children. 

Recognizing that fear of unmanageable 

student loan indebtedness may 

discourage potential students from 

seeking postsecondary education, 

Congress enacted, as part of SAFRA, 

President Obama’s proposal to lower the 

IBR student loan payment cap to 10 

percent of the borrower’s discretionary 

income and to provide loan forgiveness 

after 20 years of qualifying payments for 

new borrowers in 2014. 

Concerned about the current and 

future students with student loans, 

President Obama proposed the Pay As 

You Earn repayment plan initiative. 

This proposal revises the ICR repayment 

plan in the Direct Loan program to 

reflect the statutory changes made to 

IBR by SAFRA. Eligible borrowers (new 

borrowers on or after October 1, 2007, 

with new loans in 2012) would be able 

to take advantage of the 10 percent 

income cap and the shorter loan 

forgiveness period in the fall of 2012 

instead of waiting until 2014 for the 

statutory changes to IBR. 

To achieve the goals of the President’s 

Pay As You Earn initiative and provide 

the maximum benefit to borrowers, the 

Secretary is revising the ICR repayment 

plan while implementing the statutory 

IBR changes. The revisions offer eligible 

borrowers lower payments and loan 

forgiveness after 20 years of qualifying 

payments. As discussed earlier in this 

section, income-based repayment 

options may encourage higher 

borrowing and potentially introduce an 

unintended moral hazard, especially for 

borrowers enrolled at schools with high 

tuitions and with low expected income 

streams. Some commenters disagreed 

with the inclusion of this moral hazard 

statement, noting that the aspect of more 

generous income-based repayment plans 

causing increased borrowing has not 

been established. The Department has 

not found any definitive studies on the 

matter but since some analysts, 

academics, and others have suggested 

the possibility of this inducement effect, 

we wanted to address it to ensure 

comprehensive coverage of this issue. 

Table 2 summarizes the differences in 

eligibility between the existing and final 

IBR and ICR programs. 

TABLE 2—SUMMARY OF EXISTING AND FINAL IBR AND ICR PLANS

Current IBR 

Final IBR 

(with 07/01/2014 statutory 

changes) 

Current ICR 

(proposed ICR–B) 

Final Pay as You Earn 

repayment plan 

Loan Program and 

Eligible Borrowers.

• Direct Loan program ........

• FFEL program ..................

• Direct Loan program only 

• Only new borrowers as of 

July 1, 2014: 

Æ Must have no outstanding 

Direct Loan or FFEL balance as of July 1, 2014 or 

on the date a new Direct 

Loan is received after July 

1, 2014.

• Direct Loan program only 

(FEEL Borrowers who 

consolidate into the Direct 

Loan Program are considered Direct Loan borrowers and therefore qualify).

• Direct Loan program only. 

• Only new borrowers in 

2008 who receive a Direct 

Loan disbursement in 

2012 or later: 

Æ Must have no outstanding 

Direct Loan or FFEL balance as of October 1, 

2007 or on the date a new 

Direct Loan or FFEL program loan is received after 

October 1, 2007; and 

Æ Must receive a disbursement of a Direct Loan on/ 

after October 1, 2011, or 

receive a Direct Consolidation Loan based on an 

application received on/ 

after October 1, 2011. 

• FFEL new borrowers in 

2008 may qualify through 

consolidation into the Direct Loan program. 


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1This percentage was calculated by the 

Department using data collected from Thomas D. 

Snyder and Sally A. Dillow, Digest of Education 

Statistics 2010, (pgs 493–495) Education (U.S. 

Department of Education, April 2011), http:// 

nces.ed.gov/pubs2011/2011015.pdf. 

2Trends in College Pricing 2011, Table 4A: 

Average Tuition and Fees in Current Dollars, 1981– 

82 to 2011–12 (College Board Advocacy and Policy 

Center, nd.), http://trends.collegeboard.org/ 

college_pricing/report_findings/indicator/ 

Tuition_Fees_Over_Time. 

3Snyder and Dillow, Digest of Education 

Statistics 2010, page 498. 

TABLE 2—SUMMARY OF EXISTING AND FINAL IBR AND ICR PLANS—Continued 

Current IBR 

Final IBR 

(with 07/01/2014 statutory 

changes) 

Current ICR 

(proposed ICR–B) 

Final Pay as You Earn 

repayment plan 

Graduate/Professional PLUS 

Loans eligible? 

Yes ....................................... Yes ....................................... Yes ....................................... Yes. 

Parent PLUS Loans 

eligible? 

No ........................................ No ........................................ No ........................................ No. 

Consolidation 

Loans that repaid 

Parent PLUS 

Loans eligible? 

No ........................................ No ........................................ Yes ....................................... No. 

Partial Financial 

Hardship Required? 

Yes ....................................... Yes ....................................... No ........................................ Yes. 

Partial Financial 

Hardship Definition.

10-year standard payment 

amount on eligible loans 

(annual amount owed) exceeds 15% of difference 

between AGI and 150% of 

poverty line amount.

10-year standard payment 

amount on eligible loans 

(annual amount owed) exceeds 10% of difference 

between AGI and 150% of 

poverty line amount.

N/A ....................................... 10-year standard payment 

amount on eligible loans 

(annual amount owed) exceeds 10% of difference 

between AGI and 150% of 

poverty line amount. 

Forgiveness Period 25 years of qualifying payments/months of economic hardship deferment.20 years of qualifying payments/months of economic hardship deferment.25 years of qualifying payments/months of economic hardship deferment.20 years of qualifying payments/months of economic hardship deferment. 

Estimated Borrowers Eligible for 

Participation 

(2012–2021 cohorts in millions) *.

1.53 ...................................... 1.03 ...................................... 0.39 ...................................... 1.67. 

* Note: While the figures represent the 2012–2021 cohorts, the numbers only apply to those cohorts eligible for the particular program above 

those already eligible for existing programs. For example, the 1.03 million for the Proposed Revised IBR only includes eligible new borrowers 

after July 1, 2014. 

The Department’s current process for 

considering applications for TPD 

discharges on student loans has also 

been reviewed for efficiencies and 

improved consistency in response to 

concerns raised by the Department and 

external parties. Borrowers and 

advocates particularly have described 

the application process and monitoring 

period requirements as burdensome. 

The revisions will address these 

problems by requiring borrowers to 

submit applications for disability 

discharges directly to the Secretary, 

rather than to individual lenders; 

ensuring that borrowers whose 

applications for a discharge are rejected 

receive a more thorough explanation of 

the reasons for the rejection and 

adequate information about their 

options; permitting a TPD discharge 

based on a borrower’s SSA notice of 

award for SSDI or SSI benefits 

indicating that the borrower’s eligibility 

for disability benefits will be reviewed 

on a five- to seven-year schedule, which 

classifies the borrower as permanently 

impaired—medical improvement not 

expected. Borrowers will still be subject 

to the three-year discharge review that 

is currently in place; and, simplifying 

the income verification process during 

the three-year monitoring period. The 

final regulations also eliminate the 

necessity for FFEL lenders and guaranty 

agencies to evaluate disability discharge 

applications and ensure that the 

disability discharge application process 

is also expedited for veterans. 

Beyond those details, Executive Order 

12866 emphasizes that ‘‘Federal 

agencies should promulgate only such 

regulations as are required by law, are 

necessary to interpret the law, or are 

made necessary by compelling public 

need, such as material failures of private 

markets to protect or improve the health 

and safety of the public, the 

environment, or the well-being of the 

American people.’’ In this case, there is 

indeed a compelling public need for 

regulation. The Secretary recognizes the 

growth in the number of students 

enrolled in college, the ongoing increase 

in college costs, the resulting increased 

need for student loans, and the potential 

difficulty in repaying them. The 

Secretary’s goal in regulating is to 

provide borrowers with maximum 

repayment options to ensure that 

borrowers are able to repay their debt 

and to improve the process for 

considering applications for disability 

discharges on Federal student loans. 

As noted in the NPRM there has been 

a steep increase in the cost of tuition in 

America. According to data collected by 

the Department’s National Center for 

Education Statistics (NCES), the cost of 

tuition, room and board for full-time 

students at America’s 4-year public and 

private non-profit institutions rose by 

140% between 1980 and 2010 when 

controlled for inflation.1 The average 

published tuition and fees at 4-year 

public universities increased by 8.3 

percent between the 2010–2011 and 

2011–2012 academic years, according to 

College Board.2 The tuition pinch is not 

limited to undergraduate studies. The 

average price of tuition and required 

fees at graduate and professional 

schools has doubled since 1988, even 

when adjusted for inflation.3

As discussed in detail in the preamble 

to the NPRM, the combination of 

increased enrollment and college costs 

has contributed to a significant increase 

of student loan debt in America. 

Enrollments have grown as more 

students are enrolling in college each 


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4Thomas D. Snyder and Sally A. Dillow, Digest 

of Education Statistics: 2010 (United States 

Department of Education, National Center for 

Education Statistics, April, 2011), http:// 

nces.ed.gov/programs/digest/d10/tables/xls/ 

tabn354.xls. 

5Thomas D. Snyder, Digest of Education 

Statistics, 1995 (United States Department of 

Education, National Center for Education Statistics, 

October, 1995), http://nces.ed.gov/programs/digest/ 

d95/dtab309.asp. 

6Bart Hobijn, Colin Gardiner, and Theodor Wiles, 

Recent College Graduates and the Labor Market, 

March 21, 2011, http://www.frbsf.org/publications/ 

economics/letter/2011/el2011-09.html. 

7Philip Oreopoulos, Till von Wachter, and 

Andrew Heisz, The Short- and Long-Term Career 

Effects of Graduating in a Recession: Hysteresis and 

Heterogeneity in the Market for College Graduates, 

Economic (The National Bureau of Economic 

Research, April 2006), http://www.nber.org/papers/ 

w12159. 

year with hopes of building a career or 

changing job fields. This has led to a 

growth in outstanding debt as students 

are increasingly relying on Federal 

student loans. According to data 

collected by NCES, 34.9 percent of all 

undergraduates took out a Federal 

student loan in the 2007–2008 academic 

year 4 compared to 19.9 percent in the 

1992–1993 academic year.5

While higher levels of student loan 

debt are indicative of troubling trends 

with respect to the cost of college, these 

higher levels simultaneously reflect 

increased levels of investment in the 

nation’s human capital. These 

investments yield significant and 

demonstrable benefits not only for 

individuals but for the nation as well. 

College graduates on average fare better 

economically than their high school 

educated counterparts as discussed in 

detail in the Need For Regulatory Action 

Section of the NPRM. According to the 

Bureau of Labor Statistics, even those 

individuals who attended college but 

never received a degree have higher 

weekly earnings, on average, than those 

with only a high-school diploma. For 

the Nation, higher levels of educational 

attainment increase economic 

productivity and raise gross domestic 

product, among many other benefits. 

Even though the economy has begun 

to strengthen, many recent graduates are 

finding it challenging to obtain 

employment and garner wages at or near 

average levels. A March 2011 letter 

published by the Federal Reserve Bank 

of San Francisco, for example, 

highlighted that the unemployment rate 

of recent graduates has doubled over the 

past few years.6 Even for recent 

graduates who obtain employment, 

prior research has shown that it can take 

several years for those entering the 

workforce during a recession to reach 

normal wage levels.7 For these 

graduates and in particular, for 

borrowers who do not complete a 

degree, repaying their student loans can 

be especially daunting. 

The revised ICR and IBR plans will 

provide borrowers with improved 

income-related payment management 

options. They will also encourage 

borrowers to honor their debt 

commitments by offering loan 

forgiveness after a significant period of 

repayment in an income related 

payment plan. 

In addition to implementing statutory 

changes in the IBR plan and revising the 

ICR plan, the final regulations will also 

seek to solve well-documented 

problems with the process for 

evaluating discharge applications. The 

current process by which borrowers 

apply for a discharge has led to 

inconsistencies in determining 

eligibility and created hardships for 

eligible borrowers. Currently, borrowers 

who have suffered a TPD that leaves 

them unable to fulfill their loan 

obligation contact the holders of their 

loans and apply for a discharge. Lenders 

have different processes and this has led 

to discrepancies in the way loan holders 

are processing and assessing borrowers’ 

eligibility for TPD. Also, the current 

reporting requirements during the 

monitoring period have proved to be 

burdensome on borrowers with 

disabilities and many who may meet all 

other eligibility requirements are having 

their loans reinstated due to their failure 

to meet the current reporting 

requirements. 

The Secretary is revising the 

regulations governing disability 

discharges in the different title IV 

student loan programs to standardize 

the process. Under the final regulations, 

all discharge applications will be 

submitted directly to the Secretary. The 

Department’s proposal eliminates the 

requirement that each of a borrower’s 

loan holders (and guaranty agencies, in 

the FFEL program) review the 

borrower’s disability discharge 

application. Through this process, the 

Secretary will ensure consistency in the 

administration of the disability 

discharge process. A more detailed 

analysis of these changes is provided in 

the Significant Final Regulations section 

of this preamble. 

Executive Order 13563, Section 4, 

notes that ‘‘Where relevant, feasible, and 

consistent with regulatory objectives, 

and to the extent permitted by law, each 

agency shall identify and consider 

regulatory approaches that reduce 

burdens and maintain flexibility and 

freedom of choice for the public. These 

approaches include warnings, 

appropriate default rules, and disclosure 

requirements as well as provision of 

information to the public in a form that 

is clear and intelligible.’’ Consistent 

with this section of the Executive Order, 

the Department is enhancing the 

information available to prospective and 

enrolled students, providing better 

guidance, and offering more feasible 

loan repayment options through these 

final regulations. 

Discussion of Costs, Benefits, and 

Transfers 

Consistent with the principles of 

Executive Orders 12866 and 13563, the 

Department has analyzed the impact of 

these regulations on students, 

businesses, the Federal Government, 

and State and local governments. The 

analysis rests on the projected impact of 

the regulations. The benefits and costs 

are discussed below. 

Income-Contingent Repayment 

The Pay As You Earn repayment plan 

will cap payments for eligible borrowers 

at 10 percent of discretionary income 

divided by 12. This is a reduction from 

the current 15 percent cap and will be 

consistent with the statutory changes to 

IBR that become effective in 2014. The 

Pay As You Earn repayment plan will be 

available to eligible borrowers in the fall 

of 2012. A detailed breakdown of the 

qualifications needed for participation 

in either plan is provided earlier in 

Table 2. 

Accurately predicting or forecasting 

transfers or costs from the ICR changes 

is difficult because these costs depend 

heavily on borrower trends and 

participation. Traditionally, there has 

been low participation in ICR, and many 

participants only participated because 

they wanted to consolidate defaulted 

loans. The Pay As You Earn repayment 

plan may see significant enrollment as 

a result of the publicity it has received 

as part of the President’s student loan 

repayment initiative. Economic recovery 

will also play a large role. If the 

economy shows significant 

improvement and wage levels begin to 

rise, then borrowers whose salaries have 

increased significantly may opt to leave 

ICR for another repayment plan, 

particularly if they no longer 

demonstrate a PFH. There was an indepth analysis of how first year 

payments under the Pay As You Earn 

repayment plan (referred to as ICR–A in 

the NPRM) would compare to first year 

payments under ICR (referred to as ICR– 

B in the NPRM), standard, and extended 

payment plans in the NPRM; interested 

parties can refer to that document for 

more information. 

The following chart compares first 

year payments under the Pay As You 

Earn repayment plan and ICR for 

borrowers based on family size and 


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income. ICR payments are calculated 

using the lesser amount of the amount 

borrowers would pay if they repaid their 

loan in 12 years multiplied by an 

income percentage factor that varies 

with their adjusted gross income (AGI), 

or the difference between AGI and the 

applicable HHS poverty guideline 

amount, divided by 12. Borrowers can 

calculate what their payments would be 

under ICR (referred to as ICR–B in the 

NPRM) on the Federal Student Aid Web 

site at (http://studentaid.ed.gov/ 

PORTALSWebApp/students/english/ 

OtherFormsOfRepay.jsp). Pay As You 

Earn repayments are calculated using 10 

percent of the difference between the 

subject’s AGI and 150 percent of the 

applicable HHS poverty guidelines 

amount, divided by 12 (the Pay As You 

Earn repayment plan requires PFH for 

initial qualification so first-year 

calculations will assume PFH). 

SAMPLE FIRST-YEAR MONTHLY REPAYMENT AMOUNTS FOR A BORROWER WITH $26,000 IN STUDENT LOANS

Income 

Family size 

1 2 3 4 5 6 

$15,000 ........................................... ICR ..................... $64 $0 $0 $0 $0 $0 

PAYE .................. 0 0 0 0 0 

20,000 ............................................. ICR ..................... 147 81 15 0 0 0 

PAYE .................. 27 0 0 0 0 

25,000 ............................................. ICR ..................... 184 165 99 33 0 0 

PAYE .................. 69 19 0 0 0 

30,000 ............................................. ICR ..................... 204 204 182 116 50 0 

PAYE .................. 110 61 11 0 0 0 

35,000 ............................................. ICR ..................... 221 221 221 199 133 67 

PAYE .................. 152 103 53 4 0 0 

40,000 ............................................. ICR ..................... 235 235 235 235 217 151 

PAYE .................. 194 144 95 45 0 0 

45,000 ............................................. ICR ..................... 249 249 249 249 249 234 

PAYE .................. 235 186 136 87 37 0 

50,000 ............................................. ICR ..................... 264 264 264 264 264 264 

PAYE .................. 277 228 178 129 79 30 

Sample repayment amounts are based on an interest rate of 6.80%. 

The Pay As You Earn repayment plan 

offers loan forgiveness after 20 years of 

payments compared to 25 years under 

ICR. Consequently, eligible borrowers 

may have as much as five fewer years 

of payments under the Pay As You Earn 

repayment plan. The effects of this 

change will also depend on borrower 

trends, enrollment, and possibly the 

economy. 

As mentioned earlier, the ability of 

recent graduates to find suitable 

employment may play a large role in 

determining the participation rate of the 

Pay As You Earn repayment plan and 

ICR. The job struggles of new graduates 

have been well documented. Those 

borrowers who enter into lower paying 

jobs or struggle to find employment may 

benefit from participating in the Pay As 

You Earn repayment plan. The average 

single borrower entering repayment 

with a $30,000 salary and 6.8 percent 

interest rate could qualify for the Pay As 

You Earn repayment plan with 

approximately $10,000 in debt. 

Leaving ICR open to all Direct Loan 

borrowers ensures that the majority of 

borrowers will have an income-driven 

payment option. This may be 

particularly important for borrowers 

employed in jobs eligible for public 

sector loan forgiveness after 10 years but 

who do not qualify for IBR or the Pay 

As You Earn repayment plan. This will 

allow borrowers to choose which 

repayment plan is the best option for 

them. The formulas and calculators for 

the standard and fixed payment plans 

can be found at (http:// 

studentaid.ed.gov/PORTALSWebApp/ 

students/english/ 

OtherFormsOfRepay.jsp) 

All of the examples used above are 

only estimates. While these examples 

are able to paint a relatively clear 

picture of how the final regulations will 

affect individual borrowers’ payments 

in a given year, they lack the scalability 

required to show an exact link to the 

overall budget impact because of the 

uniqueness of any borrower’s 

circumstances. Initial payments and 

payments over time will vary based on 

borrower behavior. ICR borrowers may 

see their payments fluctuate because of 

marriage, pay raises, or children. As in 

IBR, under the Pay As You Earn 

repayment plan borrowers are reevaluated annually and payments may 

rise based on family size and AGI to the 

point they trigger a 10-year standard 

payment amount that, depending on the 

amount of the debt, may result in the 

borrower either repaying the debt in full 

before 20 years and receiving no 

forgiveness or leaving the plan entirely 

and receiving no forgiveness. Those 

borrowers who end up with lower 

payments will have more disposable 

income and possibly have a net positive 

impact on the economy. However, some 

borrowers will pay more money overall 

in order to have smaller payments up 

front. 

There will also be other small costs 

and transfers associated with the Pay As 

You Earn repayment plan. For example, 

those borrowers under PFH with 

calculated payments less than $5 will 

not have to pay at all, while there is a 

$5 minimum payment under ICR. 

Borrowers with a PFH would have 

$10 monthly payments if their 

calculated payments are greater than $5 

but less than $10. There is no PFH 

determination under ICR. 

Interest will be capped at 10 percent 

of the original principal balance at the 

time the borrower enters the Pay As You 

Earn repayment plan compared to ICR, 

in which interest is capped at 10 

percent of the original principal amount 

at the time the borrower entered 

repayment. This may or may not mean 

lower total loan debts. For married 

borrowers, joint AGI and eligible loan 

debt would be used only if the couple 

files a joint tax return under the Pay As 

You Earn repayment plan. Current ICR 

uses joint AGI and eligible loan debt 

regardless of filing status. 

Income-Based Repayment 

The statutory changes to the IncomeBased Repayment (IBR) Plan reduce the 

discretionary income payment cap to 10 

percent and the loan forgiveness period 

to 20 years for new borrowers effective 

July 1, 2014. IBR participants may have 


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8Repayment Plans and Calculators, Government, 

n.d., http://studentaid.ed.gov/PORTALSWebApp/ 

students/english/OtherFormsOfRepay.jsp. 

lower payments as a result and may be 

able to take advantage of loan 

forgiveness. The PFH definition changes 

from when the 10-year standard 

payment amount on eligible loans 

(annual amount owed) exceeds 15 

percent of the difference between AGI 

and 150 percent of the poverty line 

amount to 10 percent. 

Accurately predicting or forecasting 

the transfers from these changes is 

particularly difficult because most of 

them will heavily depend on borrower 

trends. Economic recovery will also 

play a large role. If the economy shows 

significant improvement and wage 

levels begin to rise, then borrowers 

whose salaries have increased 

significantly may opt to leave IBR for 

another one of the repayment plans, 

particularly if they no longer 

demonstrate PFH. 

The chart below shows how first year 

payments will differ after the 2014 

implementation of the IBR revisions. 

Currently IBR payments are calculated 

by using 15 percent of the difference 

between 150 percent of the applicable 

HHS poverty guidelines and the 

borrower’s AGI, divided by 12.8 The IBR 

plan will use 10 percent of the 

difference between 150 percent of the 

applicable HHS poverty guidelines and 

the borrower’s AGI, divided by 12. 

SAMPLE FIRST-YEAR MONTHLY REPAYMENT AMOUNTS FOR A BORROWER WITH $26,000 IN STUDENT LOANS

Income 

Family Size 

1 2 3 4 5 6 

$15,000 ........................................... IBR ..................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 

IBR-Revised ....... 0 0 0 0 0 0 

20,000 ............................................. IBR ..................... 41 0 0 0 0 0 

IBR-Revised ....... 27 0 0 0 0 0 

25,000 ............................................. IBR ..................... 103 29 0 0 0 0 

IBR-Revised ....... 69 19 0 0 0 0 

30,000 ............................................. IBR ..................... 166 91 17 0 0 0 

IBR-Revised ....... 110 61 11 0 0 0 

35,000 ............................................. IBR ..................... 228 154 80 5 0 0 

IBR-Revised ....... 152 103 53 4 0 0 

40,000 ............................................. IBR ..................... 291 216 142 68 0 0 

IBR-Revised ....... 194 144 95 45 0 0 

45,000 ............................................. IBR ..................... No-PFH 279 205 130 56 0 

IBR-Revised ....... 235 186 136 87 37 0 

50,000 ............................................. IBR ..................... No PFH No PFH 267 193 119 44 

IBR-Revised ....... 277 228 178 129 79 30 

Sample repayment amounts are based on an interest rate of 6.80%. 

Overall, the IBR revisions will offer 

many benefits. Reduced income caps, 

PFH payment qualifications, and loan 

forgiveness periods may encourage more 

borrowers to acknowledge their loan 

debt and could possibly decrease the 

default rate. The savings that eligible 

borrowers could acquire via reduced 

payment amounts and loan forgiveness 

periods will allow borrowers to have 

more disposable income and will likely 

have a net positive impact on the 

economy. Some borrowers may pay 

more money overall however, to have 

lower payments up front. 

A detailed analysis of how borrowers 

would fare under the revised IBR plan 

was included in the Regulatory Impact 

Analysis section of the NPRM. Please 

note that all examples used here and in 

the NPRM are calculated with constant 

dollars only. Some commenters voiced 

concerns over how inflation and the 

annual update of the HHS Poverty 

Guidelines would affect payment 

amounts over time. We acknowledge 

that inflation could affect actual 

payment amounts over time but any 

attempt to calculate this would be 

subjective. Borrowers who participate in 

the income driven plans will be given 

information about their options 

annually during the evaluation process. 

Any borrower, who wishes to learn 

more about the HHS Poverty Guidelines 

or track their annual updates, can visit 

the HHS Poverty Guidelines Web site at 

http://aspe.hhs.gov/poverty/ 

index.shtml. 

As mentioned earlier, borrowers who 

no longer demonstrate PFH may very 

well opt to leave IBR for another 

payment plan. The final regulations will 

allow a borrower to use forbearance and 

pay less than the standard payment 

when leaving IBR. 

Total and Permanent Disability 

Discharge 

The Department believes that the 

streamlined TPD discharge process will 

provide many benefits to borrowers. 

The final regulations will— 

• Simplify the process for the 

borrower; 

• Permit a TPD discharge based on a 

borrower’s SSA disability notice of 

award for SSDI or SSI benefits 

indicating that the borrower’s eligibility 

for disability benefits will be reviewed 

on a five- to seven-year schedule, which 

classifies the borrower as permanently 

impaired—medical improvement not 

expected. Borrowers will still be subject 

to the three-year discharge review that 

is currently in place. 

• Establish a single point of contact 

for the borrower throughout the 

disability discharge process; 

• Reduce the time needed to process 

applications; 

• Provide more consistency in 

eligibility determinations; 

• Provide more uniformity in the 

communications sent to borrowers 

throughout the process; and 

• Ensure that all of a borrower’s title 

IV loans that are eligible for a TPD 

discharge are discharged at the same 

time, reducing instances of ‘‘straggler’’ 

loans that the borrower may forget to 

include when applying for discharge of 

the borrower’s other title IV loans. 

By ensuring that borrowers whose 

discharge applications are denied have 

adequate information about the reasons 

for the denial and their future options, 


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borrowers will be able to make better 

informed decisions and possibly correct 

their applications if denial is a result of 

applicant error. This may reduce the 

number of technically eligible borrowers 

who fail to have their loans discharged. 

Increasing the number of discharged 

loans could lead to an increased transfer 

of funds to borrowers as they would not 

be required to make loan payments. 

By developing an OMB-approved 

form for income reporting purposes, the 

Secretary will simplify the postdischarge monitoring process and 

possibly reduce the number of 

otherwise eligible borrowers with 

disabilities who have their loans 

reinstated. Currently, a large proportion 

of discharged borrowers end up with 

their loans reinstated because of failure 

to submit adequate information during 

the post-discharge monitoring period. 

By reducing the number of borrowers 

with disabilities who have their loans 

reinstated for their failure to provide 

income information, but who may be 

otherwise eligible, the Secretary will 

provide economic relief for many of the 

country’s most vulnerable citizens. 

In 2011, approximately 78,000 

borrowers applied for the TPD discharge 

of 179,454 loans across the Direct, FFEL, 

and Perkins loan programs. The revised 

TPD process will offer many benefits to 

borrowers with disabilities and possibly 

reduce the number of reinstatements. 

The increase in applications and 

discharges that could occur as an 

incentive of the simplified process, 

would lead to a transfer of funds from 

the Federal Government to borrowers 

through the elimination of their debt. 

Also, by allowing direct application to 

the Secretary, all applications will be 

reviewed according to the same 

standard. This will drastically reduce 

the chance of inconsistencies in the 

review process. The elimination of 

multiple medical evaluations will 

relieve administrative burden on title IV 

providers and reduce the application 

review time. 

Also, the Department believes that 

veterans will benefit because the 

changes to the non-veterans TPD 

discharge will also apply to the process 

for disability discharges based on VA 

documentation. 

Like those applying with 

documentation from the VA, borrowers 

using the SSA notice of award for SSDI 

or SSI benefits that indicates a 

continuing medical review period of 5- 

to-7 years as the basis for a TPD 

discharge will benefit from the process 

changes such as the single application 

point for all loans and enhanced 

uniformity in communications. 

Borrowers will benefit from the 

elimination of the requirement that a 

physician provide a letter requesting 

more time for the borrower to submit a 

TPD discharge application. 

As noted, while the Department does 

believe that the final regulations will 

ultimately benefit truly eligible 

borrowers, it cannot accurately predict 

applicant behavior as a result. 

Regulatory Alternatives Considered and 

Analysis of Significant Comments 

Alternatives to the regulations were 

considered as part of the rulemaking 

process. These alternatives were 

reviewed in detail in the preamble to 

the proposed regulations under both the 

Regulatory Impact Analysis and the 

Reasons sections accompanying the 

discussion of each proposed regulatory 

provision. To the extent that they were 

addressed in response to comments 

received on the proposed regulations, 

alternatives are also considered 

elsewhere in the preamble to these final 

regulations under the Discussion 

sections related to each provision. We 

did not receive any comments related to 

the Regulatory Impact Analysis 

discussion of these alternatives. 

As discussed above in the Analysis of 

Comments and Changes section, the 

final regulations reflect minor revisions 

in response to public comments. None 

of these changes result in revisions to 

cost estimates prepared for and 

discussed in the Regulatory Impact 

Analysis of the proposed regulations. 

One alternative considered in 

response to public comments was 

changing the date for defining a ‘‘new 

borrower’’ and a ‘‘new loan’’ for 

eligibility for Pay As You Earn 

repayment plan from the Federal fiscal 

year basis with an October 1 start to an 

academic year or calendar year basis to 

be more consistent with other dates 

governing the loan programs and to 

prevent confusion for students. As 

discussed in the NPRM, a cut-off point 

for eligibility for Pay As You Earn 

repayment plans is required and from 

the budgeting perspective, the Federal 

fiscal year is the point for determining 

loan cohorts. Student confusion should 

be limited by the Web site that will 

inform them of the repayment plans for 

which they may be eligible and will 

make the dates clear. The Department 

estimated that an additional 90,000 

borrowers would be eligible for Pay As 

You Earn repayment plans if the date for 

defining a new borrower was changed 

from October 1, 2007, to July 1, 2007, 

and the estimated cost for expanding 

Pay As You Earn repayment plans to 

these borrowers would be 

approximately $125 million over the 

2012 to 2021 loan cohorts. While the 

suggested change is a reasonable 

alternative, the Department believes the 

use of the Federal fiscal year is 

appropriate and balances the offering of 

an improved ICR option to eligible 

borrowers and the resources available to 

support the program. 

Another alternative considered in 

response to proposals in public 

comments was changing the 

capitalization of accrued interest for 

students who are removed from IBR or 

Pay As You Earn repayment plan 

because they fail to submit their annual 

paperwork on time. Under current 

regulations, students who do not submit 

the required income and family size 

paperwork on time so that the 

borrower’s PFH can be determined by 

the borrower’s annual deadline, are 

treated as having elected to end paying 

under IBR and are subject to the 

capitalization of all accrued interest. 

The proposed and final regulations 

provide a 10-day grace period from the 

paperwork submission deadline and 

provide for enhanced borrower 

notifications about the annual 

paperwork requirements. Many 

commenters argued that capitalization 

of all accrued interest is too great a 

penalty for late submission of annual 

paperwork and proposed several 

options to reduce the effect on 

borrowers. The alternatives the 

commenters proposed included: 

limiting capitalization to the interest 

accrued on the loan between day 11 

after the paperwork submission 

deadline to the day the borrower’s new 

payment is calculated; applying a cap 

on overall capitalization in IBR; 

authorizing lenders to limit interest 

capitalization for exceptional 

circumstances; requiring lenders to 

grant forbearance for overdue payments 

for all late borrowers; not capitalizing 

accrued interest associated with past 

due payments for this period; and 

recognizing payments that continue to 

be made for IBR/ICR and PSLF 

forgiveness. 

While the Department acknowledges 

that capitalization of accrued interest is 

a significant consequence for failing to 

submit the required annual paperwork 

within the timeframe allowed, the 

proposed alternatives do not work 

because of operational implications that 

are discussed in the Analysis of 

Comments and Changes section of the 

preamble related to this subject. The 

improved notifications and grace period 

should reduce the number of borrowers 

affected by the capitalization provision 

for the reason of late paperwork 

submission. 


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Additionally, as discussed in the 

Analysis of Comments and Changes in 

the preamble, the Department will 

accept an SSA disability notice of award 

for SSDI or SSI benefits indicating that 

the borrower’s next scheduled disability 

review will be within five to seven 

years, which classifies the borrower as 

permanently impaired with medical 

improvement not expected, as proof of 

the borrower’s TPD. The Department 

believes this SSA standard for 

permanent impairment overlaps with 

the Department’s existing standard and 

that this change will reduce the 

application burden on borrowers who 

have already gone through the SSA 

disability application process. This 

could also reduce the administrative 

burden on the Department in processing 

TPD applications. 

Net Budget Impacts 

The final regulations are estimated to 

have a net budget impact of $2.1 billion 

in subsidy cost over the 2012 to 2021 

loan cohorts. Consistent with the 

requirements of the Credit Reform Act 

of 1990 (CRA), budget cost estimates for 

the student loan programs reflect the 

estimated net present value of all future 

non-administrative Federal costs 

associated with a cohort of loans. A 

cohort reflects all loans originated in a 

given fiscal year. As discussed in the 

Regulatory Alternatives Considered and 

Analysis of Significant Comments, some 

commenters suggested changes to the 

dates for defining eligibility for the new 

ICR–A plan, amending the 

capitalization of accrued interest for 

borrowers who submit their annual 

income and family size paperwork late, 

and using SSA determinations as proof 

for a TPD discharge. None of the 

changes the Department made in 

response to those proposals had an 

effect on the Net Budget Impact section 

included in the NPRM. 

These estimates were developed using 

the Office of Management and Budget’s 

(OMB) Credit Subsidy Calculator. The 

OMB calculator takes projected future 

cash flows from the Department’s 

student loan cost estimation model and 

produces discounted subsidy rates 

reflecting the net present value of all 

future Federal costs associated with 

awards made in a given fiscal year. 

Values are calculated using a ‘‘basket of 

zeros’’ methodology under which each 

cash flow is discounted using the 

interest rate of a zero-coupon Treasury 

bond with the same maturity as that 

cash flow. To ensure comparability 

across programs, this methodology is 

incorporated into the calculator and 

used Government-wide to develop 

estimates of the Federal cost of credit 

programs. Accordingly, the Department 

believes it is the appropriate 

methodology to use in developing 

estimates for these regulations. That 

said, in developing the following 

Accounting Statement, the Department 

consulted with OMB on how to 

integrate our discounting methodology 

with the discounting methodology 

traditionally used in developing 

regulatory impact analyses. 

Absent evidence of the impact of 

these regulations on student behavior, 

budget cost estimates were based on 

behavior as reflected in various 

Department data sets and longitudinal 

surveys. Program cost estimates were 

generated by running projected cash 

flows related to each provision through 

the Department’s student loan cost 

estimation model. Student loan cost 

estimates are developed across five risk 

categories: for-profit institutions (less 

than two-year), two-year institutions, 

freshmen/sophomores at four-year 

institutions, juniors/seniors at four-year 

institutions, and graduate students. Risk 

categories have separate assumptions 

based on the historical pattern of 

behavior of borrowers in each 

category—for example, the likelihood of 

default or the likelihood to use statutory 

deferment or discharge benefits. 

Income-Contingent Repayment 

As described in the NPRM, the budget 

impact in this package of regulations is 

related to the changes in the ICR plan. 

These final regulations, based on the 

President’s Pay As You Earn initiative, 

create the Pay As You Earn repayment 

plan, a new income-contingent option 

that mirrors the changes made to the 

IBR plan by SAFRA. The Pay As You 

Earn repayment plan allows new 

borrowers in FY 2008 or later with a 

new loan in FY 2012 or later who 

demonstrate a PFH to use an income 

contingent repayment plan based on 10 

percent of their discretionary income 

and with a 20-year forgiveness period. 

The terms and conditions of the Pay As 

You Earn repayment plan are based on 

IBR, including the treatment of married 

borrowers and the timing of interest 

capitalization, except the Pay As You 

Earn repayment plan maintains the cap 

on interest capitalization from existing 

ICR and does not require borrowers 

leaving the plan to make a payment 

under standard repayment. The existing 

ICR plan would remain available for 

those borrowers who do not qualify for 

or choose the Pay As You Earn or IBR 

repayment plans because of timing, not 

demonstrating PFH, or individual 

preference. The availability of the Pay 

As You Earn repayment plan, with its 

reduced income percentage and shorter 

forgiveness period, is estimated to cost 

$2.1 billion over the 2012 to 2021 loan 

cohorts. 

In evaluating the changes to the ICR 

and IBR programs, the Department 

assumes that, if possible, incomecontingent borrowers would elect the 

Pay As You Earn repayment plan given 

its more generous income and 

forgiveness provisions. Based on this, 

the Department estimates that between 

2012 and 2021 approximately 1.67 

million borrowers not already eligible 

for the improved IBR program will 

choose the Pay As You Earn repayment 

plan. The availability of the Pay As You 

Earn repayment plan results in an 

estimated average savings of $4,250 per 

borrower. Assuming all those in the Pay 

As You Earn repayment plan remained 

in the plan, the Department estimates 

that approximately 13 percent would 

receive public sector loan forgiveness, 

39 percent would receive forgiveness 

after twenty years of qualifying 

payments, and 48 percent would pay-off 

their balances. (Note: the budget 

estimate of $2.1 billion takes into 

account prepayment through 

consolidation, defaults, and death/ 

disability/bankruptcy discharges). The 

actual number of borrowers receiving 

forgiveness will be significantly less 

than would be obtained by multiplying 

the 1.7 million borrowers estimated to 

repay under ICR by the above 

percentages since not all borrowers will 

remain in ICR. Currently, the 

Department estimates that 

approximately 400,000 borrowers from 

cohorts 2012 through 2021 will 

ultimately receive forgiveness. In 

general, those borrowers receiving 

forgiveness have higher balances as 

payments based on income are more 

likely to cover lower balances. Those 

receiving forgiveness have an average 

original balance of approximately 

$39,500 and receive forgiveness of 

approximately $41,000 as their 

payments tend to cover interest owed so 

they end up with balances forgiven 

close to the original debt. 

As discussed in the NPRM, when the 

assumption for loan forgiveness is 

increased as a result of a policy the cash 

flow impact is a reduction in principal 

and interest payments. The subsidy cost 

is derived from comparing the baseline 

payments to the policy payments (on a 

Net Present Value basis) and comparing 

the two resulting subsidy rates. The 

outlays are calculated by subtracting the 

new subsidy rate with the policy cash 

flows from the baseline subsidy rate and 

multiplying by the volume for the 

cohort. As stated above, compared to the 

baseline, the availability of the Pay As 

You Earn repayment plan (referred to as 


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the ICR–A repayment plan in the 

NPRM) is estimated to cost 

approximately $2.1 billion for the 

cohorts from 2012 to 2021 as shown in 

Table 3. 

TABLE 3—ESTIMATED OUTLAYS FOR COHORTS 2012–2021 

Cohorts 2012 2013 2014 2015 2016 2018 2019 2020 2021 Total 

Budget Authority ............................................... 134 199 208 255 235 239 249 224 177 2,173 

Outlays ............................................................. 114 191 208 253 235 234 254 218 178 2,132 

Income-Based Repayment 

The budgetary impact of the changes 

to the IBR program that implement the 

statutory changes in SAFRA are 

incorporated into the budget baseline. 

The Department estimates that 

approximately one million new 

borrowers from the 2014 to 2021 cohorts 

would benefit from the changes to IBR 

made by SAFRA. The final regulations 

also include process clarifications 

related to the ultimate loan forgiveness 

and the timing of notices and annual 

certification. These changes are 

expected to improve the servicing for 

IBR borrowers and provide guidance 

before the first set of eligible borrowers 

reach the forgiveness point, but are not 

expected to have a budgetary impact. 

Total and Permanent Disability 

As detailed in the NPRM, the final 

regulations will establish a single 

application process through the 

Department for borrowers seeking a TPD 

discharge of their Federal loans, specify 

requirements for more detailed 

information in TPD discharge denial 

letters, and modify the process and 

documentation requirements for the 

post-discharge monitoring period. 

Additionally, as described in the 

Analysis of Comments and Changes 

section of the preamble, in response to 

comments about aligning the 

Department’s determinations of 

disability with those of other agencies 

and allowing borrowers with a disability 

determination from the SSA to receive 

a TPD discharge, the Department will 

accept an SSA disability notice of award 

for SSDI or SSI benefits indicating that 

the borrower’s next scheduled disability 

review will be within five to seven 

years, which classifies the borrower as 

permanently impaired with medical 

improvement not expected, as proof of 

the borrower’s TPD. The Department 

believes this will reduce the application 

burden on borrowers who have already 

gone through the SSA process. Because 

the final regulations are not expected to 

expand the pool of borrowers 

potentially eligible for discharge, there 

is no expected effect on the Federal 

student loan budget. The Department 

will continue to closely monitor the 

TPD discharge process and any 

significant changes in the frequency or 

magnitude of disability discharges will 

be reflected in future budget estimates. 

In the NPRM, the Department 

requested comments about the 

estimated net budget impacts described 

above. No such comments were 

received. 

Accounting Statement 

As required by OMB Circular A–4 

(available at www.whitehouse.gov/sites/ 

default/files/omb/assets/omb/circulars/ 

a004/a-4.pdf ), in the following table we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of these final regulations. 

This table provides our best estimate of 

the costs, benefits, and changes in 

annual monetized transfers as a result of 

the revisions to the ICR repayment plan 

as reflected in these final regulations. 

Expenditures are classified as transfers 

from the Federal Government to 

borrowers in the revised ICR repayment 

plan. The transfers presented below 

represent the annualized estimated 

reductions in principal and interest 

payments from borrowers in cohorts 

2012 to 2021 in the Pay As You Earn 

plan on a cash basis and not the subsidy 

cost presented in the Net Budget 

Impacts section of the preamble. The 

nominal dollars of principal and interest 

payment reductions were converted to 

constant dollars using an estimated GDP 

inflator of 1.9 percent. 

ACCOUNTING STATEMENT CLASSIFICATION OF ESTIMATED EXPENDITURES AT 3 PERCENT AND 7 PERCENT DISCOUNT

RATES

[In millions] 

Category Costs 

Costs of compliance with paperwork requirements ........................................................................................................................ $1.34 (7%). 

1.35 (3%). 

Category Transfers 

Annualized reduced payments to Federal Government from borrowers in the Pay As You Earn repayment plan ...................... $1,357 (7%) 

1,210 (3%) 

Regulatory Flexibility Act Certification 

The Secretary certifies that these final 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. These final 

regulations are concerned with the 

relationship between certain Federal 

student loan borrowers and the Federal 

government, with some of the 

provisions modifying the servicing and 

collections activities of guaranty 

agencies and other parties. The 

Department believes that the entities 

affected by these final regulations do not 

fall within the definition of a small 

entity. The U.S. Small Business 

Administration Size Standards define 

‘‘for-profit institutions’’ as ‘‘small 

businesses’’ if they are independently 

owned and operated and not dominant 

in their field of operation with total 

annual revenue below $7,000,000, and 

defines ‘‘non-profit institutions’’ as 

small organizations if they are 

independently owned and operated and 

not dominant in their field of operation, 


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or as small entities if they are 

institutions controlled by governmental 

entities with populations below 50,000. 

In the NPRM, the Secretary invited 

comments from small entities as to 

whether they believe the proposed 

changes would have a significant 

economic impact on them and requested 

evidence to support that belief. No 

comments were received. 

Paperwork Reduction Act of 1995 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department conducts a 

preclearance consultation program to 

provide the general public and Federal 

agencies with an opportunity to 

comment on proposed and continuing 

collections of information in accordance 

with the Paperwork Reduction Act of 

1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). 

This helps ensure that: The public 

understands the Department’s collection 

instructions, respondents can provide 

the requested data in the desired format, 

reporting burden (time and financial 

resources) is minimized, collection 

instruments are clearly understood, and 

the Department can properly assess the 

impact of collection requirements on 

respondents. 

Sections 674.61, 682.215, 682.221, 

682.402, 685.213, and 685.215 contain 

information collection requirements. 

Under the PRA, the Department 

submitted a copy of these sections to 

OMB for its review at the time the 

Department published the notice of 

proposed rulemaking. 

A Federal agency may not conduct or 

sponsor a collection of information 

unless OMB approves the collection 

under the PRA and the corresponding 

information collection instrument 

displays a currently valid OMB control 

number. Notwithstanding any other 

provision of law, no person is required 

to comply with, or is subject to penalty 

for failure to comply with, a collection 

of information if the collection 

instrument does not display a currently 

valid OMB control number. 

These final regulations display the 

control numbers assigned by OMB to 

any information collection requirements 

adopted in the final regulations. 

Total and Permanent Disability 

Discharge Application Process Based on 

a Physician’s Certification 

(§§ 674.61(b)(2), 682.402(c)(2) and 

685.213(b)) 

These final regulations revise 

§§ 674.61(b)(2) and 682.402(c)(2) of the 

Perkins Loan and FFEL program 

regulations to require Perkins Loan and 

FFEL borrowers to apply directly to the 

Department for TPD discharges. In the 

Direct Loan program, borrowers will 

continue to apply directly to the 

Department for TPD discharges, as they 

do under the current Direct Loan 

program regulations. 

Under the final TPD discharge 

process, if a Perkins Loan program 

school or a FFEL lender is contacted by 

a borrower intending to apply for a TPD 

discharge, the school or lender would 

provide the borrower with the 

information needed to apply to the 

Department for the discharge. Under the 

current regulations, when a borrower 

has loans held by two or more loan 

holders, the borrower must complete 

and submit a separate TPD application 

for each holder. Under the streamlined 

process in these final regulations, a 

borrower would submit one TPD 

discharge application to the 

Department, eliminating the need for 

borrowers to submit separate discharge 

applications to each of their loan 

holders. We determined that in 2011 the 

number of TPD applications was as 

follows: 

Year Program Number of 

borrowers 

Number of 

Loans 

Number of 

loans/borrower 

2011 ....................................... Direct Loans ............................................................................ 29,777 65,823 ........................

2011 ....................................... FFEL Loans ............................................................................ 48,518 114,040 ........................

2011 ....................................... Perkins Loans ......................................................................... 95 95 ........................

78,390 179,958 2.3 

Borrower Burden: Under currently 

approved OMB 1845–0065—Discharge 

Application: Total and Permanent 

Disability, the average amount of time 

for the borrower to complete and submit 

an application is estimated to be 30 

minutes (0.5 hours) per application. 

These regulations provide that a 

borrower with a single loan holder must 

still provide the Secretary with a single 

TPD discharge application for all the 

affected title IV, HEA program loans 

held by that holder. However, borrowers 

with multiple loan holders would no 

longer have to complete and submit 

TPD discharge applications to each 

separate loan holder but instead will 

submit a single application to the 

Secretary. Under currently approved 

OMB 1845–0065, there are 30,000 

respondents annually with 30,000 

responses (applications) annually times 

0.5 hours to yield a total burden of 

15,000 hours to borrowers. Information 

from the 2011 award year indicates that 

the number of borrowers applying for 

TPD discharges has increased to 78,390 

borrowers on 179,958 title IV, HEA 

loans. Using the 2011 number of loan 

applications and the current process 

requiring borrowers to file applications 

separately with each lender, the burden 

would have expanded to 89,979 hours 

(179,958 times 0.5 hours equal 89,979 

hours). That would have created an 

increase in burden of 74,979 hours 

(89,979 burden hours in 2011 minus 

15,000 hours under the current 

collection). 

However, because the final 

regulations do not require borrowers to 

file separate applications for each 

lender, the increase in burden is 

significantly less. We estimate that half 

of the 48,313 increase in the number of 

borrowers (24,157 borrowers) have all of 

their 24,157 title IV, HEA loans held by 

single holders. Therefore, the burden 

associated with the group of borrowers 

with single holders is an increase of 

12,079 burden hours (24,157 times 0.5 

hours per application). 

We estimate that the other half of the 

48,313 increase in the number of 

borrowers (24,156 borrowers) have 

multiple holders for their 125,801 title 

IV, HEA loans. We obtained this number 

of loans by taking the 179,958 affected 

loans in 2011 and subtracting the 30,000 

loans already accounted for in the 

current ICR. We then subtracted the 

24,157 loans held by 24,157 borrowers 

that hold only a single loan, which 

leaves the remaining 125,801 loans held 

by multiple holders. Under the final 

TPD application process the remaining 

24,156 borrowers with loans held by 

multiple holders would only need to 

submit a single TPD application. 

Therefore, the burden associated with 

the group of borrowers with multiple 

holders is an increase of 12,078 burden 

hours (24,156 times 0.5 hours per 

application). The total amount of 

burden for these two groups of 


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borrowers is an increase of 24,157 

burden hours under OMB Control 

Number 1845–0065. 

Loan Holder Burden: Under the final 

regulations, lenders and guaranty 

agencies will no longer perform a 

number of functions in the TPD 

discharge process. Lenders and guaranty 

agencies will no longer: Distribute the 

TPD discharge application, receive the 

completed and submitted TPD 

applications, review the completed and 

submitted TPD application forms, 

evaluate the TPD application forms, 

request additional information 

necessary to complete or resolve open 

issues regarding the TPD applications, 

review and evaluate supplemental 

information provided by the applicants, 

and make a determination whether the 

application supports the conclusion that 

the borrower is totally and permanently 

disabled. 

Under the currently approved burden 

analysis in OMB 1845–0019 for the 

Perkins Loan program, there are 31 

hours of burden attributed to this 

regulation (62 respondents with 62 

responses times 0.5 hours per response). 

Information from the 2011 award year 

indicates that the current annual 

number of Perkins Loan borrowers 

applying for TPD discharge has 

increased from an average of 62 to 95 

borrowers. Thus, absent these proposed 

regulations, the burden hours would 

increase to 47.5 hours. 

Instead, the final regulations in 

§§ 674.61(b)(2) and 682.402(c)(2) require 

institutions that participate in the 

Perkins Loan program and FFEL 

program loan holders to provide 

borrowers seeking a TPD discharge with 

information needed for the borrower to 

notify the Secretary. Since this is likely 

to be a highly automated process, we 

estimate that the average amount of time 

to provide a borrower with the required 

referral information to take 0.03 hours (2 

minutes) per request. At the estimated 

notification rate of 0.03 hours per 

borrower, the total burden is 3 hours (95 

borrowers times 0.03 hours). While the 

number of affected Perkins Loan 

borrowers increased, this is a reduction 

in burden of 28 (31 hours in the 

currently approved collection minus 3 

hours) hours under OMB Control 

Number 1845–0019. 

Section 682.402 does not contain any 

burden attributed to the regulation for 

the TPD discharge collection of 

information, nor is there burden 

attributable to the application process 

other than that which impacts the 

borrower completing the application. In 

the 2011 award year, our data indicate 

that there were 48,518 FFEL borrowers 

who applied for TPD discharges on 

114,040 loans. Of the total 48,518 

borrowers, 18,078 borrowers applied for 

discharge of 38,742 FFEL loans that 

were held by the Department, and 

30,440 borrowers applied for discharge 

of 75,298 FFEL loans that were not held 

by the Department. 

Under the previous regulations, we 

estimated that the holder providing the 

TPD discharge application and all the 

other related review and determination 

processes would take 0.5 hours per 

application, thus creating 15,220 hours 

of burden on holders of FFEL loans not 

held by the Department. 

However, under the final regulation in 

§ 682.402(c)(2), the holder only has to 

provide information to the borrower 

telling the borrower how to notify the 

Secretary. Under these regulations, we 

estimate that providing the required 

information to the borrower so the 

borrower can notify the Secretary would 

take 0.03 hours (2 minutes) per 

borrower request. At this rate, the total 

burden is 913 hours (30,440 borrowers 

times 0.03 hours). This would be a 

reduction of 14,307 burden hours for 

lenders (15,220 hours less 913 hours). 

However, we note that this is not a 

burden reduction since the current 

burden had not been previously 

established. Instead, an increase of 913 

hours would be added to OMB Control 

Number 1845–0020. 

As noted earlier, these regulations 

revise §§ 674.61(b)(2) and 682.402(c)(2) 

of the Perkins Loan and FFEL 

regulations to require Perkins and FFEL 

borrowers to apply directly to the 

Department for TPD discharges. In the 

Direct Loan program, borrowers 

continue to apply directly to the 

Department for TPD discharges. 

Under §§ 674.61(b)(2)(v)–(viii), 

682.402(c)(2)(iv)–(viii), and 

685.213(b)(3), a Perkins Loan, FFEL, or 

Direct Loan borrower must submit the 

TPD discharge application certified by a 

physician to the Department within 90 

days of the date of the physician’s 

certification. After receiving the TPD 

discharge application, the Department 

notifies the borrower’s title IV loan 

holders that the Department has 

received the application. This 

notification directs the borrower’s loan 

holders to either suspend collection 

activity or to maintain the suspension of 

collection activity on the borrower’s 

title IV loans. If the application is 

incomplete, the Department requests the 

missing information from the borrower 

or the physician who certified the 

application. 

These changes do not constitute a 

change in burden for the borrowers 

because the application process remains 

virtually the same. However, since the 

borrower is directed to obtain the 

application form approved by the 

Secretary from the Department rather 

than from the institution in the case of 

a Perkins loan, or the lender in the case 

of a FFEL loan, the burden associated 

with the streamlined TPD discharge 

application process is transferred to the 

Department, but since the burden 

associated with receiving the TPD 

application with the physician’s 

certification, revaluating the application 

for completeness, and requesting 

additional missing information was not 

estimated under the prior regulations, 

no burden reduction can be established 

as a result of the changes in the final 

regulations. 

Changes to the TPD discharge 

application form must be made to 

implement the new regulations. The 

TPD discharge application form 

currently in use expires on February 28, 

2015. These final regulations are 

effective July 1, 2013. A revised TPD 

discharge application form associated 

with OMB Control Number 1845–0065 

will be submitted for OMB review in 

late 2012, thereby ensuring that the 

public has an opportunity to provide 

comment upon the newly revised form 

that will be available for use on or about 

the effective date of the final 

regulations. 

Under §§ 674.61(b)(7)(iii), 

682.402(c)(7)(iii), and 685.213(b)(8)(iii), 

during the three-year period following a 

discharge of a title IV loan based on 

TPD, the borrower must provide the 

Secretary, upon request, with 

documentation of the borrower’s annual 

earnings from employment on an OMB 

approved form that would be available 

by the time that these regulations 

become effective. The form will require 

a certification from the borrower and 

will require the borrower to submit 

documentation to support the 

certification. The documentation may 

include income tax returns, 

documentation of eligibility for Social 

Security disability benefits, or other 

documentation that supports the 

borrower’s certification. 

These regulations do not specify the 

content of the form but, as with all 

OMB-approved forms, the form would 

be made available for public comment 

as part of the PRA forms clearance 

process. 

Collectively, the regulatory changes in 

§§ 674.61 and 682.402 increase burden 

by 25,042 hours. The burden in OMB 

Control Number 1845–0065 increases 

from 15,000 to 24,157. The burden in 

OMB Control Number 1845–0019 

decreases by 28 hours from 31 hours to 

3 hours. The burden in OMB Control 


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Number 1845–0020 increases by 913 

hours. 

Income-Based Repayment Plan 

(§§ 682.215(e)(2) and 685.221(e)(2)— 

Eligibility Documentation, Verification, 

and Notifications) 

Under § 682.215(e)(2), a FFEL loan 

holder, after making a determination 

that a borrower has a PFH to qualify for 

the IBR plan for the year the borrower 

initially selects the plan and for any 

subsequent year that the borrower has a 

PFH, sends the borrower a written 

notification. A portion of the required 

notifications is established under OMB 

1845–NEWA and other information and 

notifications are included under OMB 

1845–0102, the Income-Based/IncomeContingent Repayment Plan Request 

form. 

The required notifications under OMB 

1845–NEWA include the following 

information: The borrower’s scheduled 

monthly payment amount, the time 

period during which that monthly 

payment amount will apply (annual 

payment period); and information about 

the borrower’s option to request, at any 

time during the borrower’s current 

annual payment period, that the loan 

holder 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 monthly payment amount is 

recalculated based on the borrower’s 

request, the loan holder sends the 

borrower a written notification that 

includes the borrower’s new calculated 

monthly payment amount and the other 

information described above. 

Using the most recent monthly reports 

on IBR applications, we examined the 

number of loans being repaid under IBR 

that are serviced by the Department’s 

Title IV Additional Servicers (TIVAS). 

We determined that 71 percent of all of 

the non-defaulted FFEL loans are held 

by the Department (and serviced by the 

TIVAS), with the remaining 29 percent 

being held by commercial for-profit and 

not-for-profit holders. Applying these 

same percentages to the IBR 

participation data we obtained from the 

Department’s TIVAS, we estimated that 

the annualized estimated number of 

commercially held loans being repaid 

under IBR as 290,268 for the basis of 

this burden assessment. However, our 

data does not allow us to further 

disaggregate this number into the 

affected entities grouped under Public 

entities, Private-Not for Profit entities, 

and Proprietary entities. We estimate 

that the required notifications above 

would be highly automated and thus 

projected an average of 0.08 hours (5 

minutes) of burden per IBR applicant, 

thus 23,221 hours of burden (290,268 

times 0.08 hours) of increased burden 

are added as a new information 

collection under OMB Control Number 

1845–NEWA. 

The following required information is 

provided to the borrower through the 

Income-Based/Income-Contingent 

Repayment Plan Request form (OMB 

1845–0102). Information about the 

requirement for the borrower to 

annually provide income information 

(and, in some cases for married FFEL 

program borrowers, information about 

the eligible loans of the borrower’s 

spouse) and certify family size, if the 

borrower chooses to remain on the IBR 

plan after the initial year on the plan; 

An explanation that the borrower will 

be notified in advance of the date by 

which the loan holder must receive this 

information; and An explanation of the 

consequences if the borrower does not 

annually provide the required 

information. 

Section 682.215(e) places further 

notification requirements on loan 

holders for subsequent years which are 

outside the scope of this burden 

analysis and require future burden 

analysis. 

Loan Forgiveness Processing and 

Payment 

Section 682.215(g) under the FFEL 

program, clarifies that the loan holder 

determines when a borrower has met 

the requirements for loan forgiveness 

and that the borrower is not required to 

submit a request for loan forgiveness. 

These regulations provide for the loan 

holder to send the borrower a written 

notice no later than six months prior to 

the anticipated date that the borrower 

would meet the loan forgiveness 

requirements. This notice explains that 

the borrower is approaching the date he 

or she is expected to qualify for loan 

forgiveness, reminds the borrower that 

he or she must continue to make 

scheduled monthly payments, and 

provides general information on the 

current treatment of the forgiveness 

amount for tax purposes, including 

instructions to contact the IRS for more 

information. 

The prior § 682.215(g)(4) 

(redesignated as § 682.215(g)(5) under 

the final regulations) would be revised 

to clarify that when a loan holder 

notifies a borrower that the borrower 

has been determined eligible for loan 

forgiveness, the borrower must be 

provided with information on the 

current treatment of the forgiveness 

amount for tax purposes and directed to 

the IRS for more information. 

The loan holder determines when a 

borrower qualifies for loan forgiveness 

and does not require the borrower to 

track his or her own progress toward 

meeting the loan forgiveness 

requirement and then submit an 

application for forgiveness. In this 

section, we are required to analyze and 

publish the estimated amount of burden 

that the final regulations place on 

affected entities (other than the Federal 

government) as of the effective date of 

the implementation of the proposed 

regulation, (assuming that it would 

occur in the initial year that the final 

regulations are effective). However, 

since these additional proposed 

notification requirements occur 24.5 

years after the first income-based 

repayment loans were placed into 

repayment (in approximately 2031), 

they are outside the scope of this burden 

analysis. 

Consistent with the discussions 

above, the following chart describes the 

sections of these regulations involving 

information collections, the information 

being collected, and the collections the 

Department will submit to the OMB for 

approval and public comment under the 

Paperwork Reduction Act, and the 

estimated costs associated with the 

information collections. The monetized 

cost of the additional burden on lender/ 

guaranty agencies and institutions, 

using wage data developed using BLS 

data, available at http://www.bls.gov/ 

ncs/ect/sp/ecsuphst.pdf, is $593,248.66 

as shown below. This cost was based on 

an hourly rate of $24.61. The monetized 

cost of the additional burden on 

students is $431,927.16 based on an 

hourly rate of $17.88. 


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Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 66125 

COLLECTION OF INFORMATION

Regulatory 

section Information collection OMB Control Number and estimated change in the burden Estimated costs 

674.61 ...... This section requires Perkins borrowers to apply directly to the Department for TPD discharges. Under the final regulations, institutions no 

longer distribute the Total and Permanent Disability Discharge application, receive the completed form, review and evaluate the request, 

request supplemental information where indicated, evaluate the supplemental application, and make a determination whether the application supports the conclusion that the borrower is totally and permanently disabled. The burden associated with the completion and submission of the application form is found in OMB 1845–0065. Instead, 

the institution is required to provide the borrower seeking a TPD discharge with the information to notify the Secretary.

OMB 1845–0065 .............................

A separate 60-day FEDERAL REGISTER notice will be published to 

solicit public comment on the 

form that would be used to collect this information. The burden 

would increase by 24,157 hours.

OMB 1845–0019 .............................

The burden would decrease by 28 

hours to 3 hours.

$431,927.16 

¥$689.08 

682.215 .... This section requires FFEL loan holders, after making a determination 

that a borrower has a PFH to qualify for the IBR plan, to send the 

borrower for the initial year or any subsequent year, written information to include the scheduled monthly payment amount, the time period during which the monthly payment will apply, and other information.

OMB 1845–NEWA ..........................

This would be a new collection. A 

separate 60-day FEDERAL REGISTER notice will be published to 

solicit public comment on the 

form used to collect the information. The burden would increase 

by 23,221 hours.

$571,468.81 

682.402 .... This section requires FFEL loan holders to provide information to the 

borrower so the borrower can notify the Secretary about their interest 

in applying for a TPD discharge.

OMB 1845–0020 .............................

The burden would increase by 913 

hours.

$ 22,468.93 

If you want to comment on the 

proposed information collection 

requirements, please send your 

comments to the Office of Information 

and Regulatory Affairs, OMB, Attention: 

Desk Officer for U.S. Department of 

Education. Send these comments by 

email to OIRA_DOCKET@omb.eop.gov 

or by fax to (202) 395–6974. You may 

also send a copy of these comments to 

the Department contact named in the 

ADDRESSES section of this preamble. 

Assessment of Educational Impact 

In the NPRM we requested comments 

on whether the proposed regulations 

would require transmission of 

information to that any other agency or 

authority of the United States gathers or 

makes available. 

Based on the response to the NPRM 

and on our review, we have determined 

that these final regulations do not 

require transmission of information that 

any other agency or authority of the 

United States gathers or makes 

available. 

Accessible Format: Individuals with 

disabilities can obtain this document in 

an accessible format (e.g., braille, large 

print, audiotape, or compact disc) on 

request to the program contact person 

listed under FOR FURTHER INFORMATION

CONTACT. 

Electronic Access to This Document: 

The official version of this document is 

the document published in the Federal 

Register. Free Internet access to the 

official edition of the Federal Register 

and the Code of Federal Regulations is 

available via the Federal Digital System 

at: www.gpo.gov/fdsys. At this site you 

can view this document, as well as all 

other documents of this Department 

published in the Federal Register, in 

text or Adobe Portable Document 

Format (PDF). To use PDF you must 

have Adobe Acrobat Reader, which is 

available free at the site. 

You may also access documents of the 

Department published in the Federal 

Register by using the article search 

feature at: www.federalregister.gov. 

Specifically, through the advanced 

search feature at this site, you can limit 

your search to documents published by 

the Department. 

(Catalog of Federal Domestic Assistance 

Numbers: 84.032 Federal Family Education 

Loan Program; 84.038 Federal Perkins Loan 

Program; 84.268 William D. Ford Federal 

Direct Loan Program) 

List of Subjects in 34 CFR Parts 674, 

682, and 685 

Administrative practice and 

procedure, Colleges and universities, 

Education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Dated: October 23, 2012. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary amends parts 

674, 682, and 685 of title 34 of the Code 

of Federal Regulations as follows: 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

■ 1. The authority citation for part 674 

continues to read as follows: 

Authority: 20 U.S.C. 1070g, 1087aa– 

1087hh, unless otherwise noted. 

■ 2. Section 674.61 is amended by: 

■ A. Revising paragraph (b). 

■ B. Revising paragraph (c). 

■ C. Revising paragraph (d). 

The revisions read as follows: 

§ 674.61 Discharge for death or disability. 

* * * * * 

(b) Total and permanent disability as 

defined in § 674.51(aa)(1). (1) General. 

(i) A borrower’s Defense, NDSL, or 

Perkins loan is discharged if the 

borrower becomes totally and 

permanently disabled, as defined in 

§ 674.51(aa)(1), and satisfies the 

additional eligibility requirements in 

this section. 

(ii) For purposes of paragraph (b) of 

this section, a borrower’s representative 

or a veteran’s representative is a 

member of the borrower’s family, the 

borrower’s attorney, or another 

individual authorized to act on behalf of 

the borrower in connection with the 

borrower’s total and permanent 

disability discharge application. 

References to a ‘‘borrower’’ or a 

‘‘veteran’’ include, if applicable, the 

borrower’s representative or the 

veteran’s representative for purposes of 

applying for a total and permanent 

disability discharge, providing 

notifications or information to the 

Secretary, and receiving notifications 

from the Secretary. 

(2) Discharge application process for 

borrowers who have a total and 

permanent disability as defined in 

§ 674.51(aa)(1). (i) If the borrower 

notifies the institution that the borrower 


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claims to be totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the institution must direct the borrower 

to notify the Secretary of the borrower’s 

intent to submit an application for total 

and permanent disability discharge and 

provide the borrower with the 

information needed for the borrower to 

notify Secretary. 

(ii) If the borrower notifies the 

Secretary of the borrower’s intent to 

apply for a total and permanent 

disability discharge, the Secretary— 

(A) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent 

disability discharge; 

(B) Identifies all title IV loans owed 

by the borrower and notifies the lenders 

of the borrower’s intent to apply for a 

total and permanent disability 

discharge; 

(C) Directs the lenders to suspend 

efforts to collect from the borrower for 

a period not to exceed 120 days; and 

(D) Informs the borrower that the 

suspension of collection activity 

described in paragraph (b)(2)(ii)(C) of 

this section will end after 120 days and 

the collection will resume on the loans 

if the borrower does not submit a total 

and permanent disability discharge 

application to the Secretary within that 

time. 

(iii) If the borrower fails to submit an 

application for a total and permanent 

disability discharge to the Secretary 

within 120 days, collection resumes on 

the borrower’s title IV loans. 

(iv) The borrower must submit to the 

Secretary an application for total and 

permanent disability discharge on a 

form approved by the Secretary. The 

application must contain— 

(A) A certification by a physician, 

who is a doctor of medicine or 

osteopathy legally authorized to practice 

in a State, that the borrower is totally 

and permanently disabled as defined in 

§ 674.51(aa)(1); or 

(B) A Social Security Administration 

(SSA) notice of award for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits indicating that the borrower’s 

next scheduled disability review will be 

within five to seven years. 

(v) The borrower must submit the 

application described in paragraph 

(b)(2)(iv) of this section to the Secretary 

within 90 days of the date the physician 

certifies the application, if applicable. 

(vi) After the Secretary receives the 

application described in paragraph 

(b)(2)(iv) of this section, the Secretary 

notifies the holders of the borrower’s 

title IV loans that the Secretary has 

received a total and permanent 

disability discharge application from the 

borrower. 

(vii) If the application is incomplete, 

the Secretary notifies the borrower of 

the missing information and requests 

the missing information from the 

borrower, the borrower’s representative, 

or the physician who provided the 

certification, as appropriate. The 

Secretary does not make a 

determination of eligibility until the 

application is complete. 

(viii) The lender notification 

described in paragraph (b)(2)(vi) of this 

section directs the borrower’s loan 

holders to suspend collection activity or 

maintain the suspension of collection 

activity on the borrower’s title IV loans. 

(ix) After the Secretary receives a 

disability discharge application, the 

Secretary sends a notice to the borrower 

that— 

(A) States that the application will be 

reviewed by the Secretary; 

(B) Informs the borrower that the 

borrower’s lenders will suspend 

collection activity or maintain the 

suspension of collection activity on the 

borrower’s title IV loans while the 

Secretary reviews the borrower’s 

application for discharge; and 

(C) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(3) Secretary’s review of the total and 

permanent disability discharge 

application. (i) If, after reviewing the 

borrower’s completed application, the 

Secretary determines that the 

physician’s certification or the SSA 

notice of award for SSDI or SSI benefits 

supports the conclusion that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the borrower is considered totally and 

permanently disabled as of the date— 

(A) The physician certified the 

borrower’s application; or 

(B) The Secretary received the SSA 

notice of award for SSDI or SSI benefits. 

(ii) The Secretary may require the 

borrower to submit additional medical 

evidence if the Secretary determines 

that the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

defined in § 674.51(aa)(1). As part of the 

Secretary’s review of the borrower’s 

discharge application, the Secretary may 

require and arrange for an additional 

review of the borrower’s condition by an 

independent physician at no expense to 

the borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the Secretary notifies the borrower and 

the borrower’s lenders that the 

application for a disability discharge has 

been approved. With this notification, 

the Secretary provides the date the 

physician certified the borrower’s loan 

discharge application or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits and 

directs each institution holding a 

Defense, NDSL, or Perkins Loan made to 

the borrower to assign the loan to the 

Secretary. 

(iv) The institution must assign the 

loan to the Secretary within 45 days of 

the date of the notice described in 

paragraph (b)(3)(iii) of this section. 

(v) After the loan is assigned, the 

Secretary discharges the borrower’s 

obligation to make further payments on 

the loan and notifies the borrower and 

the institution that the loan has been 

discharged. The notification to the 

borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(b)(6) of this section. Any payments 

received after the date the physician 

certified the borrower’s loan discharge 

application or the date the Secretary 

received the SSA notice of award for 

SSDI or SSI benefits are returned to the 

person who made the payments on the 

loan in accordance with paragraph (b)(8) 

of this section. 

(vi) If the Secretary determines that 

the physician’s certification or the SSA 

notice of award for SSDI or SSI benefits 

provided by the borrower does not 

support the conclusion that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the Secretary notifies the borrower and 

the institution that the application for a 

disability discharge has been denied. 

The notification includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the institution under the 

terms of the promissory note and that 

the loan will return to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; 

(C) A statement that the institution 

will notify the borrower of the date the 

borrower must resume making 

payments on the loan; 

(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional information that supports the 

borrower’s eligibility for discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 


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of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to re-evaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 

(vii) If the borrower requests reevaluation in accordance with 

paragraph (b)(3)(vi)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (b)(3)(vi)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for a total 

and permanent disability discharge. 

(4) Treatment of disbursements made 

during the period from the date of the 

physician’s certification or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits until the 

date of discharge. If a borrower received 

a title IV loan or TEACH Grant before 

the date the physician certified the 

borrower’s discharge application or 

before the date the Secretary received 

the SSA notice of award for SSDI or SSI 

benefits and a disbursement of that loan 

or grant is made during the period from 

the date of the physician’s certification 

or the date the Secretary received the 

SSA notice of award for SSDI or SSI 

benefits until the date the Secretary 

grants a discharge under this section, 

the processing of the borrower’s loan 

discharge application will be suspended 

until the borrower ensures that the full 

amount of the disbursement has been 

returned to the loan holder or to the 

Secretary, as applicable. 

(5) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician’s certification or after the date 

the Secretary received the SSA notice of 

award for SSDI or SSI benefits. If a 

borrower receives a disbursement of a 

new title IV loan or receives a new 

TEACH Grant made on or after the date 

the physician certified the borrower’s 

discharge application or on or after the 

date the Secretary received the SSA 

notice of award for SSDI or SSI benefits 

and before the date the Secretary grants 

a discharge under this section, the 

Secretary denies the borrower’s 

discharge request and collection 

resumes on the borrower’s loans. 

(6) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates the borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(3)(v) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty guideline for a family of 

two, as published annually by the 

United States Department of Health and 

Human Services pursuant to 42 U.S.C. 

9902(2); 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins or Direct 

Loan programs, except for a Direct 

Consolidation Loan that includes loans 

that were not discharged; 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to 

the discharge date that is made is 

returned to the loan holder or to the 

Secretary, as applicable, within 120 

days of the disbursement date; or 

(D) Receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(ii) If the borrower’s obligation to 

repay a loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(6)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(7) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 

described in paragraph (b)(6)(i) of this 

section, the borrower must— 

(i) Promptly notify the Secretary of 

any changes in the borrower’s address 

or phone number; 

(ii) Promptly notify the Secretary if 

the borrower’s annual earnings from 

employment exceed the amount 

specified in paragraph (b)(6)(i)(A) of this 

section; 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment on a form approved by the 

Secretary; and 

(iv) Promptly notify the Secretary if 

the borrower receives a notice from the 

SSA indicating that the borrower is no 

longer disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(8) Payments received after the 

physician’s certification of total and 

permanent disability. (i) If the 

institution receives any payments from 

or on behalf of the borrower on or 

attributable to a loan that has been 

assigned to the Secretary based on the 

Secretary’s determination of eligibility 

for a total and permanent disability 

discharge, the institution must return 

the payments to the sender. 

(ii) At the same time that the 

institution returns the payments, it must 

notify the borrower that there is no 

obligation to make payments on the loan 

after it has been discharged due to a 

total and permanent disability unless 

the loan is reinstated in accordance with 

§ 674.61(b)(6), or the Secretary directs 

the borrower otherwise. 

(iii) When the Secretary discharges 

the loan, the Secretary returns to the 

sender any payments received on the 

loan after the date the borrower became 

totally and permanently disabled. 

(c) Total and permanent disability 

discharges for veterans. (1) General. A 

veteran’s Defense, NDSL, or Perkins 

loan will be discharged if the veteran is 

totally and permanently disabled, as 

defined in § 674.51(aa)(2). 

(2) Discharge application process for 

veterans who have a total and 

permanent disability as defined in 

§ 674.51(aa)(2). (i) If a veteran notifies 

the institution that the veteran claims to 

be totally and permanently disabled as 

defined in § 674.51(aa)(2), the 

institution must direct the veteran to 

notify the Secretary of the veteran’s 

intent to submit an application for a 

total and permanent disability discharge 

to the Secretary; and provide the veteran 

with the information needed for the 

veteran to apply for a total and 

permanent disability discharge to the 

Secretary. 


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(ii) If the veteran notifies the Secretary 

of the veteran’s intent to apply for a 

total and permanent disability 

discharge, the Secretary— 

(A) Provides the veteran with 

information needed for the veteran to 

apply for a total and permanent 

disability discharge; 

(B) Identifies all title IV loans owed 

by the veteran and notifies the lenders 

of the veteran’s intent to apply for a 

total and permanent disability 

discharge; 

(C) Directs the lenders to suspend 

efforts to collect from the borrower for 

a period not to exceed 120 days; and 

(D) Informs the veteran that the 

suspension of collection activity 

described in paragraph (c)(2)(ii)(C) of 

this section will end after 120 days and 

collection will resume on the veteran’s 

title IV loans if the veteran does not 

submit a total and permanent disability 

discharge application to the Secretary 

within that time. 

(iii) If the veteran fails to submit an 

application for a total and permanent 

disability discharge to the Secretary 

within 120 days, collection resumes on 

the veteran’s title IV loans. 

(iv) The veteran must submit to the 

Secretary an application for total and 

permanent disability discharge on a 

form approved by the Secretary. 

(v) The application must be 

accompanied by documentation from 

the Department of Veteran Affairs 

showing that the Department of Veteran 

Affairs has determined that the veteran 

is unemployable due to a serviceconnected disability. The veteran will 

not be required to provide any 

additional documentation related to the 

veteran’s disability. 

(vi) After the Secretary receives the 

application and supporting 

documentation described in paragraphs 

(c)(2)(iv) and (c)(2)(v) of this section, the 

Secretary notifies the holders of the 

veteran’s title IV loans that the Secretary 

has received a total and permanent 

disability discharge application from the 

veteran. 

(vii) If the application is incomplete, 

the Secretary notifies the veteran of the 

missing information and requests the 

missing information from the veteran or 

the veteran’s representative. The 

Secretary does not make a 

determination of eligibility until the 

application is complete. 

(viii) The lender notification 

described in paragraph (c)(2)(vi) of this 

section directs the lenders to suspend 

collection activity or maintain the 

suspension of collection activity on the 

borrower’s title IV loans. 

(ix) After the Secretary receives the 

disability discharge application, the 

Secretary sends a notice to the veteran 

that— 

(A) States that the application will be 

reviewed by the Secretary; 

(B) Informs the veteran that the 

veteran’s lenders will suspend 

collection activity on the veteran’s title 

IV loans while the Secretary reviews the 

borrower’s application for a discharge; 

and 

(C) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(3) Secretary’s review of the total and 

permanent disability discharge 

application. (i) If, after reviewing the 

veteran’s completed application, the 

Secretary determines, based on a review 

of the documentation from the 

Department of Veterans Affairs, that the 

veteran is totally and permanently 

disabled as defined in § 674.51(aa)(2), 

the Secretary notifies the veteran and 

the veteran’s lenders that the 

application for disability discharge has 

been approved. With this notification, 

the Secretary provides the effective date 

of the determination and directs each 

institution holding a Direct, NDSL, or 

Perkins Loan made to the veteran to 

discharge the loan. 

(ii) The institution returns any 

payments received on or after the 

effective date of the determination by 

the Department of Veterans Affairs that 

the veteran is unemployable due to a 

service-connected disability to the 

person who made the payments. 

(iii) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is not totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), the Secretary notifies the 

veteran or the veteran’s representative, 

and the institution that the application 

for a disability discharge has been 

denied. The notification includes— 

(A) The reason or reasons for the 

denial; 

(B) An explanation that the loan is 

due and payable to the institution under 

the terms of the promissory note and 

that the loan will return to the status 

that would have existed had the total 

and permanent disability discharge 

application not been received; 

(C) An explanation that the institution 

will notify the veteran of the date the 

veteran must resume making payments 

on the loan; 

(D) An explanation that the veteran is 

not required to submit a new total and 

permanent disability discharge 

application if the veteran requests that 

the Secretary re-evaluate the veteran’s 

application for discharge by providing, 

within 12 months of the date of the 

notification, additional documentation 

from the Department of Veterans Affairs 

that supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran 

may reapply for a total and permanent 

disability discharge in accordance with 

the procedures described in paragraphs 

(b)(1) through (b)(8) of this section, if 

the documentation from the Department 

of Veterans Affairs does not indicate 

that the veteran is totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), but indicates that the 

veteran may be totally and permanently 

disabled as defined in § 674.51(aa)(1). 

(d) No Federal reimbursement. No 

Federal reimbursement is made to an 

institution for discharge of loans due to 

death or disability. 

* * * * * 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

■ 3. The authority citation for part 682 

continues to read as follows: 

Authority: 20 U.S.C. 1071 to 1087–2, 

unless otherwise noted. 

§ 682.209 [Amended] 

■ 4. Section 682.209 is amended in 

paragraph (a)(6)(v)(C), by adding the 

words ‘‘through (e)(1)(iii)’’ between the 

citation ‘‘682.215(e)(1)(i)’’ and the word 

‘‘within’’. 

■ 5. Section 682.211 is amended in 

paragraph (f) by: 

■ A. In paragraph (f)(15), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation and word ‘‘; or’’. 

■ B. Adding a new paragraph (f)(16). 

The addition reads as follows: 

§ 682.211 Forbearance. 

* * * * * 

(f) * * * 

(16) For the periods described in 

§ 682.215(e)(9) in regard to the incomebased repayment plan. 

* * * * * 

■ 6. Section 682.215 is amended by: 

■ A. In paragraph (b)(1)(i), adding the 

words ‘‘the borrower’s’’ immediately 

after the words ‘‘outstanding principal 

amount of’’. 

■ B. In paragraph (b)(1)(ii)(C), adding 

the words ‘‘the borrower’s’’ immediately 

after the words ‘‘outstanding principal 

amount of’’. 

■ C. In the first sentence of paragraph 

(b)(2), removing the words ‘‘an incomebased repayment plan’’ and adding, in 

their place, the words ‘‘the incomebased repayment plan’’. 

■ D. Revising paragraph (b)(3). 

■ E. In paragraph (b)(7), removing the 

words ‘‘an income-based repayment 


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plan’’ and adding, in their place, the 

words ‘‘the income-based repayment 

plan’’. 

■ F. In paragraph (b)(8), removing the 

words ‘‘an income-based repayment 

plan’’ and adding, in their place, the 

words ‘‘the income-based repayment 

plan’’. 

■ G. In the introductory text of 

paragraph (c)(1), removing the words 

‘‘an income-based repayment plan’’ and 

adding, in their place, the words ‘‘the 

income-based repayment plan’’. 

■ H. Revising paragraph (d). 

■ I. Revising paragraph (e). 

■ J. Revising paragraph (f)(1)(i). 

■ K. In paragraph (f)(1)(iii), adding the 

words ‘‘for the amount of the borrower’s 

loans that were outstanding at the time 

the loans initially entered repayment’’ at 

the end of the paragraph, immediately 

before the punctuation ‘‘;’’. 

■ L. In paragraph (f)(1)(iv), removing the 

words ‘‘for the amount of the borrower’s 

loans that were outstanding at the time 

the borrower first selected the incomebased repayment plan’’. 

■ M. In the first sentence of paragraph 

(f)(3)(i), removing the words ‘‘a FFEL 

Consolidation Loan,’’ and adding, in 

their place, the words ‘‘an eligible FFEL 

Consolidation Loan,’’. 

■ N. In paragraph (f)(3)(iv), removing 

the words ‘‘(f)(1) after qualifying for the 

income-based repayment plan’’ 

immediately before the punctuation ‘‘.’’ 

and adding, in their place, the words 

‘‘paragraph (f)(1) of this section’’. 

■ O. Revising paragraph (f)(5). 

■ P. Revising paragraph (g). 

■ Q. Adding an OMB control number 

parenthetical following the section. 

The revisions and addition read as 

follows: 

§ 682.215 Income-based repayment plan. 

* * * * * 

(b) * * * 

(3) If a borrower elects the incomebased repayment plan on or after July 1, 

2013, the loan holder must, unless the 

borrower has some loans that are 

eligible for repayment under the 

income-based repayment plan and other 

loans that are not eligible for repayment 

under that plan, require that all eligible 

loans owed by the borrower to that 

holder be repaid under the incomebased repayment plan. 

* * * * * 

(d) Changes in the payment amount. 

(1) If a borrower no longer has a partial 

financial hardship, the borrower may 

continue to make payments under the 

income-based repayment plan but the 

loan holder must recalculate the 

borrower’s monthly payment. The loan 

holder also recalculates the monthly 

payment for a borrower who chooses to 

stop making income-based payments. In 

either case, as a result of the 

recalculation— 

(i) The maximum monthly amount 

that the loan holder requires 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 using the 

amount of the borrower’s eligible loans 

that was outstanding at the time the 

borrower began repayment on the loans 

with that holder under the incomebased 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, the time 

remaining under the maximum 10-year 

repayment period and the amount of the 

borrower’s loans that was outstanding at 

the time the borrower discontinued 

paying under the income-based 

repayment plan; or 

(ii) For a Consolidation Loan, the time 

remaining under the applicable 

repayment period as initially 

determined under § 682.209(h)(2) and 

the total amount of that loan that was 

outstanding at the time the borrower 

discontinued paying under the incomebased 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 

monthly payment under the FFEL 

standard repayment plan. For this 

purpose, a monthly payment may 

include one payment made under a 

forbearance that provides for 

temporarily accepting smaller payments 

than previously scheduled, in 

accordance with § 682.211(a)(1). 

(e) Eligibility documentation, 

verification, and notifications. (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) Provide documentation, acceptable 

to the loan holder, of the borrower’s 

AGI; 

(ii) 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, provide other 

documentation to verify income; 

(iii) If the spouse of a married 

borrower who files a joint Federal tax 

return has eligible loans and the loan 

holder does not hold at least one of the 

spouse’s eligible loans— 

(A) Ensure that the borrower’s spouse 

has provided consent for the loan holder 

to obtain information about the spouse’s 

eligible loans from the National Student 

Loan Data System; or 

(B) Provide other documentation, 

acceptable to the loan holder, of the 

spouse’s eligible loan information; and 

(iv) 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) After making a determination that 

a borrower has a partial financial 

hardship to qualify for the income-based 

repayment plan for the year the 

borrower initially elects the plan and for 

any subsequent year that the borrower 

has a partial financial hardship, the loan 

holder must send the borrower a written 

notification that provides the borrower 

with— 

(i) The borrower’s scheduled monthly 

payment amount, as calculated under 

paragraph (b)(1) of this section, and the 

time period during which this 

scheduled monthly payment amount 

will apply (annual payment period); 

(ii) Information about the requirement 

for the borrower to annually provide the 

information described in paragraph 

(e)(1) of this section, if the borrower 

chooses to remain on the income-based 

repayment 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 loan holder must 

receive this information; 

(iii) An explanation of the 

consequences, as described in 

paragraphs (e)(1)(iv) and (e)(7) of this 

section, if the borrower does not provide 

the required information; 

(iv) An explanation of the 

consequences if the borrower no longer 

wishes to repay under the income-based 

repayment plan; and 

(v) Information about the borrower’s 

option to request, at any time during the 

borrower’s current annual payment 

period, that the loan holder 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 loan 


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holder recalculates the borrower’s 

monthly payment amount based on the 

borrower’s request, the loan holder must 

send the borrower a written notification 

that includes the information described 

in paragraphs (e)(2)(i) through (e)(2)(v) 

of this section. 

(3) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the 

income-based repayment plan, the loan 

holder must notify the borrower in 

writing of the requirements in paragraph 

(e)(1) of this section no later than 60 

days and no earlier than 90 days prior 

to the date specified in paragraph 

(e)(3)(i) of this section. The notification 

must provide the borrower with— 

(i) The date, no earlier than 35 days 

before the end of the borrower’s annual 

payment period, by which the loan 

holder must receive all of the 

information described in paragraph 

(e)(1) of this section (annual deadline); 

and 

(ii) The consequences if the loan 

holder 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 (d)(1) of this section, the 

effective date for the recalculated 

monthly payment amount, and the fact 

that unpaid accrued interest will be 

capitalized at the end of the borrower’s 

current annual payment period in 

accordance with paragraph (b)(5) of this 

section. 

(4) Each time a loan holder 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 loan 

holder must send the borrower a written 

notification that provides the borrower 

with— 

(i) The borrower’s recalculated 

monthly payment amount, as 

determined in accordance with 

paragraph (d)(1) of this section; 

(ii) An explanation that unpaid 

accrued interest will be capitalized in 

accordance with paragraph (b)(5) of this 

section; and 

(iii) Information about the borrower’s 

option to request, at any time, that the 

loan holder 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 

loan holder determines that the 

borrower again has a partial financial 

hardship, the loan holder must 

recalculate the borrower’s monthly 

payment in accordance with paragraph 

(b)(1) of this section and send the 

borrower a written notification that 

includes the information described in 

paragraphs (e)(2)(i) through (e)(2)(v) of 

this section. 

(5) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on 

the income-based repayment plan, the 

loan holder must send the borrower a 

written notification that includes the 

information described in paragraph 

(e)(4)(iii) of this section. 

(6) If a borrower who is currently 

repaying under another repayment plan 

selects the income-based repayment 

plan but does not provide the 

documentation described in paragraphs 

(e)(1)(i) through (e)(1)(iii) of this section, 

or if the loan holder determines that the 

borrower does not have a partial 

financial hardship, the borrower 

remains on his or her current repayment 

plan. 

(7) The loan holder designates the 

repayment option described in 

paragraph (d)(1) of this section if a 

borrower who is currently repaying 

under the income-based repayment plan 

remains on the plan for a subsequent 

year but the loan holder does not 

receive the information described in 

paragraphs (e)(1)(i) through (e)(1)(iii) of 

this section within 10 days of the 

specified annual deadline, unless the 

loan holder is able to determine the 

borrower’s new monthly payment 

amount before the end of the borrower’s 

current annual payment period. 

(8) If the loan holder receives the 

information described in paragraphs 

(e)(1)(i) through (e)(1)(iii) of this section 

within 10 days of the specified annual 

deadline— 

(i) The loan holder must promptly 

determine the borrower’s new monthly 

payment amount. 

(ii) If the loan holder does not 

determine the new monthly payment 

amount by the end of the borrower’s 

current annual payment period, the loan 

holder must prevent the borrower’s 

monthly payment amount from being 

recalculated in accordance with 

paragraph (d)(1) of this section and 

maintain the borrower’s current 

scheduled monthly payment amount 

until the loan holder determines the 

new monthly payment amount. 

(A) If the new monthly payment 

amount is less than the borrower’s 

previously calculated income-based 

monthly payment amount, the loan 

holder must make the appropriate 

adjustment to the borrower’s account to 

reflect any payments at the previously 

calculated amount that the borrower 

made after the end of the most recent 

annual payment period. 

Notwithstanding the requirements of 

§ 682.209(b)(2)(ii), unless the borrower 

requests otherwise the loan holder 

applies the excess payment amounts 

made after the end of the most recent 

annual payment period in accordance 

with the requirements of paragraph 

(c)(1) of this section. 

(B) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated 

income-based monthly payment 

amount, the loan holder does not make 

any adjustments to the borrower’s 

account. 

(iii) The new annual payment period 

begins on the day after the end of the 

most recent annual payment period. 

(9) If the loan holder receives the 

documentation described in paragraphs 

(e)(1)(i) through (e)(1)(iii) 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 (d)(1) of this section, the loan 

holder may grant forbearance with 

respect to payments that are overdue or 

would be due at the time the new 

calculated income-based 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. 

(f) * * * 

(1) * * * 

(i) Made reduced monthly payments 

under a partial financial hardship as 

provided in paragraph (b)(1) of this 

section, including a monthly payment 

amount of $0.00, as provided in 

paragraph (b)(1)(iii) of this section; 

* * * * * 

(5) Any payments made on a 

defaulted loan are not made under a 

qualifying repayment plan and are not 

counted toward the 25-year 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 six months prior to the anticipated 

date that the borrower will meet the 

loan forgiveness requirements, the loan 

holder must send the borrower a written 

notice that includes— 


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(i) An explanation that the borrower 

is approaching the date that he or she 

is expected to meet the requirements to 

receive loan forgiveness; 

(ii) A reminder that the borrower must 

continue to make the borrower’s 

scheduled monthly payments; and 

(iii) 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. 

(2) No later than 60 days after the loan 

holder determines that a borrower 

qualifies for loan forgiveness, the loan 

holder must request payment from the 

guaranty agency. 

(3) If the loan holder requests 

payment from the guaranty agency later 

than the period specified in paragraph 

(g)(2) 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 60- 

day filing period. The holder cannot 

collect from the borrower any interest 

that is not paid by the Secretary under 

this paragraph. 

(4)(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)(4)(i) of this section, pay 

the holder the amount of the 

forgiveness. 

(5) 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) Inform the borrower of the 

determination and, if appropriate, that 

the borrower’s repayment obligation on 

the loans is satisfied; and 

(ii) Provide the borrower with the 

information described in paragraph 

(g)(1)(iii) of this section. 

(6)(i) The holder must apply the 

payment from the guaranty agency 

under paragraph (g)(4)(ii) of this section 

to satisfy the outstanding balance on 

those loans subject to income-based 

forgiveness; 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. 

(7) 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). 

(8) 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. 

(Approved by the Office of 

Management and Budget under control 

number 1845–NEWA.) 

* * * * * 

■ 7. Section 682.402 is amended by: 

■ A. Revising paragraph (c). 

■ B. In paragraph (g)(1)(iv), removing 

the words ‘‘certification of disability 

described in paragraph (c)(2) of this 

section’’ and adding, in their place, the 

words ‘‘notification described in 

paragraph (c)(3)(iii) or (c)(9)(ix) of this 

section in which the Secretary notifies 

the lender that the borrower is totally 

and permanently disabled’’. 

■ C. In paragraph (g)(2)(i), removing the 

punctuation and words ‘‘, or the lender 

determines that the borrower is totally 

and permanently disabled’’. 

■ D. Redesignating paragraphs (g)(2)(ii), 

(g)(2)(iii), and (g)(2)(iv) as paragraphs 

(g)(2)(iii), (g)(2)(iv), and (g)(2)(v), 

respectively. 

■ E. Adding a new paragraph (g)(2)(ii). 

■ F. In paragraph (h)(1)(i)(A), adding the 

punctuation and word ‘‘, disability,’’ 

after the word ‘‘death’’. 

■ G. In paragraph (h)(1)(i)(B), removing 

the words and punctuation ‘‘disability, 

closed school,’’ and adding, in their 

place, the words ‘‘closed school’’. 

■ H. Revising paragraph (h)(1)(v). 

■ I. In paragraph (h)(3)(iii)(A), adding 

the punctuation and word ‘‘, disability,’’ 

after the word ‘‘death’’. 

■ J. In paragraph (h)(3)(iii)(B), removing 

the words and punctuation ‘‘disability, 

closed school,’’ and adding, in their 

place, the words ‘‘closed school’’. 

■ K. Revising paragraph (k)(2)(i). 

■ L. Revising paragraph (k)(2)(ii). 

■ M. In paragraph (k)(2)(iii), adding the 

words ‘‘by the Secretary’’ after the 

words ‘‘is determined’’ 

■ N. In paragraph (k)(5)(ii), removing 

the words ‘‘the guaranty agency makes 

a preliminary determination’’ and 

adding, in their place, the words ‘‘the 

Secretary makes a determination’’. 

■ O. Revising paragraph (r)(2). 

■ P. Revising paragraph (r)(3). 

The revisions and additions read as 

follows: 

§ 682.402 Death, disability, closed school, 

false certification, unpaid refunds, and 

bankruptcy payments. 

* * * * * 

(c)(1) Total and permanent disability. 

(i) A borrower’s loan is discharged if the 

borrower becomes totally and 

permanently disabled, as defined in 

§ 682.200(b), and satisfies the eligibility 

requirements in this section. 

(ii) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 682.200(b), 

the borrower’s loan discharge 

application is processed in accordance 

with paragraphs (c)(2) through (c)(8) of 

this section. 

(iii) For a veteran who is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the veteran’s loan 

discharge application is processed in 

accordance with paragraph (c)(9) of this 

section. 

(iv) For purposes of this paragraph 

(c)— 

(A) A borrower’s representative or a 

veteran’s representative is a member of 

the borrower’s family, the borrower’s 

attorney, or another individual 

authorized to act on behalf of the 

borrower in connection with the 

borrower’s total and permanent 

disability discharge application. 

References to a ‘‘borrower’’ or a 

‘‘veteran’’ include, if applicable, the 

borrower’s representative or the 

veteran’s representative for purposes of 

applying for a total and permanent 

disability discharge, providing 

notifications or information to the 

Secretary, and receiving notifications 

from the Secretary; 

(B) References to ‘‘the lender’’ mean 

the guaranty agency if the guaranty 

agency is the holder of the loan at the 

time the borrower applies for a total and 

permanent disability discharge, except 

that the total and permanent disability 

discharge claim filing requirements 

applicable to a lender do not apply to 

the guaranty agency; and 

(C) References to ‘‘the applicable 

guaranty agency’’ mean the guaranty 

agency that guarantees the loan. 

(2) Discharge application process for 

a borrower who is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 682.200(b). (i) If the borrower 

notifies the lender that the borrower 

claims to be totally and permanently 

disabled as described in paragraph (1) of 


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the definition of that term in 

§ 682.200(b), the lender must direct the 

borrower to notify the Secretary of the 

borrower’s intent to submit an 

application for total and permanent 

disability discharge and provide the 

borrower with the information needed 

for the borrower to notify the Secretary. 

(ii) If the borrower notifies the 

Secretary of the borrower’s intent to 

apply for a total and permanent 

disability discharge, the Secretary— 

(A) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent 

disability discharge; 

(B) Identifies all title IV loans owed 

by the borrower and notifies the lenders 

of the borrower’s intent to apply for a 

total and permanent disability 

discharge; 

(C) Directs the lenders to suspend 

efforts to collect from the borrower for 

a period not to exceed 120 days; and 

(D) Informs the borrower that the 

suspension of collection activity 

described in paragraph (c)(2)(ii)(C) of 

this section will end after 120 days and 

collection will resume on the loans if 

the borrower does not submit a total and 

permanent disability discharge 

application to the Secretary within that 

time; 

(iii) If the borrower fails to submit an 

application for a total and permanent 

disability discharge to the Secretary 

within 120 days, collection resumes on 

the borrower’s title IV loans, and the 

lender is deemed to have exercised 

forbearance of principal and interest 

from the date it suspended collection 

activity. The lender may capitalize, in 

accordance with § 682.202(b), any 

interest accrued and not paid during 

that period, except that if the lender is 

a guaranty agency it may not capitalize 

accrued interest. 

(iv) The borrower must submit to the 

Secretary an application for a total and 

permanent disability discharge on a 

form approved by the Secretary. The 

application must contain— 

(A) A certification by a physician, 

who is a doctor of medicine or 

osteopathy legally authorized to practice 

in a State, that the borrower is totally 

and permanently disabled as described 

in paragraph (1) of the definition of that 

term in § 682.200(b); or 

(B) An SSA notice of award for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits indicating that the borrower’s 

next scheduled disability review will be 

within five to seven years. 

(v) The borrower must submit the 

application described in paragraph 

(c)(2)(iv) of this section to the Secretary 

within 90 days of the date the physician 

certifies the application, if applicable. 

(vi) After the Secretary receives the 

application described in paragraph 

(c)(2)(iv) of this section, the Secretary 

notifies the holders of the borrower’s 

title IV loans, that the Secretary has 

received a total and permanent 

disability discharge application from the 

borrower. The holders of the loans must 

notify the applicable guaranty agencies 

that the total and permanent disability 

discharge application has been received. 

(vii) If the application is incomplete, 

the Secretary notifies the borrower of 

the missing information and requests 

the missing information from the 

borrower or the physician who provided 

the certification, as appropriate. The 

Secretary does not make a 

determination of eligibility until the 

application is complete. 

(viii) The lender notification 

described in paragraph (c)(2)(vi) of this 

section directs the borrower’s loan 

holders to suspend collection activity or 

maintain the suspension of collection 

activity on the borrower’s title IV loans. 

(ix) After the Secretary receives the 

disability discharge application, the 

Secretary sends a notice to the borrower 

that— 

(A) States that the application will be 

reviewed by the Secretary; 

(B) Informs the borrower that the 

borrower’s lenders will suspend 

collection activity or maintain the 

suspension of collection activity on the 

borrower’s title IV loans while the 

Secretary reviews the borrower’s 

application for a discharge; and 

(C) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(3) Secretary’s review of total and 

permanent disability discharge 

application. (i) If, after reviewing the 

borrower’s completed application, the 

Secretary determines that the 

physician’s certification or the SSA 

notice of award for SSDI or SSI benefits 

supports the conclusion that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 682.200(b), the borrower is considered 

totally and permanently disabled— 

(A) As of the date the physician 

certified the borrower’s application; or 

(B) As of the date the Secretary 

received the SSA notice of award for 

SSDI or SSI benefits. 

(ii) The Secretary may require the 

borrower to submit additional medical 

evidence if the Secretary determines 

that the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 682.200(b). 

As part of the Secretary’s review of the 

borrower’s discharge application, the 

Secretary may require and arrange for an 

additional review of the borrower’s 

condition by an independent physician 

at no expense to the borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

borrower and the borrower’s lenders 

that the application for a disability 

discharge has been approved. With this 

notification, the Secretary provides the 

date the physician certified the 

borrower’s loan discharge application or 

the date the Secretary received the SSA 

notice of award for SSDI or SSI benefits 

and directs each lender to submit a 

disability claim to the guaranty agency 

so the loan can be assigned to the 

Secretary. The Secretary returns any 

payment received by the Secretary after 

the date the physician certified the 

borrower’s loan discharge application or 

received the SSA notice of award for 

SSDI or SSI benefits to the person who 

made the payment. 

(iv) After the loan is assigned, the 

Secretary discharges the borrower’s 

obligation to make further payments on 

the loan and notifies the borrower and 

the lender that the loan has been 

discharged. The notification to the 

borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(c)(6)(i) of this section. 

(v) If the Secretary determines that the 

physician’s certification or SSA notice 

of award for SSDI or SSI benefits 

provided by the borrower does not 

support the conclusion that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

borrower and the lender that the 

application for a disability discharge has 

been denied. The notification 

includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the lender under the 

terms of the promissory note and that 

the loan will return to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; 

(C) A statement that the lender will 

notify the borrower of the date the 

borrower must resume making 

payments on the loan; 


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(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional information that supports the 

borrower’s eligibility for discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 

of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to re-evaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 

(vi) If the borrower requests reevaluation in accordance with 

paragraph (c)(3)(v)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (c)(3)(v)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for a total 

and permanent disability discharge. 

(4) Treatment of disbursements made 

during the period from the date of the 

physician’s certification or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits until the 

date of discharge. If a borrower received 

a title IV loan or TEACH Grant before 

the date the physician certified the 

borrower’s discharge application or 

before the date the Secretary received 

the SSA notice of award for SSDI or SSI 

benefits and a disbursement of that loan 

or grant is made during the period from 

the date of the physician’s certification 

or the Secretary’s receipt of the SSA 

notice of award for SSDI or SSI benefits 

until the date the Secretary grants a 

discharge under this section, the 

processing of the borrower’s loan 

discharge request will be suspended 

until the borrower ensures that the full 

amount of the disbursement has been 

returned to the loan holder or to the 

Secretary, as applicable. 

(5) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician’s certification or after the date 

the Secretary received the SSA notice of 

award for SSDI or SSI benefits. If a 

borrower receives a disbursement of a 

new title IV loan or receives a new 

TEACH Grant made on or after the date 

the physician certified the borrower’s 

discharge application or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits and 

before the date the Secretary grants a 

discharge under this section, the 

Secretary denies the borrower’s 

discharge request and collection 

resumes on the borrower’s loans. 

(6) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates the borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (c)(3)(iii) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty guideline for a family of 

two, as published annually by the 

United States Department of Health and 

Human Services pursuant to 42 U.S.C. 

9902(2); 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins or Direct 

Loan programs, except for a Direct 

Consolidation Loan that includes loans 

that were not discharged; or 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to 

the discharge date that is made is 

returned to the loan holder or to the 

Secretary, as applicable, within 120 

days of the disbursement date; or 

(D) Receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(ii) If the borrower’s obligation to 

repay a loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (c)(6)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(7) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 

described in paragraph (c)(6)(i) of this 

section, the borrower must— 

(i) Promptly notify the Secretary of 

any changes in the borrower’s address 

or phone number; 

(ii) Promptly notify the Secretary if 

the borrower’s annual earnings from 

employment exceed the amount 

specified in paragraph (c)(6)(i)(A) of this 

section; 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment, on a form approved by the 

Secretary; or 

(iv) Promptly notify the Secretary if 

the borrower receives a notice from the 

SSA indicating that the borrower is no 

longer disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(8) Lender and guaranty agency 

actions. (i) If the Secretary approves the 

borrower’s total and permanent 

disability discharge application— 

(A) The lender must submit a 

disability claim to the guaranty agency, 

in accordance with paragraph (g)(1) of 

this section; 

(B) If the claim satisfies the 

requirements of paragraph (g)(1) of this 

section and § 682.406, the guaranty 

agency must pay the claim submitted by 

the lender; 

(C) After receiving a claim payment 

from the guaranty agency, the lender 

must return to the sender any payments 

received by the lender after the date the 

physician certified the borrower’s loan 

discharge application or after the date 

the Secretary received the SSA notice of 

award for SSDI or SSI benefits as well 

as any payments received after claim 

payment from or on behalf of the 

borrower; 

(D) The Secretary reimburses the 

guaranty agency for a disability claim 

paid to the lender after the agency pays 

the claim to the lender; and 

(E) The guaranty agency must assign 

the loan to the Secretary within 45 days 

of the date the guaranty agency pays the 

disability claim and receives the 

reimbursement payment, or within 45 

days of the date the guaranty agency 

receives the notice described in 

paragraph (c)(3)(iii) of this section if a 

guaranty agency is the lender. 

(ii) If the Secretary does not approve 

the borrower’s total and permanent 


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disability discharge request, the lender 

must resume collection of the loan and 

is deemed to have exercised forbearance 

of payment of both principal and 

interest from the date collection activity 

was suspended. The lender may 

capitalize, in accordance with 

§ 682.202(b), any interest accrued and 

not paid during that period, except if 

the lender is a guaranty agency it may 

not capitalize accrued interest. 

(9) Discharge application process for 

veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b). (i) General. If a 

veteran notifies the lender that the 

veteran claims to be totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the lender must 

direct the veteran to notify the Secretary 

of the veteran’s intent to submit an 

application for a total and permanent 

disability discharge and provide the 

veteran with the information needed for 

the veteran to apply for a total and 

permanent disability discharge to the 

Secretary. 

(ii) If the veteran notifies the Secretary 

of the veteran’s intent to apply for a 

total and permanent disability 

discharge, the Secretary— 

(A) Provides the veteran with 

information needed for the veteran to 

apply for a total and permanent 

disability discharge; 

(B) Identifies all title IV loans owed 

by the veteran and notifies the lenders 

of the veteran’s intent to apply for a 

total and permanent disability 

discharge; 

(C) Directs the lenders to suspend 

efforts to collect from the veteran for a 

period not to exceed 120 days; and 

(D) Informs the veteran that the 

suspension of collection activity 

described in paragraph (c)(9)(ii)(C) of 

this section will end after 120 days and 

the lender will resume collection on the 

loans if the veteran does not submit a 

total and permanent disability discharge 

application to the Secretary within that 

time. 

(iii) If the veteran fails to submit an 

application for a total and permanent 

disability discharge to the Secretary 

within 120 days, collection resumes on 

the veteran’s title IV loans and the 

lender is deemed to have exercised 

forbearance of principal and interest 

from the date it suspended collection 

activity. The lender may capitalize, in 

accordance with § 682.202(b), any 

interest accrued and not paid during 

that period, except that if the lender is 

a guaranty agency it may not capitalize 

accrued interest. 

(iv) The veteran must submit to the 

Secretary an application for a total and 

permanent disability discharge on a 

form approved by the Secretary. 

(v) The application must be 

accompanied by documentation from 

the Department of Veterans Affairs 

showing that the Department of 

Veterans Affairs has determined that the 

veteran is unemployable due to a 

service-connected disability. The 

veteran will not be required to provide 

any additional documentation related to 

the veteran’s disability. 

(vi) After the Secretary receives the 

application and supporting 

documentation described in paragraphs 

(c)(9)(iv) and (c)(9)(v) of this section, the 

Secretary notifies the holders of the 

veteran’s title IV loans, that the 

Secretary has received a total and 

permanent disability discharge 

application from the veteran. The 

holders of the loans must notify the 

applicable guaranty agencies that the 

total and permanent disability discharge 

application has been received. 

(vii) If the application is incomplete, 

the Secretary notifies the veteran of the 

missing information and requests the 

missing information from the veteran or 

the veteran’s representative. The 

Secretary does not make a 

determination of eligibility until the 

application is complete. 

(viii) The lender notification 

described in paragraph (c)(9)(vi) of this 

section directs the lenders to suspend 

collection activity or maintain the 

suspension of collection activity on the 

veteran’s title IV loans. 

(ix) After the Secretary receives the 

disability discharge application, the 

Secretary sends a notice to the veteran 

that— 

(A) States that the application will be 

reviewed by the Secretary; 

(B) Informs the veteran that the 

veteran’s lenders will suspend 

collection activity on the veteran’s title 

IV loans while the Secretary reviews the 

veteran’s application for a discharge; 

and 

(C) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(x) After making a determination that 

the veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

veteran and the veteran’s lenders that 

the application for a disability discharge 

has been approved. With this 

notification, the Secretary provides the 

effective date of the determination and 

directs each lender to submit a 

disability claim to the guaranty agency. 

(xi) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the Secretary 

notifies the veteran and the lender that 

the application for a disability discharge 

has been denied. The notification 

includes— 

(A) The reason or reasons for the 

denial; 

(B) An explanation that the loan is 

due and payable to the lender under the 

terms of the promissory note and that 

the loan will return to the status it was 

in at the time the veteran applied for a 

total and permanent disability 

discharge; 

(C) An explanation that the lender 

will notify the veteran of the date the 

veteran must resume making payments 

on the loan; 

(D) An explanation that the veteran is 

not required to submit a new total and 

permanent disability discharge 

application if the veteran requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional documentation from the 

Department of Veterans Affairs that 

supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran 

may reapply for a total and permanent 

disability discharge in accordance with 

procedures described in paragraphs 

(c)(2) through (c)(8) of this section, if the 

documentation from the Department of 

Veterans Affairs does not indicate that 

the veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 682.200(b), but indicates that the 

veteran may be totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term. 

(xii)(A) If the Secretary approves the 

veteran’s total and permanent disability 

discharge application based on 

documentation from the Department of 

Veterans Affairs the lender must submit 

a disability claim to the guaranty 

agency, in accordance with paragraph 

(g)(1) of this section. 

(B) If the claim meets the 

requirements of paragraph (g)(1) of this 

section and § 682.406, the guaranty 

agency must pay the claim and 

discharge the loan. 

(C) The Secretary reimburses the 

guaranty agency for a disability claim 

after the agency pays the claim to the 

lender. 

(D) Upon receipt of the claim payment 

from the guaranty agency, the lender 

returns any payments received by the 


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lender on or after the effective date of 

the determination by the Department of 

Veterans Affairs to the person who 

made the payments. 

(E) If the Secretary does not approve 

the veteran’s total and permanent 

disability discharge application based 

on documentation from the Department 

of Veterans Affairs, the lender must 

resume collection and is deemed to 

have exercised forbearance of payment 

of both principal and interest from the 

date collection activity was suspended. 

The lender may capitalize, in 

accordance with § 682.202(b), any 

interest accrued and not paid during 

that period, except that if the lender is 

a guaranty agency it may not capitalize 

accrued interest. 

* * * * * 

(g) * * * 

(2) * * * 

(ii) Within 60 days of the date the 

lender received notification from the 

Secretary that the borrower is totally 

and permanently disabled, in 

accordance with paragraphs (c)(3)(iii) or 

(c)(9)(ix) of this section. 

* * * * * 

(h) * * * 

(1) * * * 

(v) In the case of a disability claim 

based on a veteran’s discharge 

application processed in accordance 

with paragraph (c)(9) of this section, the 

guaranty agency must review the claim 

promptly and not later than 45 days 

after the claim was filed by the lender 

pay the claim or return the claim to the 

lender in accordance with paragraph 

(c)(9)(xi)(B) of this section. 

* * * * * 

(k) * * * 

(2) * * * 

(i) The Secretary determines that the 

borrower (or each of the co-makers of a 

PLUS loan) has become totally and 

permanently disabled since applying for 

the loan, or the guaranty agency 

determines that the borrower (or the 

student for whom a parent obtained a 

PLUS loan or each of the co-makers of 

a PLUS loan) has died, or has filed for 

relief in bankruptcy, in accordance with 

the procedures in paragraph (b), (c), or 

(f) of this section, or the student was 

unable to complete an educational 

program because the school closed, or 

the borrower’s eligibility to borrow (or 

the student’s eligibility in the case of a 

PLUS loan) was falsely certified by an 

eligible school. For purposes of this 

paragraph, references to the ‘‘lender’’ 

and ‘‘guaranty agency’’ in paragraphs (b) 

through (f) of this section mean the 

guaranty agency and the Secretary 

respectively; 

(ii) In the case of a Stafford, SLS, or 

PLUS loan, the Secretary determines 

that the borrower (or each of the comakers of a PLUS loan) has become 

totally and permanently disabled since 

applying for the loan, the guaranty 

agency determines that the borrower (or 

the student for whom a parent obtained 

a PLUS loan, or each of the co-makers 

of a PLUS loan) has died, or has filed 

the petition for relief in bankruptcy 

within 10 years of the date the borrower 

entered repayment, exclusive of periods 

of deferment or periods of forbearance 

granted by the lender that extended the 

10-year maximum repayment period, or 

the borrower (or the student for whom 

a parent received a PLUS loan) was 

unable to complete an educational 

program because the school closed, or 

the borrower’s eligibility to borrow (or 

the student’s eligibility in the case of a 

PLUS loan) was falsely certified by an 

eligible school; 

* * * * * 

(r) * * * 

(2) If the guaranty agency receives any 

payments from or on behalf of the 

borrower on or attributable to a loan that 

has been assigned to the Secretary based 

on the determination that the borrower 

is eligible for a total and permanent 

disability discharge, the guaranty 

agency must promptly return these 

payments to the sender. At the same 

time that the agency returns the 

payments, it must notify the borrower 

that there is no obligation to make 

payments on the loan after it has been 

discharged due to a total and permanent 

disability, unless the loan is reinstated 

in accordance with paragraph (c) of this 

section, or the Secretary directs the 

borrower otherwise. 

(3) When the Secretary discharges the 

loan, the Secretary returns to the sender 

any payments received by the Secretary 

on the loan after the date the borrower 

became totally and permanently 

disabled. 

* * * * * 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

■ 8. The authority citation for part 685 

continues to read as follows: 

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

unless otherwise noted. 

■ 9. Section 685.200 is amended by 

revising paragraph (a)(1)(iv)(A)(3). 

The revision reads as follows: 

§ 685.200 Borrower eligibility. 

(a) * * * 

(1) * * * 

(iv) * * * 

(A) * * * 

(3) If the borrower receives a new 

Direct Loan, other than a Direct 

Consolidation Loan, within three years 

of the date that any previous title IV 

loan or TEACH Grant service obligation 

was discharged due to a total and 

permanent disability in accordance with 

§ 685.213(b)(4)(iii), 34 CFR 

674.61(b)(3)(v), 34 CFR 

682.402(c)(3)(iv), or 34 CFR 686.42(b) 

based on a discharge request received 

on or after July 1, 2010, the borrower 

resumes repayment on the previously 

discharged loan in accordance with 

§ 685.213(b)(7), 34 CFR 674.61(b)(6), or 

34 CFR 682.402(c)(6), or acknowledges 

that he or she is once again subject to 

the terms of the TEACH Grant 

agreement to serve before receiving the 

new loan. 

* * * * * 

■ 10. Section 685.202 is amended by: 

■ A. In paragraph (b)(3), removing the 

citation ‘‘§ 685.209(d)(3)’’ and adding, in 

its place, the citation 

‘‘§ 685.209(b)(3)(iv)’’. 

■ B. Revising paragraph (b)(4). 

The revision reads as follows: 

§ 685.202 Charges for which Direct Loan 

Program borrowers are responsible. 

* * * * * 

(b) * * * 

(4) Except as provided in paragraph 

(b)(3) of this section and in 

§§ 685.208(l)(5) and 685.209(b)(3)(iv), 

the Secretary annually capitalizes 

unpaid interest when the borrower is 

paying under the alternative repayment 

plan or the income-contingent 

repayment plan described in 

§ 685.209(b) and the borrower’s 

scheduled payments do not cover the 

interest that has accrued on the loan. 

* * * * * 

■ 11. Section 685.208 is amended by: 

■ A. Revising paragraph (a)(1). 

■ B. Revising paragraph (a)(2). 

■ C. Revising paragraph (k). 

The revisions read as follows: 

§ 685.208 Repayment plans. 

(a) * * * 

(1) Borrowers who entered repayment 

before July 1, 2006. (i) A Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, a Direct Subsidized Consolidation 

Loan, or a Direct Unsubsidized 

Consolidation Loan may be repaid 

under— 

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (d) of this 

section; 

(C) The graduated repayment plan in 

accordance with paragraph (f) of this 

section; 


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(D) The income-contingent repayment 

plan in accordance with paragraph 

(k)(2) of this section; or 

(E) The income-based repayment plan 

in accordance with paragraph (m) of this 

section. 

(ii) A Direct PLUS Loan or a Direct 

PLUS Consolidation Loan may be repaid 

under— 

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (d) of this 

section; or 

(C) The graduated repayment plan in 

accordance with paragraph (f) of this 

section. 

(2) Borrowers entering repayment on 

or after July 1, 2006. (i) A Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, or a Direct PLUS Loan that was 

made to a graduate or professional 

student borrower may be repaid under— 

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (e) of this 

section; 

(C) The graduated repayment plan in 

accordance with paragraph (g) of this 

section; 

(D) The income-contingent repayment 

plans in accordance with paragraph (k) 

of this section; or 

(E) The income-based repayment plan 

in accordance with paragraph (m) of this 

section. 

(ii) A Direct PLUS Loan that was 

made to a parent borrower may be 

repaid under— 

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (e) of this 

section; or 

(C) The graduated repayment plan in 

accordance with paragraph (g) of this 

section. 

(iii) A Direct Consolidation Loan that 

did not repay a parent Direct PLUS Loan 

or a parent Federal PLUS Loan may be 

repaid under— 

(A) The standard repayment plan in 

accordance with paragraph (c) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (e) of this 

section; 

(C) The graduated repayment plan in 

accordance with paragraph (h) of this 

section; 

(D) The income-contingent repayment 

plans in accordance with paragraph (k) 

of this section; or 

(E) The income-based repayment plan 

in accordance with paragraph (m) of this 

section. 

(iv) A Direct Consolidation Loan that 

repaid a parent Direct PLUS Loan or a 

parent Federal PLUS Loan may be 

repaid under— 

(A) The standard repayment plan in 

accordance with paragraph (c) of this 

section; 

(B) The extended repayment plan in 

accordance with paragraph (e) of this 

section; 

(C) The graduated repayment plan in 

accordance with paragraph (h) of this 

section; or 

(D) The income-contingent repayment 

plan in accordance with paragraph 

(k)(2) of this section. 

(v) No scheduled payment may be less 

than the amount of interest accrued on 

the loan between monthly payments, 

except under the income-contingent 

repayment plans, the income-based 

repayment plan, or an alternative 

repayment plan. 

* * * * * 

(k) Income-contingent repayment 

plans. (1) Under the income-contingent 

repayment plan described in 

§ 685.209(a), the required monthly 

payment for a borrower who has a 

partial financial hardship is limited to 

no more than 10 percent of the amount 

by which the borrower’s AGI exceeds 

150 percent of the poverty guideline 

applicable to the borrower’s family size, 

divided by 12. The Secretary determines 

annually whether the borrower 

continues to qualify for this reduced 

monthly payment based on the amount 

of the borrower’s eligible loans, AGI, 

and poverty guideline. 

(2) Under the income-contingent 

repayment plan described in 

§ 685.209(b), a borrower’s monthly 

repayment amount is generally based on 

the total amount of the borrower’s Direct 

Loans, family size, and AGI reported by 

the borrower for the most recent year for 

which the Secretary has obtained 

income information. 

(3) For the income-contingent 

repayment plan described in 

§ 685.209(b), the regulations in effect at 

the time a borrower enters repayment 

and selects the income-contingent 

repayment plan or changes into the 

income-contingent repayment plan from 

another plan govern the method for 

determining the borrower’s monthly 

repayment amount for all of the 

borrower’s Direct Loans, unless— 

(i) The Secretary amends the 

regulations relating to a borrower’s 

monthly repayment amount under the 

income-contingent repayment plan; and 

(ii) The borrower submits a written 

request that the amended regulations 

apply to the repayment of the 

borrower’s Direct Loans. 

(4) Provisions governing the incomecontingent repayment plans are in 

§ 685.209. 

* * * * * 

■ 12. Section 685.209 is revised to read 

as follows: 

§ 685.209 Income-contingent repayment 

plans. 

(a) Pay As You Earn repayment plan: 

The Pay As You Earn repayment 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 


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(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 Pay As You Earn repayment 

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 

Pay As You Earn repayment 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; 

and 

(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 Pay As You Earn 

repayment plan. (i) A borrower may 

select the Pay As You Earn repayment 

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)(2)(ii)(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)(2)(ii)(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 Pay As You Earn repayment 

plan. Any period during which the 

Secretary has previously not charged the 

borrower accrued interest on an eligible 

loan under the income-based repayment 

plan counts toward the maximum three 

years of subsidy a borrower is eligible to 

receive under the Pay As You Earn 

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. 

(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 Pay As You Earn repayment 

plan. 

(B)(1) The amount of accrued interest 

capitalized under paragraph 

(a)(2)(iv)(A)(1) of this section is limited 

to 10 percent of the original principal 

balance at the time the borrower entered 

repayment under the Pay As You Earn 

repayment 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 Pay As You Earn repayment 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 Pay As 

You Earn repayment plan or no longer 

has a partial financial hardship. 

(vi) The repayment period for a 

borrower under the Pay As You Earn 

repayment plan may be greater than 10 

years. 

(3) Payment application and 

prepayment. (i) The Secretary applies 

any payment made under the Pay As 

You Earn repayment 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 

Pay As You Earn 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 


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income-contingent payments. In either 

case, as a 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 

Pay As You Earn repayment 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 Pay As You Earn 

repayment 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 Pay As You 

Earn 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 provide documentation, 

acceptable to the Secretary, of the 

borrower’s AGI. 

(B) If the borrower’s AGI is not 

available, or if the Secretary believes 

that the borrower’s reported AGI does 

not reasonably reflect the borrower’s 

current income, the borrower must 

provide other documentation to verify 

income. 

(C) The borrower must annually 

certify the borrower’s family size. If the 

borrower fails to certify family size, the 

Secretary assumes a family size of one 

for that year. 

(ii) After making a determination that 

a borrower has a partial financial 

hardship to qualify for the Pay As You 

Earn repayment 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 Pay As You 

Earn repayment 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)(vii) 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 (a)(5)(ii)(D) of this 

section. 

(iii) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the Pay 

As You Earn repayment 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 at 

the end of the borrower’s current annual 

payment period 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; and 

(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 (a)(5)(ii)(D) of this 

section. 

(v) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on 

the Pay As You Earn repayment 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 Pay As You Earn repayment 

plan but does not provide the 

documentation described in paragraphs 

(a)(5)(i)(A) or (a)(5)(i)(B) 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 Pay As You Earn 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, unless 

the Secretary is able to determine the 

borrower’s new monthly payment 

amount before the end of the borrower’s 

current annual payment period. 

(viii) If the Secretary receives the 

documentation described in paragraphs 

(a)(5)(i)(A) and (a)(5)(i)(B) of this section 

within 10 days of the specified annual 

deadline— 

(A) The Secretary promptly 

determines the borrower’s new 

scheduled monthly payment amount 

and maintains the borrower’s current 


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scheduled monthly payment amount 

until the new scheduled monthly 

payment amount is determined. 

(1) If the new monthly payment 

amount is less than the borrower’s 

previously calculated Pay As You Earn 

repayment plan monthly payment 

amount, and the borrower made 

payments at the previously calculated 

amount after the end of the most recent 

annual payment period, the Secretary 

makes the appropriate adjustment to the 

borrower’s account. Notwithstanding 

the requirements of § 685.211(a)(3), 

unless the borrower requests otherwise, 

the Secretary applies the excess 

payment amounts made after the end of 

the most recent annual payment period 

in accordance with the requirements of 

§ 685.209(a)(3)(i). 

(2) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated Pay As 

You Earn repayment plan monthly 

payment amount, and the borrower 

made payments at the previously 

calculated payment amount after the 

end of the most recent annual payment 

period, the Secretary does not make any 

adjustment to the borrower’s account. 

(3) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the 

end of the prior annual payment period 

and before the new monthly payment 

amount is calculated are considered to 

be qualifying payments for purposes of 

§ 685.219, provided that the payments 

otherwise meet the requirements 

described in § 685.219(c)(1). 

(B) The new annual payment period 

begins on the day after the end of the 

most recent annual payment period. 

(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 Pay As You Earn repayment 

plan 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 

Pay As You Earn repayment 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) with a 10-year 

repayment period. 

(D) Made monthly payments 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 

borrower first selected the Pay As You 

Earn repayment plan. 

(E) Made monthly payments under 

the income-contingent repayment 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 Pay As You Earn repayment plan, 

the beginning date for the 20-year 

period is— 

(A) If the borrower made payments 

under the income-contingent repayment 

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; or 

(B) If the borrower did not make 

payments under the income-contingent 

repayment 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 Pay As You Earn 

repayment 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 Pay As You Earn 

repayment 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 Pay As 

You Earn repayment 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 six 


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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 

(a)(6)(v)(A)(3) of this section; and 

(3) Returns to the sender any payment 

received on a loan after loan forgiveness 

has been granted. 

(b) Income-contingent repayment 

plan: The income-contingent repayment 

(ICR) 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 AGI. 

(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 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, for the borrower’s family size as 

defined in § 685.209(a)(1)(iv). 

(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 is $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 

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 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 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 

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 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 plan is 25 years. 

(B) The repayment period includes— 

(1) Periods in which the borrower 

makes payments under the ICR plan on 

loans that are not in default; 


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(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 Pay 

As You Earn repayment plan; 

(4) 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); 

(5) Periods in which the borrower 

makes payments under the standard 

repayment plan described in 

§ 685.208(b); 

(6) 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); 

(7) 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 

(8) Periods of economic hardship 

deferment after October 1, 2007. 

(C) If a borrower repays more than one 

loan under the ICR 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 plan, 

the Secretary cancels the outstanding 

balance and accrued interest on that 

loan. No later than six months prior to 

the anticipated date that the borrower 

will meet the forgiveness requirements, 

the Secretary sends the borrower a 

written 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 for 

tax purposes, 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. 

(iv) 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. 

(v) Notification of terms and 

conditions. When a borrower elects or is 

required by the Secretary to repay a loan 

under the ICR 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)(vi)(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)(vi)(A) of this section, if the 

borrower chooses to remain on the ICR 

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)(ii) of this section, the borrower 

may contact the Secretary at any time 

during the borrower’s current annual 

payment period 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)(vi)(D) of this section, if the 

borrower does not provide the required 

information. 

(vi) Documentation of income and 

certification of family size. (A) For the 

initial year that a borrower selects the 

ICR plan and for each subsequent year 

that the borrower remains on the plan, 

the borrower must— 

(1) Provide to the Secretary, for 

purposes of calculating a monthly 

repayment amount and servicing and 

collecting the borrower’s loan, 

acceptable documentation, as 

determined by the Secretary, of the 

borrower’s AGI or alternative 

documentation of income in accordance 

with paragraph (b)(3)(i) of this section; 

and 

(2) Certify the borrower’s family size. 

If the borrower fails to certify family 

size, the Secretary assumes a family size 

of one for the year. 

(B) For each subsequent year that a 

borrower remains on the ICR plan, the 

Secretary notifies the borrower in 

writing of the requirements described in 

paragraph (b)(3)(vi)(A) of this section no 

later than 60 days and no earlier than 90 

days prior to the date specified in 

paragraph (b)(3)(vi)(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)(vi)(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)(vi)(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 plan but 

does not comply with the requirement 

in paragraph (b)(3)(vi)(A)(1) of this 

section. 

(D) If, during a subsequent year that 

a borrower remains on the ICR plan, the 

Secretary does not receive the 

documentation described in paragraph 

(b)(3)(vi)(A)(1) of this section within 10 

days of the specified annual deadline, 

the Secretary recalculates the borrower’s 

required monthly payment amount, 

unless the Secretary is able to determine 

the borrower’s new monthly payment 

amount before the end of the borrower’s 

current annual payment period. 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 


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under the ICR 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)(vi)(A)(1) of this section within 10 

days of the specified annual deadline— 

(1) The Secretary promptly 

determines the borrower’s new 

scheduled monthly payment amount 

and maintains the borrower’s current 

scheduled monthly payment amount 

until the new scheduled monthly 

payment amount is determined. 

(i) 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. Notwithstanding 

§ 685.211(a)(3), 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. 

(ii) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated 

monthly payment amount, and the 

borrower made payments at the 

previously calculated payment amount 

after the end of the most recent annual 

payment period, the Secretary does not 

make any adjustment to the borrower’s 

account. 

(iii) Any payments 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). 

(2) The new annual payment period 

begins on the day after the end of the 

most recent annual payment period. 

(F)(1) If the Secretary receives the 

documentation described in paragraph 

(b)(3)(vi)(A)(1) 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)(vi)(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 plan for the 

borrower but the borrower fails to 

comply with the requirements in 

paragraph (b)(3)(vi)(A) of this section, 

the Secretary mails a notice to the 

borrower establishing a repayment 

schedule for the borrower. 

(Approved by the Office of Management 

and Budget under control number 1845– 

0021) 

(Authority: 20 U.S.C. 1087a et seq.) 

■ 13. Section 685.210 is amended by 

revising paragraph (b)(2)(ii) to read as 

follows: 

§ 685.210 Choice of repayment plan. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) If a borrower changes plans, the 

repayment period is the period provided 

under the borrower’s new repayment 

plan, calculated from the date the loan 

initially entered repayment. However, if 

a borrower changes to the incomecontingent repayment plan under 

§ 685.209(a), the income-contingent 

repayment plan under § 685.209(b), or 

the income-based repayment plan under 

§ 685.221, the repayment period is 

calculated as described in 

§ 685.209(a)(6)(iii), § 685.209(b)(3)(iii), 

or § 685.221(f)(3), respectively. 

* * * * * 

§ 685.211 [Amended] 

■ 14. Section 685.211(a)(1) is amended 

by adding the words ‘‘incomecontingent repayment plan under 

§ 685.209(a)(3) or the’’ immediately 

before the words ‘‘income-based 

repayment’’. 

§ 685.212 [Amended] 

■ 15. Section 685.212(g)(2) is amended 

by removing the words ‘‘the borrower 

became totally and permanently 

disabled, as certified under 

§ 685.213(b)’’ and adding, in their place, 

the words ‘‘specified in 

§ 685.213(b)(4)(iii) or 685.213(c)(2)(i), as 

applicable’’. 

■ 16. Section 685.213 is revised to read 

as follows: 

§ 685.213 Total and permanent disability 

discharge. 

(a) General. (1) A borrower’s Direct 

Loan is discharged if the borrower 

becomes totally and permanently 

disabled, as defined in § 685.102(b), and 

satisfies the eligibility requirements in 

this section. 

(2) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 685.102(b), 

the borrower’s loan discharge 

application is processed in accordance 

with paragraph (b) of this section. 

(3) For veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 685.102(b), the veteran’s loan 

discharge application is processed in 

accordance with paragraph (c) of this 

section. 

(4) For purposes of this section, a 

borrower’s representative or a veteran’s 

representative is a member of the 

borrower’s family, the borrower’s 

attorney, or another individual 

authorized to act on behalf of the 

borrower in connection with the 

borrower’s total and permanent 

disability discharge application. 

References to a ‘‘borrower’’ or a 

‘‘veteran’’ include, if applicable, the 

borrower’s representative or the 

veteran’s representative for purposes of 

applying for a total and permanent 

disability discharge, providing 

notifications or information to the 

Secretary, and receiving notifications 

from the Secretary. 

(b) Discharge application process for 

a borrower who is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 685.102(b). (1) Borrower 

application for discharge. To qualify for 

a discharge of a Direct Loan based on a 

total and permanent disability, a 

borrower must submit a discharge 

application to the Secretary on a form 

approved by the Secretary. If the 

borrower notifies the Secretary that the 

borrower claims to be totally and 

permanent disabled prior to submitting 

a total and permanent disability 

discharge application, the Secretary— 

(i) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent 

disability discharge; 

(ii) Suspends collection activity on 

any of the borrower’s title IV loans held 

by the Secretary, and notifies the 

borrower’s other title IV loan holders to 

suspend collection activity on the 


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borrower’s title IV loans for a period not 

to exceed 120 days; and 

(iii) Informs the borrower that the 

suspension of collection activity will 

end after 120 days and collection will 

resume on the loans if the borrower 

does not submit a total and permanent 

disability discharge application to the 

Secretary within that time. 

(2) Physician certification or Social 

Security Administration (SSA) disability 

notice of award. The application must 

contain— 

(i) A certification by a physician, who 

is a doctor of medicine or osteopathy 

legally authorized to practice in a State, 

that the borrower is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 685.102(b); or 

(ii) An SSA notice of award for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits indicating that the borrower’s 

next scheduled disability review will be 

within five to seven years. 

(3) Deadline for application 

submission. The borrower must submit 

the application described in paragraph 

(b)(1) of this section to the Secretary 

within 90 days of the date the physician 

certifies the application, if applicable. 

Upon receipt of the borrower’s 

application, the Secretary— 

(i) Identifies all title IV loans owed by 

the borrower, notifies the lenders that 

the Secretary has received a total and 

permanent disability discharge 

application from the borrower and 

directs the lenders to suspend collection 

activity or maintain the suspension of 

collection activity on the borrower’s 

title IV loans; 

(ii) If the application is incomplete, 

notifies the borrower of the missing 

information and requests the missing 

information from the borrower or the 

physician who certified the application, 

as appropriate, and does not make a 

determination of eligibility for discharge 

until the application is complete; 

(iii) Notifies the borrower that no 

payments are due on the loan while the 

Secretary determines the borrower’s 

eligibility for discharge; and 

(iv) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(4) Determination of eligibility. (i) If, 

after reviewing the borrower’s 

completed application, the Secretary 

determines that the physician’s 

certification or the SSA notice of award 

for SSDI or SSI benefits supports the 

conclusion that the borrower meets the 

criteria for a total and permanent 

disability discharge, as described in 

paragraph (1) of the definition of that 

term in § 685.102(b), the borrower is 

considered totally and permanently 

disabled— 

(A) As of the date the physician 

certified the borrower’s application; or 

(B) As of the date the Secretary 

received the SSA notice of award for 

SSDI or SSI benefits. 

(ii) The Secretary may require the 

borrower to submit additional medical 

evidence if the Secretary determines 

that the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 685.102(b). 

As part of the Secretary’s review of the 

borrower’s discharge application, the 

Secretary may require and arrange for an 

additional review of the borrower’s 

condition by an independent physician 

at no expense to the borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 685.102(b), the Secretary discharges 

the borrower’s obligation to make any 

further payments on the loan, notifies 

the borrower that the loan has been 

discharged, and returns to the person 

who made the payments on the loan any 

payments received after the date the 

physician certified the borrower’s loan 

discharge application or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits. The 

notification to the borrower explains the 

terms and conditions under which the 

borrower’s obligation to repay the loan 

will be reinstated, as specified in 

paragraph (b)(7)(i) of this section. 

(iv) If the Secretary determines that 

the physician’s certification or the SSA 

notice of award for SSDI or SSI benefits 

provided by the borrower does not 

support the conclusion that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 685.102(b), the Secretary notifies the 

borrower that the application for a 

disability discharge has been denied. 

The notification to the borrower 

includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the Secretary under the 

terms of the promissory note and that 

the loan will return to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; 

(C) The date that the borrower must 

resume making payments; 

(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the borrower’s 

application for discharge by providing, 

within 12 months of the date of the 

notification, additional information that 

supports the borrower’s eligibility for 

discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 

of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to re-evaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 

(v) If the borrower requests reevaluation in accordance with 

paragraph (b)(4)(iv)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (b)(4)(iv)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for total 

and permanent disability discharge. 

(5) Treatment of disbursements made 

during the period from the date of the 

physician’s certification or the date the 

Secretary received the SSA notice of 

award for SSDI or SSI benefits until the 

date of discharge. If a borrower received 

a title IV loan or TEACH Grant before 

the date the physician certified the 

borrower’s discharge application or 

before the date the Secretary received 

the SSA notice of award for SSDI or SSI 

benefits and a disbursement of that loan 

or grant is made during the period from 

the date of the physician’s certification 

or the receipt of the SSA notice of award 

for SSDI or SSI benefits until the date 

the Secretary grants a discharge under 

this section, the processing of the 

borrower’s loan discharge request will 

be suspended until the borrower 

ensures that the full amount of the 

disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable. 

(6) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician’s certification or after the date 

the Secretary received the SSA notice of 

award for SSDI or SSI benefits. If a 

borrower receives a disbursement of a 

new title IV loan or receives a new 

TEACH Grant made on or after the date 

the physician certified the borrower’s 

discharge application or on or after the 

date the Secretary received the SSA 

notice of award for SSDI or SSI benefits 

and before the date the Secretary grants 


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a discharge under this section, the 

Secretary denies the borrower’s 

discharge request and resumes 

collection on the borrower’s loan. 

(7) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates a borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(4)(iii) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty guideline for a family of 

two, as published annually by the 

United States Department of Health and 

Human Services pursuant to 42 U.S.C. 

9902(2); 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins or Direct 

Loan programs, except for a Direct 

Consolidation Loan that includes loans 

that were not discharged; 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to 

the discharge date that is made is 

returned to the loan holder or to the 

Secretary, as applicable, within 120 

days of the disbursement date; or 

(D) Receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(ii) If the borrower’s obligation to 

repay the loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(7)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(8) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 

described in paragraph (b)(7)(i) of this 

section, the borrower must— 

(i) Promptly notify the Secretary of 

any changes in the borrower’s address 

or phone number; 

(ii) Promptly notify the Secretary if 

the borrower’s annual earnings from 

employment exceed the amount 

specified in paragraph (b)(7)(i)(A) of this 

section; 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment on a form provided by the 

Secretary; and 

(iv) Promptly notify the Secretary if 

the borrower receives a notice from the 

SSA indicating that the borrower is no 

longer disabled or that the borrower’s 

continuing disability review will no 

longer be the five- to seven-year period 

indicated in the SSA notice of award for 

SSDI or SSI benefits. 

(c) Discharge application process for 

veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 685.102(b). (1) Veteran’s 

application for discharge. To qualify for 

a discharge of a Direct Loan based on a 

total and permanent disability as 

described in paragraph (2) of the 

definition of that term in § 685.102(b), a 

veteran must submit a discharge 

application to the Secretary on a form 

approved by the Secretary. The 

application must be accompanied by 

documentation from the Department of 

Veterans Affairs showing that the 

Department of Veterans Affairs has 

determined that the veteran is 

unemployable due to a serviceconnected disability. The Secretary does 

not require the veteran to provide any 

additional documentation related to the 

veteran’s disability. Upon receipt of the 

veteran’s application, the Secretary— 

(i) Identifies all title IV loans owed by 

the veteran and notifies the lenders that 

the Secretary has received a total and 

permanent disability discharge 

application from the borrower; 

(ii) If the application is incomplete, 

requests the missing information from 

the veteran and does not make a 

determination of eligibility for discharge 

until the application is complete; 

(iii) Notifies the veteran that no 

payments are due on the loan while the 

Secretary determines the veteran’s 

eligibility for discharge; and 

(iv) Explains the Secretary’s process 

for reviewing total and permanent 

disability discharge applications. 

(2) Determination of eligibility. (i) If 

the Secretary determines, based on a 

review of the documentation from the 

Department of Veterans Affairs, that the 

veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 685.102(b), the Secretary discharges 

the veteran’s obligation to make any 

further payments on the loan and 

returns to the person who made the 

payments on the loan any payments 

received on or after the effective date of 

the determination by the Department of 

Veterans Affairs that the veteran is 

unemployable due to a serviceconnected disability. 

(ii) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 685.102(b), the Secretary 

notifies the veteran that the application 

for a disability discharge has been 

denied. The notification to the veteran 

includes— 

(A) The reason or reasons for the 

denial; 

(B) An explanation that the loan is 

due and payable to the Secretary under 

the terms of the promissory note and 

that the loan will return to the status it 

was in at the time the veteran applied 

for a total and permanent disability 

discharge; 

(C) The date that the veteran must 

resume making payments; 

(D) An explanation that the veteran is 

not required to submit a new total and 

permanent disability discharge 

application if the veteran requests that 

the Secretary re-evaluate the veteran’s 

application for discharge by providing, 

within 12 months of the date of the 

notification, additional documentation 

from the Department of Veterans Affairs 

that supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran 

may reapply for a total and permanent 

disability discharge in accordance with 

the procedures described in paragraph 

(b) of this section if the documentation 

from the Department of Veterans Affairs 

does not indicate that the veteran is 

totally and permanently disabled as 

described in paragraph (2) of the 

definition of that term in § 685.102(b), 

but indicates that the veteran may be 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term. 

(Approved by the Office of Management 

and Budget under control number 1845– 

0065.) 

(Authority: 20 U.S.C.1087a et seq.) 


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■ 17. Section 685.220 is amended by 

revising paragraph (d)(1)(ii)(D) to read 

as follows: 

§ 685.220 Consolidation. 

* * * * * 

(d) * * * 

(1) * * * 

(ii) * * * 

(D) In default but agrees to repay the 

consolidation loan under one of the 

income-contingent repayment plans 

described in § 685.208(k) or the incomebased repayment plan described in 

§ 685.208(m). 

* * * * * 

■ 18. Section 685.221 is amended by: 

■ A. Redesignating paragraphs (a)(4) 

and (a)(5) as paragraphs (a)(5) and (a)(6), 

respectively. 

■ B. Adding a new paragraph (a)(4). 

■ C. In redesignated paragraph (a)(5)(i), 

removing the words ‘‘exceeds 15 

percent’’ and adding, in their place, the 

words ‘‘exceeds 15 percent or, for a new 

borrower, 10 percent’’. 

■ D. In redesignated paragraph (a)(5)(ii), 

removing the words ‘‘exceeds 15 

percent’’ and adding, in their place, the 

words ‘‘exceeds 15 percent or, for a new 

borrower, 10 percent’’. 

■ E. In paragraph (b)(1), removing the 

words ‘‘no more than 15 percent’’ and 

adding, in their place, the words ‘‘no 

more than 15 percent or, for a new 

borrower, 10 percent’’. 

■ F. In paragraph (b)(2)(i), removing the 

words ‘‘the total amount of eligible 

loans’’ and adding, in their place, the 

words ‘‘the total outstanding principal 

amount of the borrower’s eligible 

loans’’. 

■ G. In paragraph (b)(2)(ii)(C), removing 

the words ‘‘the outstanding principal 

amount of eligible loans’’ and adding, in 

their place, the words ‘‘the total 

outstanding principal amount of the 

borrower’s eligible loans’’. 

■ H. Revising paragraph (b)(3). 

■ I. Revising paragraph (c). 

■ J. Revising paragraph (d). 

■ K. Revising paragraph (e). 

■ L. Revising paragraph (f). 

The addition and revisions read as 

follows: 

§ 685.221 Income-based repayment plan. 

(a) * * * 

(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. 

* * * * * 

(b) * * * 

(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 income-based repayment 

plan. Any period during which the 

Secretary has previously not charged the 

borrower accrued interest on an eligible 

loan under the Pay As You Earn 

repayment plan counts toward the 

maximum three years of subsidy a 

borrower is eligible to receive under the 

income-based 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. 

* * * * * 

(c) Payment application and 

prepayment. (1) The Secretary applies 

any payment made under the incomebased repayment plan in the following 

order: 

(i) Accrued interest. 

(ii) Collection costs. 

(iii) Late charges. 

(iv) Loan principal. 

(2) The borrower may prepay all or 

part of a loan at any time without 

penalty, as provided under 

§ 685.211(a)(2). 

(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 

Secretary applies the prepayment 

consistent with the requirements of 

§ 685.211(a)(3). 

(4) If the prepayment amount exceeds 

a monthly payment amount of $0.00 

under the repayment schedule 

established for the loan, the Secretary 

applies the prepayment consistent with 

the requirements of paragraph (c)(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 

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 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)(i) If a borrower no longer wishes 

to pay under the income-based 

repayment plan, the borrower must pay 

under the standard repayment plan and 

the Secretary recalculates the borrower’s 

monthly payment based on— 

(A) For a Direct Subsidized Loan, a 

Direct Unsubsidized Loan, or a Direct 

PLUS Loan, the time remaining under 

the maximum ten-year repayment 

period for the amount of the borrower’s 

loans that were outstanding at the time 

the borrower discontinued paying under 

the income-based repayment plan; or 

(B) For a Direct Consolidation Loan, 

the time remaining under the applicable 

repayment period as initially 

determined under § 685.208(j) and the 

amount of that loan that was 

outstanding at the time the borrower 

discontinued paying under the incomebased repayment plan. 

(ii) 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)(i) of this section may 

request a change to a different 

repayment plan after making one 

monthly payment under the Direct Loan 

standard repayment plan. For this 

purpose, a monthly payment may 

include one payment made under a 

forbearance that provides for accepting 

smaller payments than previously 

scheduled, in accordance with 

§ 685.205(a). 

(e) Eligibility documentation, 

verification, and notifications. (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) Provide documentation, acceptable 

to the Secretary, of the borrower’s AGI; 

(ii) If the 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, provide other documentation to 

verify income; and 


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66146 Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 

(iii) 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) After making a determination that 

a borrower has a partial financial 

hardship to qualify for the income-based 

repayment plan for the year the 

borrower initially elects the plan and for 

any subsequent year that the borrower 

has a partial financial hardship, the 

Secretary sends the borrower a written 

notification that provides the borrower 

with— 

(i) The borrower’s scheduled monthly 

payment amount, as calculated under 

paragraph (b)(1) of this section, and the 

time period during which this 

scheduled monthly payment amount 

will apply (annual payment period); 

(ii) Information about the requirement 

for the borrower to annually provide the 

information described in paragraph 

(e)(1) of this section, if the borrower 

chooses to remain on the income-based 

repayment 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; 

(iii) An explanation of the 

consequences, as described in 

paragraphs (e)(1)(iii) and (e)(7) of this 

section, if the borrower does not provide 

the required information; 

(iv) An explanation of the 

consequences if the borrower no longer 

wishes to repay under the income-based 

repayment plan; and 

(v) 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 

(e)(2)(i) through (e)(2)(v) of this section. 

(3) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the 

income-based repayment plan, the 

Secretary notifies the borrower in 

writing of the requirements in paragraph 

(e)(1) of this section no later than 60 

days and no earlier than 90 days prior 

to the date specified in paragraph 

(e)(3)(i) of this section. The notification 

provides the borrower with— 

(i) 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 information 

described in paragraph (e)(1) of this 

section (annual deadline); and 

(ii) 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 

(d)(1) of this section, the effective date 

for the recalculated monthly payment 

amount, and the fact that unpaid 

accrued interest will be capitalized at 

the end of the borrower’s current annual 

payment period in accordance with 

paragraph (b)(4) of this section. 

(4) 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— 

(i) The borrower’s recalculated 

monthly payment amount, as 

determined in accordance with 

paragraph (d)(1) of this section; 

(ii) An explanation that unpaid 

interest will be capitalized in 

accordance with paragraph (b)(4) of this 

section; and 

(iii) 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 (b)(1) of this section and 

sends the borrower a written 

notification that includes the 

information described in paragraphs 

(e)(2)(i) through (e)(2)(v) of this section. 

(5) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on 

the income-based repayment plan, the 

Secretary sends the borrower a written 

notification that includes the 

information described in paragraph 

(e)(4)(iii) of this section. 

(6) If a borrower who is currently 

repaying under another repayment plan 

selects the income-based repayment 

plan but does not provide the 

information described in paragraphs 

(e)(1)(i) and (e)(1)(ii) 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. 

(7) The Secretary designates the 

repayment option described in 

paragraph (d)(1) of this section if a 

borrower who is currently repaying 

under the income-based repayment plan 

remains on the plan for a subsequent 

year but the Secretary does not receive 

the information described in paragraphs 

(e)(1)(i) through (e)(1)(ii) of this section 

within 10 days of the specified annual 

deadline, unless the Secretary is able to 

determine the borrower’s new monthly 

payment amount before the end of the 

borrower’s current annual payment 

period. 

(8) If the Secretary receives the 

information described in paragraphs 

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

within 10 days of the specified annual 

deadline— 

(i) The Secretary promptly determines 

the borrower’s new scheduled monthly 

payment amount and maintains the 

borrower’s current scheduled monthly 

payment amount until the new 

scheduled monthly payment amount is 

determined. 

(A) If the new monthly payment 

amount is less than the borrower’s 

previously calculated income-based 

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(a)(3), 

unless the borrower requests otherwise, 

the Secretary applies the excess 

payment amounts made after the end of 

the most recent annual payment period 

in accordance with the requirements of 

paragraph (c)(1) of this section. 

(B) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated 

monthly payment amount, and the 

borrower made payments at the 

previously calculated payment amount 

after the end of the most recent annual 

payment period, the Secretary does not 

make any adjustment to the borrower’s 

account. 

(C) 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 


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Federal Register / Vol. 77, No. 212 / Thursday, November 1, 2012 / Rules and Regulations 66147 

otherwise meet the requirements 

described in § 685.219(c)(1). 

(ii) The new annual payment period 

begins on the day after the end of the 

most recent annual payment period. 

(9)(i) If the Secretary receives the 

documentation described in paragraphs 

(e)(1)(i) and (e)(1)(ii) 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 (d)(1) of this section, the 

Secretary grants forbearance with 

respect to payments that are overdue or 

would be due at the time the new 

calculated income-based 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. 

(ii) 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). 

(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 incomebased repayment plan and satisfied at 

least one of the following conditions 

during the applicable loan forgiveness 

period: 

(i) Made reduced monthly payments 

under a partial financial hardship as 

provided in paragraph (b)(1) or (b)(2) of 

this section, including a monthly 

payment amount of $0.00, as provided 

under paragraph (b)(2)(iii) 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) with a 10-year 

repayment period. 

(iv) Made monthly payments 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 

borrower first selected the income-based 

repayment plan. 

(v) Made monthly payments under a 

Direct Loan income-contingent 

repayment plan, including a calculated 

monthly payment amount of $0.00. 

(vi) Received an economic hardship 

deferment on eligible Direct Loans. 

(2) As provided under paragraph (f)(4) 

of this section, the Secretary cancels any 

outstanding balance of principal and 

accrued interest on Direct loans for 

which the borrower qualifies for 

forgiveness if the Secretary determines 

that— 

(i) The borrower made monthly 

payments under one or more of the 

repayment plans described in paragraph 

(f)(1) of this section, including a 

monthly payment amount of $0.00, as 

provided under paragraph (b)(2)(iii) of 

this section; and 

(ii)(A) The borrower made those 

monthly payments each year for the 

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 applicable 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; or 

(ii) If the borrower did not make 

payments under the income-contingent 

repayment plan— 

(A) 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 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 (f)(3)(ii)(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; or 

(E) If the borrower did not make a 

payment or receive an economic 

hardship deferment on the loan under 

paragraph (f)(3)(i) or (f)(3)(ii) of this 

section, the date the borrower made a 

payment under the income-based 

repayment plan on the loan. 

(4) Any payments made on a 

defaulted loan are not made under a 

qualifying repayment plan and are not 

counted toward the applicable loan 

forgiveness period. 

(5)(i) When the Secretary determines 

that a borrower has satisfied the loan 

forgiveness requirements under 

paragraph (f) of this section on an 

eligible loan, the Secretary cancels the 

outstanding balance and accrued 

interest on that loan. No later than six 

months prior to the anticipated date that 

the borrower will meet the forgiveness 

requirements, the Secretary sends the 

borrower a written notice that 

includes— 

(A) An explanation that the borrower 

is approaching the date that he or she 

is expected to meet the requirements to 

receive loan forgiveness; 

(B) A reminder that the borrower must 

continue to make the borrower’s 

scheduled monthly payments; and 

(C) 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. 

(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; 

(B) Provides the borrower with the 

information described in paragraph 

(f)(5)(i)(C) of this section; and 

(C) Returns to the sender any payment 

received on a loan after loan forgiveness 

has been granted in accordance with 

paragraph (f)(5)(i) of this section. 

* * * * * 

[FR Doc. 2012–26348 Filed 10–31–12; 8:45 am] 

BILLING CODE 4000–01–P 


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