Vol. 77 Tuesday, 

No. 137 July 17, 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; Proposed Rule 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42086 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

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: Notice of proposed rulemaking. 

SUMMARY: The Secretary proposes to 

amend the Federal Perkins Loan 

(Perkins Loan) program, Federal Family 

Education Loan (FFEL) program, and 

William D. Ford Federal Direct Loan 

(Direct Loan) program regulations. The 

proposed regulations would implement 

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 total 

and permanent disability discharge 

process for borrowers in the title IV, 

HEA loan programs. The proposed 

regulations implementing a new ICR 

Plan and the statutory changes to the 

IBR plan would assist borrowers in 

repaying their loans while the proposed 

changes to the total and permanent 

disability discharge process would 

reduce burden for borrowers who are 

disabled and seeking a discharge of their 

title IV debt. 

DATES: We must receive your comments 

on or before August 16, 2012. 

ADDRESSES: Submit your comments 

through the Federal eRulemaking Portal 

or via postal mail, commercial delivery, 

or hand delivery. We will not accept 

comments by fax or by email. To ensure 

that we do not receive duplicate copies, 

please submit your comments only 

once. In addition, please include the 

Docket ID at the top of your comments. 

• Federal eRulemaking Portal: Go to 

www.regulations.gov to submit your 

comments electronically. Information 

on using Regulations.gov, including 

instructions for accessing agency 

documents, submitting comments, and 

viewing the docket, is available on the 

site under ‘‘How To Use This Site.’’ 

• Postal Mail, Commercial Delivery, 

or Hand Delivery: If you mail or deliver 

your comments about these proposed 

regulations, address them to Jessica 

Finkel, U.S. Department of Education, 

1990 K Street NW., Room 8031, 

Washington, DC 20006–8502. 

Privacy Note: The Department’s 

policy is to make all comments received 

from members of the public available for 

public viewing in their entirety on the 

Federal eRulemaking Portal at 

www.regulations.gov. Therefore, 

commenters should be careful to 

include in their comments only 

information that they wish to make 

publicly available. 

FOR FURTHER INFORMATION CONTACT: 

Jessica Finkel, U.S. Department of 

Education, 1990 K Street NW., Room 

8031, Washington, DC 20006–8502. 

Telephone: (202) 502–7647 or by email 

at: Jessica.Finkel@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 challenged. 

For Federal student loan borrowers 

who suffer from a total and permanent 

disability (TPD), the Department’s 

current disability 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 proposed regulations would 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 total 

and permanent disability discharge 

process for borrowers in the title IV, 

HEA loan programs. 

Summary of the Major Provisions of 

This Regulation: Action: The NPRM 

proposes regulations that would— 

• Create a new ICR plan (proposed 

ICR–A) in the Direct Loan program 

based on the President’s Pay As You 

Earn repayment initiative. The proposed 

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. 

• Incorporate statutory changes to the 

IBR plan that were 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 Perkins Loan and FFEL 

program regulations to permit borrowers 

to apply directly to the Department for 

a total and permanent disability 

discharge. In the Direct Loan program, 

borrowers would continue to apply 

directly to the Department for total and 

permanent disability discharges, as they 

do under the current Direct Loan 

regulations. 

• 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 total and permanent 

disability discharge regulations include 

a borrower’s representative or a 

veteran’s representative. 

• Specify that the Department denies 

a disability discharge request and 

collection resumes on the borrower’s 

loans if the 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 disability discharge 

application and before the date the 

Department makes a decision on the 

borrower’s application for a total and 

permanent disability discharge. 

• Specify that, if a borrower’s Perkins 

Loan, FFEL, or Direct Loan program 

loan is reinstated, it returns to the status 

that would have existed if the total and 

permanent disability discharge 

application had not been received. 

• Make corresponding changes to the 

total and permanent disability 

application process based on a 

certification from the Department of 

Veterans Affairs. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42087 

Please refer to the Significant Proposed 

Regulations section of this preamble for 

a fuller discussion of the major 

provisions contained in this NPRM. 

Chart 1 summarizes the proposed 

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 

proposed ICR–A repayment plan with 

another million borrowers being 

affected by the statutory changes to the 

IBR plan reflected in the proposed 

regulations. Significant benefits of these 

proposed regulations include a 

streamlined process for total and 

permanent disability 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 

proposed 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 ICR–A 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. ICR–A 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% for ICR–A 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–B ................................................. ICR–B leaves an income driven 

repayment option 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% to 10% 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 Loans, 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.

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

Invitation To Comment: As outlined 

in the Negotiated Rulemaking section of 

this notice, significant public 

participation, through three public 

hearings and three negotiated 

rulemaking sessions, has occurred in 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42088 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

developing this notice of proposed 

rulemaking (NPRM). We invite you to 

submit comments regarding these 

proposed regulations. To ensure that 

your comments have maximum effect in 

developing the final regulations, we 

urge you to identify clearly the specific 

section or sections of the proposed 

regulations that each of your comments 

addresses and to arrange your comments 

in the same order as the proposed 

regulations. 

We invite you to assist us in 

complying with the specific 

requirements of Executive Order 12866 

and 13563 and their overall requirement 

of reducing regulatory burden that 

might result from these proposed 

regulations. Please let us know of any 

further ways we could reduce potential 

costs or increase potential benefits 

while preserving the effective and 

efficient administration of the 

Department’s programs and activities. 

During and after the comment period, 

you may inspect all public comments 

about these proposed regulations by 

accessing Regulations.gov. You may also 

inspect the comments in person, in 

Room 8031, 1990 K Street NW., 

Washington, DC, between 8:30 a.m. and 

4:00 p.m., Washington DC time, Monday 

through Friday of each week except 

Federal holidays. Please contact the 

person listed under FOR FURTHER

INFORMATION CONTACT. 

Assistance to Individuals with 

Disabilities in Reviewing the 

Rulemaking Record: On request we will 

provide an appropriate accommodation 

or auxiliary aid to an individual with a 

disability who needs assistance to 

review the comments or other 

documents in the public rulemaking 

record for these proposed regulations. If 

you want to schedule an appointment 

for this type of accommodation or 

auxiliary aid, please contact the person 

listed under FOR FURTHER INFORMATION

CONTACT. 

Negotiated Rulemaking 

Section 492 of the Higher Education 

Act of 1965, as amended, requires the 

Secretary, before publishing any 

proposed regulations for programs 

authorized by title IV of the HEA, to 

obtain public involvement in the 

development of the proposed 

regulations. After obtaining advice and 

recommendations from the public, 

including individuals and 

representatives of groups involved in 

the Federal student financial assistance 

programs, the Secretary must establish a 

negotiated rulemaking committee and 

subject the proposed regulations to a 

negotiated rulemaking process. All 

proposed regulations that the 

Department publishes on which the 

negotiators reached consensus must 

conform to final agreements resulting 

from that process unless the Secretary 

reopens the process or provides a 

written explanation to the participants 

stating why the Secretary has decided to 

depart from the agreements. Further 

information on the negotiated 

rulemaking process can be found at: 

www2.ed.gov/policy/highered/reg/ 

hearulemaking/2011/loans.html. 

On May 5, 2011, the Department 

published a notice in the Federal 

Register (76 FR 25650) announcing our 

intent to establish up to two negotiated 

rulemaking committees to prepare 

proposed regulations. One committee 

would focus on issues related to 

streamlining institutional reporting 

requirements and proposed regulations 

regarding better State identification of 

low-performing teacher preparation 

programs pursuant to sections 205 and 

207 of the HEA through focusing 

reporting on improved measures of 

program quality. A second committee 

(the ‘‘Loans Committee’’) would address 

Federal student loan issues. The 

regulations considered by the second 

committee would: Implement changes 

made by the SAFRA Act (Pub. L. 111– 

152), which ended the making of new 

loans in the Federal Family Educational 

Loan (FFEL) program as of July 1, 2010; 

make improvements to the incomecontingent and income-based repayment 

plans; and improve the process for 

consideration of applications for total 

and permanent disability discharges. 

The notice requested nominations of 

individuals for membership on the 

committees who could represent the 

interests of key stakeholder 

constituencies on each committee. 

The Department developed a list of 

proposed regulatory provisions from 

advice and recommendations submitted 

by individuals and organizations in 

testimony submitted to the Department 

in a series of three public hearings and 

a roundtable discussion held on: 

• May 12, 2011, at Tennessee State 

University, Nashville, Tennessee. 

• May 16, 2011, at Pacific Lutheran 

University, Tacoma, Washington. 

• May 19, 2011, at Loyola UniversityLakeshore Campus, Chicago, Illinois. 

• May 26, 2011, at College of 

Charleston, Charleston, South Carolina. 

In addition, the Department accepted 

written comments on possible 

regulatory provisions submitted directly 

to the Department by interested parties 

and organizations. Transcripts of the 

regional meetings can be accessed at 

www2.ed.gov/policy/highered/reg/ 

hearulemaking/2011/loans.html and is 

also accessible in the rulemaking docket 

on www.regulations.gov. 

Staff within the Department also 

identified issues for discussion and 

negotiation. 

The Loans Committee included the 

following members: 

• Mr. Getachew Kassa, Legislative 

Director, United States Student 

Association and Mr. Abou Amara, Jr. 

(alternate), President, Graduate and 

Professional Student Association, 

University of Minnesota, Twin Cities. 

• Ms. Deanne Loonin, National 

Consumer Law Center, and Ms. Radhika 

Miller (alternate), Program Manager, 

Educational Debt Relief and Outreach, 

Equal Justice Works. 

• Ms. Jennifer Mishory, Deputy 

Director, Young Invincibles, and Ms. 

Maureen Thompson (alternate), The 

Hastings Group, LLC. 

• Ms. Margaret Rodriguez, Senior 

Associate Director of Financial Aid, 

University of Michigan and Chair, 

National Direct Student Loan Coalition, 

and Ms. Elizabeth Hicks (alternate), 

Executive Director Student Financial 

Services, Massachusetts Institute of 

Technology. 

• Mr. David Glezerman, Assistant 

Vice President and University Bursar, 

Temple University, and Ms. Maria 

Livolsi (alternate), Student Loan Service 

Center, State University of New York. 

• Mr. Robert Perrin, President, 

Williams & Fudge, Inc. 

• Mr. Todd Leatherman, Executive 

Director, Office of Consumer Protection, 

Office of the Kentucky Attorney 

General, and Ms. Michele Casey 

(alternate), Assistant Attorney General, 

Consumer Fraud Bureau Office of the 

Illinois Attorney General. 

• Ms. Cristi Millard, Director of 

Financial Aid, Salt Lake Community 

College, and Mr. Chris Christensen, 

(alternate) Director of Financial Aid, 

Johnson County Community College, 

Kansas. 

• Ms. Kris Wright, Director, Office of 

Student Finance, University of 

Minnesota and Executive Council 

Member and Secretary, National Direct 

Student Loan Coalition, and Ms. Elaine 

Papas-Varas (alternate), University 

Director of Student Financial Aid and 

Director of the Primary Care Practitioner 

Loan Redemption Program of New 

Jersey University of Medicine and 

Dentistry of New Jersey. 

• Ms. Yvonne Gutierrez-Sandoval, 

Senior Associate Director of Financial 

Aid, Pitzer College, and Mr. Jeffrey A. 

Gall (alternate), Associate Dean, Office 

of Student Financial Services, 

Georgetown University. 

• Mr. Tom Sakos, Director of Student 

Lending and Regulatory Quality 


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Assurance, DeVry Inc., and Mr. 

Anthony Fragomeni (alternate), Director 

of Governmental Affairs, Empire 

Education Group and Chairman, 

American Association of Cosmetology 

Schools’ Government Relations Team. 

• Ms. Betsy Mayotte, Director, 

Regulatory Compliance and Privacy, 

American Student Assistance, and Mr. 

Scott Giles (alternate), Vice President for 

Operations, Social Marketing and 

Strategy, Vermont Student Assistance 

Corporation. 

• Mr. Robert Sandlin, Director of 

Policy and Compliance, Higher 

Education Servicing Corporation, and 

Ms. Vicki Shipley (alternate), Senior 

Advisor, National Council of Higher 

Education Loan Programs. 

• Mr. Albert Gray, Executive Director 

and CEO, Accrediting Council for 

Independent Colleges and Schools, and 

Ms. Sharon Tanner (alternate), CEO, 

National League for Nursing 

Accreditation. 

• Ms. Pamela Moran and Ms. Gail 

McLarnon, U.S. Department of 

Education. 

The Loans Committee met to develop 

proposed regulations during the months 

of January, February, and March of 

2012. These proposed regulations reflect 

the work of this second committee and 

proposes regulations relating to the 

administration of the Federal student 

loan programs, specifically changes 

governing the ICR and IBR plans, and 

the process for making TPD discharge 

determinations. These proposed 

regulations also include certain 

technical changes to the regulations that 

are needed to reflect recent amendments 

to the HEA and to correct certain 

technical errors. These types of changes 

are not normally subject to the statutory 

requirements for negotiated rulemaking 

and public notice and comment. 

However, since those changes affected 

the regulations that would be 

considered by the negotiated 

rulemaking committee, the Secretary 

chose to include those changes in the 

proposed regulations to be considered 

by the committee to ensure that the 

committee could evaluate the full scope 

of changes to those regulations. 

At its first meeting, the Loans 

Committee reached agreement on its 

protocols and proposed agenda. The 

Committee’s protocols provided that, 

unless agreed to otherwise, for the 

committee to be considered to have 

reached consensus on the regulations, 

consensus must be reached on all of the 

proposed regulations. Consensus means 

that there must be no dissent by any 

member in order for the Committee to 

be considered to have reached 

agreement. 

During its first meeting, the Loans 

Committee agreed to negotiate an 

agenda of 25 student loan related issues. 

The most significant issues: Developing 

regulations necessary to implement the 

President’s ‘‘Pay As You Earn’’ 

repayment initiative; developing 

regulations to incorporate statutory 

changes in the Income-Based 

Repayment Plan (IBR) and to address 

certain problems in the administration 

of the IBR and Income-Contingent 

Repayment plans; to overhaul the total 

and permanent disability discharge 

process; to update the FFEL program 

regulations to eliminate obsolete and 

unnecessary provisions governing loan 

origination and disbursement; to revise 

the Direct Loan program regulations to 

eliminate cross reference to the FFEL 

program regulations; to revise 

regulations governing the determination 

of a defaulted borrower’s reasonable and 

affordable payment amount for purposes 

of rehabilitation of the borrower’s 

defaulted loan; to revise the regulations 

governing administrative wage 

garnishment (AWG) for defaulted 

borrowers in the FFEL program; and to 

provide for consistent treatment of 

borrowers requesting forbearance on or 

after the 270th day of delinquency. The 

Department stated its commitment to 

publishing the regulations to implement 

the Pay As You Earn repayment 

initiative and to overhaul and improve 

the total and permanent disability 

discharge process for borrowers as soon 

as possible. 

During the development of proposed 

regulatory language and prior to the 

second meeting of the Committee, the 

Department concluded that the scope 

and volume of the likely resulting 

proposed regulations resulting from the 

agenda approved by the Committee 

would require extensive and significant 

changes to regulations. In particular, 

updating the FFEL program regulations 

and major changes to the Direct Loan 

regulations involved making changes to 

the entirety of those program 

regulations. The Department determined 

that it was unlikely that one NPRM 

reflecting all of the issues could be 

published by the deadline established 

by section 482(c) of the HEA. To ensure 

the earliest possible implementation of 

the Pay As You Earn repayment 

initiative and the revised total and 

permanent disability discharge 

regulations, which will provide 

significant benefits to student loan 

borrowers, the Department determined 

that two NPRMs would result from the 

Committee’s work. 

During the second meeting of the 

Committee, the Department explained to 

the Committee members that one NPRM 

would contain proposed regulations to 

implement the Pay As You Earn 

repayment initiative, to incorporate 

statutory changes in the IBR plan, to 

make other changes to improve the 

administration of the IBR and ICR plans, 

and to overhaul the total and permanent 

disability discharge process. The second 

NPRM would contain all the remaining 

proposed regulations that were on the 

Committee’s agenda, including 

proposed regulations involving 

rehabilitation of defaulted loans and 

AWG in the FFEL program. The 

Department also explained that any 

final regulations published as a result of 

the second NPRM would not be 

published by November 1, 2012, and 

therefore would not become effective 

until July 1, 2014, under the master 

calendar provisions of section 482(c)(1) 

the HEA. The Department committed, 

however, to authorize, to the extent 

possible, early implementation of the 

final regulations published as a result of 

the second NPRM under the Secretary’s 

authority to designate regulatory 

provisions for early implementation by 

program participants under section 

482(c)(2) of the HEA. 

At the final meeting in March 2012, 

the Loans Committee reached consensus 

on the full agenda of loans issues. This 

document represents the first of two 

NPRMs resulting from the Committee’s 

negotiations. It contains proposed 

regulations to: Implement the Pay As 

You Earn repayment initiative; 

incorporate statutory changes in the IBR 

plan; make certain improvements in the 

administration of the IBR and ICR plans; 

and overhauling the total and 

permanent disability discharge process. 

More information on the work of the 

Loans Committee can be found at: 

www.ed.gov/policy/highered/reg/ 

hearulemaking/2008/loans.html. 

Summary of Proposed Changes 

Income Contingent Repayment 

The proposed regulations create a 

new ICR plan (proposed ICR–A) based 

on the President’s Pay As You Earn 

repayment initiative and proposes to 

make technical corrections and other 

minor changes to the current ICR plan 

(proposed ICR–B). The proposed 

changes to ICR–B include the addition 

of provisions related to notification of 

income documentation requirements 

and the ICR loan forgiveness process. 

Under the proposed regulations, ICR– 

A would be available to a new borrower 

who: (1) Did not have an outstanding 

student loan as of October 1, 2007, or as 

of the date he or she received a new 

loan after October 1, 2007; and (2) 

received a disbursement of a Direct 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42090 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

Subsidized Loan, a Direct Unsubsidized 

Loan or a student Direct PLUS Loan on 

or after October 1, 2011, or receives a 

Direct Consolidation Loan based on an 

application received on or after October 

1, 2011, except if the Direct 

Consolidation Loan repays a Direct or 

FFEL loan made before October 1, 2007. 

The proposed regulations for the ICR–A 

program would incorporate the 

following provisions from the statutory 

amendments to IBR that become 

effective on July 1, 2014: 

• A borrower’s maximum annual 

payment amount under the ICR–A plan 

would be capped at 10 percent of the 

difference between the borrower’s AGI 

and 150 percent of the annual poverty 

guideline amount for the borrower’s 

State and family size. 

• Borrowers who repay under the 

ICR–A plan would qualify for 

forgiveness of any remaining loan 

balance after 20 years of qualifying 

payments and periods of economic 

hardship deferment. 

• To qualify for the ICR–A plan and 

to continue to make income-contingent 

payments under that plan, a borrower 

would be required to have a partial 

financial hardship. A borrower would 

be considered to have a partial financial 

hardship if the annual amount due on 

all of the borrower’s eligible Direct Loan 

and FFEL Program loans, as calculated 

based on a standard repayment plan 

with a 10-year repayment period, 

exceeds 10 percent of the difference 

between the borrower’s AGI and 150 

percent of the annual poverty guideline 

amount for the borrower’s State and 

family size. 

• For married borrowers who file a 

joint Federal tax return, the 

determination of a borrower’s partial 

financial hardship status would be 

based on the combined income of both 

spouses and, if the spouse also has 

eligible loans, the combined eligible 

loan debt of both individuals. For a 

married borrower who files an 

individual Federal tax return, only the 

borrower’s income and loan debt would 

be considered. 

• The ICR–A plan will be available to 

any borrower who is repaying a nondefaulted Direct Loan, except for a 

parent Direct PLUS loan or a Direct 

Consolidation loan that repaid a parent 

Direct or FFEL PLUS loan. As with IBR, 

parent Direct PLUS Loans and Direct 

Consolidation Loans that repaid parent 

Direct PLUS Loans or parent Federal 

PLUS Loans would not be eligible for 

repayment under the ICR–A plan. 

• Unpaid accrued interest would be 

capitalized only if a borrower repaying 

under the ICR–A plan is determined to 

no longer have a partial financial 

hardship, or if the borrower chooses to 

leave the ICR–A plan. 

• For a borrower whose scheduled 

payment under the ICR–A plan is less 

than the amount of interest that accrues 

each month, the Secretary would pay 

the remaining interest for a period of 

three consecutive years from the date 

the borrower begins repayment under 

the ICR–A plan, excluding periods of 

economic hardship deferment. 

A Direct Loan borrower who is not a 

parent Direct PLUS borrower will 

continue to be able to select the ICR–B 

plan as one of the available repayment 

plans. These proposed regulations also 

incorporate the proposed IBR 

regulations regarding the treatment of 

married borrowers and borrowers who 

fail to provide required documentation 

of income into the current ICR/ICR–B 

regulations. 

Income Based Repayment 

The proposed regulations incorporate 

statutory changes to the IBR plan that 

were included in 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. 

SAFRA changes: 

Proposed § 685.221(a)(4) would reflect 

the statutory definition of ‘‘new 

borrower’’ for purposes of the changes 

to the IBR program as an individual who 

has no outstanding balance on a Direct 

Loan or a 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. 

The proposed regulations would 

revise the definition of ‘‘partial financial 

hardship’’ in § 685.221(a)(5) to reflect 

the statutory provision and state that for 

new borrowers after July 1, 2014, a 

borrower is considered to have a partial 

financial hardship if the annual amount 

due on all of the borrower’s eligible 

Direct Loan and FFEL Program loans, as 

calculated based on a standard 

repayment plan with a 10-year 

repayment period, exceeds 10 percent of 

the difference between the borrower’s 

AGI and 150 percent of the annual 

poverty guideline amount for the 

borrower’s family size. The proposed 

regulations would revise § 685.221(b)(1) 

to provide that for a new borrower after 

July 1, 2014, the maximum IBR monthly 

payment amount during periods of 

partial financial hardship may not 

exceed 10 percent of the amount by 

which the borrower’s AGI exceeds 150 

percent of the poverty guideline amount 

for the borrower’s family size, divided 

by 12. 

Finally, the proposed regulations 

would revise § 685.221(f) to provide that 

a new borrower who has participated in 

the IBR plan qualifies for loan 

forgiveness after 20 years of qualifying 

payments and periods of economic 

hardship deferment. 

Provisions that affect all IBR 

participants: 

The proposed IBR regulations would 

also: 

• Revise the partial financial 

hardship (PFH) determination process 

and modify notification, income 

documentation requirements, rights and 

responsibilities of borrowers who have 

been found qualified for IBR. 

• Improve notifications requirements 

for borrowers who are eligible or 

approaching eligibility for loan 

forgiveness. 

• Revise payment requirements for 

borrowers who leave IBR. A borrower 

who leaves the IBR plan and is placed 

on the standard repayment plan may 

change to a different repayment plan 

after making one monthly payment 

under the standard repayment plan. 

Under the proposed regulations, the 

single payment made under the 

standard repayment plan could include 

a smaller payment amount paid under a 

reduced payment forbearance agreement 

with the loan holder or the Secretary. 

Total and Permanent Disability 

Discharge 

The proposed regulations will revise 

Perkins and FFEL regulations to provide 

for direct application to the Department 

for total and permanent disability 

discharges. They will modify 

regulations in the Perkins, FFEL, and 

Direct Loan program to provide more 

detailed information to borrowers in the 

letters explaining decisions to deny 

discharge applications and the proposed 

regulations would modify the Perkins, 

FFEL, and Direct Loan regulations to 

specify that the Department will collect 

income documentation from borrowers 

during the post-discharge monitoring 

period on an OMB-approved form. 

The proposed total and permanent 

disability regulations would: 

• Revise certain provisions to specify 

that a borrower’s representative may be 

involved in any part of the total and 

permanent disability total and 

permanent disability process and must 

receive all notifications sent to the 

borrower. 

• Extend the loan suspension 

window to 120 days from 60 days after 

a borrower has notified the loan 

holder(s) of his or her intent to apply for 

a discharge. 

• Extend the deadline to submit an 

application for total and permanent 


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disability to 90 days after the date of the 

physician’s certification that a borrower 

has a total and permanent disability. 

• Revise the total and permanent 

disability discharge application process 

so that a borrower applies for total and 

permanent disability directly to the 

Department and that the Department 

directly notifies the borrower’s Perkins 

and FFEL lenders upon approval of the 

application for total and permanent 

disability discharge. 

• Revise provisions related to a 

borrower’s responsibilities to report 

income annually after a discharge has 

been granted and specify that the 

Department will create an OMB 

approved form for reporting earnings 

during the monitoring period. 

• Revise provisions to require that 

payments made by the borrower after a 

disability discharge has been granted are 

returned to the borrower. 

• Revise the application process by 

streamlining the approval process where 

the borrower’s documentation is for 

applications from the Department of 

Veterans Affairs to ensure consistency. 

• Update the regulations governing 

the actions of FFEL lender and guaranty 

agencies in the disability discharge 

process to reflect the new single 

application process. 

• Propose regulations to specify that 

if the 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 and before the 

date the Secretary grants a total and 

permanent disability discharge, the 

Secretary will deny the borrower 

disability discharge application and 

resume collection on the borrower’s 

loans. 

• Revise provisions to require that the 

loans of a borrower who is denied a 

total and permanent disability discharge 

are reinstated as if the total and 

permanent disability application was 

never submitted. 

Significant Proposed Regulations 

We group major issues according to 

subject, with appropriate sections of the 

proposed 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 

proposed regulatory provisions that are 

technical or otherwise minor in effect. 

Total and Permanent Disability 

Discharge (34 CFR 674.61, 682.402, and 

685.213) 

Background: After receiving 

significant public criticism in February 

2011 that the Department’s total and 

permanent disability discharge process 

lacked transparency and was unduly 

burdensome and costly for borrowers, 

the Department undertook a 

comprehensive review of the process. 

Before initiating this review, the 

Department had already begun making 

improvements such as: Streamlining the 

review process to ensure that the 

physician’s certification received 

primary consideration in discharge 

decisions, performing outreach to 

borrowers to ensure that supplemental 

information from physicians is received 

timely, and improving information flow 

to help borrowers understand the 

process. We made other improvements 

when the Department designated a 

single contractor to manage the total and 

permanent disability discharge process 

in 2012, including the creation of a new 

Web site through which borrowers can 

track the status of their applications, 

clearer correspondence with borrowers, 

and borrower notifications at regular 

milestones as the application process 

progresses. 

As a result of the comprehensive 

review and ongoing efforts to identify 

procedural deficiencies, the Department 

also committed to considering changes 

to the regulations governing the total 

and permanent disability discharge 

process. In the Federal Register notice 

published on October 28, 2011 (76 FR 

66880), announcing our intent to 

establish a negotiated rulemaking 

committee on the Federal student loan 

programs, we included three topics for 

discussion related to loan discharges 

based on total and permanent disability: 

• Establishing a single total and 

permanent disability application 

process; 

• Improvements to borrower 

notification of denial; and 

• Improvements in post-discharge 

monitoring of employment earnings. 

These proposed regulations would 

revise §§ 674.61, 682.402(c), and 

685.213 to require Perkins Loan and 

FFEL borrowers to apply directly to the 

Department for a total and permanent 

disability discharge and to provide 

increased transparency in the 

notifications a Perkins Loan, FFEL, and 

Direct Loan borrower receives when an 

application for discharge is denied. 

Finally, after discussions with the nonFederal negotiators, the Department 

committed to the development of a new 

Federal form that would assist 

borrowers in providing the Department 

with documentation of the borrower’s 

annual earnings from employment 

during the three-year post-discharge 

monitoring period. The sections that 

follow describe in more detail these 

changes and other clarifying changes 

made by the Loans Committee to 

improve the total and permanent 

disability process. 

Use of Terms (34 CFR 674.61(b)(1), 

682.402(c)(1), and 685.213(a)(4)) 

Statute: Section 437(a)(1) of the HEA, 

which is applicable to the Direct Loan 

Program under section 455(a)(1) of the 

HEA, and section 464(c)(1)(F) of the 

HEA provide for a discharge of a 

borrower’s FFEL, Perkins Loan, or 

Direct Loan program loan if the 

borrower becomes totally and 

permanently disabled as determined 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 or has lasted, or can be 

expected to last, for a continuous period 

of not less than 60 months. 

Current Regulations: Section 

682.402(c)(2) of the FFEL program 

regulations authorize a borrower’s 

representative to submit a total and 

permanent disability discharge 

application on behalf of a borrower. 

Sections 674.61(b)(6), 682.402(c)(6), and 

685.213(b)(5) of the Perkins Loan, FFEL, 

and Direct Loan program regulations, 

respectively, provide that the borrower’s 

representative may assume the 

borrower’s responsibilities to provide 

notifications to the Secretary about 

address changes and annual earnings 

after the borrower has received a 

discharge based on total and permanent 

disability. However, current regulations 

do not define the term ‘‘borrower’s 

representative.’’ 

Section 682.402(c) of the FFEL 

program regulations use the terms 

‘‘lender’’ and ‘‘guaranty agency,’’ as 

those terms are defined in 682.200(b). 

Proposed Regulations: The proposed 

regulations would add new 

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

and 685.213(a)(4) to the Perkins Loan, 

FFEL, and Direct Loan program 

regulations and specify that a 

‘‘borrower’s representative’’ or a 

‘‘veteran’s representative’’ is any 

individual, including a member of the 

borrower’s or veteran’s family or an 

attorney, authorized to act on behalf of 

the borrower or the veteran with respect 

to the borrower’s or veteran’s 

application for a total and permanent 

disability discharge. Under the 

proposed regulations, references to a 

‘‘borrower’’ or a ‘‘veteran’’ in the total 

and permanent disability discharge 

regulations would include a borrower’s 

representative or a veteran’s 

representative. The proposed 

regulations would clarify that a 


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42092 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

representative may act on behalf of the 

borrower to apply for a discharge, 

provide notifications or information to 

the Secretary in connection with a 

discharge application, and to receive 

notifications from the Secretary. 

The proposed regulations would add 

a new § 682.402(c)(1)(iv)(B) to the FFEL 

regulations to clarify that for purposes 

of the FFEL total and permanent 

disability discharge regulations, the 

term ‘‘lender’’ would include a guaranty 

agency that holds a borrower’s FFEL 

loan at the time the borrower applies for 

a total and permanent disability 

discharge. This proposed change would 

reflect current practice. Currently, if the 

guaranty agency is the loan holder at the 

time the borrower requests a total and 

permanent disability discharge, the 

guaranty agency carries out the 

responsibilities of a FFEL lender with 

regard to the borrower’s discharge 

request (except for claim filing 

requirements). 

The proposed regulations would add 

a new § 682.402(c)(1)(iv)(C) to the FFEL 

regulations to clarify that references in 

the total and permanent disability 

discharge regulations to ‘‘the applicable 

guaranty agency’’ refer to the guaranty 

agency that guaranteed the loan. 

Reasons: The current regulations 

specifically allow a borrower’s 

representative to submit a total and 

permanent disability discharge 

application on behalf of the borrower 

only in the FFEL program. While 

discussing the role of the borrower’s 

representative in helping a borrower 

apply for discharge of a FFEL loan based 

on a total and permanent disability, a 

non-Federal negotiator requested that 

the regulations be amended to clarify 

that a borrower’s representative may 

represent the borrower throughout the 

process, not just during the initial 

application stage. Currently, as a matter 

of practice, the Department allows 

representatives to represent borrowers 

throughout the total and permanent 

disability discharge process in all of the 

title IV loan programs. However, a nonFederal negotiator argued that the 

practice is not consistently followed by 

loan servicers and others participating 

in the title IV loan programs and should 

be formalized by including it in the 

regulations. The non-Federal negotiator 

was particularly concerned that 

borrowers’ representatives do not 

always receive the notifications that the 

borrower receives. The non-Federal 

negotiator requested that the regulations 

be amended to specify that both the 

borrower and the borrower’s 

representative (if any) receive notices. 

The Department agreed and, for 

consistency, added a paragraph to the 

proposed regulations for all of the title 

IV student loan programs stating that 

the term ‘‘borrower’’ includes a 

borrower’s representative, if applicable. 

Under the proposed regulations any 

notice sent to a borrower must also be 

sent to the borrower’s representative if 

the borrower has one. In addition, both 

the borrower and the borrower’s 

representative may provide notifications 

and information in connection with the 

borrower’s total and permanent 

disability discharge. 

The Department also agreed to 

develop a new release form that the 

borrower can use to designate a 

representative to act on behalf of the 

borrower with respect to the borrower’s 

request for a disability discharge. 

The non-Federal negotiator also 

requested that the Department add 

language to the proposed regulations 

specifying that a borrower’s 

representative could be an attorney. The 

Department agreed and added language 

to the Perkins Loan, FFEL, and Direct 

Loan program proposed regulations 

providing that an attorney could be a 

borrower’s representative. 

Other non-Federal negotiators 

requested that the proposed regulations 

clarify the role of a guaranty agency that 

holds a borrower’s FFEL loan at the time 

the borrower applies for a total and 

permanent disability discharge. Under 

current practice, the guaranty agency 

carries out the functions of a FFEL 

lender with regard to the borrower’s 

discharge request. The Department 

proposes to reflect this practice by 

adding a provision to the regulations 

specifying that the term ‘‘lender,’’ as 

used in the FFEL program disability 

discharge regulations, means a guaranty 

agency if the guaranty agency holds the 

loan at the time the borrower applies for 

a total and permanent disability 

discharge. 

The current total and permanent 

disability discharge regulations do not 

specifically address borrowers with 

FFEL program loans held by more than 

one lender and possibly guaranteed by 

more than one guaranty agency. The 

proposed regulations, as discussed in 

the next section, would specifically 

address how discharge applications 

from these borrowers will be handled. 

Therefore, the proposed regulations use 

the term ‘‘the applicable guaranty 

agency.’’ Some non-Federal negotiators 

recommended that the proposed 

regulations specify that the term 

‘‘applicable guaranty agency’’ means the 

guaranty agency that guaranteed the 

FFEL loan for which the borrower has 

requested a discharge. The Department 

agreed that this change would improve 

the clarity of the proposed regulations. 

Total and Permanent Disability 

Discharge Application Process (34 CFR 

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

685.213(b)) 

Statute: The HEA does not specify the 

application process for a borrower 

applying for a total and permanent 

disability discharge. 

Current Regulations: Currently, a 

borrower who has title IV loans held by 

two or more lenders must apply 

separately to each lender for a total and 

permanent disability discharge. The 

borrower must provide a total and 

permanent disability discharge 

application certified by a physician to 

each lender that holds title IV loans 

owed by the borrower. After the 

application is received, the title IV 

lender suspends collection activity on 

the borrower’s Perkins Loan, FFEL, or 

Direct Loan program loans, in 

accordance with §§ 674.61(b)(2)(iv), 

682.402(c)(7)(i), or 685.213(b)(1). Each 

loan holder processes the disability 

discharge application separately. 

Under § 674.61(b)(2)(iv)(A) of the 

Perkins Loan program regulations, the 

institution that awarded the Perkins 

Loan reviews the borrower’s disability 

discharge application. If the institution 

determines that the application supports 

the conclusion that the borrower is 

totally and permanently disabled, the 

institution assigns the loan to the 

Secretary. 

Under § 682.402(c)(7)(ii) of the FFEL 

regulations, the FFEL program lender 

reviews the borrower’s disability 

discharge application. If the lender 

determines that the application supports 

the conclusion that the borrower is 

totally and permanently disabled, the 

lender files a disability discharge claim 

with the guaranty agency. The guaranty 

agency reviews the application and, if it 

concurs with the lender’s 

determination, approves the discharge 

claim in accordance with 

§ 682.402(c)(7)(iv). After approving the 

claim, the guaranty agency assigns the 

loan to the Secretary in accordance with 

§ 682.402(c)(7)(vi)(A). 

Under § 685.213(b)(1) of the Direct 

Loan regulations, the borrower applies 

directly to the Secretary for a total and 

permanent disability discharge. 

Under §§ 674.61(b)(3), 682.402(c)(3), 

and 685.213(b)(2), the Secretary makes 

the final determination of eligibility for 

a total and permanent disability 

discharge in the Perkins Loan, FFEL, 

and Direct Loan Programs. 

Proposed Regulations: The proposed 

regulations would revise §§ 674.61(b)(2) 

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

and FFEL program regulations to have 

borrowers submit applications for total 


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and permanent disability discharges 

directly to the Secretary. In the Direct 

Loan Program, borrowers would 

continue to submit applications directly 

to the Secretary. 

Under the proposed single application 

process for total and permanent 

disability discharges, if a borrower 

notifies a Perkins loan school or a FFEL 

program lender that holds his or her 

loan and claims to be totally and 

permanently disabled, the school or 

lender would direct the borrower to 

notify the Secretary of the borrower’s 

intent to apply for a discharge and 

would provide the borrower with the 

information necessary to do so. 

Under proposed §§ 674.61(b)(2)(ii) 

and 682.402(c)(2)(ii), after a Perkins 

Loan or FFEL borrower notifies the 

Secretary of his or her intent to apply 

for a total and permanent disability 

discharge, the Secretary would— 

• Provide the borrower with 

information needed to apply for the 

discharge; 

• Identify all title IV loans owed by 

the borrower and notify the lenders of 

those loans of the borrower’s intent to 

apply for the discharge; 

• Direct the lenders to suspend 

collection efforts on those loans for up 

to 120 days; and 

• Inform the borrower that collection 

will resume on the borrower’s title IV 

loans if the borrower does not submit a 

total and permanent disability discharge 

application within 120 days. 

The Secretary would carry out the 

same actions for Direct Loan borrowers 

who notify the Secretary that the 

borrower claims to be totally and 

permanently disabled under proposed 

§ 685.213(b)(1). 

Under proposed §§ 674.61(b)(2)(iii) 

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

Loan program and FFEL program 

regulations, Perkins schools and FFEL 

lenders will resume collection on the 

borrower’s loans if the borrower does 

not submit the total and permanent 

disability discharge application within 

120 days. The Perkins loan school or 

FFEL lender would be deemed to have 

exercised forbearance during the 

suspension period. In the FFEL 

program, the lender could capitalize 

interest that accrued during the 

suspension period. Under proposed 

§ 682.402(c)(2)(iii), a guaranty agency, 

even if it is acting as a lender for 

purposes of a total and permanent 

disability discharge request, would not 

be permitted to capitalize accrued 

interest. 

Under proposed §§ 674.61(b)(2)(v) 

through (b)(2)(viii), 682.402(c)(2)(iv) 

through (c)(2)(viii), and 685.213(b)(3), a 

Perkins Loan, FFEL, or Direct Loan 

borrower must submit the total and 

permanent disability discharge 

application to the Secretary. The 

application must include a certification 

by a physician who is a doctor of 

medicine or osteopathy legally 

authorized to practice in a State, 

affirming that the borrower is totally 

and permanently disabled as described 

in the regulations. The borrower must 

submit the disability discharge 

application to the Secretary within 90 

days of the date the physician certified 

the application. 

Generally, the 90-day period for 

submitting the total and permanent 

disability discharge application would 

overlap with the 120-day suspension 

period referenced earlier in this section. 

The 120-day suspension period would 

begin on the date the Secretary notifies 

the borrower’s title IV lenders of the 

borrower’s intent to apply for a total and 

permanent disability discharge. The 

90-day period would begin on the date 

the physician certifies the total and 

permanent disability application. 

After receiving the total and 

permanent disability discharge 

application, the Secretary notifies the 

borrower’s title IV loan holders that the 

Secretary has received the application. 

This notification would direct the 

borrower’s loan holders either to 

suspend collection activity or to 

maintain the suspension of collection 

activity on the borrower’s title IV loans. 

If the application is incomplete, the 

Secretary requests the missing 

information from the borrower or the 

physician who certified the application. 

An application is incomplete if 

information requested on the 

application—such as a borrower’s 

signature, a physician’s signature, or a 

physician’s license number—is not 

provided. 

Under proposed §§ 674.61(b)(2)(ix) 

and 682.402(c)(2)(ix) after receiving the 

discharge application, the Secretary 

would send a notification to the 

borrower that would— 

• State that the application will be 

reviewed by the Secretary; 

• Inform the borrower of the 

suspension of collection activity on the 

borrower’s title IV loans while the 

Secretary reviews the application; and 

• Explain the process for the 

Secretary’s review. 

The Secretary would send the same 

notification to Direct Loan borrowers 

after receipt of the discharge 

application. 

Reasons: Under the Department’s 

proposed regulations, a borrower would 

submit one total and permanent 

disability discharge application directly 

to the Secretary and this would 

eliminate the need for borrowers to 

submit separate discharge applications 

to each of their loan holders. 

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 total and permanent 

disability discharge application. The 

proposal eliminates redundant reviews 

of total and permanent disability 

discharge applications and reduces 

administrative burden on lenders and 

guaranty agencies in the title IV 

programs. 

The Department believes that the 

streamlined total and permanent 

disability discharge process would 

provide many benefits to borrowers. The 

proposed regulations would— 

• Simplify the process for the 

borrower; 

• Establish a single point of contact 

provided to the borrower in the 

instructions for submitting his or her 

application; 

• Reduce the length of time needed to 

process applications; 

• Provide more consistency in 

determinations; 

• Provide more uniformity in the 

communications sent to borrowers 

throughout the discharge process; and 

• Ensure that all of a borrower’s title 

IV loans that are eligible for a total and 

permanent disability discharge are 

discharged at the same time, reducing 

instances of ‘‘straggler’’ loans that the 

borrower may forget to include when 

applying for a discharge. 

The non-Federal negotiators 

supported the Department’s goal to 

simplify the application process for a 

total and permanent disability 

discharge. However, the non-Federal 

negotiators raised some concerns about 

the proposed single application process. 

The negotiated language in these 

proposed regulations addresses the 

majority of these concerns. 

Under the Department’s initial 

proposal, the first title IV lender that the 

borrower contacted would suspend 

collection activity on the borrower’s 

loans for up to 90 days. The Secretary 

would notify the borrower’s other title 

IV loan holders to suspend collection 

after the borrower notified the Secretary 

of his or her intent to apply for a total 

and permanent disability discharge. 

Non-Federal negotiators were concerned 

that beginning the suspension of 

collection activity on different dates 

would be confusing for borrowers. They 

were also concerned that the 90-day 

suspension period would not be 

sufficient time for a borrower to obtain 

the physician certification needed to 

apply for the discharge. The negotiators 


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42094 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

stated that it would be preferable for the 

suspension of collection activity to last 

for up to 120 days and for it to begin on 

the same date for all of the borrower’s 

title IV loans. The non-Federal 

negotiators recommended that the 

suspension of collection activity not 

begin on any of the borrower’s title IV 

loans until after the borrower contacted 

the Secretary. The Department agreed 

and modified the proposed regulations 

accordingly. 

Some non-Federal negotiators 

recommended that the suspension of 

collection activity also include a 

suspension of payments collected from 

borrowers through administrative wage 

garnishment (AWG) and the Treasury 

Offset Program (TOP). The Department 

did not agree. Borrowers applying for 

total and permanent disability 

discharges are, by definition, unable to 

engage in substantial gainful activity. 

Therefore, AWG should not be an issue 

for these borrowers. With regard to TOP, 

the Department reiterated its current 

policy on stopping TOP offsets. The 

submission of a total and permanent 

disability discharge application does 

not, in and of itself, demonstrate that a 

borrower is eligible for the discharge. 

Given the administrative effort and 

timing issues associated with stopping 

TOP, it may not be in the best interests 

of the taxpayers or the borrower to 

suspend TOP based solely on the filing 

of the discharge application. If a 

borrower’s loan account has been 

certified for TOP, the Secretary or a 

guaranty agency is not required to stop 

TOP offsets while the borrower is 

preparing to submit the total and 

permanent disability discharge 

application or during its review. The 

Secretary or guaranty agency may, 

however, stop or reduce TOP offsets 

during this period if it believes such 

action is warranted in the borrower’s 

particular circumstances. 

If a determination is made that the 

borrower is eligible for a total and 

permanent disability discharge, the 

Secretary or guaranty agency must 

promptly inactivate TOP offsets on the 

account. After the borrower’s loan is 

discharged, all payments on the loan 

received after the date of the physician’s 

certification, including payments 

obtained through a TOP offset, are 

refunded to the borrower. 

The proposed single application 

process would be consistent with the 

Department’s current TOP practices. If 

the borrower’s account is not certified in 

TOP at the time the borrower contacts 

the Secretary to request a total and 

permanent disability discharge, the 

Secretary or guaranty agency would not 

take steps to initiate TOP during the 

suspension of collection activity under 

proposed §§ 674.61(b)(2)(ii)(C), 

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

However, if the account is already 

certified in TOP at the time the 

borrower contacts the Department, 

neither the Department nor the guaranty 

agency would be required to stop TOP 

until the Department determines that 

the borrower is eligible for a total and 

permanent disability discharge. 

Non-Federal negotiators representing 

guaranty agencies expressed concerns 

that the proposed changes would limit 

the role of guaranty agencies in the total 

and permanent disability discharge 

process. Under the new process, the 

guaranty agencies would be notified of 

a borrower’s eligibility for a total and 

permanent disability discharge but 

would not receive copies of the 

borrower’s applications or of any 

accompanying medical documentation. 

These non-Federal negotiators stated 

that this lack of information would 

hinder the agencies’ ability to assist 

borrowers through the discharge 

process. 

The Department declined to modify 

the proposed regulations to require that 

guaranty agencies receive copies of the 

total and permanent disability discharge 

applications. Under the proposed 

regulations, guaranty agencies and 

lenders would not conduct medical 

reviews of disability discharge 

applications. Therefore, there is no need 

for lenders or agencies to receive the 

applications. The Department believes 

that a requirement that disability 

discharge applications be provided to 

guaranty agencies would be contrary to 

the goal of streamlining the disability 

discharge application process. In 

addition, the Department notes that 

nothing prevents a borrower from 

voluntarily providing this 

documentation to a guaranty agency. 

Secretary’s Review of Total and 

Permanent Disability Discharge 

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

682.402(c)(3), and 685.213(b)(2)) 

Statute: The HEA does not specify the 

procedures for the Secretary’s review of 

total and permanent disability discharge 

applications. 

Current Regulations: If the Secretary 

determines that a title IV borrower 

qualifies for a total and permanent 

disability discharge, the Secretary 

discharges the loan and, in accordance 

with §§ 674.61(b)(3)(i), 682.402(c)(3)(ii), 

and 685.213(b)(2)(ii), the Secretary 

notifies the borrower that the Secretary 

has approved the total and permanent 

disability discharge request. The 

notification explains to the borrower the 

terms and conditions under which the 

Secretary will reinstate the discharged 

loan. 

If the Secretary does not approve the 

total and permanent disability discharge 

request, the Secretary notifies the 

borrower that it has denied the 

disability discharge application and that 

collection will resume on the borrower’s 

loan, in accordance with 

§§ 674.61(b)(3)(ii), 682.402(c)(3)(iii), and 

685.213(b)(2)(iii). 

Proposed Regulations: Under 

proposed §§ 674.61(b)(3)(iii) and 

682.402(c)(3)(iii), if the Secretary 

determines that the borrower qualifies 

for a total and permanent disability 

discharge, the Secretary would notify 

the borrower’s Perkins and FFEL 

lenders that the Secretary approved the 

application and would provide the date 

that the physician certified the total and 

permanent disability discharge 

application. 

For Perkins Loan borrowers, the 

Secretary would direct the institution to 

assign the borrower’s Perkins Loans to 

the Department. Proposed 

§ 674.61(b)(3)(iv) would require the 

institution to assign the Perkins Loan to 

the Secretary within 45 days of 

receiving the notification. 

For FFEL borrowers, the Secretary 

would direct the FFEL lender to submit 

a disability claim to the applicable 

guaranty agency. 

If the Secretary determines that the 

borrower does not qualify for a total and 

permanent disability discharge, the 

Secretary notifies the borrower and the 

lender that the Secretary denied the 

total and permanent disability discharge 

application under proposed 

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

685.213(b)(4)(iv). The notification 

would include— 

• The reason or reasons for the 

denial; 

• 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; 

• A statement that the lender will 

notify the borrower of the date the 

borrower must resume making 

payments on the loan or, in the case of 

a Direct Loan, the date that the borrower 

must resume making payments on the 

Direct Loan; 

• 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, 


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additional information that supports the 

borrower’s eligibility for discharge; and 

• 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 reevaluate the borrower’s eligibility. 

Under proposed §§ 674.61(b)(3)(vii), 

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

the borrower requests re-evaluation of 

his or her application or submits a new 

disability discharge application, the 

request must include new information 

regarding the borrower’s disabling 

condition that was not available at the 

time the Secretary reviewed the 

borrower’s initial application for a total 

and permanent disability discharge. 

Reasons: The Department is 

proposing to change the regulations to 

reflect its current practice of providing 

detailed information in the notifications 

that are sent to borrowers about their 

disability discharge applications. The 

proposed regulations are based on 

letters that are currently available for 

use for total and permanent disability 

discharges but that are not used 

consistently. The Department believes 

that describing the content of these 

letters would ensure that the 

information provided in the 

notifications is consistent, and would 

provide more transparency to borrowers 

regarding the reasons for the denial of 

their application, as well as information 

on the options the borrower has to 

request that the disability discharge 

request be re-evaluated. 

Treatment of Disbursements of Title IV 

Loans and Receipt of Title IV Loans 

After the Physician Certification Date 

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

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

685.213(b)(3), and 685.213(b)(4)) 

Statute: Sections 437(a)(1), which is 

applicable to the Direct Loan program 

under section 455(a)(1) of the HEA, and 

section 464(k) of the HEA authorize the 

Secretary to develop safeguards to 

prevent fraud and abuse in the 

discharge of title IV loans due to total 

and permanent disability. 

Current Regulations: Under 

§ 674.61(b)(4), 682.402(c)(4), or 

685.213(b)(3) of the Perkins Loan, FEEL, 

and Direct Loan program regulations, 

respectively, if a borrower received a 

title IV loan or a TEACH Grant prior to 

the date of the physician’s certification 

of the borrower’s total and permanent 

disability discharge application and a 

disbursement of that loan or grant 

occurs while the borrower’s discharge 

request is being processed, the 

processing of the discharge request is 

suspended, until the borrower returns 

the full amount of the disbursement. 

Proposed Regulations: The proposed 

regulations do not change the current 

requirements for disbursements of loans 

made prior to the date of the physician’s 

certification. The proposed regulations 

would add new §§ 674.61(b)(5), 

682.402(c)(5), and 685.213(b)(6) to 

specify that if the 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 

and before the date the Secretary grants 

a total and permanent disability 

discharge, the Secretary will deny the 

borrower’s disability discharge 

application and collection will resume 

on the borrower’s loans. 

Reasons: The current total and 

permanent disability discharge 

regulations address late disbursements 

of loans received prior to a physician’s 

certification of the borrower’s disability 

discharge application and after a 

discharge has been granted. However, 

the current regulations do not address a 

situation in which a borrower receives 

a disbursement of a new title IV loan or 

a new TEACH Grant made on or after 

the date the physician certified the 

application, but before the date the 

Secretary discharges the loan. The 

Department is proposing to provide in 

the regulations that a borrower is not 

eligible for a discharge if the borrower 

receives a new title IV loan or TEACH 

Grant while the Department is 

reviewing his or her total and 

permanent disability discharge 

application. When a borrower takes out 

a title IV loan or receives a TEACH 

Grant, the borrower makes a 

commitment either to repay the loan or 

to teach for four years. If a borrower 

actively seeks a new title IV loan or 

TEACH Grant shortly after the borrower 

is certified as totally and permanently 

disabled by a physician, it raises the 

question of whether the borrower 

actually intends to repay the loan or to 

teach. The proposed regulations would 

preclude a borrower from receiving a 

title IV loan or TEACH Grant, only to 

have the loan or teaching obligation 

discharged a short time later. 

The non-Federal negotiators agreed 

with this proposed change. However, 

there was some discussion on how to 

track receipt of a new title IV loan or 

TEACH Grant by a borrower. The 

Department proposed using the 

disbursement date of a new title IV loan 

or TEACH Grant to determine receipt 

and the non-Federal negotiators agreed. 

Reinstatement of Loans and Borrower 

Responsibilities After 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)) 

Statute: Sections 437(a)(1) of the HEA, 

which is applicable to the Direct Loan 

program under section 455(a)(1) of the 

HEA, and section 464(k) of the HEA 

authorize the Secretary to promulgate 

regulations to reinstate a borrower’s 

obligation to repay a FFEL, Perkins 

Loan, or Direct Loan program loan that 

was discharged due to a disability if, 

after the discharge, the borrower 

receives another title IV loan or has 

earned income in excess of the poverty 

line, or under other circumstances that 

the Secretary determines to be 

necessary. 

Current Regulations: Sections 

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

685.213(b)(4) of the current regulations 

specify that a Perkins Loan, FFEL, or 

Direct Loan program loan that has been 

discharged due to a total and permanent 

disability will be reinstated if, within 

three years of the date of the discharge, 

the borrower— 

• Has annual earnings from 

employment that exceed 100 percent of 

the poverty guideline for a family of 

two; 

• Receives a new TEACH Grant or a 

new title IV loan, except for a 

Consolidation Loan; or 

• Fails to return any disbursement the 

borrower receives after the discharge 

date of a title IV loan or TEACH Grant 

received prior to the discharge date. 

Under §§ 674.61(b)(6), 682.402(c)(6), 

and 685.213(b)(5), during the three-year 

period after the discharge date, a 

Perkins Loan, FFEL, or Direct Loan 

borrower must— 

• Notify the Secretary of any changes 

to the borrower’s address or phone 

number; 

• Notify the Secretary if the 

borrower’s annual earnings exceed 100 

percent of the poverty line for a family 

of two; and 

• Provide the Secretary, upon request, 

with documentation of the borrower’s 

annual earnings from employment. 

Current regulations do not specify a 

format or process for providing 

documentation of annual earnings to the 

Secretary. 

Proposed Regulations: The proposed 

regulations would not change the 

conditions for reinstating a loan that has 

been discharged due to a total and 

permanent disability. However, we are 

proposing to modify 

§§ 674.61(b)(6)(ii)(B), 

682.402(c)(6)(ii)(B), and 

685.213(b)(7)(ii)(B) to provide that, if a 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42096 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

borrower’s Perkins Loan, FFEL, or 

Direct Loan program loan is reinstated, 

it returns to the status it would have had 

if the total and permanent disability 

discharge application had not been 

received. Current regulations do not 

address the status of a loan that has 

been reinstated. 

The proposed regulations would make 

one change to the regulations describing 

the borrower’s responsibilities after the 

borrower has received a total and 

permanent disability discharge. Under 

proposed §§ 674.61(b)(7)(iii), 

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

a Perkins Loan, FFEL, or Direct Loan 

borrower would be required to provide 

the Secretary, on request, with 

documentation of annual earnings from 

employment on a form provided by the 

Secretary. 

Reasons: Borrowers whose loans have 

been discharged based on a disability 

must provide documentation of their 

income to the Secretary for three years 

after the date of the discharge. It is the 

Department’s experience that borrowers 

who are totally and permanently 

disabled and who have little or no 

income are often unsure how to 

document their income. 

During the negotiations, the 

Department initially proposed shifting 

the three-year period during which the 

borrower would have to provide income 

information to three calendar years 

(January 1 to December 31) after the 

discharge was granted. The Department 

proposed this approach because it 

would allow borrowers to meet the 

income documentation requirement by 

submitting tax returns for each calendar 

year after the discharge. 

Non-Federal negotiators objected to 

this proposal. They noted that it would 

stretch out the post-discharge review 

period for borrowers—in some cases to 

almost four years instead of three. The 

non-Federal negotiators also pointed out 

that low-income individuals may not be 

required to file tax returns, so the 

proposed solution would not resolve the 

problem for the many borrowers who 

qualify for a discharge but are not 

required to file tax returns. 

The Department responded by 

proposing to revise the regulations to 

require that a borrower submit income 

information on a form provided by the 

Secretary. The Department intends to 

develop a form that will be available by 

the time these regulations become 

effective. Borrowers will be required to 

submit the form to the Secretary to 

document their annual earnings. The 

form will require the borrower to certify 

the borrower’s annual earnings from 

employment and will require the 

borrower to submit documentation to 

support the earnings information, if the 

borrower has such documentation. The 

documentation may include income tax 

returns, documentation of eligibility for 

Social Security disability benefits, or 

other documentation that supports the 

amount certified by the borrower. 

The proposed regulations do not 

specify the content of the form, but the 

form will be made available for public 

comment before it is approved for use. 

Return of Payments After a Total and 

Permanent Disability Assignment (34 

CFR 674.61(b)(8), 682.402(c)(8), 

682.402(r)(2), 682.402(r)(3), and 

685.213(b)(4)(iii)) 

Statute: The HEA does not specify the 

treatment of payments received on a 

title IV loan after the borrower has 

received a total and permanent 

disability discharge on the loan. 

Current Regulations: Sections 

674.61(b)(7)(i) and 674.61(b)(7)(iii) of 

the Perkins Loan program regulations 

require an institution that receives a 

payment on a Perkins loan after it has 

assigned the loan to the Secretary 

during the disability discharge process 

to forward the payment to the Secretary. 

If the Secretary discharges the loan, the 

Secretary returns to the sender any 

payments made after the date of the 

physician’s certification of the 

borrower’s discharge application. 

Section 682.402(c)(7)(vii) of the FFEL 

regulations requires a lender to forward 

to the guaranty agency any payment 

received on a FFEL loan after the lender 

receives a claim payment from the 

guaranty agency. 

Section 682.402(r)(2) of the FFEL 

regulations requires a guaranty agency 

that receives a payment on a loan after 

it has assigned the loan to the Secretary 

during the disability discharge process 

to forward the payment to the Secretary. 

At the time the guaranty agency 

forwards the payment to the Secretary, 

it must notify the borrower that there is 

no need to continue to make payments 

on the loan. Under current 

§ 682.402(r)(3), the Secretary returns the 

payments to the borrower after the 

Secretary makes a final determination to 

discharge the loan due to a total and 

permanent disability. 

Section 685.213(b)(2)(ii) of the Direct 

Loan program regulations requires the 

Secretary, after discharging a Direct 

Loan, to return to the sender any 

payments received after the date of the 

physician’s certification of the 

borrower’s discharge application. 

Proposed Regulations: Under 

proposed § 674.61(b)(8), if an institution 

receives a payment on a Perkins loan 

that has been assigned to the Secretary 

based on the Secretary’s determination 

of the borrower’s eligibility for a total 

and permanent disability discharge, the 

institution returns the payment to the 

sender. 

Under proposed § 682.402(c)(8)(i)(C), 

after receiving a disability discharge 

claim payment from the guaranty 

agency, the FFEL lender must return to 

the sender any payments it receives 

after the date the physician certified the 

borrower’s loan discharge application 

and any payments received after claim 

payment. 

Under proposed § 682.402(r)(2), a 

guaranty agency must return to the 

sender any payments it receives on a 

FFEL loan that has been assigned to the 

Secretary based on the Secretary’s 

determination of the borrower’s 

eligibility for a total and permanent 

disability discharge. 

Under proposed § 682.402(r)(3), after 

the Secretary discharges a FFEL loan, 

the Secretary returns to the sender any 

payments it receives on the loan after 

the date the borrower became totally 

and permanently disabled. 

Under proposed § 685.213(b)(4)(iii) of 

the Direct Loan program regulations, 

after the Secretary discharges a Direct 

Loan, the Secretary returns to the sender 

any payments received after the date of 

the physician’s certification of the 

borrower’s discharge application. 

Reasons: Under the proposed 

regulations, the assignment of a Perkins 

loan or the filing of a disability claim on 

a FFEL loan would not occur until after 

the Secretary has determined that the 

borrower qualifies for a total and 

permanent disability discharge. 

Therefore, there is no reason for 

payments received after those dates to 

be forwarded to the guaranty agency or 

to the Secretary. The Department is 

proposing to have the payments 

returned to the sender. 

Total and Permanent Disability 

Discharge Application Process for 

Applications Based on Documentation 

From the Department of Veterans Affairs 

(34 CFR 674.61(c), 682.402(c)(9), and 

685.213(c)) 

Statute: Sections 437(a)(2), which is 

applicable to the Direct Loan program 

under section 455(a)(1) of the HEA, and 

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

provide that a FFEL, Perkins Loan, or 

Direct Loan borrower who has been 

determined by the Department of 

Veterans Affairs (VA) to be 

unemployable due to a serviceconnected disability and who provides 

documentation of that determination to 

the Secretary is considered totally and 

permanently disabled for the purpose of 

discharging the borrower’s title IV loans. 

Section 437(a)(2) further specifies that a 


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borrower who provides such 

documentation shall not be required to 

present additional documentation for 

the purpose of determining eligibility 

for a total and permanent disability 

discharge. 

Current Regulations: Sections 

674.61(c), 682.402(c)(8), and 685.213(c) 

of the Perkins Loan, FFEL, and Direct 

Loan program regulations describe the 

process for a veteran who is applying for 

a total and permanent disability 

discharge based on a determination by 

the VA that the veteran is unemployable 

due to a service-connected disability. 

The total and permanent disability 

discharge process based on VA 

documentation is similar to the total 

and permanent disability discharge 

process for non-veterans in the three 

loan programs, with a few major 

exceptions. 

Sections 674.61(c)(2)(ii), 

682.402(c)(8)(i), and 685.213(c)(1) of the 

current regulations require the veteran 

to submit to the Secretary 

documentation from the VA 

demonstrating that the veteran is 

unemployable due to a serviceconnected disability. This 

documentation takes the place of the 

physician’s certification of total and 

permanent disability required of other 

borrowers. 

The Perkins Loan and FFEL program 

regulations do not currently require the 

institution or guaranty agency to assign 

the loan to the Secretary if the 

institution or guaranty agency 

determines that the VA documentation 

supports the veteran’s eligibility for a 

discharge. Sections 674.61(c)(2)(iii)(A) 

and 682.402(c)(8)(ii)(D) specify that the 

institution or guaranty agency is only 

required to submit the total and 

permanent disability discharge 

application and the VA documentation 

to the Secretary. 

The three-year post-discharge 

monitoring period that generally applies 

to borrowers after the Secretary grants a 

total and permanent disability discharge 

does not apply to loans discharged 

based on documentation from the VA. 

The Secretary does not reinstate a loan 

that has been discharged based on 

documentation from the VA. 

Proposed Regulations: The total and 

permanent disability discharge 

application process for veterans who 

rely on documentation from the VA in 

proposed §§ 674.61(c), 682.402(c)(9), 

and 685.213(c) matches the proposed 

regulations for total and permanent 

disability discharge applications for 

non-veterans. The exceptions in the 

current regulations discussed above are 

retained in the proposed regulations. 

Title IV loans discharged based on 

documentation from the VA are not 

assigned to the Secretary, are not subject 

to the three-year post discharge 

monitoring period, and are not 

reinstated. 

In addition, under proposed 

§§ 674.61(c)(3)(iv)(E), 

682.402(c)(9)(xi)(E), and 

685.213(c)(2)(ii)(E), the notification to a 

veteran whose disability discharge 

request based on documentation from 

the VA has been denied would include 

information on how the veteran may 

apply for a total and permanent 

disability discharge under the regular 

process for non-veterans, if the 

documentation from the VA indicates 

that the veteran might qualify for a total 

and permanent disability discharge 

under that standard. 

Reasons: The Department believes 

that the disability application process 

for veterans relying on a certification 

from the VA should be similar to the 

regular disability discharge process. 

Maintaining similar processes for both 

types of disability discharges will create 

less administrative burden for 

participants in the title IV loan 

programs and less confusion for 

borrowers. In addition, the Department 

believes that veterans will benefit by 

applying the changes proposed for the 

disability discharge process for nonveterans to the process for disability 

discharges based on VA documentation. 

Therefore, the Department is proposing 

to streamline the disability discharge 

process for veterans in the same manner 

that we are proposing to streamline the 

regular process. 

FFEL Lender and Guaranty Agency 

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

682.402(g)(1), 682.402(g)(2), 

682.402(h)(1), and 682.402(h)(3)) 

Statute: The HEA does not specify 

any particular roles for lenders or 

guaranty agencies in the processing of 

total and permanent disability 

discharges. 

Current Regulations: Under 

§ 682.402(c)(7)(i) of the FFEL 

regulations, if a borrower contacts a 

FFEL lender requesting a total and 

permanent disability discharge of a 

loan, the lender continues collection 

activity on the loan until it receives a 

disability discharge application certified 

by a physician or a letter from a 

physician asking for additional time to 

determine if the borrower is totally and 

permanently disabled. In the former 

situation, the lender suspends collection 

activity once it receives the application. 

In the latter, if the lender does not 

receive the total and permanent 

disability discharge application within 

60 days of the physician’s letter, the 

lender resumes collection activity. The 

lender also resumes collection activity 

on the loan if it receives the total and 

permanent disability discharge 

application and determines that the 

borrower does not qualify for a 

disability discharge. The lender may 

capitalize interest that accrued during 

the suspension of collection activity in 

accordance with § 682.402(c)(7)(iii). 

If the lender receives the disability 

discharge application and determines 

that the application supports the 

conclusion that the borrower is totally 

and permanently disabled, the lender 

submits a disability claim to the 

guaranty agency, as specified in 

§ 682.402(c)(7)(ii). Sections 

682.402(g)(2)(i) and 682.402(g)(1)(iv) 

require the lender to submit the 

disability claim within 60 days of the 

date the lender determines that the 

borrower is totally and permanently 

disabled and to include a copy of the 

physician’s certification of total and 

permanent disability with the claim. 

Section 682.402(h)(1)(i)(B) requires a 

guaranty agency to pay the lender’s 

claim within 90 days of the date it was 

filed, if the guaranty agency agrees with 

the determination of the lender. Under 

§ 682.402(h)(3)(ii)(B), the amount 

payable on an approved disability 

discharge claim includes unpaid 

interest that accrued on the loan during 

the period the guaranty agency needed 

to review and approve the claim, not to 

exceed 90 days. 

Under § 682.402(c)(7)(viii), the 

Secretary reimburses the guaranty 

agency for the disability claim after the 

agency pays the claim to the lender. 

Section 682.402(c)(7)(ix) requires the 

guaranty agency to assign the loan to the 

Secretary after the guaranty agency pays 

the disability claim. 

Section 682.402(c)(7)(v) requires a 

guaranty agency to return the disability 

claim to the lender if the guaranty 

agency does not agree with the lender’s 

determination that the borrower is 

totally and permanently disabled. If the 

disability claim is returned by the 

guaranty agency, the lender notifies the 

borrower that the application has been 

denied. 

Proposed Regulations: Proposed 

§ 682.402(c)(2)(ii)(C) eliminates the 

option for a physician to submit a letter 

requesting additional time to submit the 

total and permanent disability discharge 

application. Under the proposed 

regulations, the Secretary would direct 

all of the borrower’s title IV lenders to 

suspend collection efforts for up to 120 

days after the borrower informs the 

Secretary that he or she intends to apply 

for a total and permanent disability 

discharge. 


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42098 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

Under proposed § 682.402(g)(1)(iv), a 

FFEL lender would not submit a copy 

of the total and permanent disability 

discharge application with the disability 

discharge claim it files with the 

guaranty agency. Instead, the FFEL 

lender would provide the guaranty 

agency with the notification the lender 

received from the Secretary directing 

the lender to submit the disability 

claim. 

Under proposed § 682.402(g)(2), a 

FFEL lender must file a disability claim 

within 60 days of receiving the notice 

from the Secretary directing the lender 

to file the claim. Under proposed 

§ 682.402(h)(3)(iii)(A), the amount of the 

claim payment by the guaranty agency 

includes interest that accrued on the 

loan for up to 45 days during which the 

guaranty agency processed the disability 

claim. Under proposed 

§ 682.402(c)(8)(i)(D), the Secretary 

reimburses the guaranty agency for the 

disability claim after the guaranty 

agency pays the claim to the lender. 

Under proposed § 682.402(c)(8)(i)(E), 

the guaranty agency assigns the loan to 

the Secretary within 45 days of the date 

the guaranty agency paid the disability 

claim and receives the reimbursement 

payment from the Secretary. 

Reasons: The Department is 

eliminating the option for a physician to 

submit a letter requesting more time for 

the borrower to submit a total and 

permanent disability discharge 

application because we believe that 

requiring such a letter would be 

cumbersome under the new process. 

The proposed regulations would 

provide a uniform period of suspension 

of collection activity for all borrowers. 

The regulations specify that a FFEL 

lender may capitalize interest that 

accrues during the suspension period if 

the borrower does not submit a total and 

permanent disability discharge request, 

or if the request is denied. This 

provision is the same in the current 

regulations. 

The proposed reductions in FFEL 

claim filing periods are intended to 

improve the timeliness with which a 

disability claim is processed in the 

FFEL program. Since neither the FFEL 

lender nor the guaranty agency would 

conduct medical reviews of the total 

and permanent disability discharge 

applications under the proposed new 

process, the Department believes that 

the timeframes for processing total and 

permanent disability discharge requests 

can be shortened. 

The proposed regulations would 

specify a timeframe for a guaranty 

agency or Perkins school to assign a 

loan to the Secretary. The Department 

believes that specifying a timeframe for 

assignments will help to ensure that 

loans that qualify for a disability 

discharge are assigned to the Secretary 

promptly so the Secretary may complete 

the discharge. 

Initially the Department proposed that 

guaranty agencies would be required to 

assign a FFEL loan to the Secretary 

within 30 days of a claim payment. 

Non-Federal negotiators representing 

guaranty agencies indicated that their 

current practice is to assign loans after 

receipt of the Federal reimbursement 

payment, not within a set number of 

days after a claim payment. In response 

to their concerns, the Department 

revised the proposed regulations to 

provide that a loan must be assigned 

within 45 days after receipt of the 

Federal reimbursement payment. 

Income-Contingent Repayment Plans 

Pay As You Earn Initiative (ICR–A Plan) 

Statute: Section 455(d)(1)(D) of the 

HEA authorizes the Secretary to offer an 

income-contingent repayment (ICR) 

plan with varying annual repayment 

amounts based on the income of the 

borrower, paid over an extended period 

of time prescribed by the Secretary, not 

to exceed 25 years. Section 455(e) of the 

HEA authorizes the Secretary to 

establish ICR plan repayment schedules 

through regulations. 

Current Regulations: Under current 34 

CFR 685.209, the annual amount 

payable by a borrower under the ICR 

plan may not exceed 20 percent of the 

borrower’s discretionary income, and 

the maximum ICR repayment period is 

25 years. If a loan has not been repaid 

at the end of the 25-year period, the 

unpaid portion of the loan is forgiven. 

Proposed Regulations: In October 

2011, President Obama announced the 

Pay As You Earn repayment initiative to 

help student loan borrowers reduce 

their monthly payments. The Pay As 

You Earn initiative reflected in these 

proposed regulations would be available 

to borrowers who: (1) did not have an 

outstanding loan under the Direct Loan 

or FFEL programs as of October 1, 2007, 

or as of the date they received a new 

loan after October 1, 2007; and (2) 

receive a disbursement of a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan or a student Direct PLUS Loan on 

or after October 1, 2011, or receive a 

Direct Consolidation Loan based on an 

application received on or after October 

1, 2011, unless the Direct Consolidation 

Loan repays a Direct or FFEL loan that 

was outstanding as of October 1, 2007. 

The Pay As You Earn initiative reflected 

in these proposed regulations will cap a 

borrower’s annual payment amount at 

10 percent of the borrower’s 

discretionary income and provide for 

forgiveness of any remaining loan 

balance after 20 years of repayment. 

These terms reflect changes to the 

separate income-based repayment (IBR) 

plan that will go into effect for new 

borrowers on or after July 1, 2014. To 

offer this repayment relief to borrowers 

earlier, the Secretary is using his 

authority to establish an ICR plan by 

regulation. The proposed regulations 

also make other changes to the ICR 

repayment plan to implement the Pay 

As You Earn initiative. The Secretary is 

proposing to implement the Pay As You 

Earn initiative as a new ‘‘ICR–A’’ plan 

in § 685.209(a). However, the Secretary 

realizes that for a small number of 

borrowers who would otherwise qualify 

for the IBR plan or the proposed ICR– 

A plan, the current ICR repayment plan 

may be more beneficial. Accordingly, 

the Secretary is proposing to retain the 

current ICR repayment plan as the 

‘‘ICR–B plan,’’ with certain changes as 

discussed below, in new § 685.209(b). 

The proposed ICR–A plan would 

generally have the same terms and 

conditions as the IBR plan that will be 

available to new borrowers on or after 

July 1, 2014. The terms and conditions 

of the proposed ICR–A plan include the 

following: 

• A borrower’s maximum annual 

payment amount would be capped at 

10 percent of the difference between the 

borrower’s AGI and 150 percent of the 

annual poverty guideline amount for the 

borrower’s State and family size. 

• Borrowers who repay under the 

ICR–A plan would qualify for 

forgiveness of any remaining loan 

balance after 20 years of qualifying 

payments and periods of economic 

hardship deferment. 

• To initially qualify and to continue 

to make income-contingent payments 

under the plan, a borrower would be 

required to have a partial financial 

hardship. A borrower would be 

considered to have a partial financial 

hardship if the annual amount due on 

all of the borrower’s eligible Direct Loan 

and FFEL program loans, as calculated 

based on a standard repayment plan 

with a 10-year repayment period, 

exceeds 10 percent of the difference 

between the borrower’s AGI and 150 

percent of the annual poverty guideline 

amount for the borrower’s State and 

family size. 

• For married borrowers who file a 

joint Federal tax return, the 

determination of a borrower’s partial 

financial hardship status would be 

based on the combined income of both 

spouses and, if the spouse also has 

eligible loans, the combined eligible 

loan debt of both individuals. For a 


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married borrower who files an 

individual Federal tax return, only the 

borrower’s income and loan debt would 

be considered. 

• The ICR–A plan will be available to 

any borrower who is repaying a nondefaulted Direct Loan, except for a 

parent Direct PLUS loan or a Direct 

Consolidation loan that repaid a parent 

Direct or FFEL PLUS loan. As with IBR, 

parent Direct PLUS Loans and Direct 

Consolidation Loans that repaid parent 

Direct PLUS Loans or parent Federal 

PLUS Loans would not be eligible for 

repayment under the ICR–A plan. 

• The term ‘‘eligible loan’’ would be 

defined as including any outstanding 

non-defaulted Direct Loan or FFEL 

program loan, except for a parent Direct 

PLUS loan, a parent Federal PLUS Loan, 

or a Direct Consolidation Loan or 

Federal Consolidation Loan that repaid 

a parent Direct PLUS Loan or parent 

Federal PLUS loan. The term ‘‘eligible 

loan’’ is used in connection with 

determining whether a borrower has, or 

continues to have, a partial financial 

hardship and, for a borrower who has 

eligible loans with more than one loan 

holder, to determine the borrower’s 

prorated monthly payment amount 

under the ICR–A plan. 

• Unpaid accrued interest would be 

capitalized only if a borrower repaying 

under the ICR–A plan is determined to 

no longer have a partial financial 

hardship, or if the borrower chooses to 

leave the ICR–A plan. 

• For a borrower whose scheduled 

payment is less than the amount of 

interest that accrues each month on a 

subsidized loan or on the subsidized 

portion of a consolidation loan, the 

Secretary would not charge the 

borrower the remaining interest for a 

period of three consecutive years from 

the date the borrower begins repayment 

under the ICR–A plan, excluding 

periods of economic hardship 

deferment. 

The ICR–A plan would also include 

certain changes that we are proposing to 

make to the IBR plan as discussed below 

under ‘‘Income-Based Repayment Plan.’’ 

Other terms and conditions of the 

proposed ICR–A plan are explained 

below. 

Reasons: To support the 

Administration’s goal of making it easier 

for borrowers to repay their Federal 

student loans, the Secretary is using his 

authority under section 455(d)(1)(D) of 

the HEA to implement the Pay As You 

Earn initiative as a second type of ICR 

plan in the Direct Loan Program. 

Access to the ICR–A Plan 

Statute: Under section 455(d)(1)(D) of 

the HEA, the ICR plan is available to 

repay any Direct Loans except for Direct 

PLUS Loans made to parent borrowers. 

Current Regulations: Current 

regulations in § 685.208(a) provide that 

all Direct Loan borrowers except parent 

Direct PLUS Loan borrowers may repay 

their loans under the ICR plan. 

Proposed Regulations: The proposed 

regulations would amend the provisions 

in § 685.208(a) related to borrower 

eligibility for the various Direct Loan 

repayment plans by adding a reference 

to the ICR–A plan and by providing that 

any type of Direct Loan could be repaid 

under the ICR–A plan except for a 

parent Direct PLUS Loan or a Direct 

Consolidation Loan that repaid a parent 

Direct PLUS Loan or a parent Federal 

PLUS Loan. In the regulations governing 

the ICR plan, proposed § 685.209(a) 

would provide that the ICR–A plan is 

available to borrowers who meet both of 

the following criteria: 

(1) Did not have an outstanding loan 

under the Direct Loan or FFEL programs 

as of October 1, 2007, or as of the date 

they received a new loan after October 

1, 2007; and 

(2) Receive a disbursement of a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan or a student Direct PLUS Loan on 

or after October 1, 2011, or receive a 

Direct Consolidation Loan based on an 

application received on or after October 

1, 2011, unless that Direct Consolidation 

Loan repays a Direct or FFEL loan that 

was outstanding as of October 1, 2007. 

Reasons: The Department is 

proposing to make the ICR–A plan 

available to new borrowers in fiscal year 

2008 who receive a new loan in fiscal 

year 2012 or later. Fiscal years 2008 and 

2012 began on October 1, 2007, and 

October 1, 2011, respectively. The 

proposed definition of ‘‘eligible new 

borrower’’ in § 685.209(a)(1)(iii) as an 

individual who had no outstanding 

balance on a Direct Loan or FFEL 

program loan as of October 1, 2007, or 

who had no outstanding balance on 

such a loan on the date the borrower 

obtained a loan after October 1, 2007, is 

consistent with the manner in which 

eligibility for the Direct Loan and FFEL 

teacher loan forgiveness programs is 

specified under §§ 685.217(a)(1) and 

682.216(a)(1), respectively. To ensure 

that new borrowers in fiscal year 2008 

who are enrolled during the 2011–2012 

academic year can qualify for the ICR– 

A plan, the proposed regulations would 

specify that receipt of a new loan in 

fiscal year 2012 or later means receipt 

of any disbursement of a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, or a student Direct PLUS Loan on 

or after October 1, 2011. This means, for 

example, that a new borrower in 2008 

who received the first disbursement of 

a 2011–2012 academic year loan in 

August or September 2011 (i.e., in fiscal 

year 2011) and who will graduate in the 

spring of 2012 would nonetheless be 

eligible for the ICR–A plan if a 

subsequent disbursement of that loan is 

made on or after October 1, 2011, in 

fiscal year 2012. The Department 

believes that offering the ICR–A plan to 

this population will provide a 

significant benefit to a group of student 

loan borrowers who are among those 

most likely to face difficulty repaying 

their loans under other repayment 

plans, while at the same time limiting 

additional costs to taxpayers. 

The proposed regulations would also 

allow a borrower to choose the ICR–A 

plan if the borrower takes out a Direct 

Consolidation Loan on or after October 

1, 2011. The Department originally 

proposed that a borrower could meet the 

requirement to receive a new loan in 

fiscal year 2012 or later by receiving a 

Direct Consolidation Loan based on an 

application received on or after October 

1, 2011. In response to a request for 

clarification from a non-federal 

negotiator, the Department expanded 

the original proposal to clarify that an 

individual who receives a Direct 

Consolidation Loan based on an 

application received on or after October 

1, 2011, is not eligible for the ICR–A 

plan if the Direct Consolidation Loan 

repays a loan that would otherwise 

make the borrower ineligible based on 

the requirement to be a new borrower as 

of October 1, 2007. For example, a 

borrower could not qualify for the ICR– 

A plan by obtaining a Direct 

Consolidation Loan (based on an 

application received on or after October 

1, 2011) that repays earlier loans made 

to the borrower that were owed as of 

October 1, 2007. However, a borrower 

who had no outstanding balance on a 

Direct Loan or a FFEL program loan at 

the time the borrower obtained new 

loans after October 1, 2007, could 

qualify for ICR–A if he or she receives 

a Direct Consolidation Loan based on an 

application received on or after October 

1, 2011, that repays the earlier loans 

made after October 1, 2007. 

Interest Capitalization Under the ICR– 

A Plan 

Statute: Section 455(e)(5) of the HEA 

authorizes the Secretary to promulgate 

regulations limiting the amount of 

interest that may be capitalized on loans 

repaid under the ICR plan and 

specifying the timing of capitalization 

under the plan. 

Current Regulations: Under 

§ 685.202(b)(4), generally the Secretary 

capitalizes unpaid interest annually for 

borrowers repaying under the ICR plan. 


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Current § 685.209(c)(5) further provides 

that if a borrower’s monthly payment 

under the ICR plan 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. 

Proposed Regulations: Under 

proposed § 685.209(a)(2)(iv)(A), for 

borrowers repaying a Direct Loan under 

the ICR–A plan, unpaid accrued interest 

would be capitalized, as under the IBR 

plan, when a borrower is determined to 

no longer have a partial financial 

hardship or when a borrower chooses to 

leave the ICR–A plan. However, 

proposed § 685.209(a)(2)(iv)(B) would 

limit the amount of interest that is 

capitalized while a borrower is repaying 

under the ICR–A plan to 10 percent of 

the loan principal balance at the time 

the borrower entered the ICR–A plan. 

For borrowers who remain on the ICR– 

A plan after the 10 percent limit has 

been reached, interest would continue 

to accrue but would not be capitalized. 

Reasons: Some of the non-Federal 

negotiators asked the Department to 

consider a proposal to cap the amount 

of interest and fees that may be charged 

to borrowers under both the ICR plan 

(including the proposed ICR–A plan) 

and the IBR plan at 150 percent of the 

loan principal amount. The negotiators 

suggested that this approach could be 

implemented at no additional cost to the 

taxpayer because it would not reduce 

the total amount paid by a borrower 

under the ICR or IBR plan but would 

lower the total loan amount forgiven at 

the end of the ICR or IBR repayment 

period. This would benefit borrowers by 

reducing the loan amount that could 

potentially be treated as taxable income 

if a borrower ultimately receives ICR or 

IBR loan forgiveness. 

The Department considered this 

proposal but determined that the 

Secretary does not have the authority 

under the HEA to stop charging interest 

to borrowers under the ICR or IBR plans 

after the amount of accrued interest has 

reached a certain percentage of the loan 

principal. 

Under the FFEL Program, lenders 

would have a contractual right to 

payment of the interest that would 

otherwise accrue on a loan but which 

would be capped prior to loan 

forgiveness under the proposal from the 

non-Federal negotiators. This would 

involve making significant Federal 

outlays to FFEL lenders that the 

Secretary does not have the legal 

authority to make. 

As an alternative, the Department 

proposed to include in the ICR–A 

regulations a provision comparable to 

the current ICR provision that limits the 

amount of interest that may be 

capitalized to 10 percent of the original 

principal amount. Under the proposed 

regulations for the ICR–A plan, unpaid 

accrued interest would be capitalized 

(as under the IBR plan) when a borrower 

is determined to no longer have a partial 

financial hardship or chooses to leave 

the ICR–A plan. However, the amount of 

accrued interest that may be capitalized 

when a borrower is determined to no 

longer have a partial financial hardship 

would be limited to 10 percent of the 

original loan principal balance when the 

borrower entered repayment under ICR– 

A. For borrowers who remain on the 

ICR–A plan, interest would continue to 

accrue after the 10 percent limit on 

capitalization has been reached, but 

there would be no further capitalization. 

If a borrower chooses to leave the ICR– 

A plan, the 10 percent limit on 

capitalization of interest would not 

apply. 

Borrower Options After Leaving the 

ICR–A Plan 

Statute: Section 455(d)(3) of the HEA 

provides that a Direct Loan borrower 

may change repayment plans under 

such terms and conditions as may be 

established by the Secretary. 

Current Regulations: Direct Loan 

borrowers, including borrowers 

repaying their loans under the ICR plan, 

are subject to the requirements of 

§ 685.210(b) that govern changing 

repayment plans in the Direct Loan 

program. The regulations provide that a 

borrower may change his or her 

repayment plan at any time after the 

loan enters repayment by notifying the 

Secretary but may not change to a 

repayment plan that has a maximum 

repayment period of less than the 

number of years the loan has already 

been in repayment. For example, a 

borrower who has paid for 13 years 

under the extended repayment plan or 

the ICR plan cannot then change to the 

10-year standard repayment plan. 

Borrowers may, however, change to 

the ICR or IBR plans at any time. A 

borrower who is repaying a defaulted 

loan under the ICR plan may not change 

to another repayment plan unless the 

borrower was required to and made an 

ICR payment on the loan in each of the 

three prior months, or the borrower was 

not required to make an ICR payment 

but made three reasonable and 

affordable payments on the loan in each 

of the three prior months, and the 

Secretary approves the borrower’s 

request to change repayment plans. 

Current regulations provide that if a 

borrower changes to a different 

repayment plan, the repayment period 

under the new plan is calculated from 

the date the loan initially entered 

repayment, except that if a borrower 

changes to the ICR plan or the IBR plan, 

the repayment period is determined in 

accordance with the regulations for 

those repayment plans. 

Proposed Regulations: The proposed 

regulations for the ICR–A plan in 

§ 685.209(a)(4)(ii), consistent with 

current ICR regulations, would provide 

that a borrower who wishes to leave the 

ICR–A repayment plan may change to a 

different repayment plan in accordance 

with the provisions in § 685.210(b) that 

are described earlier under ‘‘Current 

Regulations.’’ 

Reasons: As previously explained, the 

proposed ICR–A plan shares many of 

the features of the IBR plan. As a result, 

the Department initially proposed 

requiring borrowers who choose to leave 

the ICR–A plan to repay under the 

standard repayment plan, as IBR 

borrowers are required to do under 

section 493C(b)(8) of the HEA. However, 

several non-Federal negotiators pointed 

out that the ICR plan is not governed by 

a statutory requirement comparable to 

the statutory requirement for borrowers 

repaying under the IBR plan. Those 

negotiators argued that imposing such a 

regulatory requirement on ICR–A 

borrowers would pose a hardship on 

borrowers and be an unnecessary 

impediment to a borrower being able to 

leave the ICR–A plan and begin 

immediate repayment under another 

plan that may be better suited to the 

borrower’s individual circumstances. 

After further consideration, the 

Department modified the proposed ICR– 

A regulations to reflect the same 

regulatory approach to changing 

repayment plans that applies to 

borrowers repaying under the existing 

ICR plan (the proposed ICR–B plan). 

Current ICR Plan (ICR–B Plan) 

Borrower Access to the ICR–B Plan 

Statute: Section 455(d)(1) of the HEA 

requires the Secretary to offer Direct 

Loan borrowers a variety of repayment 

plans. The repayment plans offered 

include a standard repayment plan, a 

graduated repayment plan, an extended 

repayment plan for certain borrowers, 

an ICR plan (except for parent Direct 

PLUS loan borrowers), and beginning 

July 1, 2009, an IBR plan (except for 

parent Direct PLUS Loan borrowers and 

borrowers of Direct Consolidation Loans 

that repaid parent Direct PLUS Loans or 

parent Federal PLUS Loans). The ICR 

plan must provide for the payment of 


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varying annual repayment amounts 

based on the income of the borrower 

paid over an extended period of time 

prescribed by the Secretary, not to 

exceed 25 years. Section 455(d)(2) of the 

HEA authorizes the Secretary to 

designate the standard, graduated, or 

extended repayment plan for a borrower 

who fails to choose a repayment plan, 

and section 455(d)(4) of the HEA 

authorizes the Secretary to provide, on 

a case-by-case basis, an alternative 

repayment plan if none of the available 

repayment plans are adequate to address 

a borrower’s exceptional circumstances. 

Current Regulations: Under 

§ 685.208(a), the existing ICR plan 

(referred to in these proposed 

regulations as the ICR–B plan) is 

available to all Direct Loan borrowers 

except for parent borrowers of Direct 

PLUS loans. The Department’s 

regulations do not include any other 

limitations on borrower access to the 

ICR plan. Section 685.209(c)(7)(iv) 

provides that if a borrower fails to 

provide consent for the Secretary to 

obtain tax return information necessary 

for the Secretary to determine the 

borrower’s ICR monthly payment 

amount, the Secretary designates the 

standard repayment plan for the 

borrower. 

Proposed Regulations: Proposed 

§ 685.208(a) would allow a Direct Loan 

borrower (other than a parent Direct 

PLUS borrower) to continue to be able 

to select the ICR–B plan as one of the 

available repayment plans. 

Reasons: The Department initially 

proposed to limit borrower access to the 

ICR–B plan, after implementation of the 

ICR–A plan, to those borrowers who 

would not otherwise have access to any 

other ‘‘income-driven’’ repayment plan 

(i.e., the current IBR plan, the IBR plan 

for new borrowers on or after July 1, 

2014, or the proposed ICR–A plan). The 

Department believed that having too 

many income-driven repayment plans 

would be confusing to borrowers and 

would make it more difficult for them 

to determine which plan would best 

meet their needs. The Department also 

believed that offering multiple incomedriven plans with similar terms and 

conditions would make it more difficult 

for the Department to promote these 

plans and to inform borrowers of the 

benefits available under each plan. 

However, several non-Federal 

negotiators stated that maintaining the 

fullest possible menu of repayment plan 

options would be in the best interests of 

borrowers. These negotiators felt that 

some borrowers, even those who qualify 

for the IBR or ICR–A plans, may view 

the ICR–B repayment plan as simpler 

and a better fit for them, and therefore 

full access to the current ICR plan 

should be retained. After further 

consideration of this issue, the 

Department decided to retain full 

borrower access to the ICR–B repayment 

plan. 

Table 1 summarizes the borrower 

eligibility requirements for the current 

IBR plan, the proposed IBR plan 

revisions for new borrowers on or after 

July 1, 2014, the proposed ICR–A plan, 

and the current ICR plan (proposed 

ICR–B plan): 

TABLE 1—ELIGIBILITY FOR INCOME-DRIVEN REPAYMENT PLANS

Current IBR 

Proposed revised IBR 

(with 07/01/2014 statutory 

changes) 

Proposed ICR–A Current ICR (proposed 

ICR–B) 

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.

• 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.

• Direct Loan Program 

only. 

• FFEL borrowers may 

qualify through consolidation into the Direct 

Loan Program. 


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The Department will make 

information available to borrowers to 

assist them in understanding their 

repayment plan options and 

determining their eligibility for the 

various income-driven plans. 

Treatment of Married Borrowers Under 

the ICR–B Plan 

Statute: Section 455(e)(2) of the HEA 

provides for an income-contingent 

repayment plan with a repayment 

amount based on the borrower’s AGI or, 

if the borrower is married and files a 

joint Federal income tax return, based 

on the adjusted gross income (AGI) of 

the borrower and the spouse. In 

accordance with section 455(e)(3) of the 

HEA, if the AGI of a borrower repaying 

under the income-contingent repayment 

plan is unavailable or does not 

reasonably reflect the borrower’s current 

income, the borrower is required to 

provide other documentation of income 

acceptable to the Secretary, and the 

Secretary uses that documentation to 

determine the repayment amount. 

For the IBR plan, section 493C(d) of 

the HEA provides that if a married 

borrower repaying under the IBR plan 

files a separate Federal income tax 

return from his or her spouse, only the 

borrower’s AGI is used to determine the 

borrower’s IBR payment amount. 

Current Regulations: Under current 

§ 685.209(b)(1), if a married borrower 

chooses to repay under the incomecontingent repayment plan, the AGI for 

both spouses is used to calculate the 

borrower’s monthly payment amount, 

regardless of whether the borrower and 

spouse file a joint Federal income tax 

return or separate Federal tax returns. If 

a married borrower files a separate 

Federal income tax return from his or 

her spouse, the borrower’s spouse must 

provide consent for the disclosure of the 

spouse’s income. 

Proposed Regulations: Proposed 

§ 685.209(b)(2)(i) would provide that if 

a married borrower repaying under the 

ICR–B plan files a Federal income tax 

return separately from his or her spouse, 

only the borrower’s AGI would be used 

to determine the borrower’s monthly 

ICR–B payment amount. The joint 

income of both spouses would be used 

only if the borrower files a joint Federal 

income tax return. 

Reasons: The treatment of married 

borrowers under the current ICR plan 

regulations is based on section 455(e)(3) 

of the HEA, which allows the Secretary 

to use other documentation of income 

provided by the borrower to determine 

the ICR payment amount if the 

borrower’s AGI does not reasonably 

reflect the borrower’s current income. 

At the time the current ICR regulations 

were developed, the Department 

believed that if a married borrower filed 

a separate tax return from his or her 

spouse, using only the borrower’s AGI 

would not provide for an accurate 

determination of the monthly amount 

the borrower could afford to repay. 

Accordingly, the current ICR 

regulations provide for consideration of 

the combined incomes of both spouses, 

even when married borrowers file 

separate Federal income tax returns. In 

contrast, the HEA provides that for a 

married borrower who chooses to repay 

under the IBR plan, the combined 

income of the borrower and the 

borrower’s spouse is used to determine 

the monthly IBR payment amount only 

if the borrower and spouse file a joint 

Federal income tax return. To provide 

for consistent treatment of married 

borrowers in all of the repayment plans 

under which the monthly payment 

amount is based on the borrower’s 

income, the Department believes it is 

appropriate to amend the regulations for 

the current ICR plan so that if a married 

borrower repaying under the ICR–B plan 

files a Federal income tax return 

separately from his or her spouse, only 

the borrower’s AGI would be used to 

determine the borrower’s monthly ICR– 

B payment amount. The joint income of 

both spouses would be used only if the 

borrower files a joint Federal income tax 

return. 

Borrowers Repaying Under the ICR–B 

Plan Who Fail To Provide Required 

Documentation of Income 

Statute: The HEA does not address 

the treatment of borrowers repaying 

under the ICR plan who fail to provide 

the annual income information required 

by the Secretary to determine the 

monthly ICR payment amount. 

Current Regulations: Current 

§ 685.209(c)(7)(iv) provides that if a 

borrower selects the ICR plan but fails 

to provide the required consent to the 

disclosure of income information, fails 

to renew a previously provided written 

consent after it has expired, or 

withdraws consent and does not select 

another repayment plan, the Secretary 

designates the standard repayment plan 

for the borrower. For the IBR plan, 

current § 685.221(e)(2) provides that, 

under these same circumstances, the 

Secretary recalculates the borrower’s 

monthly payment and the maximum 

recalculated amount the borrower is 

required to repay is the amount that 

would be required under a standard 

repayment plan with a 10-year 

repayment period, based on the amount 

of the borrower’s loans that were 

outstanding at the time the borrower 

selected the IBR plan. In such cases, the 

repayment period based on the 

recalculated payment amount may 

exceed 10 years. 

Proposed Regulations: Under 

proposed § 685.209(b)(3)(vi)(D), a 

borrower currently repaying under the 

ICR–B plan who fails to provide the 

annual income information needed to 

determine the borrower’s monthly 

payment amount would be treated the 

same as a borrower repaying under the 

IBR plan who does not provide the 

required information needed to 

determine the IBR payment amount, as 

described in the prior discussion of the 

current regulations and explained in the 

following discussion of changes to the 

IBR plan. 

Reasons: Under the current 

regulations, a borrower repaying under 

ICR who does not provide the require 

consent to disclosure of income 

information is required to repay under 

the standard repayment plan. However, 

in some cases, a borrower may have 

been in repayment under the ICR plan 

longer than the maximum repayment 

period under the standard repayment 

plan. Placing the borrower on the 

standard repayment plan would thus 

conflict with the provision in 

§ 685.210(b) that prohibits a borrower 

from changing to a repayment plan with 

a maximum repayment period of less 

than the number of years the borrower’s 

loan has already been in repayment. The 

proposed regulations address this issue 

by conforming the ICR–B regulations 

with the current IBR regulations 

governing the treatment of borrowers 

who fail to provide required income 

documentation and provide greater 

consistency in the treatment of 

borrowers under the various incomedriven repayment plans. 

Other Changes to the Current ICR Plan 

(ICR–B Plan) 

Statute: The HEA does not address 

the changes discussed in this section. 

Current Regulations: Final regulations 

published on October 23, 2008 (73 FR 

63232), inadvertently deleted 

§ 685.209(c)(4)(iii), (iv), and (v) from the 

ICR plan regulations. Paragraph 

(c)(4)(iii) provided that 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. Paragraph (c)(4)(iv) 

stated that if a borrower has not repaid 

a loan in full at the end of the 25-year 

repayment period, the Secretary cancels 

the unpaid portion of the loan. 

Paragraph (c)(4)(v) provided that at the 

beginning of the repayment period 

under the ICR plan, a borrower is 

required to make monthly payments of 

the amount of interest that accrues until 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42103 

the Secretary calculates the monthly 

payment amount based on the 

borrower’s income. 

Current § 685.209(c)(2) specifies that 

the Secretary requires alternative 

documentation of income from 

borrowers in their first and second years 

of repayment, when the Secretary 

believes that the borrower’s reported 

AGI does not reasonably reflect the 

borrower’s current income. 

Current § 685.209(c)(7) requires a 

borrower who repays under the ICR 

plan to provide written consent to the 

disclosure of certain tax return 

information by the Internal Revenue 

Service (IRS) to the Secretary for 

purposes of determining the borrower’s 

ICR payment amount. A borrower is 

required to provide consent for a period 

of five years. 

Proposed Regulations: The proposed 

regulations restore the provisions 

inadvertently deleted from 

§ 685.209(c)(4)(iii) through (v) in 2008 

and place them in new 

§§ 685.209(b)(1)(x), (b)(3)(iii)(C), and 

(b)(3)(iii)(D). The proposed regulation 

would remove the current provision in 

§ 685.209(c)(2) related to alternative 

documentation of income for borrowers 

in their first and second year of 

repayment. In addition, the proposed 

regulations would replace the IRS 

consent requirement in current 

§ 685.209(c)(7) with a more general 

requirement in new § 685.209(b)(3)(vi) 

for the borrower to provide acceptable 

documentation, as determined by the 

Secretary, of the borrower’s AGI. 

Reasons: Restoring the three deleted 

provisions corrects a technical error 

resulting from the October 23, 2008 final 

regulations. The Department believes 

that the current provision in 

§ 685.209(c)(2) is unnecessary, since 

current § 685.209(c)(1) (to be retained as 

proposed § 685.209(b)(3)) already 

permits the Secretary to require 

alternative documentation of income if 

a borrower’s AGI does not reasonably 

reflect current income. 

The Department is proposing to 

replace the current IRS consent 

requirement with a requirement for the 

borrower to provide acceptable 

documentation of AGI because the 

existing consent regulations no longer 

reflect current operational procedures in 

the Direct Loan Program. The consent 

process described in current 

§ 685.209(c)(7) was developed in 

consultation with the IRS at the 

beginning of the Direct Loan Program. 

However, there have been increasing 

delays in obtaining information from the 

IRS. The Secretary now obtains the 

necessary income information for most 

borrowers repaying under ICR through 

other means, such as by having 

borrowers submit copies of their most 

recently filed Federal income tax 

returns. The proposed rules are 

consistent with that practice. Further, 

the proposed regulation is consistent 

with efforts the Department is currently 

undertaking to streamline the 

application and income verification 

process, by working with the IRS, so 

that borrowers can more easily enroll 

and participate in the ICR and IBR 

repayment plans. 

Income-Based Repayment Plan 

Partial Financial Hardship (34 CFR 

685.221(a)(5)), Income-Based Payment 

Amount (§ 685.221(b)(1)), and Loan 

Forgiveness Period (§ 685.221(f)) 

Statute: Section 493C of the HEA 

authorized the IBR plan for Direct Loan 

and FFEL program borrowers. To 

initially qualify for the IBR plan and to 

continue to make income-based 

payments under that plan, a borrower 

must have a partial financial hardship. 

Section 493C(a)(3) of the HEA provides 

that a borrower has a partial financial 

hardship if the annual amount due on 

all of the borrower’s eligible Direct Loan 

and FFEL program loans, as calculated 

based on a standard repayment plan 

with a 10-year repayment period, 

exceeds 15 percent of the difference 

between the borrower’s adjusted gross 

income (AGI) and 150 percent of the 

annual poverty guideline amount for the 

borrower’s family size and State. During 

any period when a borrower who is 

repaying under the IBR plan has a 

partial financial hardship, the 

borrower’s monthly loan payment may 

not exceed 15 percent of the difference 

between the borrower’s AGI and 150 

percent of the applicable annual poverty 

guideline amount, divided by 12. 

Section 493C(b)(7) of the HEA 

provides that a borrower who has 

participated in the IBR plan qualifies for 

forgiveness of any remaining loan 

balance after making qualifying 

payments (including periods of 

economic hardship deferment) over a 

period of time prescribed by the 

Secretary, not to exceed 25 years. 

The SAFRA Act included in the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) made two changes to the terms and 

conditions of the IBR plan. First, section 

2213 of the SAFRA Act amended 

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

changing the percentage used in the 

formula for determining whether a 

borrower has a partial financial 

hardship and for calculating the 

maximum IBR payment amount during 

periods of partial financial hardship 

from 15 percent to 10 percent. Second, 

the maximum repayment period after 

which a borrower repaying under the 

IBR plan qualifies for forgiveness of any 

remaining loan balance was changed 

from 25 years to 20 years. These 

amendments apply only to new Direct 

Loan borrowers on or after July 1, 2014. 

For all other borrowers repaying under 

IBR, the current 15 percent and 25-year 

provisions would continue to apply. 

Current Regulations: The current IBR 

plan regulations in § 685.221 reflect the 

15 percent standard for determining 

whether a borrower has a partial 

financial hardship and for calculating 

the maximum IBR payment amount 

during periods of financial hardship. In 

this preamble, this income-based 

monthly payment amount that applies 

during a period of partial financial 

hardship is referred to as the ‘‘monthly 

PFH payment amount.’’ The current 

regulations also provide that a borrower 

qualifies for loan forgiveness after 

making the equivalent of 25 years of 

payments through a combination of 

qualifying payments and periods of 

economic hardship deferment. 

Proposed regulations: Proposed 

§ 685.221(a)(4) would define ‘‘new 

borrower’’ for purposes of the changes 

to the IBR plan as an individual who 

has no outstanding balance on a Direct 

Loan 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. 

This is consistent with the definition of 

‘‘new borrower’’ as used for purposes of 

teacher loan forgiveness under 

§ 685.217(a)(1). 

The proposed regulations would 

revise the definition of ‘‘partial financial 

hardship’’ in § 685.221(a)(5) to reflect 

the statutory provision and state that for 

new borrowers after July 1, 2014, a 

borrower is considered to have a partial 

financial hardship if the annual amount 

due on all of the borrower’s eligible 

Direct Loan and FFEL Program loans, as 

calculated based on a standard 

repayment plan with a 10-year 

repayment period, exceeds 10 percent of 

the difference between the borrower’s 

AGI and 150 percent of the annual 

poverty guideline amount for the 

borrower’s family size. The proposed 

regulations would revise § 685.221(b)(1) 

to provide that for a new borrower after 

July 1, 2014, the maximum IBR monthly 

payment amount during periods of 

partial financial hardship may not 

exceed 10 percent of the amount by 

which the borrower’s AGI exceeds 150 

percent of the poverty guideline amount 

for the borrower’s family size, divided 

by 12. 


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42104 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

Finally, the proposed regulations 

would revise § 685.221(f) to reflect the 

statutory changes made by the SAFRA 

Act and provide that a new borrower 

who has participated in the IBR plan 

qualifies for loan forgiveness after 20 

years of qualifying payments and 

periods of economic hardship 

deferment. 

Reasons: The proposed regulations 

implement statutory provisions that 

were added to the HEA by the SAFRA 

Act. Because the changes to the IBR 

plan made by the SAFRA Act apply 

only to new borrowers on or after July 

1, 2014, and because the SAFRA Act 

ended the authority of lenders to make 

new loans under the FFEL Program 

effective July 1, 2010, the proposed 

changes apply only in the Direct Loan 

Program regulations. 

In response to a request for 

clarification from one of the non-Federal 

negotiators, the Department clarified 

that qualifying payments made during 

the 25-year or 20-year (as applicable) 

IBR repayment period do not have to be 

consecutive payments. Unless the 

regulations specifically state that 

payments must be consecutive to meet 

the requirements of a particular 

provision, it is intended that the 

payments need not be consecutive. 

Repayment of Loans Under the IBR 

Plan 

Statute: The HEA does not address 

the changes discussed in this section. 

Current Regulations: For the Direct 

Loan Program, current § 685.208(a)(4) 

requires that all of a borrower’s Direct 

Loans be repaid under the same 

repayment plan unless a loan is not 

eligible for repayment under that plan. 

For the FFEL Program, current 

§ 682.215(b)(3) provides that if a 

borrower selects the IBR plan, the loan 

holder must require that all of the 

borrower’s eligible loans owed to that 

holder be repaid under the IBR plan, 

unless the borrower requests otherwise. 

Proposed Regulations: Proposed 

§ 682.215(b)(3) would require a 

borrower who chooses the IBR plan to 

repay all of his or her loans under the 

IBR plan, unless some of the borrower’s 

loans are not eligible for repayment 

under IBR. As a result of this change, a 

borrower who chooses the IBR plan 

would no longer be able to request that 

one or more IBR-eligible loans be 

excluded from that plan. 

Reasons: The Department is 

proposing this change to provide 

consistency with the Direct Loan 

Program regulations. 

Annual IBR Partial Financial Hardship 

Assessment 

Statute: Section 493C(c) of the HEA 

provides for the Secretary to establish 

procedures for annually determining a 

borrower’s eligibility to make incomebased payments (i.e., to determine each 

year whether a borrower who initially 

qualified for the IBR plan continues to 

have a partial financial hardship). These 

procedures include verifying the 

borrower’s annual income, verifying the 

annual amount due on the borrower’s 

eligible loans, and any other procedures 

necessary to implement the IBR plan. 

Under section 493C(b)(6) of the HEA, 

if a borrower repaying under the IBR 

plan is determined to no longer have a 

partial financial hardship or chooses to 

no longer make income-based payments, 

the borrower’s monthly payment 

amount is recalculated and is no longer 

based on the borrower’s income. In this 

situation, proposed § 682.215(e)(8)(ii) 

provides the maximum recalculated 

monthly payment amount the borrower 

would pay on the borrower’s eligible 

loans under a standard repayment plan 

with a 10-year payment period, based 

on the loan amount owed at the time the 

borrower selected the IBR plan. The 

repayment period based on the 

recalculated payment amount may 

exceed 10 years. In accordance with 

section 493C(b)(3)(B) of the HEA, 

unpaid interest is capitalized if a 

borrower is determined to no longer 

have a partial financial hardship or 

chooses to stop making income-based 

payments. 

Current Regulations: Under current 

§ 685.221(e)(1) and § 682.215(e)(1), the 

Secretary or the FFEL loan holder 

determines whether a borrower has a 

partial financial hardship 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 or the loan 

holder requires the borrower to provide 

documentation of his or her income and 

to annually certify the borrower’s family 

size. 

Under current § 685.221(e)(1)(i) and 

§ 682.215(e)(1)(i), the Secretary or the 

FFEL loan holder determines whether a 

borrower has a partial financial 

hardship by requiring the borrower to 

provide written consent to the 

disclosure of AGI by the IRS. If the 

borrower’s AGI is unavailable or the 

Secretary or loan holder believes that 

the borrower’s reported AGI does not 

reasonably reflect current income, the 

Secretary or the loan holder may use 

other documentation provided by the 

borrower to verify income (‘‘alternative 

documentation of income’’). In 

subregulatory guidance issued in a June 

12, 2009, electronic announcement 

posted on the Department’s Information 

for Financial Aid Professionals Web 

site, the Department authorized FFEL 

loan holders to accept a signed copy of 

the borrower’s most recently filed 

Federal income tax return as an 

alternative to requiring the borrower to 

provide written consent to the 

disclosure of AGI by the IRS. The 

Department adopted this same practice 

in the Direct Loan Program. 

In accordance with current 

§ 685.221(e)(2) and § 682.215(e)(2), if a 

borrower who is repaying under the IBR 

plan fails to renew the required consent 

to disclosure of AGI by the IRS, or 

withdraws consent and does not select 

another payment plan, the borrower’s 

monthly payment amount is 

recalculated in accordance with 

§ 685.221(d)(1) or § 682.215(d)(1). In 

addition, unpaid interest is capitalized 

in accordance with § 685.221(b)(4) and 

§ 682.215(b)(5). The same treatment 

applies if a borrower fails to provide a 

copy of his or her most recently filed 

Federal tax return (if used as an 

alternative to written consent to 

disclosure of AGI) or fails to provide 

alternative documentation of income if 

required to do so by the Secretary or the 

loan holder. 

Sections 685.221(d)(1) and 

682.215(d)(1) reflect the statutory 

requirement in section 493C(b)(6) of the 

HEA for the recalculation of a 

borrower’s monthly payment amount if 

a borrower repaying under the IBR plan 

is determined to no longer have a partial 

financial hardship or chooses to stop 

making income-based payments. If a 

borrower fails to provide the required 

income documentation needed by the 

Secretary or the loan holder to 

determine whether the borrower 

continues to have a partial financial 

hardship, the borrower is considered to 

no longer have a partial financial 

hardship. The maximum recalculated 

monthly payment amount for a 

borrower who is determined to no 

longer have a partial financial hardship 

is the amount the borrower would be 

required to pay under a standard 

repayment plan with a 10-year payment 

period, based on the amount owed on 

the borrower’s loans at the time the 

borrower selected the IBR plan. In this 

preamble, this recalculated payment 

amount is referred to as the ‘‘permanent 

standard amount.’’ 

Proposed Regulations: The proposed 

regulations would add several new 

written notifications to borrowers and 

other provisions related to the initial 

and annual determination of partial 

financial hardship status and the 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42105 

consequences if a borrower fails to 

provide documentation of income or 

other information required for the 

annual partial financial hardship 

assessment. The proposed regulations 

would also modify the income 

documentation requirements and, for 

the FFEL Program, add a requirement 

for some married borrowers to provide 

the loan holder with information related 

to the eligible loan debt of the 

borrower’s spouse. Finally, the 

proposed regulations would clarify the 

treatment of borrowers who request a 

change from another repayment plan to 

the IBR plan but who do not provide the 

information required to determine 

eligibility for the IBR plan. 

Under proposed § 685.221(e)(2) and 

§ 682.215(e)(2), the Secretary or the 

FFEL loan holder, after making a 

determination that a borrower has a 

partial financial hardship 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 

partial financial hardship, would send 

the borrower a written notification that 

would include the following 

information: 

• The borrower’s scheduled monthly 

PFH payment amount and the time 

period during which that monthly PFH 

payment amount will would apply 

(‘‘annual payment period’’); 

• Information about the requirement 

for the borrower to annually provide 

income information; in some cases for 

married FFEL Program borrowers, to 

provide information about the eligible 

loans of the borrower’s spouse; and to 

certify family size, if the borrower 

chooses to remain on the IBR plan after 

the borrower’s first year on the plan; 

• An explanation that the borrower 

would be notified in advance of the date 

by which the Secretary or loan holder 

must receive this information; 

• An explanation of the consequences 

if the borrower does not provide the 

required information each year; 

• An explanation of the consequences 

if the borrower no longer wishes to 

repay under IBR; and 

• 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 PFH payment amount if the 

borrower’s financial circumstances have 

changed and the income amount that 

was used to calculate the borrower’s 

current monthly PFH payment amount 

no longer reflects the borrower’s current 

income. If the monthly PFH payment 

amount is recalculated based on the 

borrower’s request, the Secretary or the 

loan holder would send the borrower a 

written notification that includes the 

borrower’s new calculated monthly PFH 

payment amount, new annual payment 

period, and the other information just 

described. 

Under proposed new § 685.221(e)(3) 

and § 682.215(e)(3), for each subsequent 

year that a borrower repaying under the 

IBR plan has a partial financial 

hardship, the Secretary or the loan 

holder would establish the date by 

which the income information and other 

documentation required for the annual 

partial financial hardship assessment 

must be received (‘‘annual deadline’’), 

and would send the borrower a written 

notification in advance of the annual 

deadline informing the borrower of the 

annual documentation requirement. The 

proposed regulations would provide for 

the Secretary or the loan holder to send 

advance notification of the annual 

documentation requirement to the 

borrower no later than 60 days and no 

earlier than 90 days before the annual 

deadline. The annual deadline 

established by the Secretary or the loan 

holder for receipt of the required 

documentation could not be earlier than 

35 days before the end of the borrower’s 

current annual payment period. The 

notification of the annual 

documentation requirement would have 

to include the following information: 

• The annual deadline by which the 

Secretary or the loan holder must 

receive the required information; and 

• The consequences if the Secretary 

or the loan holder does not receive the 

required information within 10 days 

following the annual deadline, 

including the borrower’s recalculated 

permanent standard monthly payment 

amount, the effective date for the 

recalculated monthly payment, and an 

explanation that unpaid accrued interest 

will be capitalized at the end of the 

borrower’s current annual payment 

period. 

Proposed § 685.221(e)(4) and 

§ 682.215(e)(4) would provide that each 

time the Secretary or the loan holder 

makes a determination that a borrower 

no longer has a partial financial 

hardship for a subsequent year that the 

borrower remains on the IBR plan, the 

Secretary or the loan holder would send 

the borrower a written notification that 

includes the following information: 

• The borrower’s recalculated 

permanent standard payment amount; 

• An explanation that unpaid interest 

will be capitalized; and 

• Information about the borrower’s 

option to request, at any time, that the 

Secretary or the loan holder make a new 

determination of 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 or the loan holder 

determines that the borrower again has 

a partial financial hardship based on a 

borrower’s request for redetermination, 

the Secretary or the loan holder would 

determine the borrower’s new monthly 

PFH payment amount and send the 

borrower a written notification 

including the same information that is 

provided to a borrower when he or she 

is determined to have a partial financial 

hardship to initially qualify for the IBR 

plan and again for any subsequent year 

that a borrower who has a partial 

financial hardship remains on the plan. 

Under proposed § 685.221(e)(5) and 

§ 682.215(e)(5), for each subsequent year 

that a borrower who does not have a 

partial financial hardship remains on 

the IBR plan, the Secretary or the loan 

holder would send a written notification 

to the borrower that includes 

information on the borrower’s option to 

request, at any time, that the Secretary 

or the loan holder make a new 

determination of whether the borrower 

has a partial financial hardship, as 

described in the discussion of 

§ 685.221(e)(4) and § 682.215(e)(4). 

Proposed § 685.221(e)(6) and 

§ 682.215(e)(6) would clarify that if a 

borrower who is currently repaying 

under another repayment plan selects 

the IBR plan but does not provide the 

information required by the Secretary or 

the loan holder to determine the 

borrower’s eligibility for the IBR plan, 

the borrower would remain on his or 

her current repayment plan. 

Under proposed § 685.221(e)(7) and 

§ 682.215(e)(7), the Secretary or the loan 

holder would require a borrower to pay 

the permanent standard amount if a 

borrower currently repaying a monthly 

PFH payment amount remains on the 

plan for a subsequent year, but the 

Secretary or the loan holder does not 

receive the information required for the 

annual partial financial hardship 

assessment within 10 days of the annual 

deadline previously provided to the 

borrower, unless the Secretary or the 

loan holder is able to determine the 

borrower’s new monthly PFH payment 

amount before the end of the annual 

payment period. 

Proposed § 682.215(e)(8)(i) would 

require a loan holder to promptly 

determine a borrower’s new monthly 

payment amount if the loan holder 

receives the information required for the 

annual partial financial hardship 

assessment within 10 days of the annual 


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42106 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

deadline provided to the borrower. If 

the information is received within 10 

days of the annual deadline, 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 

proposed regulations would prohibit the 

loan holder from converting the 

borrower’s monthly payment to the 

permanent standard amount and would 

require the loan holder to maintain the 

borrower’s current scheduled monthly 

PFH payment amount until the new 

monthly payment amount is calculated. 

Under proposed § 682.215(e)(8)(ii), if 

the loan holder calculates a new 

monthly PFH payment that is less than 

the borrower’s previously calculated 

monthly PFH payment amount, the loan 

holder would be required to make the 

appropriate adjustment to the 

borrower’s account to reflect the 

additional amounts resulting from any 

payments at the previously calculated 

monthly PFH payment amount that the 

borrower made after the end of the most 

recent annual payment period. Unless 

the borrower requests otherwise, the 

loan holder would not apply the 

additional amounts to future monthly 

payments. 

The proposed regulations would 

require the loan holder to apply any 

excess payment amounts made after the 

end of the most recent annual payment 

period in accordance with the IBR 

payment application rules in 

§ 682.215(c)(1). The excess payment 

amounts would be applied in the 

following order: Accrued interest; 

collection costs; late charges; loan 

principal. Appropriate adjustments 

would also include, but are not limited 

to, adjustments to the lender’s interest 

subsidy and special allowance billings 

based upon the new monthly PFH 

payment amount, and establishing a 

new annual payment period beginning 

on the day after the prior annual 

payment period ended to ensure that the 

annual date for determining whether a 

borrower continues to have a partial 

financial hardship remains the same. 

Under proposed § 682.215(e)(8)(iii), if 

the new monthly payment amount is 

equal to or greater than the borrower’s 

previously calculated monthly PFH 

payment amount, the loan holder would 

not make any adjustments to the 

borrower’s account to make up the 

difference between a prior lower 

monthly PFH payment amount that the 

borrower continued to make after the 

end of the previous annual payment 

period and the borrower’s new higher 

monthly payment. Proposed 

§ 685.221(e)(8) would establish 

requirements in the Direct Loan 

Program comparable to the FFEL 

Program requirements in proposed 

§ 682.215(e)(8)(i) through (iii). 

Proposed § 682.215(e)(9) would 

provide that if a loan holder receives the 

information required for the annual 

partial financial hardship assessment 

more than 10 days after the specified 

annual deadline provided to the 

borrower and the borrower’s monthly 

payment amount is converted to the 

permanent standard amount, the loan 

holder may grant forbearance with 

respect to any payments that are 

overdue or that would be due at the 

time the new calculated monthly PFH 

payment amount is determined, but 

only if the new calculated monthly PFH 

payment amount is zero or is less than 

the borrower’s previously calculated 

monthly PFH payment amount. 

If forbearance is granted, 

capitalization of interest at the end of 

the forbearance period would be limited 

to the interest accrued during the 

portion of the forbearance covering pastdue payments before the end of the 

prior annual payment period that was 

capitalized at the time of conversion of 

the borrower’s payment to the 

permanent standard amount. Interest 

that accrues during the portion of the 

forbearance period that covers payments 

that are overdue after the end of the 

prior annual repayment period would 

not be capitalized. 

Proposed § 685.221(e)(9)(i) would 

establish the same requirements in the 

Direct Loan Program. In addition, 

proposed § 685.221(e)(9)(ii) would 

specify that any payments a borrower 

continued to make at the previously 

calculated monthly PFH payment 

amount after the end of the prior annual 

payment period and before the new 

monthly PFH payment amount is 

calculated are considered to be 

qualifying payments for purposes of the 

public service loan forgiveness program 

under § 685.219, provided that the 

payments otherwise meet the eligibility 

requirements of that program. These 

payments would also count for purposes 

of IBR loan forgiveness. 

With regard to documentation of 

income, proposed § 685.221(e)(1)(i) and 

§ 682.215(e)(1)(i) would amend current 

regulations by replacing the requirement 

that a borrower provide consent to the 

disclosure of AGI by the IRS with a 

general requirement for the borrower to 

provide documentation, acceptable to 

the Secretary or to the loan holder, of 

the borrower’s AGI. Proposed 

§ 685.221(e)(1)(ii) and § 682.215(e)(1)(ii) 

would retain the current provision 

requiring a borrower to provide other 

documentation of income if the 

borrower’s AGI is not available or if the 

borrower’s AGI does not reasonably 

reflect the borrower’s current income. 

Proposed § 682.215(e)(1)(iii) would 

specify that if the spouse of a married 

borrower who files a joint Federal 

income tax return has eligible loans and 

the loan holder does not hold at least 

one of the spouse’s eligible loans, either 

the borrower’s spouse must provide 

consent for the loan holder to access 

information about the spouse’s eligible 

loans in the National Student Loan Data 

System (NSLDS), or the borrower must 

provide other documentation, 

acceptable to the loan holder, of the 

spouse’s eligible loan information. 

The proposed changes described in 

this section would also be incorporated, 

where applicable, in the proposed 

regulations for the ICR–A plan and the 

ICR–B plan. 

Reasons: The Department’s current 

regulations do not require that 

borrowers be notified each year in 

advance of the annual requirement to 

provide income information and certify 

family size, nor do current regulations 

specify a deadline by which the 

borrower must provide this information 

before the borrower’s current monthly 

PFH payment amount is converted to 

the permanent standard amount. During 

the public comment period prior to the 

beginning of the formal negotiated 

rulemaking sessions, the Department 

received numerous comments 

suggesting that not all loan holders 

currently notify borrowers in advance of 

the annual documentation requirement, 

and that there are inconsistencies 

among loan holders in the amount of 

time that borrowers are given to provide 

the required income information. As a 

result, some borrowers who continue to 

have a partial financial hardship have 

their payments converted to the 

permanent standard amount because 

they were not aware that it was time for 

their annual partial financial hardship 

assessment, or because they were not 

given sufficient time to provide the 

required income information. 

During the negotiated rulemaking 

sessions, some non-Federal negotiators 

recommended that the proposed 

regulations include an explicit 

requirement for loan holders to 

promptly determine whether a borrower 

continues to have a partial financial 

hardship upon receipt of the required 

income documentation from the 

borrower. The borrower notification 

requirements included in these 

proposed regulations are intended to 

address these concerns. They ensure 

that a borrower would be notified of the 

annual documentation requirement, and 

of the consequences if the borrower 

does not comply, at the time he or she 


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is initially determined eligible for the 

IBR plan. A borrower who remains on 

the IBR plan and currently has a partial 

financial hardship would be notified of 

the annual documentation requirement 

in advance of the annual deadline for 

providing the required information 

needed to determine whether he or she 

continues to have a partial financial 

hardship. The proposed regulations for 

the FFEL Program would also require 

loan holders to promptly determine a 

borrower’s new monthly payment 

amount after receiving the required 

income information from the borrower. 

The Secretary would apply the same 

requirement in the Direct Loan program. 

The proposed regulations would also 

provide for more consistent treatment of 

borrowers by specifying the earliest date 

that may be established as the annual 

deadline for a borrower to provide the 

annual documentation and by 

specifying the latest and earliest dates 

prior to the annual deadline that a 

borrower may be notified of the 

requirement to provide the 

documentation. 

The Department initially proposed 

that the annual notification reminding 

borrowers of the upcoming deadline for 

submitting income documentation 

could be sent no later than 60 days 

before the annual deadline established 

by the Secretary or the loan holder. 

Some of the non-Federal negotiators, 

while supportive of this notification 

requirement, expressed concerns that 

this would allow for the notification to 

be sent too far in advance of the annual 

deadline for it to be effective. The 

Department agreed that it would be 

appropriate to place a limit on how 

early the notification may be sent and 

modified the proposed regulatory 

language to specify that the notification 

may be sent no later than 60 days and 

no earlier than 90 days before the 

annual deadline. 

During the first negotiated rulemaking 

session, some of the non-Federal 

negotiators recommended that the 

proposed regulations provide a 

borrower with a three-month ‘‘grace 

period’’ following the end of the 

borrower’s current annual repayment 

period during which the borrower could 

provide the required income 

documentation without being subject to 

conversion to the permanent standard 

payment amount and capitalization of 

unpaid interest. A borrower who 

submitted the required documentation 

during the grace period would continue 

making his or her existing monthly PFH 

payment amount until the loan holder 

calculated the new payment amount. 

Once the loan holder calculated the new 

payment amount, the borrower’s 

account would be adjusted if the 

borrower was determined to continue to 

have a partial financial hardship. 

Specifically, the recommendation from 

the non-Federal negotiators provided for 

reimbursement to the borrower if, 

during the grace period, the borrower 

had continued to make payments at the 

previously scheduled amount that were 

greater than the new payment amount. 

The recommendation also provided that 

any underpayment during the grace 

period (if the borrower continued to 

make payments at the previously 

scheduled monthly PFH payment 

amount that were less than the new 

monthly PFH payment amount) would 

be distributed evenly across the 

borrower’s payments for the current 

annual payment period. 

At the second negotiated rulemaking 

session, the Department presented 

proposed regulatory language that 

provided borrowers with a 60-day grace 

period following the end of the 

borrower’s current annual payment 

period to submit the required income 

documentation to the Secretary or the 

loan holder. Under this proposal, a 

borrower’s previously scheduled 

monthly PFH payment amount would 

have been continued during the grace 

period, with no conversion to the 

permanent standard amount unless the 

borrower did not provide the required 

documentation until after the end of the 

60-day grace period. The Department’s 

proposal did not provide for any 

adjustments to the borrower’s account 

once the borrower’s new monthly 

payment had been calculated. 

Some non-Federal negotiators 

representing loan holders and servicers 

indicated that the proposed regulations 

providing for a grace period could be 

difficult to implement, since most loan 

holders’ systems are set up to 

automatically convert a borrower’s 

scheduled monthly PFH payment 

amount to the permanent standard 

payment amount at the end of the 

borrower’s current 12-month annual 

payment period, if the borrower’s new 

scheduled monthly PFH payment 

amount has not been calculated prior to 

that date. In addition, the same nonFederal negotiators noted that the 

proposed grace period approach would 

cause the ending date of the borrower’s 

current annual payment period to shift 

every year if the previously scheduled 

monthly PFH payment amount had to 

be maintained for up to an additional 60 

days after the end of original annual 

payment period, potentially causing 

confusion for borrowers and requiring 

loan holders to make significant systems 

changes. 

These non-Federal negotiators 

presented an alternative proposal that 

provided for loan holders to notify 

borrowers of the deadline by which the 

loan holder must receive the required 

information for the annual partial 

financial hardship assessment. If the 

loan holder received the required 

information by the deadline and the 

borrower was determined to continue to 

have a partial financial hardship, the 

loan holder would be required either to 

prevent the conversion of the borrower’s 

monthly payment to the permanent 

standard amount or remediate the 

consequences of such a conversion for 

the borrower. The proposal did not 

specify what would constitute 

remediation of a conversion to the 

permanent standard payment amount. 

This proposal from the loan holders 

and servicers further provided that a 

loan holder could grant forbearance 

with respect to any payments that were 

overdue or would be due upon the loan 

holder’s determination that a borrower 

continued to have a partial financial 

hardship, if the determination resulted 

in a new monthly PFH payment amount 

of zero. In addition, the proposal 

allowed for loan holders to grant 

forbearance to borrowers who were not 

more than 120 days delinquent, if the 

loan holder received the required 

income documentation after a 

borrower’s monthly payment had been 

converted to the permanent standard 

amount and the loan holder determined 

that the borrower qualified for a new 

period of partial financial hardship with 

a monthly PFH payment amount greater 

than zero. 

The Department agreed with the 

proposal from the negotiators 

representing loan holders and servicers 

to require that borrowers be notified of 

the deadline by which the loan holder 

must receive the documentation 

required for the annual partial financial 

hardship assessment to avoid 

conversion to the permanent standard 

payment amount. We included a 

provision for such a deadline in revised 

regulatory language presented at the 

third negotiated rulemaking session. 

The language proposed by the 

Department at the beginning of the third 

session allowed for the annual deadline 

to be established by the Secretary or the 

loan holder, without any limitation on 

how far in advance of the end of the 

borrower’s current annual repayment 

period the deadline could be set. 

However, some non-Federal negotiators 

representing borrowers expressed 

concerns that having the deadline date 

determined at the discretion of the loan 

holder would continue to allow for 

inconsistent treatment of borrowers, 


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42108 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

since the date might differ significantly 

among loan holders. 

The same negotiators were also 

concerned that leaving the 

determination of the deadline date to 

the discretion of individual loan holders 

would allow for the date to be different 

each year and result in confusion for 

borrowers. In response to these 

concerns, the Department modified the 

proposed regulatory language to specify 

that the annual deadline may be no 

earlier than 35 days before the end of 

the borrower’s current annual payment 

period. The 35-day period was 

discussed and agreed to by all of the 

non-Federal negotiators. 

Some non-Federal negotiators 

representing borrowers, noting the 

potentially serious consequences for 

borrowers who do not provide the 

required information by the deadline, 

urged the Department to provide some 

flexibility in the regulations so that 

borrowers would not be subject to 

conversion to permanent standard and 

interest capitalization for being as little 

as one day late. These negotiators also 

objected to the proposed requirement 

for the loan holder to receive the 

documentation by the specified 

deadline and stated that the regulations 

should simply require the borrower to 

submit the documentation by the 

deadline. They noted that the proposed 

regulations did not require loan holders 

to notify borrowers that their 

documentation had been received, with 

the result that borrowers would have no 

way of proving that the information they 

sent was received by the deadline. 

These negotiators also argued that 

requiring borrowers to submit the 

information by the deadline would 

allow for proof that the borrower was in 

compliance with the submission 

deadline by means of the postmark on 

documentation submitted by mail. 

Other non-Federal negotiators, however, 

noted that the United States Postal 

Service no longer routinely adds 

postmarks to mail and said that the only 

way for a borrower to prove that a 

document had been mailed and received 

would be for the borrower to request 

confirmation of receipt. The negotiators 

further noted that requiring loan holders 

to track postmark dates would be 

unduly burdensome. The negotiators for 

loan holders and servicers suggested 

that the Department retain the 

requirement for the income information 

to be ‘‘received’’ by the annual deadline 

provided to the borrower, but add a fiveday ‘‘grace period’’ to the deadline. 

After further discussion, the Department 

and the non-Federal negotiators agreed 

that information submitted by a 

borrower should be considered to have 

been received by the deadline if it is 

received by the loan holder or the 

Secretary within 10 days after the 

deadline date. 

Some non-Federal negotiators for 

borrowers asked the Department to 

consider limiting the amount of interest 

that is capitalized if a borrower repaying 

under the IBR plan fails to provide 

required income information within 

10 days after the annual deadline. The 

Department declined to consider this 

recommendation, noting that it may 

result in significant costs to the Federal 

government. However, the Department 

is continuing to examine these likely 

costs and invites further comments on 

this proposal. 

Some non-Federal negotiators 

representing borrowers also noted that 

under the statute and current 

regulations, if a borrower who is 

repaying under the IBR plan is 

determined to no longer have a partial 

financial hardship or chooses to stop 

making income-based payments, the 

‘‘maximum’’ monthly amount the 

borrower is required to pay is the 

monthly amount that would be required 

under a standard repayment plan with 

a 10-year payment period, calculated 

based on the amount of the borrower’s 

eligible loans that were outstanding at 

the time the borrower selected the IBR 

plan (‘‘permanent standard amount’’). 

Because the law and regulations provide 

that the permanent standard amount is 

the maximum amount a borrower is 

required to pay, the non-Federal 

negotiators asked the Department to 

consider amending the regulations to 

allow for a smaller permanent standard 

payment amount, as the conversion to a 

10-year standard plan monthly payment 

amount may present a hardship for 

some borrowers. 

The Department declined to consider 

this proposal, noting that the 

Department interprets the statutory 

reference to the ‘‘maximum’’ required 

payment amount, which is also reflected 

in current regulations, as a protection to 

ensure that a borrower’s monthly 

payment amount under the IBR plan 

never exceeds the amount that would be 

required under a standard repayment 

plan with a 10-year repayment period. 

Accordingly, the permanent standard 

payment amount is the monthly 

payment amount that would be required 

under a 10-year standard repayment 

plan, calculated based on the amount of 

the borrower’s eligible loan debt at the 

time the borrower selected the IBR plan. 

Without this provision, the formula 

used to calculate the required monthly 

payment during periods of partial 

financial hardship could result in a 

monthly payment that exceeds the 

amount that would be required under a 

10-year standard repayment plan. 

The Department further noted that 

since a borrower loses partial financial 

hardship status at the point the partial 

financial hardship payment formula 

results in a monthly payment that 

equals or exceeds the payment amount 

that would be required under a standard 

repayment plan with a 10-year 

repayment period, providing a 

permanent standard payment amount 

lower than that amount would mean 

that some borrowers who no longer have 

a partial financial hardship could have 

a lower monthly payment amount than 

some borrowers in a partial financial 

hardship status. This result would be 

contrary to the intent of the IBR plan. 

The Department disagreed with the 

proposal from some non-Federal 

negotiators representing loan holders 

and servicers that would have required 

loan holders either to prevent the 

conversion of borrower’s payment 

amount to the permanent standard 

amount or remediate the consequences 

of such a conversion if the loan holder 

received the required information by the 

deadline provided to the borrower and 

the borrower was determined to 

continue to have a partial financial 

hardship. Some of the other non-Federal 

negotiators also expressed concerns 

about this approach, noting in particular 

that the proposal did not explain what 

would constitute ‘‘remediation.’’ 

The Department believes that if the 

information a borrower is required to 

provide is received within 10 days after 

the annual deadline, the loan holder 

must ensure that the borrower’s 

monthly payment amount is not 

converted to the permanent standard 

amount and that unpaid interest is not 

capitalized. The proposed regulations 

reflect this approach. The proposed 

regulations also provide that if the new 

calculated monthly PFH payment 

amount is less than the borrower’s 

previously calculated monthly PFH 

payment amount, the loan holder must 

apply any excess payment amount 

resulting from payments that the 

borrower continued to make at the 

higher monthly PFH payment amount in 

accordance with the normal IBR 

payment application rules, unless the 

borrower requests that the excess 

amount be applied to future payments. 

This requirement would ensure that any 

excess payment is not applied as a prepayment to advance the next monthly 

payment due date (unless that is what 

the borrower requests), as that would 

lengthen the period before the borrower 

becomes eligible for public service loan 

forgiveness under § 685.219. 


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The Department believes that the 

proposal from the non-Federal 

negotiators to allow loan holders to 

grant forbearance to cover a borrower’s 

past due payments under certain 

circumstances was more complex than 

necessary and overly broad. The 

proposal would have allowed for 

forbearance to be granted to any 

borrower who was delinquent in making 

payments at the time the loan holder 

made a determination that resulted in a 

monthly PFH payment amount of zero, 

regardless of whether the borrower’s 

income information was received by the 

annual deadline. 

However, the Department believes it 

is appropriate to allow forbearance 

under limited circumstances for 

borrowers whose income information is 

not received until more than 10 days 

after the annual deadline and who are 

delinquent at the time the new monthly 

PFH payment amount is determined, if 

the new monthly PFH payment amount 

is zero or is less than the borrower’s 

previously scheduled monthly PFH 

payment amount. This may indicate that 

the borrower’s financial circumstances 

have worsened, which may have 

contributed to the borrower’s 

delinquency and may have caused the 

borrower’s failure to provide the 

required information in a timely 

manner. 

The Department also believes it is 

appropriate under these circumstances 

to limit capitalization of interest 

accrued during forbearance to the 

interest that had been previously 

capitalized at the end of the prior 

annual payment period. For example, if 

a forbearance is granted to cover a fivemonth period of delinquency that began 

three months before the end of the 

borrower’s prior annual payment period 

and continued for two months after the 

end of that annual payment period, the 

interest that accrued during the first 

three months of the forbearance period 

(i.e., prior to the conversion of the 

borrower’s payment to the permanent 

standard amount) would remain 

capitalized. 

The proposed regulations for the 

Direct Loan Program also clarify that if 

a borrower continues to make payments 

at the previously scheduled monthly 

PFH payment amount after the 

borrower’s payment has been converted 

to the permanent standard amount as a 

result of the borrower’s income 

information being received more than 

10 days after the annual deadline date, 

those payments would continue to 

count as qualifying payments for 

purposes of the public service loan 

forgiveness program under § 685.219, 

provided that the payments otherwise 

meet the public service loan forgiveness 

program eligibility requirements. 

Without this provision, payments that 

the borrower continued to make at the 

previously calculated monthly PFH 

payment amount might not qualify for 

public service loan forgiveness purposes 

because they were for less than the 

scheduled permanent standard payment 

amount. 

Some of the non-Federal negotiators 

suggested that many issues related to 

current processes for submission of 

income documentation could be 

addressed by allowing borrowers to 

submit documentation electronically, or 

by establishing an electronic process for 

loan holders to obtain the necessary 

income information directly from the 

IRS. The Department agreed to explore 

such options in the future but noted that 

privacy issues associated with the 

electronic submission of documents and 

restrictions on the release of information 

by the IRS to FFEL Program loan 

holders would have to be addressed. 

Some of the non-Federal negotiators 

requested that the Department modify 

the current IBR requirement for 

borrowers to provide written consent for 

the IRS to disclose the borrower’s AGI 

to the loan holder by listing other 

options for providing income 

information and emphasizing those 

other options as preferable. The 

negotiators noted that although the 

Department previously provided 

guidance allowing loan holders to 

accept a signed copy of the borrower’s 

most recently filed tax return as an 

alternative to the borrower’s written 

consent, current regulations continue to 

require borrowers to submit written 

consent, and there are often lengthy 

delays in getting the borrower’s income 

information from the IRS. 

The non-Federal negotiators also 

asked the Department to reconsider its 

policy guidance that a copy of the 

borrower’s most recently filed Federal 

income tax return submitted to support 

the borrower’s PHF determination must 

include the borrower’ signature. The 

non-Federal negotiators noted that many 

borrowers file electronic tax returns that 

do not include a signature, and they 

said that failure to include a signature 

on the copy of the tax return that a 

borrower sends to his or her loan holder 

is a frequent reason for delays in 

processing a borrower’s income 

information. 

Finally, the non-Federal negotiators 

recommended that the regulations 

related to documentation of income be 

revised to allow loan holders to require 

borrowers to provide alternative 

documentation of income (that is, 

documentation other than the 

borrower’s AGI) at any time, rather than 

only in circumstances when the 

borrower’s AGI is unavailable or does 

not reasonably reflect the borrower’s 

current income. 

The Department agreed that the 

income documentation requirements 

could be simplified by amending the 

regulations to require borrowers to 

provide documentation, acceptable to 

the Secretary or the loan holder, of the 

borrower’s AGI. Moreover, the 

Department noted that the IRS consent 

process is no longer used for Direct 

Loan borrowers repaying under the IBR 

or ICR plans, as discussed under the 

section ‘‘Other Changes to the ICR–B 

Plan.’’ Acceptable documentation of a 

borrower’s AGI could include a copy of 

the borrower’s most recently filed 

Federal income tax return or a tax 

transcript obtained from the IRS by the 

borrower. 

In addition, the Department agreed 

that a copy of the borrower’s most 

recently filed tax return need not 

include the borrower’s signature. The 

Department announced this change in 

an electronic announcement posted on 

the Department’s Information for 

Financial Aid Professionals Web site on 

April 13, 2012. 

The Department disagreed with the 

recommendation that the regulations be 

amended to allow loan holders to 

disregard AGI and require borrowers to 

provide alternative documentation of 

income under any circumstances. 

Section 493C(a)(3) of the HEA 

specifically provides that the 

determination of a borrower’s partial 

financial hardship status is based, in 

part, on the borrower’s AGI. The 

Department believes that the greater 

flexibility in the proposed regulations 

related to income documentation would 

eliminate some of the issues loan 

holders are currently experiencing with 

documenting a borrower’s AGI. 

Some non-Federal negotiators 

representing loan holders and servicers 

asked the Department to add a 

requirement for a married borrower, 

under certain circumstances, either to 

provide the FFEL Program loan holder 

with the spouse’s authorization for the 

loan holder to access information in 

NSLDS concerning the eligible loans of 

the borrower’s spouse or to provide 

other acceptable documentation of the 

spouse’s eligible loans. Under the terms 

and conditions of the IBR plan, if a 

borrower is married and files a joint 

Federal income tax return, and if the 

borrower’s spouse has loans that are 

eligible for repayment under the IBR 

plan, the combined eligible loan debt of 

the borrower and spouse is used to 

determine whether a borrower has a 


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42110 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

partial financial hardship. However, this 

additional information would be 

required only from married borrowers 

who both have eligible loans and who 

file joint tax returns, and only if the loan 

holder does not hold at least one of the 

spouse’s eligible loans. If a loan holder 

does not hold at least one of the 

spouse’s eligible loans, the loan holder 

may not access NSLDS to obtain 

information about the spouse’s loans 

without the spouse’s authorization. The 

loan holders noted that this spousal 

authorization is included on the IBR 

request form that borrowers must 

complete to request the IBR plan but 

stated that the requirement for spousal 

loan information should be included in 

the regulations to make it clear that for 

certain married borrowers, eligibility for 

the IBR plan cannot be determined 

without information about the spouse’s 

eligible loans. The Department agreed 

with the non-Federal negotiators’ 

recommendation and modified the 

proposed FFEL Program IBR regulations 

accordingly. 

Proposed regulations in § 682.215 

require written notification to a 

borrower regarding information for 

subsequent periods of a borrower’s 

partial financial hardship and 

forgiveness eligibility. A non-Federal 

negotiator representing loan servicers 

requested that the language be revised to 

reflect that the notification may be 

provided either electronically or in 

writing to enable servicers to use 

electronic practices to communicate the 

notification requirements to borrowers. 

Some negotiators asked the Department 

to clarify the extent of the loan holder’s 

flexibility to electronically provide 

notifications to borrowers to ensure that 

servicers were not limited solely to 

using electronic communication for 

borrowers that provide affirmative 

consent in accordance with the E–Sign 

Act, but may also use electronic 

communication for borrowers who have 

agreed to the use of email 

communication. The Federal negotiators 

responded that a revision of the 

proposed regulations was unnecessary 

because the Department has previously 

interpreted (including in previous 

regulatory preambles) the term ‘‘in 

writing’’ to include through electronic 

means. The Department acknowledged 

that servicers may use electronic 

methods to provide the notifications 

under § 682.215. The Department 

follows the same practice in the Direct 

Loan Program. 

IBR Loan Forgiveness Notifications 

Statute: Section 493C(b)(7) provides 

that the Secretary will cancel the 

outstanding remaining balance on a 

borrower’s loan if the borrower has 

participated in the IBR plan and met 

other requirements during a repayment 

period not to exceed 25 years. 

Current Regulations: Current 

regulations in § 685.221(f) and 

§ 682.215(f) reflect the IBR loan 

forgiveness provision in section 

493C(b)(7) of the HEA. Under current 

§ 682.215(g)(4), after a FFEL Program 

loan holder is notified by the guaranty 

agency that a borrower qualifies for IBR 

loan forgiveness, the loan holder must 

inform the borrower of that 

determination and provide the borrower 

with information on the required 

handling of the forgiveness amount. The 

current Direct Loan Program regulations 

do not include a provision in § 685.221 

comparable to the FFEL Program 

provision in § 682.215(g)(4). 

Proposed Regulations: The proposed 

regulations would make the following 

changes in § 685.221(f) and § 682.215(g): 

• In both the Direct Loan and FFEL 

programs, the regulations would clarify 

that the Secretary or 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. 

• The proposed regulations would 

provide for the Secretary or the loan 

holder to send the borrower a written 

notice no later than six months prior to 

the anticipated date that the borrower 

will meet the loan forgiveness 

requirements. This notice would 

explain that the borrower is 

approaching the date he or she is 

expected to qualify for loan forgiveness, 

would remind the borrower that he or 

she must continue to make scheduled 

monthly payments, and would provide 

general information on the current 

treatment of the forgiveness amount for 

tax purposes, including instructions to 

contact the IRS for more information. 

• Current § 682.215(g)(4) would be 

redesignated as (g)(5) and 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. 

• A provision comparable to the 

current FFEL provision in 

§ 682.215(g)(4), with the changes just 

described, would be added to the Direct 

Loan Program regulations in 

§ 685.221(f). A provision comparable to 

the current FFEL provision in 

§ 682.215(g)(7) would also be added. 

Proposed § 685.221(f)(5)(iii)(C) would 

state that the Secretary returns to the 

sender any payment received on a loan 

after loan forgiveness has been granted. 

The changes just described would 

also be incorporated in the proposed 

regulations for the ICR–A and ICR–B 

repayment plans. 

Reasons: Some of the non-Federal 

negotiators asked the Department to 

clarify in the regulations that the loan 

holder or the Secretary determines 

when a borrower qualifies for loan 

forgiveness and that the borrower is not 

required to track his or her own progress 

toward meeting the loan forgiveness 

requirement or submit an application 

for forgiveness. The non-Federal 

negotiators also stated it would be 

helpful to borrowers to give them 

advance notice that they are 

approaching the date when they will 

qualify for loan forgiveness and that 

borrowers should be made aware in 

advance of the current treatment of the 

loan forgiveness amount for tax 

purposes. The Department agreed with 

the non-Federal negotiators and 

modified the proposed regulations 

accordingly. 

Borrowers Who Leave the IBR Plan 

Statute: Section 493C(b)(8) of the HEA 

provides that a borrower who is 

repaying a Direct Loan or an FFEL 

program loan under the IBR plan may 

elect at any time to terminate repayment 

under the plan and repay the loan under 

the standard repayment plan. 

Current Regulations: Section 

685.221(d)(2) of the Direct Loan 

program regulations and § 682.215(d)(2) 

of the FFEL program regulations provide 

that if a borrower repaying under the 

IBR plan elects to leave the plan, the 

borrower must pay under the standard 

repayment plan. The regulations specify 

that the borrower’s monthly repayment 

amount will be recalculated based on 

the time remaining under the maximum 

10-year repayment period using the 

outstanding amount of the borrower’s 

loans when the borrower discontinues 

paying under the IBR plan or, for Direct 

Consolidation and Federal 

Consolidation Loan borrowers, based on 

the time remaining under the applicable 

repayment period for the amount of the 

consolidation loan and the balance of 

other student loans that is outstanding 

at the time the borrower stops paying 

under the IBR plan. 

Proposed Regulations: Proposed 

§ 685.221(d)(2)(i)(A) would clarify that 

the time remaining under the maximum 

10-year repayment plan applies to 

Direct Subsidized, Direct Unsubsidized, 

and Direct PLUS loans. Proposed 

§ 685.221(d)(2)(i)(B) and 

§ 682.215(d)(2)(ii) would also clarify 

that a Consolidation Loan borrower’s 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42111 

recalculated payment when the 

borrower elects to leave the IBR plan is 

based on the time remaining under the 

applicable repayment period that was 

initially determined when the 

Consolidation Loan was made. 

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

682.215(d)(3) of the proposed 

regulations would provide that a 

borrower who leaves the IBR plan and 

is placed on the standard repayment 

plan may change to a different 

repayment plan after making one 

monthly payment under the standard 

repayment plan. Under the proposed 

regulations, the single payment made 

under the standard repayment plan 

could include a smaller payment 

amount paid under a reduced payment 

forbearance agreement with the loan 

holder or the Secretary. 

Reasons: The statutory maximum 10- 

year repayment period applies only to 

Direct Subsidized, Direct Unsubsidized 

and Direct PLUS Loans. The initial 

applicable repayment period for a 

Consolidation Loan is based on the total 

amount of the loans consolidated plus 

other student loans that were not 

consolidated but which the borrower 

asked be considered in establishing the 

consolidation loan repayment period. 

As a result, the reference in current 

regulations to ‘‘the balance of other 

student loans’’ being a factor in 

establishing the recalculated payment of 

an existing Consolidation Loan is 

incorrect and has been deleted. During 

the negotiated rulemaking sessions, the 

Department explained that this change 

is a technical correction that was 

submitted to the Department prior to the 

negotiated rulemaking process. 

With regard to borrower options for 

changing to a different repayment plan 

after leaving the IBR plan and being 

placed on the standard repayment plan, 

the Department initially proposed to 

incorporate into regulations its current 

policy that a borrower leaving the IBR 

plan must make one full monthly 

payment under the 10-year standard 

repayment plan or the standard 

consolidation repayment plan, as 

applicable, before the borrower would 

be permitted to select another 

repayment plan. Some non-Federal 

negotiators argued that the requirement 

for one full standard repayment amount 

could represent a hardship to a 

borrower that could precipitate a 

delinquency or impede the borrower’s 

ability to enter another, more flexible 

repayment plan, such as the extended 

repayment plan. In response to these 

concerns, the Department has proposed 

regulations that would require the 

borrower to make one monthly payment 

while under a standard repayment plan, 

but allow for that payment to be for a 

lesser amount than the full scheduled 

monthly payment amount under a 

reduced payment forbearance agreement 

with the Secretary or the loan holder. 

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 proposed regulatory action 

would have an annual effect on the 

economy of more than $100 million 

because the availability of the ICR–A 

repayment plan is estimated to cost 

approximately $2.1 billion over 10 

years. Therefore, this proposed 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 proposed 

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 proposed regulations are 

consistent with the principles in 

Executive Order 13563. 

We also have determined that this 

regulatory action would not unduly 

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. 


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42112 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

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 

proposed regulations, the Department 

seeks to enhance the income-driven 

repayment options available to 

borrowers so student loan debt would 

be manageable and students would 

continue to pursue postsecondary 

education that makes sense for them. In 

addition, the Department hopes to 

improve the total and permanent 

disability 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 repayment plan. 

Student loan indebtedness and 

unrelenting increases in 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 

IBR student loan payment caps and offer 

forgiveness after 20 years of qualifying 

payments for new borrowers in 2014. 

Concerned about those students now 

graduating and entering the workforce, 

President Obama proposed the Pay As 

You Earn initiative. This proposal 

would revise 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 caps in the fall of 2012 instead 

of waiting until 2014 for the statutory 

changes to IBR. 

In order to achieve the goals of the 

President’s Pay As You Earn initiative 

and provide maximum benefit to 

borrowers, the Secretary is proposing to 

make improvements to the ICR 

repayment plan while implementing the 

statutory IBR changes. The proposed 

revisions would 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, 

but the proposed changes should not 

substantially increase the potential 

moral hazard when compared to 

existing IBR or ICR plans. Table 2 

summarizes the differences in eligibility 

between the existing and proposed IBR 

and ICR programs. 

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

Current IBR 

Proposed revised IBR 

(with 07/01/2014 statutory 

changes) 

Proposed ICR–A Current ICR (proposed 

ICR–B) 

Loan Program and Eligible 

Borrowers 

• Direct Loan Program ..... • Direct Loan Program 

only.

• Direct Loan Program 

only.

• Direct Loan Program 

only. 

• FFEL Program ............... • 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 

• 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 

• FFEL new borrowers in 

2008 may qualify 

through consolidation 

into the Direct Loan Program. 

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 borrowers may 

qualify through consolidation into the Direct 

Loan Program.

Graduate/Professional 

PLUS Loans eligible 

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


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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 PROPOSED IBR AND ICR PLANS—Continued 

Current IBR 

Proposed revised IBR 

(with 07/01/2014 statutory 

changes) 

Proposed ICR–A Current ICR (proposed 

ICR–B) 

Parent PLUS Loans eligible? No ...................................... No ...................................... No ...................................... No. 

Consolidation Loans that 

repaid Parent PLUS 

Loans eligible 

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

Partial Financial Hardship 

Required 

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

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.

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. 

Forgiveness Period 25 years of qualifying payments/months of economic hardship 

deferment.

20 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. 

Estimated Borrowers Eligible for Participation 

(2012–2021 cohorts in 

millions) * 

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

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

permanent disability 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 cited the application process and 

monitoring period requirements as 

problematic. The proposed revisions 

would address these problems by 

requiring borrowers to submit 

applications for disability discharges to 

the Secretary, ensuring rejected 

applicants receive a thorough 

explanation of the reasons for their 

rejection and adequate information 

about their options, and simplifying the 

income verification process during the 

three-year monitoring period. The 

proposed regulations would also 

eliminate the necessity for FFEL lenders 

and guaranty agencies to evaluate 

disability discharge applications and 

ensure that the disability discharge 

application process is expedited for 

veterans as well. 

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 rise in 

tuition, the resulting increased need for 

student loans, and the increased 

difficulty in repaying them. The 

Secretary’s goal in regulating is to 

provide borrowers with maximum 

repayment options to support debt 

management and improve the process 

for considering applications for 

disability discharges on Federal student 

loans. 

The steep increase in the cost of 

tuition in America has been well 

documented. 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 over 500 percent 

between 1980 and 2010. Even if 

controlled for inflation, there was still a 

140 percent increase.1 As chart 1A 

shows, this is a steep increase in a short 

amount of time. 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. Chart 1B 

shows that the average price of tuition 

and required fees at graduate and 

professional schools has doubled since 

1988, even when adjusted for 

inflation.3

Note: 

Disaggregated data for private, for-profit 

institutions was not available for any year 

prior to 2006 so it was not included in the 

charts). 

Despite the increasing cost of tuition, 

enrollment at universities has continued 

to climb. A large and growing 

percentage of jobs in the U.S. economy 

now require a college degree. As a 

result, more students are enrolling in 

college each year with hopes of building 

a career, and there has been a large 

influx of non-traditional students as 

older workers return to school to learn 

new skills or change careers. 

BILLING CODE 4000–01–P 


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tkelley on DSK3SPTVN1PROD with PROPOSALS2EP17JY12.000</GPH>
Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42115 

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. 

6Anthony P. Carnevale, Stephen J. Rose and Ban 

Cheah, The College Payoff: Education, Occupations, 

Lifetime Earnings, pg. 3 (Georgetown University, 

The Georgetown University Center on Education 

and the Workforce), http://www9.georgetown.edu/ 

grad/gppi/hpi/cew/pdfs/collegepayoffcomplete.pdf. 

7Bart 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. 

8Philip 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. 

BILLING CODE 4001–01–C 

The combination of increased 

enrollment and rising tuition has 

contributed to a significant increase of 

student loan debt in America. This 

outstanding debt has grown as more and 

more students seek the benefits of 

postsecondary education and as 

students increasingly rely 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. 

For example, bachelor degree holders 

earn over 80 percent more than do high 

school graduates over the course of a 

lifetime. This difference can amount to 

about $1 million for an individual 

worker.6 Moreover, college graduates 

also experience lower levels of 

unemployment, and shorter durations of 

unemployment, than those without a 

college degree. Additionally, students 

who complete college have substantially 

lower unemployment rates than high 

school graduates. According to May 

2012 data from the Bureau of Labor 

Statistics, adult high school graduates 

have an unemployment rate of 8.1 

percent compared to 3.9 percent for 

adults with a bachelor’s degree. For the 

Nation, higher levels of educational 

attainment increase economic 

productivity and raise gross domestic 

product, among many other benefits. 

For recent graduates with college 

degrees, their hard-earned diplomas will 

undoubtedly yield long-term benefits. 

However, 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.7 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.8 For these 

graduates and for borrowers who do not 

complete a degree, the need to begin 

repayment on their student loans can be 

especially daunting. 

The proposed ICR and IBR plans 

would provide borrowers with 

improved income related payment 

management options. They would also 

encourage borrowers to honor their debt 

commitments by offering loan 

forgiveness after 20 years of qualifying 

payments in an income-related payment 

plan. 


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42116 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

In addition to implementing statutory 

changes in the IBR plan and revising the 

ICR plan, the proposed regulations 

would also seek to solve welldocumented 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 who are unable to 

fulfill their monitoring period 

requirements. Currently, borrowers who 

have suffered a total and permanent 

disability 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 total and permanent 

disability. Also, the current reporting 

requirements during the monitoring 

period have proved to be strenuous on 

borrowers with disabilities and many 

who may meet all other eligibility 

requirements are having their loans 

reinstated due to failure to meet the 

current reporting requirements. 

The Secretary is proposing to revise 

the regulations governing disability 

discharges in the different title IV 

student loan programs to standardize 

the process. Under the proposed 

regulations, all discharge applications 

would 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 would ensure consistency in 

the administration of the disability 

discharge process. A more detailed 

analysis of these changes is provided in 

the Significant Proposed 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 

proposed 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 proposed revisions to the Income 

Contingent Repayment plan would 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 would be 

consistent with the statutory changes to 

IBR that become effective in 2014. 

Proposed ICR (ICR–A) would be 

available to eligible borrowers in the fall 

of 2012. A detailed breakdown of the 

proposed qualifications needed for 

participation in either plan is provided 

earlier in Table 2. 

Accurately predicting or forecasting 

transfers or costs from the proposed ICR 

changes is difficult because they will 

depend heavily on borrower trends and 

participation. Traditionally, there has 

been low participation in ICR, and many 

participants were forced into ICR in 

order to consolidate defaulted loans. 

ICR–A may see an enrollment push, 

however, as a result of the publicity it 

could receive as part of the President’s 

Pay As You Earn 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 qualify for 

partial financial hardship. The 

following examples and discussion will 

analyze the difference in payments for 

borrowers under ICR–B and ICR–A. 

ICR–B payments are calculated using 

the lesser amount of the amount 

borrowers would pay if you 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–B on the Federal Student Aid 

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

PORTALSWebApp/students/english/ 

OtherFormsOfRepay.jsp). ICR–A 

payments 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 (ICR–A would 

require PFH for initial qualification so 

first year calculations will assume PFH). 

Example 1: Susan is a single borrower 

living in Ohio with no dependents. She 

has an (AGI) of $28,000 and $25,000 in 

student loan debt. Susan currently has 

an interest rate of 6.8 percent. Under 

proposed ICR–B (the current ICR) 

calculations, Susan’s monthly payment 

(first year) would be more than $190 a 

month. Under ICR–A, Susan’s payments 

would be roughly $94 a month, almost 

$97 less. In total in the first year, Susan 

would pay $1,162 less, as illustrated in 

Chart 2A. Example 1 illustrates the 

change in monthly payments possible 

for a borrower with Susan’s income and 

family size. If we assume that her 

discretionary income and family size 

remains the same over the life of the 

loan and she stays in ICR–A and makes 

twenty years of qualifying payments, 

she would pay $22,560 and would have 

a balance of $39,493 forgiven. This 

simplified example demonstrates one 

possible outcome for a hypothetical 

borrower and actual outcomes would 

depend on the borrower’s income 

growth, family size, and repayment plan 

decisions. Across the pool of ICR–A 

borrowers, some would receive 

forgiveness and others would pay in 

full, and the combined effect of these 

outcomes leads to the estimated $2.1 

billion cost of the proposal as described 

in the Net Budget Impacts section of this 

RIA. 

Example 2: Jim also lives in Ohio but 

is married, the head of household and 

has two dependents. Jim has an AGI of 

$48,000, $25,000 in student loan debt 

and a 6.8 percent interest rate. Under 

ICR–A, Jim’s first year payments would 

be almost $112 less per month than 

under proposed ICR–B (the current ICR), 

as displayed in Chart 2B below. 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42117 

9National Association of Colleges and Employers, 

Fall 2011 Salary Survey, http://www.naceweb.org/ 

Press/Releases/Average_Salary_Offer_Rises_

6_Percent_for_the_Class_of_2011.aspx. 

Chart 2A. Susan’s first year payments under 

ICR–A and ICR–B 

(All figures rounded to nearest dollar) 

Chart 2B. Jim’s first year 

payments under ICR–A and 

ICR–B 

(All figures rounded to nearest 

dollar) 

Plan Monthly First year total 

Monthly First year total 

Current ICR (ICR–B) ....................................................................................... $191 $2,287 $251 $3,009 

ICR–A .............................................................................................................. 94 1,125 112 1,343 

Difference ......................................................................................................... 97 1,162 139 1,666 

Example 3: In 2011, the average 

student finished undergraduate studies 

with around $23,000 in student loan 

debt. Chart 2C looks at how that 

borrower’s first-year payments would 

measure under ICR–A and ICR–B if they 

started at different salary levels. 

CHART 2C—FIRST YEAR PAYMENTS UNDER ICR–A & ICR–B 

[$23,000 Debt, 6.8 percent interest rate, single] 

AGI $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 

Standard Repayment ............................................................................... $265 $265 $265 $265 $265 $265 

ICR–B ....................................................................................................... 147 164 183 197 210 223 

ICR–A ....................................................................................................... 27 69 110 152 194 235 

Difference (ICR–B vs. ICR–A) ................................................................. 120 95 73 45 16 (12) 

Chart 2C shows that the difference 

between ICR–B and ICR–A payments in 

the first year is more drastic at lower 

salary levels. A borrower entering into 

repayment with $23,000 worth of loans 

and a 6.8 percent interest rate would 

have lower monthly payments under 

ICR–A up to the $45,000 salary level. A 

borrower who leaves school with 

$23,000 in student loans and takes a job 

making $25,000 would have monthly 

payments that are $95 cheaper under 

ICR–A than ICR–B. 

ICR–A would also offer loan 

forgiveness after 20 years of payments; 

the current ICR plan (proposed ICR–B) 

offers forgiveness after 25 years. 

Consequently, eligible borrowers may 

have five fewer years of payments under 

proposed ICR–A. The effects of this 

change would 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 

ICR. The job struggles of new graduates 

have been well documented. However, 

2011 graduates who were able to find 

employment saw an average starting 

salary of $51,171 according to the 

National Association of Colleges and 

Employers’ fall 2011 Salary Survey.9

The average single borrower entering 

repayment with a $50,000 salary and 6.8 

percent interest rate would not qualify 

for ICR–A unless the borrower had 

around $24,500 or more in eligible debt. 

However, those borrowers who enter 

into lower paying jobs or struggle to find 

employment may benefit from 

participating in ICR–A. 

Leaving ICR–B open to direct and 

eligible consolidation loan borrowers 

ensures that the majority of borrowers 

would 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 ICR–A. This 

would 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). 

CHART 2D—FIRST YEAR MONTHLY PAYMENTS UNDER ICR–B, STANDARD AND EXTENDED FIXED REPAYMENT PLANS

[$35,000 Debt, 6.8 percent interest rate, single] 

AGI $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 

Standard .................................................................................. $403 $403 $403 $403 $403 $403 $403 

Extended fixed (25 years) ....................................................... 243 243 243 243 243 243 243 

ICR–B ...................................................................................... 300 319 339 356 356 359 377 

For a single borrower with $35,000 in 

debt, a 6.8 percent interest rate, and an 

annual salary under $65,000, Chart 2D 

shows that ICR–B would provide for 

lower monthly payments during the first 

year of repayment than would the 

standard repayment plan but higher 

payments than the extended fixed 

repayment amounts. The annual 

recalculation of payments under current 

ICR (proposed ICR–B) takes current debt 

amounts into consideration and the 

payments would more than likely 

adjust. 

All of the examples used above are 

only estimates. While these examples 

are able to paint a relatively clear 

picture of how the proposed regulations 

would 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 


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10Repayment Plans and Calculators, 

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

PORTALSWebApp/students/english/ 

OtherFormsOfRepay.jsp. 

payments and payments over time 

would vary based on borrower behavior. 

ICR Borrowers may see their payments 

fluctuate because of marriage, pay 

raises, or children. As in IBR, under 

ICR–A borrowers are re-evaluated 

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 would 

have more disposable income and 

possibly have a net positive impact on 

the economy. However, some borrowers 

would pay more money overall in order 

to have smaller payments up front. 

There would also be other small costs 

and transfers associated with ICR–A. 

For those borrowers under partial 

financial hardship (PFH) with 

calculated payments less than $5 would 

not have to pay at all, while there is a 

$5 minimum payment under current 

ICR (proposed ICR–B). 

Borrowers qualified for PFH would 

have $10 monthly payments if their 

calculated payments are greater than $5 

but less than $10. There is no PFH 

determination under current ICR 

(proposed ICR–B). 

Interest would be capped at 10 

percent of the original principal balance 

at the time borrower enters proposed 

ICR–A compared to current ICR 

(proposed ICR–B) 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 

proposed ICR–A. Current ICR (proposed 

ICR–B) uses joint AGI and eligible loan 

debt regardless of filing status. 

Income Based Repayment 

The statutory changes to the Income 

Based Repayment Plan reduce the 

discretionary income payment cap to 10 

percent and loan forgiveness period to 

20 years for eligible borrowers, effective 

July 1, 2014. IBR participants may have 

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 would heavily depend on 

borrower trends. Economic recovery 

would 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 

qualify for partial financial hardship. 

The following examples and 

discussion will analyze possible 

transfers for new borrowers under 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 12.10

The proposed IBR repayment plan 

would use 10 percent of the difference 

between 150 percent of the applicable 

HHS poverty guidelines and the 

borrower’s AGI, divided by 12. 

Example 1: Susan is a single borrower 

living in Ohio with no dependents. She 

has an Adjusted Gross Income (AGI) of 

$28,000 and $25,000 in student loan 

debt. Susan currently has an interest 

rate of 6.8 percent. Under the current 

IBR calculations, Susan’s monthly 

payment would be $141 a month in her 

first year. Under the proposed IBR 

calculations, Susan’s first-year 

payments would be $94 a month, $47 

less. Over the course of the year, Susan 

would pay $562 less, as displayed in 

Chart 3A. 

Example 2: Jim also lives in Ohio but 

is married, the head of a household, and 

he has two dependents. Jim has an AGI 

of $48,000, and $25,000 in student loan 

debt with a 6.8 percent interest rate. 

Under the proposed IBR, Jim’s first year 

payments would be almost $56 less per 

month, as displayed in Chart 3B below. 

Chart 3A. Susan’s payments under current and revised IBR 

(All figures rounded to nearest dollar) 

Chart 3B. Jim’s payments 

under current and revised IBR 

(All figures rounded to nearest 

dollar) 

Plan Monthly First year total 

Monthly First year total 

IBR (current) .................................................................................................... $141 $1,687 $168 $2,014 

IBR (revised) .................................................................................................... 94 1,125 112 1,343 

Difference ......................................................................................................... 47 562 56 671 

Proposed IBR would also offer loan 

forgiveness after 20 years of repayment. 

Currently, forgiveness is given after 25 

years. Eligible borrowers may have five 

fewer years of payments. The effects of 

this change would also depend on 

borrower trends, enrollment, and 

possibly the economy. The following 

discussion will look at how this change 

may affect a borrower. 

Example 3: Jesse finishes college with 

$40,000 in student loan debt and a 6.8 

percent interest rate. Jesse’s loan would 

be repaid under an IBR plan based on 

partial financial hardship. Five years 

after entering repayment, Jesse gets 

married and has a daughter. He adds a 

second child after the seventh year in 

repayment. The charts and graph below 

demonstrates Jesse’s payments under 

current and proposed IBR. 

CHART 3C—JESSE’S PAYMENTS UNDER CURRENT AND REVISED IBR 

Year(s) of repayment 1 2 3 4 5 6 

Salary ............................................................................... $22,000 $22,000 $23,000 $23,000 $30,000 $30,000 

Current IBR ...................................................................... 66 66 78 78 17 17 

Revised IBR ..................................................................... 44 44 52 52 11 11 

Monthly Payment Reduction ............................................ 22 22 26 26 6 6 


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CHART 3C—JESSE’S PAYMENTS UNDER CURRENT AND REVISED IBR—Continued 

Year(s) of repayment 1 2 3 4 5 6 

Annual Payment Reduction ............................................. 262 262 312 312 68 68 

Family Size ...................................................................... 1 1 1 1 3 3 

Married/HOH .................................................................... No No No No Yes Yes 

Year(s) of repayment 7 8 9 10 11 12 13 

Salary ....................................................... $40,000 $41,000 $41,000 $41,000 $45,000 $45,000 $47,000 

Current IBR .............................................. 68 80 80 80 130 130 155 

Revised IBR ............................................. 45 54 54 54 87 87 104 

Monthly Payment Reduction .................... 23 26 27 27 43 43 52 

Annual Payment Reduction ..................... 271 321 321 321 521 521 621 

Family Size .............................................. 4 4 4 4 4 4 4 

Married/HOH ............................................ Yes Yes Yes Yes Yes Yes Yes 

Year(s) of repayment 14 15 16 17 18 19 

Salary ............................................................................... $47,000 $50,000 $51,000 $55,000 $55,000 $55,000 

Current IBR ...................................................................... 155 193 205 255 255 255 

Revised IBR ..................................................................... 104 129 137 170 170 170 

Monthly Payment Reduction ............................................ 52 64 68 85 85 85 

Annual Payment Reduction ............................................. 621 771 821 1,021 1,021 1,021 

Family Size ...................................................................... 4 4 4 4 4 4 

Married/HOH .................................................................... Yes Yes Yes Yes Yes Yes 

Year(s) of repayment 20 21 22 23 24 25 

Salary ............................................................................... $57,000 $57,000 $57,000 $60,000 $60,000 $60,000 

Current IBR ...................................................................... 280 280 280 318 318 318 

Revised IBR ..................................................................... 187 .................... .................... .................... .................... ....................

Monthly Payment Reduction ............................................ 93 280 280 318 318 318 

Annual Payment Reduction ............................................. 1,121 3,364 3,364 3,814 3,814 3,814 

Family Size ...................................................................... 4 4 4 4 4 4 

Married/HOH .................................................................... Yes Yes Yes Yes Yes Yes 


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As demonstrated, Jesse would have 

substantially smaller payments under 

the proposed IBR plan, particularly as 

his income rises. The five-year 

difference in the forgiveness period 

alone would mean $18,000 less in 

payments. Overall, Jesse would pay 

back $28,000 less under the proposed 

IBR plan than the current one. This 

example assumes that Jesse remains 

qualified for PFH. Jesse’s example is 

based on assumptions about a particular 

borrower and cannot be used to make 

large scale projections. Monthly 

payments would vary over the life of a 

loan based on many factors. If Jesse did 

not get married or have children, his 

payments would have been different. 

Overall, the proposed IBR revisions 

would 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 

would allow borrowers to have more 

disposable income and would have a 

net positive impact on the economy. 

Some borrowers may initially pay more 

money overall however, in order to have 

lower payments up front. 

The examples used above are all 

based on certain assumptions about 

particular borrowers and cannot 

accurately be expanded to project 

market level transfers or costs. As 

mentioned earlier, borrowers who no 

longer qualify for PFH may very well 

opt to leave IBR for another payment 

plan. The proposed regulations would 

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 

proposed streamlined total and 

permanent disability discharge process 

would provide many benefits to 

borrowers. The proposed regulations 

would— 

• Simplify the process for the 

borrower; 

• 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 total and 

permanent disability 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 denied applicants 

have adequate information about the 

reasons for their denial and their future 

options, borrowers would 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 


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reinstated for failure to provide income 

information, but who may be otherwise 

eligible, the Secretary would provide 

economic relief for many of the 

country’s most vulnerable citizens. 

In 2011, approximately 78,000 

borrowers applied for a total and 

permanent disability discharge of 

179,454 loans across the Direct, FFEL, 

and Perkins loan programs. The 

proposed total and permanent disability 

process will offer many benefits to 

borrowers with disabilities and possibly 

reduce the number of reinstatements. 

The surplus 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 by 

the way of debt elimination. Also, by 

allowing direct application to the 

Secretary, all applications would be 

held to the same standard. The chances 

for inconsistency in the review process 

would be drastically reduced. The 

elimination of multiple medical 

evaluations would relieve 

administrative burden on title IV 

providers and reduce the application 

review time. 

Also, the Department believes that 

veterans would benefit if the changes 

proposed to the non-veterans total and 

permanent disability discharge also 

applied to the process for disability 

discharges based on VA documentation. 

Borrowers with disabilities would 

benefit from the elimination of the 

requirement that a physician provide a 

letter requesting more time for the 

borrower to submit a total and 

permanent disability discharge 

application. 

As noted, while the Department does 

believe that the proposed revisions 

would ultimately benefit truly eligible 

borrowers, it cannot accurately predict 

applicant behavior as a result. 

Net Budget Impacts 

The proposed 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. 

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 listed under Assumptions, 

Limitations, and Data Sources. Program 

cost estimates were generated by 

running projected cash flows related to 

each provision through the 

Department’s student loan cost 

estimation model. Student loan cost 

estimates are developed across five risk 

categories: for-profit institutions (less 

than 2-year), 2-year institutions, 

freshmen/sophomores at 4-year 

institutions, juniors/seniors at 4-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 

The budget impact in this package of 

regulations is related to the changes in 

the ICR plan. These proposed 

regulations, based on the President’s 

Pay As You Earn initiative, create ICR– 

A, a new income-contingent option that 

mirrors the changes made to the IBR 

repayment plan by SAFRA. ICR–A 

allows new borrowers in FY 2008 or 

later with a new loan in FY 2012 or later 

who demonstrate a partial financial 

hardship to use an income contingent 

repayment plan based on 10 percent of 

their discretionary income and a 20-year 

forgiveness period. The terms and 

conditions of ICR–A are based on IBR, 

including the treatment of married 

borrowers and the timing of interest 

capitalization, except ICR–A maintains 

the cap on interest capitalization from 

existing ICR. The existing ICR plan 

which has a threshold based on the 

lesser of the 12-year amortization of the 

loan multiplied by an income 

percentage factor or 20 percent of 

discretionary income and a 25-year 

forgiveness period would remain 

available for those borrowers who do 

not qualify or choose ICR–A or IBR 

option because of timing, not qualifying 

for partial financial hardship, or 

individual preference. The availability 

of ICR–A, with its reduced income 

percentage and shorter forgiveness 

period, is estimated to cost $2.1 billion 

over the 2012 to 2021 loan cohorts. 

To establish the baseline and to 

evaluate proposals related to the ICR 

and IBR plans, the Department uses a 

micro-simulation model consisting of 

borrower level data based on an extract 

of Direct Loan borrowers in ICR. Income 

and family size is projected for each 

borrower for 25 years using imputations 

developed by analyzing yearly changes 

in income and family size from the 

Current Population Survey. Interest and 

principal payments are calculated 

according to the regulations governing 

the ICR and IBR programs, and the 

payments are adjusted for the likelihood 

of deferment or forbearance; default and 

subsequent collection; prepayment 

through consolidation; death, disability, 

or bankruptcy; or Public Service Loan 

Forgiveness. The adjusted payment 

flows are aggregated by population and 

cohort and loaded into the Student Loan 

Model (SLM). The SLM combines the 

adjusted payment flows with the 

expected volume of loans in incomecontingent repayment to generate 

estimates of Federal costs. 

In evaluating the proposed changes to 

the ICR and IBR programs, the 

Department assumes that, if possible, 

income-contingent borrowers would 

elect the ICR–A 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 

SAFRA IBR would be estimated to 

choose ICR–A. The availability of the 

ICR–A repayment plan results in an 

estimated average savings of $4,250 per 

borrower. Assuming all those in ICR–A 

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/ 


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disability/bankruptcy discharges that 

lead to borrowers exiting the ICR 

program early). The actual number of 

borrowers receiving forgiveness will be 

significantly less than would be 

obtained by multiplying the 1.7 million 

borrowers estimate to take 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 would 

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 above, 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 ICR–A 

repayment plan 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 2017 2018 2019 2020 2021 Total 

Budget Authority ............................... 134 199 208 255 235 253 239 249 224 177 2,173 

Outlays ............................................. 114 191 208 253 235 246 234 254 218 178 2,132 

Income Based Repayment 

The proposed changes to the IBR 

program that implement the statutory 

changes in SAFRA are not expected to 

have a budgetary impact because they 

were incorporated into the budget 

baseline by SAFRA. 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 

proposed 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 

The proposed regulations would 

establish a single application process 

through the Department for borrowers 

seeking a total and permanent disability 

discharge of their Federal loans, specify 

requirements for more detailed 

information in total and permanent 

disability discharge denial letters, and 

modify the process and documentation 

requirements for the post-discharge 

monitoring period. This should simplify 

the point of contact for borrowers or the 

borrower’s representative, eliminate 

straggler loans that do not receive a 

discharge along with the borrower’s 

other loans because they are in a 

different program or with a different 

loan holder and the borrower does not 

apply for or receive a discharge, and 

improve consistency in eligibility 

determinations. Because the proposed 

regulations do not change the standard 

for determining disability or expand the 

pool of borrowers potentially eligible for 

discharge, there is no expected effect on 

the Federal student loan budget. The 

Department would continue to closely 

monitor the total and permanent 

disability discharge process and any 

significant changes in the frequency or 

magnitude of disability discharges 

would be reflected in future budget 

estimates. 

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 proposed 

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 

proposed regulations. As discussed in 

the Net Budget Impacts section of this 

preamble, costs for policies affecting 

Federal student loans are calculated 

under credit reform scoring and reflect 

the estimated net present value of all 

future non-administrative Federal costs 

associated with a cohort of loans. Under 

this approach, costs for a cohort are 

discounted at OMB provided rates to the 

cohort year of disbursement with the 

resulting outlays shown in Table 3. To 

generate the required single annualized 

cost, the Department then discounted 

those costs from the cohort years to 

2012 at 7 percent and 3 percent, 

resulting in the $214 million and $216 

million annualized figures presented in 

the following accounting statement. 

Expenditures are classified as transfers 

from the Federal Government to 

borrowers in the revised ICR repayment 

plan. 

ACCOUNTING STATEMENT CLASSIFICATION OF ESTIMATED EXPENDITURES

AT 3 PERCENT AND 7 PERCENT DISCOUNT RATES

[In millions] 

Category Costs 

Costs of compliance with paperwork requirements ....... $1.40 (7%) 

1.41 (3%) 

Category Transfers 

Annualized reduced payments to Federal Government from borrowers in 

ICR–A repayment plan ..... $214 (7%) 

216 (3%) 

Clarity of the Regulations 

Executive Order 12866 and the 

Presidential memorandum ‘‘Plain 

Language in Government Writing’’ 

requires each agency to write 

regulations that are easy to understand. 

The Secretary invites comments on 

how to make these proposed regulations 

easier to understand, including answers 

to questions such as the following: 

• Are the requirements in the 

proposed regulations clearly stated? 

• Do the proposed regulations contain 

technical terms or other wording that 

interferes with their clarity? 

• Does the format of the proposed 

regulations (grouping and order of 

sections, use of headings, paragraphing, 

etc.) aid or reduce their clarity? 

• Would the proposed regulations be 

easier to understand if we divided them 


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into more (but shorter) sections? (A 

‘‘section’’ is preceded by the symbol 

‘‘§ ’’ and a numbered heading; for 

example, § 682.209 Repayment of a 

loan.) 

• Could the description of the 

proposed regulations in the 

‘‘Supplementary Information’’ section of 

this preamble be more helpful in 

making the proposed regulations easier 

to understand? If so, how? 

• What else could we do to make the 

proposed regulations easier to 

understand? 

To send any comments that concern 

how the Department could make these 

proposed regulations easier to 

understand, see the instructions in the 

ADDRESSES section of this preamble. 

Alternatives Considered 

In the spirit of good governance, the 

Department carefully considers any 

regulatory action or revision to ensure 

that the final decision represents what 

the Department believes is the best 

feasible option. First and foremost, the 

Department considered whether or not 

negotiated rulemaking was necessary in 

this instance and concluded that the 

magnitude of the statutory and 

regulatory revisions to ICR, IBR, and the 

TPD process would require stakeholder 

input. Many of the regulatory 

alternatives proposed by non-federal 

negotiators and considered by the 

Department but ultimately rejected, 

were done so because of budgetary 

constraints. For example, non-Federal 

negotiators requested that the 

Department open ICR–A to all 

borrowers eligible for current ICR, but 

the Department declined because of the 

proposal’s significant cost but did agree 

to retain full borrower access to the 

ICR–B plan so that all borrowers would 

have access to a ‘‘income-driven’’ 

repayment plan. Nonetheless, the 

Department carefully worked with the 

non-federal negotiators on every issue to 

address all concerns possible and was 

able to gain consensus from the nonfederal negotiators the proposed 

regulations. A more in-depth analysis of 

these discussions and decisions are 

documented preamble and a brief 

summary of the major discussions is 

listed below. 

• The Department originally 

proposed requiring borrowers who 

choose to leave the ICR–A plan to make 

at least one payment under the standard 

repayment plan before selecting a 

different repayment plan, as IBR 

borrowers are required to do under 

§ section 493C(b)(8) of the HEA but after 

further discussion and deliberation, the 

Department modified the proposed ICR– 

A regulations to reflect the same 

regulatory approach to changing 

repayment plans that applies to 

borrowers repaying under the existing 

ICR plan (the proposed ICR–B). 

• The Department considered a 

proposal to cap the amount of interest 

and fees that may be charged to 

borrowers under both the ICR plans 

(including the proposed ICR–A plan) 

and IBR at 150 percent of the loan 

principal amount but determined that 

the Secretary does not have the 

authority under the HEA to stop 

charging interest to borrowers under the 

ICR or IBR plans after the amount of 

accrued interest has reached a certain 

percentage of the loan principal. 

• Some of the non-Federal negotiators 

suggested that many issues related to 

the current processes for submission of 

income documentation could be 

addressed by allowing borrowers to 

submit documentation electronically, or 

by establishing an electronic process for 

loan holders to obtain the necessary 

income information directly from the 

IRS. The Department agreed to explore 

such options in the future but noted that 

privacy issues associated with 

electronic submission of documents and 

restrictions on the release of information 

by the IRS to FFEL Program loan 

holders would have to be addressed. 

• After a lengthy discussion about 

AGI verification in regards to IBR, the 

Department agreed that the income 

documentation requirements could be 

simplified by amending the regulations 

to require borrowers to provide 

documentation, acceptable to the 

Secretary or the loan holder, of the 

borrower’s AGI. Acceptable 

documentation of a borrower’s AGI 

could include a copy of the borrower’s 

most recently filed Federal income tax 

return or a tax transcript obtained from 

the IRS by the borrower. In addition, the 

Department agreed that a copy of the 

borrower’s most recently filed tax return 

need not include the borrower’s 

signature. The Department disagreed 

with the recommendation that the 

regulations be amended to allow loan 

holders to disregard AGI and require 

borrowers to provide alternative 

documentation of income under any 

circumstances. Section 493C(a)(3) of the 

HEA specifically provides that the 

determination of a borrower’s partial 

financial hardship status is based, in 

part, on the borrower’s AGI. 

• The Department initially proposed 

to incorporate into regulations its 

current policy that a borrower leaving 

the IBR plan must make one full 

monthly payment under the 10-year 

standard repayment plan or the 

standard consolidation repayment plan, 

as applicable, before the borrower 

would be permitted to select another 

repayment plan. After a lengthy 

discussion with non-Federal negotiators 

and internal debate, the Department 

proposed regulations that require the 

borrower to make one monthly payment 

while under a standard repayment plan 

but allow for that payment to be for a 

lesser amount than the full scheduled 

monthly payment amount under a 

reduced payment forbearance agreement 

with the Secretary or the loan holder. 

The non-Federal negotiators agreed with 

this proposal. 

• After non-Federal negotiators 

voiced their concerns about borrower’s 

representatives not being included in 

the full TPD process, the Department 

added a paragraph to the proposed 

regulations for all of the Title IV student 

loan programs stating that the term 

‘‘borrower’’ includes a borrower’s 

representative, if applicable. Under the 

proposed regulations, any notice sent to 

a borrower must also be sent to the 

borrower’s representative if the 

borrower has one. In addition, both the 

borrower and the borrower’s 

representative may provide notifications 

and information in connection with the 

borrower’s total and permanent 

disability discharge. The Department 

also added language to the Perkins 

Loan, FFEL, and Direct Loan program 

regulations providing that an attorney 

could be a borrower’s representative. 

• Some non-Federal negotiators 

recommended that the suspension of 

collection activity also include a 

suspension of payments collected from 

borrowers through administrative wage 

garnishment (AWG) and the Treasury 

Offset Program (TOP). The Department 

did not agree. Borrowers applying for 

total and permanent disability 

discharges are, by definition, unable to 

work and earn money. Therefore, AWG 

would not be an issue for these 

borrowers. With regard to TOP, the 

Department reiterated its current policy 

on stopping TOP offsets. The 

submission of a total and permanent 

disability discharge application does 

not, in and of itself, demonstrate that a 

borrower is eligible for a total and 

permanent disability discharge. The 

Department or guaranty agency may, 

however, stop or reduce TOP offsets 

during this period if it believes such 

action is warranted in the borrower’s 

particular circumstances. 

• The Department declined a 

proposal from non-Federal negotiators 

representing guaranty agencies that 

would require that guaranty agencies 

receive copies of the total and 

permanent disability discharge 

applications. Under the proposed 

regulations, guaranty agencies and 


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lenders would not conduct medical 

reviews of disability discharge 

applications. Therefore, there is no need 

for lenders or agencies to receive the 

applications. 

• Initially, the Department proposed 

shifting the three-year period during 

which the borrower would have to 

provide income information to three 

calendar years (January 1st to December 

31st) after the discharge was granted. 

The Department proposed this approach 

because it would allow borrowers to 

meet the income documentation 

requirement by submitting tax returns 

for each calendar year after the 

discharge but after non-federal 

negotiators objected to this proposal on 

the grounds that it would lengthen the 

post-discharge monitoring period, the 

Department abandoned this proposal. 

• Non-Federal negotiators proposed 

that the Department tie the definition of 

‘‘permanent and total disability’’ to the 

Social Security standard and accept a 

statement of Social Security disability or 

SSI payments as proof that borrowers 

meet the reinstatement period 

requirements. The Department rejected 

the request to tie the Department’s total 

and permanent disability definition to 

the Social Security standard but 

amended the language to allow for the 

submission of documentation of 

eligibility for Social Security disability 

benefits as supporting documentation 

for the OMB approved form that the 

Department will be developing for 

earnings verification during the three 

year monitoring period. 

Regulatory Flexibility Act Certification 

Initial Regulatory Flexibility Analysis 

The Secretary certifies that these 

proposed regulations would not have a 

significant economic impact on a 

substantial number of small entities. 

These proposed 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 proposed 

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 ‘‘nonprofit institutions’’ as small 

organizations if they are independently 

owned and operated and not dominant 

in their field of operation, or as small 

entities if they are institutions 

controlled by governmental entities 

with populations below 50,000. The 

Secretary invites comments from small 

entities as to whether they believe the 

proposed changes would have a 

significant economic impact on them 

and, if so, requests evidence to support 

that belief. 

Paperwork Reduction Act of 1995 

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, 682.402, 

and 685.213 contain information 

collection requirements. Under the PRA, 

the Department has submitted a copy of 

these sections to OMB for its review. 

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. 

In the final regulations, we will 

display the control numbers assigned by 

OMB to any information collection 

requirements proposed in this NPRM 

and adopted in the final regulations. 

Discussion 

Proposed §§ 674.61, 682.215, 682.402, 

and 685.213 contain information 

collection requirements. Under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3507(d)), the Department of 

Education has submitted a copy of these 

sections to the Office of Management 

and Budget (OMB) for its review. 

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)) 

The proposed regulations would 

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 total and permanent 

disability discharges. In the Direct Loan 

program, borrowers would continue to 

apply directly to the Department for 

total and permanent disability 

discharges, as they do under the current 

Direct Loan program regulations. 

Under the proposed total and 

permanent disability discharge process, 

if a Perkins Loan program school or 

FFEL lender is contacted by a borrower 

intending to apply for a total and 

permanent disability 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 total and permanent disability 

application for each holder. Under the 

proposed streamlined process, a 

borrower would submit one total and 

permanent disability 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 

total and permanent disability 

applications was as follows: 

Year Program Number of 

borrowers 

Number of 

loans 

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

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

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

78,390 179,958 


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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. The proposed 

regulations provide that a borrower with 

a single loan holder must still provide 

the Secretary with a single total and 

permanent disability discharge 

application for all the affected title IV, 

HEA program loans held by that holder. 

However, under the proposed 

regulations, borrowers with multiple 

loan holders would no longer have to 

complete and submit multiple total and 

permanent disability 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 total and permanent 

disability discharges has increased to 

78,390 borrowers on 179,958 title IV, 

HEA loans. Using the 2011 number of 

loan applications, the burden would 

have expanded to 89,979 hours (179,958 

times 0.5 hours equal 89,979 hours). 

The burden analysis for these 

proposed regulations estimates the 

incremental increase from the previous 

annual rate of 30,000 borrowers and 

30,000 affected loans to the 2011 basis 

of 78,390 borrowers and 179,958 

affected loans, or an incremental 

increase of 48,390 borrowers (78,390 

borrowers in 2011 less 30,000 borrowers 

already accounted for in the annual 

estimate) and 149,958 loans (179,958 

loans in 2011 less 30,000 loans already 

accounted for in the annual estimate). 

We estimate that half or 24,195 of the 

borrowers (48,390 divided by 2) have all 

of their 24,195 title IV, HEA loans held 

by single holders. Therefore, the burden 

associated with the group of borrowers 

with single holders is an increase of 

12,098 burden hours (24,195 times 0.5 

hours per application). We estimate that 

the other half of the borrowers or 24,195 

(48,390 divided by 2) have multiple 

holders for their 125,763 title IV, HEA 

loans (179,958 affected loans in 2011 

less the 30,000 already accounted for in 

the annual estimate, less 24,195 held by 

single holders). The proposed 

regulations require borrowers requesting 

a total and permanent disability 

discharge to submit a single TPD 

application to the Department even 

when the borrower has multiple loans 

from multiple loan holders. Therefore, 

the total remaining number of loans 

with multiple holders would be 24,195 

(78,390 borrowers less 30,000 borrowers 

(respondents) in the currently approved 

information collection (OMB 1845– 

0065.v.4, less 24,195 borrowers with 

single holders) times 0.5 hours per 

application equal 12,097 hours of 

burden associated with the loans held 

by multiple holders. As a result, the 

overall annual burden would increase 

from 15,000 hours to 39,195 hours, a net 

increase of 24,195 burden hours, that is 

due primarily to the fact that over time 

the population of borrowers seeking 

total and permanent disability 

discharges has grown from 15,000 to 

78,390 per year. This significant 

increase in application volume 

increases the total burden. The effect of 

the single application portion of the 

proposal kept the burden from 

increasing from 15,000 burden hours 

(currently approved amount) to 89,979 

hours of burden, preventing an 

additional 50,784 hours of burden to 

individuals (179,958 applications times 

0.5 hours equals 89,979 less 39,195 

hours, the revised new amount of 

burden). 

Under the proposed regulations, 

lenders and guaranty agencies would no 

longer perform a number of functions in 

the total and permanent disability 

discharge process. Lenders and guaranty 

agencies would no longer: distribute the 

Discharge Application: Total and 

Permanent Disability application, 

receive the completed and submitted 

total and permanent disability 

applications, review the completed and 

submitted total and permanent 

disability application forms, evaluate 

the application forms, request 

additional information necessary to 

complete or resolve open issues 

regarding the applications, review and 

evaluate supplemental information 

provided by the applicants, as well as 

make a determination whether the 

application supports the conclusion that 

the borrower is totally and permanently 

disabled. 

Proposed §§ 674.61(b)(2) and 

682.402(c)(2) would require institutions 

that participate in the Perkins Loan 

program and FFEL program loan holders 

to provide borrowers seeking a total and 

permanent disability 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. 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 total and 

permanent disability discharge has 

increased from an average of 62 to 95 

borrowers. Under the proposed 

regulations, we estimate that the 

required information to notify the 

Secretary would take 0.03 hours (2 

minutes) per borrower request. At the 

current burden rate that would have 

been 48 hours of burden, however, 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 hours under 

OMB Control Number 1845–0019. 

Section 682.402 does not contain any 

burden attributed to the regulation for 

the total and permanent disability 

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 total 

and permanent disability 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 current regulations, we 

estimate that providing the total 

permanent disability 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. 

Under proposed § 682.402(c)(2), the 

holder only provides information to the 

borrower telling the borrower how to 

notify the Secretary. Under the 

proposed regulations, we estimate that 

the required information to notify the 

Secretary would take 0.03 hours (2 

minutes) per borrower request. At the 

current burden rate that would have 

been 15,220 hours of burden, however, 

at the estimated notification rate of 0.03 

hours per borrower the total burden is 

913 hours (30,440 borrowers times 0.03 

hours). While the burden on nonFederal holders was not previously 

estimated, we have established that the 

estimate would have been 15,220 hours 

(30,440 times 0.5 hours per total and 

permanent disability discharge 

application). Under the proposed 

process the burden is reduced to 913 

burden hours, an abatement of 14,307 


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42126 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

burden hours; however, 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, the proposed 

regulations would 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 total and permanent 

disability discharges. In the Direct Loan 

Program, borrowers would continue to 

apply directly to the Department for 

total and permanent disability 

discharges, as they do under the current 

Direct Loan regulations. 

Under proposed §§ 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 

total and permanent disability discharge 

application certified by a physician to 

the Department within 90 days of the 

date of the physician’s certification. 

After receiving the total and permanent 

disability 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. 

The proposed changes would 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 total 

and permanent disability discharge 

application process is transferred to the 

Department. 

Changes to the Total and Permanent 

Disability Discharge Application form 

would need to be made. The Total and 

Permanent Disability Discharge 

Application form currently in use 

would expire on February 28, 2015. 

Final regulations implementing these 

provisions would be effective July 1, 

2013. A revised Total and Permanent 

Disability Discharge Application form 

associated with OMB Control Number 

1845–0065 will be submitted for OMB 

review by November 1, 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 proposed §§ 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 

total and permanent disability, 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 would require a certification from 

the borrower, and would require the 

borrower to submit documentation to 

support the certification available to the 

borrower. The documentation may 

include income tax returns, 

documentation of eligibility for Social 

Security disability benefits, or other 

documentation that supports the 

borrower certification. 

The proposed 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 OMB forms 

clearance process. 

Collectively, the proposed regulatory 

changes reflected in §§ 674.61 and 

682.402 would increase burden by 

40,080 hours. The burden in OMB 

Control Number 1845–0065 would 

increase from 15,000 to 39,195. The 

burden in OMB Control Number 1845– 

0019 would decrease by 28 hours from 

31 hours to 3 hours. The burden in OMB 

Control Number 1845–0020 would 

increase by 913 hours. 

Income-Based Repayment Plan 

Proposed §§ 682.215(e)(2) and 

685.221(e)(2)—Eligibility 

documentation, verification, and 

notifications. 

Under proposed § 682.215(e)(2), a 

FFEL loan holder, after making a 

determination that a borrower has a 

partial financial hardship 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 

partial financial hardship, would send 

the borrower a written notification that 

would include the following 

information: the borrower’s scheduled 

monthly payment amount, and the time 

period during which that monthly 

payment amount will apply (annual 

payment period); 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; an explanation of the 

consequences if the borrower does not 

annually provide the required 

information; 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 would send 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 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. 

Additional proposals under 

§ 682.215(e) place further notification 

requirements on loan holders for 

subsequent years which are outside the 

scope of this burden analysis and would 

require future burden analysis. 

Loan Forgiveness Processing and 

Payment 

Proposed § 682.215(g) under the FFEL 

program, would clarify that the loan 

holder determines when a borrower has 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42127 

met the requirements for loan 

forgiveness and that the borrower is not 

required to submit a request for loan 

forgiveness. 

The proposed 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 

would explain that the borrower is 

approaching the date he or she is 

expected to qualify for loan forgiveness, 

would remind the borrower that he or 

she must continue to make scheduled 

monthly payments, and would provide 

general information on the current 

treatment of the forgiveness amount for 

tax purposes, including instructions to 

contact the IRS for more information. 

Current § 682.215(g)(4) (redesignated 

as § 682.215(g)(5)) 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 proposed 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 (on or around 2031), they are 

outside the scope of this burden 

analysis. 

Consistent with the discussions 

above, the following chart describes the 

sections of the proposed regulations 

involving information collections, the 

information being collected, 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 loan holders, 

using wage data developed using BLS 

data, available at www.bls.gov/ncs/ect/ 

sp/ecsuphst.pdf, is $593,249, as shown 

in Chart 4. This cost was based on an 

hourly rate of $24.61. The monetized 

cost of the additional burden on 

students is $700,807 based on an hourly 

rate of $17.88. 

CHART 4—SUMMARY OF ESTIMATED PAPERWORK BURDEN

Regulatory 

section Information collection OMB control number and estimated change in the burden 

Estimated 

cost 

674.61 ........... This proposed regulatory section would require Perkins borrowers to 

apply directly to the Department for total and permanent disability discharges. Under the proposed regulations institutions would 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.

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

The burden would decrease by 28 

hours to 3 hours.

¥$689 

674.61, 

682.102, 

and 

685.213.

These proposed regulations would require borrowers who request an application for a total and permanent disability discharge of their title IV, 

HEA loans to request the application from the Department. Borrowers 

with multiple loans at multiple loan holders would only complete and 

submit a single TPD application to the Department.

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

A separate 60-day Federal Register 

notice will be published to solicit 

public comment. The burden 

would increase by 39,195 hours.

700,407 

682.215 ......... This proposed regulation would require FFEL loan holders, after making a 

determination that a borrower has a partial financial hardship 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. The burden 

would increase by 23,221 hours.

571,469 

682.402 ......... This proposed section would require FFEL loan holders to provide information to the borrower to notify the Secretary about their interest in applying for a total and permanent disability discharge.OMB 1845–0020 ...............................

The burden would increase by 913 

hours.

22,469 

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. 

We have prepared an Information 

Collection Request (ICR) for OMB 1845– 

0019, OMB 1845–0020. In preparing 

your comments you may want to review 

the ICR, which we maintain in the 

Education Department Information 

Collection System (EDICS) at http:// 

edicsweb.ed.gov. Click on ‘‘Browse 

Pending Collections.’’ We will prepare 

separate 60 day Federal Register notices 

for the proposed collection OMB 1845– 

0065 and a new information collection 

under OMB 1845–NEWA. 

We consider your comments on these 

proposed collections of information in— 

• Deciding whether the proposed 

collections are necessary for the proper 

performance of our functions, including 

whether the information will have 

practical use; 

• Evaluating the accuracy of our 

estimate of the burden of the proposed 

collections, including the validity of our 

methodology and assumptions; 

• Enhancing the quality, usefulness, 

and clarity of the information we 

collect; and 

• Minimizing the burden on those 

who must respond. This includes 

exploring the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques. 

Under 5 CFR 1320.13 we have 

requested OMB to conduct its review of 

these collections of information on an 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42128 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

emergency basis. We have asked OMB 

to approve the collections of 

information within 30 days after 

publication of these proposed 

regulations in the Federal Register. 

Therefore, to ensure that OMB gives 

your comments full consideration, it is 

important that OMB receives your 

comments by August 6, 2012. This does 

not affect the deadline for your 

comments to us on the proposed 

regulations. 

Intergovernmental Review 

This program is subject to Executive 

Order 12372 and the regulations in 34 

CFR part 79. One of the objectives of the 

Executive Order is to foster an 

intergovernmental partnership and a 

strengthened federalism. The Executive 

Order relies on processes developed by 

State and local governments for 

coordination and review of proposed 

Federal financial assistance. 

This document provides early 

notification of our specific plans and 

actions for this program. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, the Secretary 

particularly requests comments on 

whether these proposed regulations 

would require transmission of 

information that any other agency or 

authority of the United States gathers or 

makes available. 

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: June 25, 2012. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary proposes to 

amend 34 of the Code of Federal 

Regulations chapter VI 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 § 674.61(b), 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 

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 the 

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 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). 

(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. 

(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 


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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 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 the physician 

certified the borrower’s application. 

(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 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 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 certification 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 

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 available 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 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 and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification 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. 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 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; 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. 

(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; 


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42130 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

(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; and 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment on a form approved by the 

Secretary. 

(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. 

(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 the 

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 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42131 

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 682.215(e)(1)(iii)’’ 

between the citation ‘‘682.215(e)(1)(i)’’ 

and the word ‘‘within’’. 

5. 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 

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’’ immediately 

before the punctuation and word ‘‘; or’’. 

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, 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 

income-based 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42132 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

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) Provide consent for the loan 

holder to access the National Student 

Loan Data System to obtain information 

about the spouse’s eligible loans; 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 

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. 

(8)(i) 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, the loan holder must promptly 

determine the borrower’s new monthly 

payment amount. 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. 

(ii) 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 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42133 

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 § 682.215(c)(1). 

(iii) 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. 

(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)(ii) 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 6 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— 

(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.) 

* * * * * 

6. 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: 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42134 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

§ 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 (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 § 682.402(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 guaranteed 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 

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 the 

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 shall be 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 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). 

(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. 

(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 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 as of the date the physician 

certified the borrower’s application. 

(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 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42135 

borrower’s loan discharge application 

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 to 

the person who made the payments. 

(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 

certification 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; 

(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 available 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 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 and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification 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. 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 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. 

(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; and 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment, on a form approved by the 

Secretary. 

(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 § 682.402(g)(1), 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 as well as any 


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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 

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 the 

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 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 


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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, 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 

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 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 § 682.402(c)(3)(iii) or 

682.402(c)(9)(ix). 

* * * * * 

(h) * * * 

(1) * * * 

(v) In the case of a disability claim 

based on a veteran’s discharge request 

processed in accordance with 

§ 682.402(c)(9), 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 § 682.402(c)(9)(xi)(B). 

* * * * * 

(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 § 682.402(c), 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 

7. The authority citation for part 685 

continues to read as follows: 

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

unless otherwise noted. 

8. Section 685.200 is amended by 

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

read 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. 

* * * * * 

9. 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 

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. 

* * * * * 

10. 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) * * * 


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(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; 

(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 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 plan, 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 Adjusted Gross 

Income (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. 

* * * * * 

11. Section 685.209 is revised to read 

as follows: 

§ 685.209 Income-contingent repayment 

plans. 

(a) ICR–A plan: The ICR–A plan is an 

income-contingent repayment plan for 

eligible new borrowers. 

(1) Definitions. As used in this 

section— 

(i) Adjusted gross income (AGI) means 

the borrower’s adjusted gross income as 

reported to the Internal Revenue 

Service. For a married borrower filing 

jointly, AGI includes both the 

borrower’s and spouse’s income. For a 

married borrower filing separately, AGI 

includes only the borrower’s income; 

(ii) Eligible loan means any 

outstanding loan made to a borrower 

under the Direct Loan Program or the 

FFEL Program except for a defaulted 

loan, a Direct PLUS Loan or Federal 

PLUS Loan made to a parent borrower, 

or a Direct Consolidation Loan or 

Federal Consolidation Loan that repaid 

a Direct PLUS Loan or Federal PLUS 

Loan made to a parent borrower; 

(iii) Eligible new borrower means an 

individual who— 

(A) Has no outstanding balance on a 

Direct Loan Program Loan or a FFEL 

Program loan as of October 1, 2007, or 

who has no outstanding balance on such 

a loan on the date he or she receives a 

new loan after October 1, 2007; and 

(B)(1) Receives a disbursement of a 

Direct Subsidized Loan, Direct 

Unsubsidized Loan, or student Direct 

PLUS Loan on or after October 1, 2011; 

or 

(2) Receives a Direct Consolidation 

Loan based on an application received 

on or after October 1, 2011, except that 

a borrower is not considered an eligible 

new borrower if the Direct 

Consolidation Loan repays a loan that 

would otherwise make the borrower 


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ineligible under paragraph (a)(1)(iii)(A) 

of this section; 

(iv) Family size means the number 

that is determined by counting the 

borrower, the borrower’s spouse, and 

the borrower’s children, including 

unborn children who will be born 

during the year the borrower certifies 

family size, if the children receive more 

than half their support from the 

borrower. A borrower’s family size 

includes other individuals if, at the time 

the borrower certifies family size, the 

other individuals— 

(A) Live with the borrower; and 

(B) Receive more than half their 

support from the borrower and will 

continue to receive this support from 

the borrower for the year the borrower 

certifies family size. Support includes 

money, gifts, loans, housing, food, 

clothes, car, medical and dental care, 

and payment of college costs; 

(v) Partial financial hardship means a 

circumstance in which— 

(A) For an unmarried borrower or a 

married borrower who files an 

individual Federal tax return, the 

annual amount due on all of the 

borrower’s eligible loans, as calculated 

under a standard repayment plan based 

on a 10-year repayment period, using 

the greater of the amount due at the time 

the borrower initially entered 

repayment or at the time the borrower 

elects the ICR–A plan, exceeds 10 

percent of the difference between the 

borrower’s AGI and 150 percent of the 

poverty guideline for the borrower’s 

family size; or 

(B) For a married borrower who files 

a joint Federal tax return with his or her 

spouse, the annual amount due on all of 

the borrower’s eligible loans and, if 

applicable, the spouse’s eligible loans, 

as calculated under a standard 

repayment plan based on a 10-year 

repayment period, using the greater of 

the amount due at the time the loans 

initially entered repayment or at the 

time the borrower or spouse elects the 

ICR–A plan, exceeds 10 percent of the 

difference between the borrower’s and 

spouse’s AGI, and 150 percent of the 

poverty guideline for the borrower’s 

family size; 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 ICR–A repayment 

plan. (i) A borrower may select the ICR– 

A plan only if the borrower has a partial 

financial hardship. The borrower’s 

aggregate monthly loan payments are 

limited to no more than 10 percent of 

the amount by which the borrower’s 

AGI exceeds 150 percent of the poverty 

guideline applicable to the borrower’s 

family size, divided by 12. 

(ii) The Secretary adjusts the 

calculated monthly payment if— 

(A) Except for borrowers provided for 

in paragraph (a)(2)(ii)(B) of this section, 

the total amount of the borrower’s 

eligible loans are not Direct Loans, in 

which case the Secretary determines the 

borrower’s adjusted monthly payment 

by multiplying the calculated payment 

by the percentage of the total 

outstanding principal amount of the 

borrower’s eligible loans that are Direct 

Loans; 

(B) Both the borrower and borrower’s 

spouse have eligible loans and filed a 

joint Federal tax return, in which case 

the Secretary determines— 

(1) Each borrower’s percentage of the 

couple’s total eligible loan debt; 

(2) The adjusted monthly payment for 

each borrower by multiplying the 

calculated payment by the percentage 

determined in paragraph (a)(2)(ii)(B)(1) 

of this section; and 

(3) If the borrower’s loans are held by 

multiple holders, the borrower’s 

adjusted monthly Direct Loan payment 

by multiplying the payment determined 

in paragraph (a)(2)(ii)(B)(2) of this 

section by the percentage of the total 

outstanding principal amount of the 

borrower’s eligible loans that are Direct 

Loans; 

(C) The calculated amount under 

paragraph (a)(2)(i), (a)(2)(ii)(A), or 

(a)(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 ICR–A plan. On a Direct 

Consolidation Loan that repays loans on 

which the Secretary has not charged the 

borrower accrued interest, the three-year 

period includes the period for which the 

Secretary did not charge the borrower 

accrued interest on the underlying 

loans. This three-year period does not 

include any period during which the 

borrower receives an economic hardship 

deferment. 

(iv)(A) Except as provided in 

paragraph (a)(2)(iii) of this section, 

accrued interest is capitalized— 

(1) When a borrower is determined to 

no longer have a partial financial 

hardship; or 

(2) At the time a borrower chooses to 

leave the ICR–A plan. 

(B)(1) The amount of accrued interest 

capitalized under paragraph 

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

to 10 percent of the original principal 

balance at the time the borrower entered 

repayment under the ICR–A plan. 

(2) After the amount of accrued 

interest reaches the limit described in 

paragraph (a)(2)(iv)(B)(1) of this section, 

interest continues to accrue, but is not 

capitalized while the borrower remains 

on the ICR–A plan. 

(v) If the borrower’s monthly payment 

amount is not sufficient to pay any of 

the principal due, the payment of that 

principal is postponed until the 

borrower chooses to leave the ICR–A 

plan or no longer has a partial financial 

hardship. 

(vi) The repayment period for a 

borrower under the ICR–A plan may be 

greater than 10 years. 

(3) Payment application and 

prepayment. (i) The Secretary applies 

any payment made under the ICR–A 

plan in the following order: 

(A) Accrued interest. 

(B) Collection costs. 

(C) Late charges. 

(D) Loan principal. 

(ii) The borrower may prepay all or 

part of a loan at any time without 

penalty, as provided under 

§ 685.211(a)(2). 

(iii) If the prepayment amount equals 

or exceeds a monthly payment amount 

of $10.00 or more under the repayment 

schedule established for the loan, the 

Secretary applies the prepayment 

consistent with the requirements of 

§ 685.211(a)(3). 

(iv) If the prepayment amount exceeds 

a monthly payment amount of $0.00 

under the repayment schedule 

established for the loan, the Secretary 

applies the prepayment consistent with 

the requirements of paragraph (a)(3)(i) of 

this section. 

(4) Changes in the payment amount. 

(i) If a borrower no longer has a partial 

financial hardship, the borrower may 

continue to make payments under the 

ICR–A plan, but the Secretary 

recalculates the borrower’s monthly 

payment. The Secretary also 


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recalculates the monthly payment for a 

borrower who chooses to stop making 

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 

ICR–A plan; and 

(B) The borrower’s repayment period 

based on the recalculated payment 

amount may exceed 10 years. 

(ii) A borrower who no longer wishes 

to repay under the ICR–A plan may 

change to a different repayment plan in 

accordance with § 685.210(b). 

(5) Eligibility documentation, 

verification, and notifications. (i)(A) The 

Secretary determines whether a 

borrower has a partial financial 

hardship to qualify for the ICR–A plan 

for the year the borrower selects the 

plan and for each subsequent year that 

the borrower remains on the plan. To 

make this determination, the Secretary 

requires the borrower to provide 

documentation, acceptable to the 

Secretary, of the borrower’s AGI. 

(B) If the borrower’s AGI is not 

available, or if the Secretary believes 

that the borrower’s reported AGI does 

not reasonably reflect the borrower’s 

current income, 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 ICR–A plan 

for the year the borrower initially elects 

the plan and for each subsequent year 

that the borrower has a partial financial 

hardship, the Secretary sends the 

borrower a written notification that 

provides the borrower with — 

(A) The borrower’s scheduled 

monthly payment amount, as calculated 

under paragraph (a)(2) of this section, 

and the time period during which this 

scheduled monthly payment amount 

will apply (annual payment period); 

(B) Information about the requirement 

for the borrower to annually provide the 

information described in paragraph 

(a)(5)(i) of this section, if the borrower 

chooses to remain on the ICR–A plan 

after the initial year on the plan, and an 

explanation that the borrower will be 

notified in advance of the date by which 

the Secretary must receive this 

information; 

(C) An explanation of the 

consequences, as described in 

paragraphs (a)(5)(i)(C) and (a)(5)(v) of 

this section, if the borrower does not 

provide the required information; and 

(D) Information about the borrower’s 

option to request, at any time during the 

borrower’s current annual payment 

period, that the Secretary recalculate the 

borrower’s monthly payment amount if 

the borrower’s financial circumstances 

have changed and the income amount 

that was used to calculate the 

borrower’s current monthly payment no 

longer reflects the borrower’s current 

income. If the Secretary recalculates the 

borrower’s monthly payment amount 

based on the borrower’s request, the 

Secretary sends the borrower a written 

notification that includes the 

information described in paragraphs 

(a)(5)(ii)(A) through (D) of this section. 

(iii) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the ICR– 

A plan, the Secretary notifies the 

borrower in writing of the requirements 

in paragraph (a)(5)(i) of this section no 

later than 60 days and no earlier than 90 

days prior to the date specified in 

paragraph (a)(5)(iii)(A) of this section. 

The notification provides the borrower 

with — 

(A) The date, no earlier than 35 days 

before the end of the borrower’s annual 

payment period, by which the Secretary 

must receive all of the documentation 

described in paragraph (a)(5)(i) of this 

section (annual deadline); and 

(B) The consequences if the Secretary 

does not receive the information within 

10 days following the annual deadline 

specified in the notice, including the 

borrower’s new monthly payment 

amount as determined under paragraph 

(a)(4)(i) of this section, the effective date 

for the recalculated monthly payment 

amount, and the fact that unpaid 

accrued interest will be capitalized in 

accordance with paragraph (a)(2)(iv) of 

this section. 

(iv) Each time the Secretary makes a 

determination that a borrower no longer 

has a partial financial hardship for a 

subsequent year that the borrower 

wishes to remain on the plan, the 

Secretary sends the borrower a written 

notification that provides the borrower 

with— 

(A) The borrower’s recalculated 

monthly payment amount, as 

determined in accordance with 

paragraph (a)(4)(i) of this section; 

(B) An explanation that unpaid 

interest will be capitalized in 

accordance with paragraph (a)(2)(iv) of 

this section; 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 (D) of this section. 

(v) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on 

the ICR–A plan, the Secretary sends the 

borrower a written notification that 

includes the information described in 

paragraph (a)(5)(iv)(C) of this section. 

(vi) If a borrower who is currently 

repaying under another repayment plan 

selects the ICR–A plan but does not 

provide the documentation described in 

paragraphs (a)(5)(i)(A) or (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 ICR–A repayment plan 

remains on the plan for a subsequent 

year but the Secretary does not receive 

the documentation described in 

paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of 

this section within 10 days of the 

specified annual deadline. 

(viii) If the Secretary receives the 

documentation described in paragraphs 

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

within 10 days of the specified annual 

deadline, the Secretary maintains the 

borrower’s current scheduled monthly 

payment amount until the new 

scheduled monthly payment amount is 

determined. If the new monthly 

payment amount is less than the 

borrower’s previously calculated ICR–A 

monthly payment amount, and the 

borrower made payments at the 

previously calculated amount after the 

end of the most recent annual payment 

period, the Secretary makes the 

appropriate adjustment to the 

borrower’s account. Notwithstanding 

the requirements of § 685.211(b)(3), 

unless the borrower requests otherwise, 


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the Secretary applies the excess 

payment amounts made after the end of 

the most recent annual payment period 

in accordance with the requirements of 

§ 685.209(a)(3)(i). 

(ix)(A) If the Secretary receives the 

documentation described in paragraphs 

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

more than 10 days after the specified 

annual deadline and the borrower’s 

monthly payment amount is 

recalculated in accordance with 

paragraph (a)(4)(i) of this section, the 

Secretary grants forbearance with 

respect to payments that are overdue or 

would be due at the time the new 

calculated ICR–A monthly payment 

amount is determined, if the new 

monthly payment amount is $0.00 or is 

less than the borrower’s previously 

calculated income-based monthly 

payment amount. Interest that accrues 

during the portion of this forbearance 

period that covers payments that are 

overdue after the end of the prior annual 

payment period is not capitalized. 

(B) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the 

end of the prior annual payment period 

and before the new monthly payment 

amount is calculated are considered to 

be qualifying payments for purposes of 

§ 685.219, provided that the payments 

otherwise meet the requirements 

described in § 685.219(c)(1). 

(6) Loan forgiveness. (i) To qualify for 

loan forgiveness after 20 years, a 

borrower must have participated in the 

ICR–A plan and satisfied at least one of 

the following conditions during that 

period: 

(A) Made reduced monthly payments 

under a partial financial hardship as 

provided in paragraph (a)(2)(i) or 

(a)(2)(ii) of this section, including a 

monthly payment amount of $0.00, as 

provided under paragraph (a)(2)(ii)(C) of 

this section. 

(B) Made reduced monthly payments 

after the borrower no longer had a 

partial financial hardship or stopped 

making income-contingent payments as 

provided in paragraph (a)(4)(i) of this 

section. 

(C) Made monthly payments under 

any repayment plan, that were not less 

than the amount required under the 

Direct Loan standard repayment plan 

described in § 685.208(b) for the amount 

of the borrower’s loans that were 

outstanding at the time the loans 

initially entered repayment. 

(D) Made monthly payments under 

the Direct Loan standard repayment 

plan described in § 685.208(b). 

(E) Made monthly payments under 

the ICR–B plan described in paragraph 

(b) of this section or the income-based 

repayment plan described in § 685.221, 

including a calculated monthly payment 

amount of $0.00. 

(F) Received an economic hardship 

deferment on eligible Direct Loans. 

(ii) As provided under paragraph 

(a)(6)(v) of this section, the Secretary 

cancels any outstanding balance of 

principal and accrued interest on Direct 

loans for which the borrower qualifies 

for forgiveness if the Secretary 

determines that— 

(A) The borrower made monthly 

payments under one or more of the 

repayment plans described in paragraph 

(a)(6)(i) of this section, including a 

monthly payment amount of $0.00, as 

provided under paragraph (a)(2)(ii)(C) of 

this section; and 

(B)(1) The borrower made those 

monthly payments each year for a 

20-year period; or 

(2) Through a combination of monthly 

payments and economic hardship 

deferments, the borrower has made the 

equivalent of 20 years of payments. 

(iii) For a borrower who qualifies for 

the ICR–A plan, the beginning date for 

the 20-year period is— 

(A) If the borrower made payments 

under the ICR–B plan described in 

paragraph (b) of this section or the 

income-based repayment plan described 

in § 685.221, the earliest date the 

borrower made a payment on the loan 

under one of those plans at any time 

after October 1, 2007; or 

(B) If the borrower did not make 

payments under the ICR–B plan 

described in paragraph (b) of this 

section or the income-based repayment 

plan described in § 685.221— 

(1) For a borrower who has an eligible 

Direct Consolidation Loan, the date the 

borrower made a payment or received 

an economic hardship deferment on that 

loan, before the date the borrower 

qualified for the ICR–A plan. The 

beginning date is the date the borrower 

made the payment or received the 

deferment after October 1, 2007; 

(2) For a borrower who has one or 

more other eligible Direct Loans, the 

date the borrower made a payment or 

received an economic hardship 

deferment on that loan. The beginning 

date is the date the borrower made that 

payment or received the deferment on 

that loan after October 1, 2007; 

(3) For a borrower who did not make 

a payment or receive an economic 

hardship deferment on the loan under 

paragraph (a)(6)(iii)(B)(1) or 

(a)(6)(iii)(B)(2) of this section, the date 

the borrower made a payment on the 

loan under the ICR–A plan; 

(4) If the borrower consolidates his or 

her eligible loans, the date the borrower 

made a payment on the Direct 

Consolidation Loan that met the 

requirements of paragraph (a)(6)(i) of 

this section; or 

(5) If the borrower did not make a 

payment or receive an economic 

hardship deferment on the loan under 

paragraph (a)(6)(iii)(A) or (a)(6)(iii)(B) of 

this section, the date the borrower made 

a payment on the loan under the ICR– 

A plan. 

(iv) Any payments made on a 

defaulted loan are not made under a 

qualifying repayment plan and are not 

counted toward the 20-year forgiveness 

period. 

(v)(A) When the Secretary determines 

that a borrower has satisfied the loan 

forgiveness requirements under 

paragraph (a)(6) of this section on an 

eligible loan, the Secretary cancels the 

outstanding balance and accrued 

interest on that loan. No later than 6 

months prior to the anticipated date that 

the borrower will meet the forgiveness 

requirements, the Secretary sends the 

borrower a written notice that 

includes— 

(1) An explanation that the borrower 

is approaching the date that he or she 

is expected to meet the requirements to 

receive loan forgiveness; 

(2) A reminder that the borrower must 

continue to make the borrower’s 

scheduled monthly payments; and 

(3) General information on the current 

treatment of the forgiveness amount for 

tax purposes, and instructions for the 

borrower to contact the Internal 

Revenue Service for more information. 

(B) The Secretary determines when a 

borrower has met the loan forgiveness 

requirements in paragraph (a)(6) of this 

section and does not require the 

borrower to submit a request for loan 

forgiveness. 

(C) After determining that a borrower 

has satisfied the loan forgiveness 

requirements, the Secretary— 

(1) Notifies the borrower that the 

borrower’s obligation on the loans is 

satisfied; 

(2) Provides the borrower with the 

information described in paragraph 

(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) ICR–B plan: The ICR–B plan is an 

income-contingent repayment plan 

under which a borrower’s monthly 

payment amount is generally based on 

the total amount of the borrower’s Direct 

Loans, family size, and 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 


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borrower obtains another Direct Loan or 

the borrower and the borrower’s spouse 

obtain approval to repay their loans 

jointly under paragraph (b)(2)(ii) of this 

section. If the borrower obtains another 

Direct Loan, the amount the borrower 

would repay is based on the combined 

amounts of the loans when the last loan 

enters repayment. If the borrower and 

the borrower’s spouse repay the loans 

jointly, the amount the borrowers would 

repay is based on both borrowers’ Direct 

Loan debts at the time they enter joint 

repayment. 

(ii) The annual amount payable by a 

borrower under the ICR–B plan is the 

lesser of— 

(A) The amount the borrower would 

repay annually over 12 years using 

standard amortization multiplied by an 

income percentage factor that 

corresponds to the borrower’s AGI as 

shown in the income percentage factor 

table in a notice published annually by 

the Secretary in the Federal Register; or 

(B) 20 percent of discretionary 

income. 

(iii)(A) For purposes of paragraph (b) 

of this section, discretionary income is 

defined as a borrower’s AGI minus the 

amount of the poverty guideline as 

defined in paragraph (b)(1)(iii)(B) of this 

section. If a borrower provides 

documentation acceptable to the 

Secretary that the borrower has more 

than one person in the borrower’s 

family, the Secretary applies the HHS 

Poverty Guidelines for the borrower’s 

family size. 

(B) For purposes of paragraph (b) of 

this section, the term ‘‘poverty 

guideline’’ refers to the income 

categorized by State and family size in 

the poverty guidelines published 

annually by the United States 

Department of Health and Human 

Services pursuant to 42 U.S.C. 9902(2). 

If a borrower is not a resident of a State 

identified in the poverty guidelines, the 

poverty line to be used for the borrower 

is the poverty guideline (for the relevant 

family size) used for the 48 contiguous 

States. 

(iv) For exact incomes not shown in 

the income percentage factor table in the 

annual notice published by the 

Secretary, an income percentage factor 

is calculated, based upon the intervals 

between the incomes and income 

percentage factors shown on the table. 

(v) Each year, the Secretary 

recalculates the borrower’s annual 

payment amount based on changes in 

the borrower’s AGI, the variable interest 

rate, the income percentage factors in 

the table in the annual notice published 

by the Secretary, and updated HHS 

Poverty Guidelines (if applicable). 

(vi) If a borrower’s monthly payment 

is calculated to be greater than $0 but 

less than or equal to $5.00, the amount 

payable by the borrower 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– 

B plan. 

(viii) For each calendar year, the 

Secretary publishes in the Federal 

Register a revised income percentage 

factor table reflecting changes based on 

inflation. This revised table is 

developed by changing each of the 

dollar amounts contained in the table by 

a percentage equal to the estimated 

percentage changes in the Consumer 

Price Index (as determined by the 

Secretary) between December 1995 and 

the December next preceding the 

beginning of such calendar year. 

(ix) Examples of the calculation of 

monthly repayment amounts and tables 

that show monthly repayment amounts 

for borrowers at various income and 

debt levels are included in the annual 

notice published by the Secretary. 

(x) At the beginning of the repayment 

period under the ICR–B plan, the 

borrower must make monthly payments 

of the amount of interest that accrues on 

the borrower’s Direct Loan until the 

Secretary calculates the borrower’s 

monthly payment amount on the basis 

of the borrower’s income. 

(2) Treatment of married borrowers. 

(i)(A) For a married borrower who files 

a joint Federal tax return with his or her 

spouse, the AGI for both spouses is used 

to calculate the monthly payment 

amount under the ICR–B plan. 

(B) For a married borrower who files 

a Federal income tax return separately 

from his or her spouse, only the 

borrower’s AGI is used to determine the 

monthly payment amount under the 

ICR–B plan. 

(ii) Married borrowers may repay their 

loans jointly. The outstanding balances 

on the loans of each borrower are added 

together to determine the borrowers’ 

payback rate under paragraph (b)(1) of 

this section. 

(iii) The amount of the payment 

applied to each borrower’s debt is the 

proportion of the payments that equals 

the same proportion as that borrower’s 

debt to the total outstanding balance, 

except that the payment is credited 

toward outstanding interest on any loan 

before any payment is credited toward 

principal. 

(3) Other features of the ICR–B plan. 

(i) Alternative documentation of 

income. If a borrower’s AGI is not 

available or if, in the Secretary’s 

opinion, the borrower’s reported AGI 

does not reasonably reflect the 

borrower’s current income, the 

Secretary may use other documentation 

of income provided by the borrower to 

calculate the borrower’s monthly 

repayment amount. 

(ii) Adjustments to repayment 

obligations. The Secretary may 

determine that special circumstances, 

such as a loss of employment by the 

borrower or the borrower’s spouse, 

warrant an adjustment to the borrower’s 

repayment obligations. 

(iii) Repayment period. (A) The 

maximum repayment period under the 

ICR–B plan is 25 years. 

(B) The repayment period includes— 

(1) Periods in which the borrower 

makes payments under the ICR–B plan 

on loans that are not in default; 

(2) Periods in which the borrower 

makes reduced monthly payments 

under the income-based repayment plan 

or a recalculated reduced monthly 

payment after the borrower no longer 

has a partial financial hardship or stops 

making income-based payments, as 

provided in § 685.221(d)(1)(i); 

(3) Periods in which the borrower 

made monthly payments under the 

standard repayment plan after leaving 

the income-based repayment plan as 

provided in § 685.221(d)(2); 

(4) Periods in which the borrower 

makes payments under the standard 

repayment plan described in 

§ 685.208(b); 

(5) For borrowers who entered 

repayment before October 1, 2007, and 

if the repayment period is not more than 

12 years, periods in which the borrower 

makes monthly payments under the 

extended repayment plans described in 

§ 685.208(d) and (e), or the standard 

repayment plan described in 

§ 685.208(c); 

(6) Periods after October 1, 2007, in 

which the borrower makes monthly 

payments under any other repayment 

plan that are not less than the amount 

required under the standard repayment 

plan described in § 685.208(b); or 

(7) Periods of economic hardship 

deferment after October 1, 2007. 

(C) If a borrower repays more than one 

loan under the ICR–B plan, a separate 

repayment period for each loan begins 

when that loan enters repayment. 

(D) If a borrower has not repaid a loan 

in full at the end of the 25-year 

repayment period under the ICR–B plan, 

the Secretary cancels the outstanding 


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balance and accrued interest on that 

loan. No later than 6 months prior to the 

anticipated date that the borrower will 

meet the forgiveness requirements, the 

Secretary sends the borrower a written 

notification that includes— 

(1) An explanation that the borrower 

is approaching the date that he or she 

is expected to meet the requirements to 

receive loan forgiveness; 

(2) A reminder that the borrower must 

continue to make the borrower’s 

scheduled monthly payments; and 

(3) General information on the current 

treatment of the forgiveness amount, 

and instructions for the borrower to 

contact the Internal Revenue Service for 

more information. 

(E) The Secretary determines when a 

borrower has met the loan forgiveness 

requirements under paragraph 

(b)(3)(iii)(D) of this section and does not 

require the borrower to submit a request 

for loan forgiveness. After determining 

that a borrower has satisfied the loan 

forgiveness requirements, the 

Secretary— 

(1) Notifies the borrower that the 

borrower’s obligation on the loans is 

satisfied; 

(2) Provides the information described 

in paragraph (b)(3)(iii)(D)(3) of this 

section; and 

(3) Returns to the sender any payment 

received on a loan after loan forgiveness 

has been granted. 

(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–B plan, and for each 

subsequent year that the borrower 

remains on the plan, the Secretary sends 

the borrower a written notification that 

provides the terms and conditions of the 

plan, including— 

(A) The borrower’s scheduled 

monthly payment amount as calculated 

under paragraph (b)(1) or (b)(3)(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– 

B plan after the initial year on the plan, 

and an explanation that the borrower 

will be notified in advance of the date 

by which the Secretary must receive the 

information; 

(C) That if the borrower believes that 

special circumstances warrant an 

adjustment to the borrower’s repayment 

obligations, as described in paragraph 

(b)(3)(iii) of this section, the borrower 

may contact the Secretary and obtain 

the Secretary’s determination as to 

whether an adjustment is appropriate; 

and 

(D) An explanation of the 

consequences, as described in paragraph 

(b)(3)(vi)(D) of this section, if the 

borrower does not provide the required 

information. 

(vi) Documentation of income. (A) For 

the initial year that a borrower selects 

the ICR–B plan and for each subsequent 

year that the borrower remains on the 

plan, the borrower must provide 

acceptable documentation, as 

determined by the Secretary, of the 

borrower’s AGI to the Secretary for 

purposes of calculating a monthly 

repayment amount and servicing and 

collecting a loan under the plan. 

(B) For each subsequent year that a 

borrower remains on the ICR–B plan, 

the Secretary notifies the borrower in 

writing of the requirement described in 

paragraph (b)(3)(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–B plan but 

does not comply with the requirement 

in paragraph (b)(3)(vi)(A) of this section. 

(D) If, during a subsequent year that 

a borrower remains on the ICR–B plan, 

the Secretary does not receive the 

documentation described in paragraph 

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

days of the specified annual deadline, 

the Secretary recalculates the borrower’s 

required monthly payment amount. The 

maximum recalculated monthly amount 

the Secretary requires the borrower to 

repay is the amount the borrower would 

have paid under the standard repayment 

plan based on a 10-year repayment 

period using the amount of the 

borrower’s loans that was outstanding at 

the time the borrower began repayment 

under the ICR–B plan. The repayment 

period based on the recalculated 

payment may exceed 10 years. 

(E) If the Secretary receives the 

documentation described in paragraph 

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

days of the specified annual deadline, 

the Secretary maintains the borrower’s 

current scheduled monthly payment 

amount until the new scheduled 

monthly payment amount is 

determined. If the new calculated 

monthly payment amount is less than 

the borrower’s previously calculated 

monthly payment amount, and the 

borrower made payments at the 

previously calculated amount after the 

end of the most recent annual payment 

period, the Secretary makes the 

appropriate adjustment to the 

borrower’s account. The Secretary 

applies the excess payment amounts 

made after the end of the most recent 

annual payment period in accordance 

with the requirements of § 685.211(a)(1), 

unless the borrower requests otherwise. 

(F)(1) If the Secretary receives the 

documentation described in paragraph 

(b)(3)(vi)(A) of this section more than 10 

days after the specified annual deadline 

and the borrower’s monthly payment 

amount is recalculated in accordance 

with paragraph (b)(3)(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–B plan for 

the borrower but the borrower fails to 

comply with the requirement in 


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42144 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

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.) 

12. 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] 

13. 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] 

14. 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’’. 

15. 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 § 685.213, 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 

permanently disabled prior to 

submitting a total and permanent 

disability discharge application, the 

Secretary 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 

borrower’s title IV loans for a period not 

to exceed 120 days. 

(2) Physician Certification. The 

application must 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 totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 685.102(b). 

(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. 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 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 as of 

the date the physician certified the 

borrower’s application. 

(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. 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 certification provided by the 

borrower does not support the 

conclusion that the borrower is totally 

and permanently disabled, as described 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42145 

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 available 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 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 and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification 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. 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 and before the date the 

Secretary grants 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; 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. 

(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; and 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment on a form provided by the 

Secretary. 

(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 

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 


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42146 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

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.) 

16. 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). 

* * * * * 

17. 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 (c). 

I. Revising paragraph (d). 

J. Revising paragraph (e). 

K. 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. 

* * * * * 

(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 payment 

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 


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Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 42147 

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 

(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)(5) 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 repayment 

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 (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. 

(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, the Secretary maintains the 

borrower’s current scheduled monthly 

payment amount until the new 

scheduled monthly payment amount is 

determined. If the new monthly 

payment amount is less than the 

borrower’s previously calculated 

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(b)(3), 

unless the borrower requests otherwise, 

the Secretary applies the excess 

payment amounts made after the end of 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
42148 Federal Register / Vol. 77, No. 137 / Tuesday, July 17, 2012 / Proposed Rules 

the most recent annual payment period 

in accordance with the requirements of 

§ 685.221(c)(1). 

(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 

were made within 15 days of the 

scheduled due date for the full 

previously calculated payment amount. 

(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)(ii) of this section. 

(ii) Made reduced monthly payments 

after the borrower no longer had a 

partial financial hardship or stopped 

making income-based payments as 

provided in paragraph (d) of this 

section. 

(iii) Made monthly payments under 

any repayment plan, that were not less 

than the amount required under the 

Direct Loan standard repayment plan 

described in § 685.208(b) for the amount 

of the borrower’s loans that were 

outstanding at the time the loans 

initially entered repayment. 

(iv) Made monthly payments under 

the Direct Loan standard repayment 

plan described in § 685.208(b). 

(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, determining 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 6 

months prior to the anticipated date that 

the borrower will meet the forgiveness 

requirements, the Secretary sends the 

borrower a written notice that 

includes— 

(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. 2012–15888 Filed 7–16–12; 8:45 am] 

BILLING CODE 4000–01–P 


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