Simple Income-Based Repayment Act

To simplify income-based repayment under the Federal student loan program, and for other purposes. 1. Short title This Act may be cited as the Simple Income-Based Repayment Act 2. Repayment plans for borrowers Section 455 of the Higher Education Act of 1965 ( 20 U.S.C. 1087e (1) by striking subsection (d) and inserting the following: (d) Repayment plans (1) Design and selection for borrowers before July 1, 2017 With respect to a borrower of a loan made under this part before July 1, 2017, and consistent with criteria established by the Secretary, the Secretary shall offer such borrower a variety of plans for repayment of such loan, including principal and interest on the loan. The borrower shall be entitled to accelerate, without penalty, repayment on the borrower's loans under this part. The borrower may choose— (A) a standard repayment plan, consistent with subsection (a)(1) of this section and with section 428(b)(9)(A)(i); (B) a graduated repayment plan, consistent with section 428(b)(9)(A)(ii); (C) an extended repayment plan, consistent with section 428(b)(9)(A)(iv), except that the borrower shall annually repay a minimum amount determined by the Secretary in accordance with section 428(b)(1)(L); (D) an income contingent repayment 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, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS loan made on behalf of a dependent student; (E) an income-based repayment plan that enables borrowers who have a partial financial hardship to make a lower monthly payment in accordance with section 493C, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan, if the proceeds of such loan were used to discharge the liability on such Federal Direct PLUS Loan or a loan under section 428B made on behalf of a dependent student; or (F) an income-based repayment plan, consistent with part J, except that the plan described in this subparagraph shall not be available to a borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan, if the proceeds of such loan were used to discharge the liability on such Federal Direct PLUS Loan, or a loan under section 428B made on behalf of a dependent student. (2) Design and selection for new borrowers on or after July 1, 2017 The Secretary shall offer a borrower of a loan made under this part on or after July 1, 2017, the following plans for repayment of such loan, including principal and interest on the loan. The borrower shall be entitled to accelerate, without penalty, repayment on the borrower’s loans under this part. The borrower may choose— (A) a standard repayment plan, consistent with subsection (a)(1) of this section and with section 428(b)(9)(A)(i); or (B) an income-based repayment plan, consistent with part J, except that the plan described in this subparagraph shall not be available to a borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan, if the proceeds of such loan were used to discharge the liability on such Federal Direct PLUS Loan or a loan under section 428B made on behalf of a dependent student. (3) Borrower non-selection If a borrower of a loan made under this part does not select a repayment plan described in paragraph (1) or (2), the Secretary may provide the borrower with a repayment plan described in subparagraph (A), (B), or (C) of paragraph (1) for borrowers before July 1, 2017, or a repayment plan described in paragraph (2)(B) for new borrowers on or after July 1, 2017. (4) Changes in selections The borrower of a loan made under this part may change the borrower's selection of a repayment plan under paragraph (1) or (2), or the Secretary's selection of a plan for the borrower under paragraph (3), as the case may be, under such terms and conditions as may be established by the Secretary. (5) Alternative repayment plans The Secretary may provide, on a case by case basis, an alternative repayment plan to a borrower of a loan made under this part on or after July 1, 2017, who demonstrates to the satisfaction of the Secretary that the terms and conditions of the repayment plans available under paragraph (2) are not adequate to accommodate the borrower's exceptional circumstances. Upon request, the Secretary shall make available for such borrowers repayment plans described in subparagraphs (B) and (C) of paragraph (1). In designing such alternative repayment plans, the Secretary shall ensure that such plans do not exceed the cost to the Federal Government, as determined on the basis of the present value of future payments by such borrowers, of loans made using the plans available under paragraph (2). (6) Repayment after default or late payment For any borrower who has defaulted on a loan made under this part or part B, or is more than 60 days late on a scheduled payment of such loan, the Secretary— (A) may require the borrower to pay all reasonable collection costs associated with such loan; and (B) if such loan was made— (i) to any borrower who, before July 1, 2017, had an outstanding balance on a student loan made, insured, or guaranteed under this part or part B, may require the borrower to repay the loan pursuant to an income contingent repayment plan, as described in paragraph (1)(D), or an income-based repayment plan, as described in paragraph (1)(E); or (ii) to a new borrower, may provide the borrower the option to enroll in the repayment plan described in paragraph (2)(B). (7) Applicability provision (A) In general Except as provided in paragraph (5) and subparagraph (B) of this paragraph, the repayment plans under subparagraphs (B), (C), (D), and (E) of paragraph (1) are not available for a borrower who received the borrower's first disbursement of a Federal Direct Loan on or after July 1, 2017. (B) Exception The repayment plans available to a borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan whose proceeds were used to discharge the liability of a Federal Direct PLUS Loan made on behalf of a dependent student or a loan under section 428B made on behalf of a dependent student on or after July 1, 2017, shall be those described under subparagraphs (A), (B), and (C) of paragraph (1). . 3. Income-based repayment plan Title IV of the Higher Education Act of 1965 is amended by adding at the end the following: J Income-based repayment program 1 Establishment of program 499A. Duties of the Secretary of the Treasury (a) In general The Secretary of the Treasury, in consultation with the Secretary of Education, shall establish a program (hereinafter referred to as the income-based repayment program (1) repaying, through voluntary wage withholding and quarterly estimated payments as provided in subsection (b), (2) transmitting to the Secretary of Education— (A) an account of the amounts collected under subsection (b) (B) such tax return information of each such individual as is necessary to determine the individual’s income-based repayment obligation as provided in subsection (c) (b) Wage withholding and estimated payments (1) In general The Secretary of the Treasury shall, under rules similar to the rules of chapter 24 (2) Withholding requirements The tables, procedures, and guidance prescribed under paragraph (1) (A) for the election to have amounts withheld as provided under this subsection; (B) procedures and forms for an employee to indicate— (i) whether the employee (and, in the case of a married individual, whether the employee’s spouse) has a loan described in subsection (a)(1) that is in repayment status; (ii) in the case of a married individual, whether the employee anticipates filing jointly (and accompanying guidance explaining that if filing status for the taxable year is uncertain the employee should indicate filing jointly to avoid underwithholding); (iii) whether the exemption amount to which the employee is entitled under this section should be taken into account in determining withholding (and accompanying guidance explaining that, in order to avoid underwithholding, the employee should only take into account the exemption in the case of the employee’s primary employer, unless total wages from more than one place of employment will not exceed the exemption amount); (iv) in the case of a married individual, whether the exemption amount to which the employee’s spouse is entitled under this section should be taken into account in determining withholding from the wages of the employee (and accompanying guidance explaining that, in order to avoid underwithholding, the employee should only take into account such exemption if such spouse is not employed, or if the total wages from the employee’s job and the spouse’s employment will not exceed the exemption amount); (v) the number of dependents of the employee with respect to whom the employee is entitled to a deduction under section 151(c) (vi) an election to have additional amounts withheld; and (C) for withholding with respect to any employee in an amount equal to the sum of— (i) in the case of an employee who has a loan described in subsection (a)(1) in repayment status, the percentage of so much of the employee’s wages that would count towards the employee’s income-based repayment obligation provided in subsection (c) as exceeds any exemption amount taken into account with respect to the employee under subparagraph (A)(iii) (prorated to the payroll period), plus (ii) in the case of an employee who indicates that the employee’s spouse has a loan described in subsection (a)(1) in repayment status, the percentage of so much of the employee’s wages that would count towards the employee’s spouse’s income-based repayment obligation (as provided in subsection (c)) as exceeds any exemption amount taken into account with respect to the employee’s spouse under subparagraph (A)(iv) (prorated to the payroll period). (3) Quarterly estimated tax payments In the case of taxpayers who make quarterly estimated tax return payments under section 6654 (4) Collection and payment The amounts required to be deducted and withheld under paragraph (1), and amounts required to be paid under paragraph (3), shall be collected by the Secretary of the Treasury and shall be paid into the general fund of the Treasury of the United States. (c) Determination of income-Based repayment obligation (1) In general As soon as practicable after an individual for whom a loan described in subsection (a)(1) is in repayment status during the taxable year files an income tax return for such taxable year, the Secretary of the Treasury shall transmit to the Secretary of Education such tax information as is necessary to determine— (A) the amount deducted and withheld under subsection (b)(1), and the amount paid under subsection (b)(3), for the taxable year with respect to such individual, and (B) the income-based repayment obligation for the taxable year for such individual. (2) Income-based repayment obligation For purposes of this section: (A) In general The income-based repayment obligation with respect to an individual for any taxable year is an amount equal to 10 percent of the excess of— (i) the sum of— (I) the wages, salaries, tips, and other employee compensation of the taxpayer, but only if such amounts are includible in gross income for the taxable year (determined without regard to sections 911, 931, and 933 of the Internal Revenue Code of 1986), (II) the amount of the taxpayer’s net earnings from self-employment for the taxable year (within the meaning of section 1402(a) of such Code), determined with regard to the deduction allowed to the taxpayer by section 164(f) of such Code, plus (III) any other amount included in total income of the taxpayer for the taxable year but not described in subclause (I) or (II), over (ii) the sum of— (I) the exemption amount with respect to such individual, plus (II) the lesser of the amount determined with respect to the taxpayer under subclauses (II) and (III) of clause (i), or $3,000. (B) Special rules for married individuals (i) Each spouse with loan Except as provided in clause (ii), in the case of a joint return of two individuals who each have a loan described in subsection (a)(1) in repayment status, the income-based repayment obligation with respect to each spouse shall be an amount determined under subparagraph (A) by apportioning ½ (ii) Special rule for first year of marriage In the case of the first taxable year for which any two individuals make a joint return, the income-based repayment obligation with respect to such an individual shall be an amount equal to the lesser of— (I) the amount determined with respect to such individual under this paragraph (determined without regard to this clause), or (II) the amount determined with respect to such individual under this paragraph (determined by allocating to each spouse the amounts described in subclauses (I) and (II) of subparagraph (A)(i) in proportion to the amounts attributable to each spouse, by allocating ½ (C) Exclusion of certain amounts paid on behalf of individual Any amount paid on the borrower’s behalf under section 499B(5) shall not be taken into account in determining such borrower’s income-based repayment obligation. (3) Exemption amount For purposes of this section: (A) In general Except as provided in subparagraph (B), the exemption amount with respect to an individual shall be an amount equal to 150 percent of the poverty line for the individual’s household size (as determined under section 673(2) of the Community Services Block Grant Act ( 42 U.S.C. 9902(2) (B) Special rule for married individuals who both have loans If for any taxable year an individual is married, files a joint return, and has a spouse with a loan described in subsection (a)(1) in repayment status, then the exemption amount with respect to such individual shall be an amount equal to the sum of— (i) 150 percent of the poverty line for a household size of one (as determined under section 673(2) of the Community Services Block Grant Act ( 42 U.S.C. 9902(2) (ii) ½ (I) 150 percent of the poverty line for the individual’s household size minus 1 (as determined under section 673(2) of the Community Services Block Grant Act ( 42 U.S.C. 9902(2) (II) the amount determined under clause (i). (C) Household size For purposes of this paragraph, an individual’s household size shall be determined by reference to the individual, the number of dependents of the taxpayer with respect to whom the taxpayer is entitled to a deduction under section 151(c) (4) Individuals not filing a return (A) Individuals not required to file The income-based repayment obligation with respect to an individual not required to file a return under section 6012(a)(1) (B) Failure to file In the case of an individual who makes an election under subsection (b) with respect to a loan described in subsection (a)(1) in repayment status and fails to file a return under section 6012(a)(1) (5) Subsequent transmission of employer information reporting As soon as practicable after receiving from an employer information reporting with respect to withholding under subsection (b)(1) of an individual, the Secretary of the Treasury shall transmit to the Secretary of Education such information as may be useful in verifying the information with respect to withholding transmitted under paragraph (1). (d) Additional program requirements The Secretary of the Treasury shall establish such other policies, procedures, and guidance as may be necessary to carry out the purposes of this section, including measures to prevent underwithholding, under-reporting, and evasion of repayment or filing. Amounts shall be deducted and withheld under this section as the Secretary determines to be most appropriate to carry out the purposes of the income-based repayment program and to reflect, as accurately as is practicable, an individual’s income-based repayment obligation. 499B. Duties of the Secretary of Education The Secretary shall carry out the following activities as part of the income-based repayment program established under this part: (1) Calculation of annual repayment amounts The Secretary shall calculate the annual repayment amounts under section 499C(b) for borrowers with 1 or more loans described in section 499A(a)(1) in repayment status, including the income-based repayment obligations of such borrowers in accordance with section 499A(c)(2). (2) Communication with the Secretary of the Treasury The Secretary shall transmit to the Secretary of the Treasury such information as is necessary for the Secretary of the Treasury to carry out section 499A. (3) Annual statements Upon calculating the annual repayment amounts under paragraph (1) (A) Total payments made on the borrower’s annual repayment amount for such taxable year. (B) The borrower’s annual repayment amount for such taxable year. (C) In the case of a borrower who, according to section 499C(f), has underpaid such annual repayment amount, the amount of such underpayment and the process for paying such underpayment under section 499C(f)(2). (D) In the case of a borrower with an overpayment on such annual repayment amount, the amount of such overpayment and the process for requesting a refund of such amount under section 499C(g), if applicable. (E) The outstanding balances on all the loans made to the borrower described in section 499A(a)(1). (F) A description of how the borrower’s annual repayment amount was calculated under paragraph (1) or (2) of section 499C(b). (4) Direct payment The Secretary shall enable a borrower to make direct payments on the borrower’s annual repayment amount for the taxable year to the Secretary throughout the year, including by providing a process for the borrower to make such payments automatically, on a periodic basis, and in an amount specified by the borrower. (5) Payments on a taxpayer’s behalf The Secretary shall— (A) provide a mechanism for other individuals or entities to make payments on the annual repayment amount of a borrower for a taxable year; and (B) notify the borrower that any payments made under subparagraph (A) for the taxable year that exceed the annual repayment amount for the year shall not be refunded to the borrower. (6) Calculating interest accrued The Secretary shall calculate the interest accrued for the taxable year as if the borrower’s payments under wage withholding or quarterly estimated payments under section 499A(b) for the taxable year were made in 12 equal increments throughout the year. (7) Managing loans The Secretary shall provide, through the Internet, a tool that has an interface that is consistent for all borrowers with a loan described in section 499A(a)(1), which enables each such borrower to— (A) view the outstanding balances on the borrower’s loans described in section 499A(a)(1); (B) make a direct payment on the borrower’s annual repayment amount or indicate that any overpayment should be refunded or applied to such loans as a prepayment amount; (C) view prior annual statements for such loans provided under paragraph (3) (D) view a history of payments made on such loans (including the method and source of each payment, such as tax withholding, estimated taxes, direct payment, or payments made on the borrower’s behalf); (E) view the borrower’s annual repayment amount for that year, the amount already paid on such annual repayment amount, and any amount owed by the borrower or due to be refunded to the borrower; (F) view the borrower’s loans described in section 499A(a)(1) that have been paid off; (G) enable the borrower to initiate an appeal process under paragraph (8) (H) easily determine whether benefits under the Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq.), if applicable, have been applied to the borrower’s loans described in section 499A(a)(1). (8) Appeals process The Secretary shall make available a process through which a borrower can appeal the calculation of the borrower’s annual repayment amount, including a worksheet that enables a borrower to calculate the borrower’s annual repayment amount. (9) Default for failure to file a return In a case in which the Secretary receives information from the Secretary of the Treasury under section 499A(c)(4) that a borrower with a loan described in section 499A(a)(1) in repayment status has failed to file a return under section 6012(a)(1) (A) notify the borrower of the borrower’s failure to file such a return; and (B) if the borrower fails to file such a return within 90 days of receipt of the notice described in subparagraph (A), consider the borrower’s loans described in section 499A(a)(1) to be in default. (10) Loan forgiveness The Secretary shall cancel the balance of principal and interest due on any loan described in section 499A(a)(1) that is not in default for a borrower who has made 240 payments on the loan using one or more methods described in section 499C(c). 2 Borrower repayment 499C. Borrower repayment (a) Repayment period The repayment period of a loan described in section 499A(a)(1) shall— (1) begin on the first day of the first taxable year that begins after the borrower’s in-school deferment period, or in the case of a Federal Direct Consolidation Loan, on the first day of the first taxable year that begins after such Consolidation Loan is disbursed; and (2) continue until the loan is paid in full, except that the Secretary may grant a borrower forbearance of the borrower’s annual repayment amount— (A) for a period not to exceed 60 days, due to administrative or technical reasons; (B) for a period not to exceed 3 months, due to unusual circumstances that disrupt the borrower’s ability to make timely payments on the loan; or (C) renewable at 12-month intervals for a period not to exceed 3 years, due to documented extreme economic hardship on the part of a borrower. (b) Annual repayment amount The annual repayment amount under this part for a taxable year for a borrower with 1 or more loans described in section 499A(a)(1) in repayment status shall be equal to the lesser of— (1) the income-based repayment obligation for such borrower for such year, as calculated under section 499B(1); or (2) an amount equal to the sum of the outstanding balances (equal to the sum of the unpaid principal, interest, penalties, and fees) that the borrower owes on such loans. (c) Methods of repayment In repaying an annual repayment amount owed by a borrower for a taxable year, a borrower may— (1) with respect to any wages earned by the borrower that are subject to Federal income tax withholding, have amounts withheld upon such wages under section 499A(b)(2); (2) in the case of a borrower who makes quarterly estimated tax return payments under section 6654 (3) make direct payments under section 499B(4) on such amount to the Secretary throughout the year; (4) have other individuals or entities make payments under section 499B(5) on the borrower’s annual repayment amount for the year; or (5) another repayment plan authorized under section 455(d). (d) Order of crediting Payments on loans described in section 499A(a)(1) shall be applied, without regard to the method of such payments, first toward penalties due on the loans, next toward any fees due on the loans, then toward any interest due on the loans, and finally toward the principal due on the loan with the highest applicable rate of interest among such loans. (e) Prepayment authorized A borrower shall have the right to prepay all or part of such loan, at any time and without penalty. Any such prepayment amount will be applied to loans described in section 499A(a)(1) in the same order as described in subsection (d) (f) Underpayments (1) Penalties for underpayments (A) In general Subject to subparagraph (C) (i) an amount equal to 90 percent of the borrower’s annual repayment amount for such year; and (ii) the amount paid on such annual repayment amount as of such day. (B) Increase of annual repayment amount A borrower’s annual repayment amount calculated under subsection (b) (C) Exception A borrower who has paid 100 percent of the borrower’s annual repayment amount for the taxable year preceding the taxable year described in subparagraph (A) subparagraph (A) (2) Reconciling underpayments (A) In general If, as of the last day of a taxable year, the sum of the payments made on a borrower’s annual repayment amount for such year is less than the total amount of the borrower’s annual repayment amount for such year, the borrower— (i) in the case of the first year that the borrower has a difference between such amounts— (I) may request, in such manner as the Secretary shall require, that the Secretary reduce the borrower’s annual repayment amount for such year to the sum of— (aa) the payments made, as of such day, on the borrower’s annual repayment amount for such year; and (bb) any penalties calculated under paragraph (1) resulting from such underpayment; and (II) if the borrower qualifies for the reduction requested under subclause (I), shall pay the sum calculated under such subclause at such time and in such manner as required by the Secretary; (ii) if the borrower does not qualify for a reduction under clause (i) or does not request such a reduction, shall pay to the Secretary an amount equal to the difference between such amounts within the 30-day period beginning on the date of receipt by the borrower of the borrower’s annual statement described in section 499B(3) for such year; or (iii) if the borrower fails to pay the amount owed by the borrower as calculated under clause (ii) within the 30-day period, shall be charged a penalty equal to 2 percent of such amount for each month (prorated based on the percentage of a month such penalty is charged) that such amount is owed or until the borrower defaults on the loan for which such amount is owed, whichever occurs first. (B) Default A loan for which an amount is owed under subparagraph (A) and that is not paid within 360 days after the date of receipt by the borrower of the borrower’s annual statement described in subparagraph (A) shall be considered to be default. (g) Overpayments If, as of the last day of a taxable year, the sum of the payments made on a borrower’s annual repayment amount for such year is greater than the total amount of the borrower’s annual repayment amount for such year, the Secretary shall— (1) refund the overpayment amount, if the borrower notifies the Secretary, within the 90-day period beginning on the date of receipt of the borrower’s annual statement described in section 499B(3) for such year and in a manner prescribed by the Secretary, that the borrower desires to have the overpayment amount refunded; or (2) if a borrower fails to notify the Secretary of the borrower’s desire for a refund of such amount within such 90-day period, apply such amount as a prepayment to the borrower’s loans described in section 499A(a)(1) in the same manner as a prepayment authorized under subsection (e) (h) Employer failure To withhold payments In the case of a borrower whose employer fails to withhold amounts under section 499A(b)(2) upon any wages earned by the borrower that are subject to Federal income tax withholding and with respect to which the borrower made an election to have amounts withheld under section 499(b)(2), the Secretary shall— (1) reduce the borrower’s annual repayment to an amount equal to the borrower’s annual repayment amount had wages from such employer been excluded when calculating the borrower's annual repayment amount; and (2) reduce any penalties for underpayments calculated under subsection (f)(1) and refund any overpayments on such annual repayment amount, accordingly. .

Summary: Simple Income-Based Repayment Act This bill amends the Higher Education Act of 1965 to replace several existing federal student loan programs for graduated, extended, income-contingent, and income-based repayment with a single repayment plan that caps annual debt repayments based on the borrower's income. Under the new program, loan payments are made automatically through voluntary wage withholding based on quarterly estimated payments. The new income-based repayment program shall be available to both new and existing borrowers, excluding borrowers of specified federal loans made on behalf of a dependent student. Existing repayment plans other than standard repayment shall generally be unavailable to new borrowers, although the Department of Education (ED) may make graduated and extended plans available to new borrowers who demonstrate exceptional circumstances. Under the program, an individual's income-based repayment obligation shall be limited to 10% of the excess of the individual's taxable income over a specified amount. In the case of a joint return of two married individuals who each have an eligible loan, the income-based repayment amount with respect to each spouse shall generally be determined by apportioning half of the total income to each spouse. ED must provide an online tool to enable borrowers to make direct payments and access information regarding their loans. In the event of underpayment, a borrower who does not request and receive a reduction must pay to ED an amount equal to the difference between the annual repayment amount and the sum of payments made for that taxable year. In the event of overpayment, ED shall either refund the overpayment amount to the borrower or apply the amount as prepayment to the borrower's loans. Loan forgiveness is available after 240 qualifying payments are made under the program.