Source: https://www.federalregister.gov/articles/2012/11/01/2012-26348/federal-perkins-loan-program-federal-family-education-loan-program-and-william-d-ford-federal-direct
Timestamp: 2014-03-08 00:39:29
Document Index: 140491456

Matched Legal Cases: ['§ 685', '§ 685', '§ 682', '§ 682', '§ 682', '§ 682', '§ 674', '§ 682', 'arts 674', 'art 1', 'art 1', 'art 1', 'art 685', 'art 685', 'art 685', 'art 682', '§ 674', '§ 682', 'art 404', 'art 416', '§ 404', '§ 416', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 682', '§ 674', '§ 674', '§ 685', '§ 685', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 674', '§ 682', '§ 682', '§ 682', 'art 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 682', '§ 685', '§ 685', '§ 685', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 685', '§ 685', '§ 682', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 682', '§ 682', '§ 685', '§ 685', '§ 685', '§ 682', '§ 685', '§ 682', '§ 682', '§ 682', '§ 685', '§ 685', '§ 685', '§ 682', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 682', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 685', '§ 682', '§ 685', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682', '§ 682']

Federal Register | Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program
77 FR 66087
-66147 (61 pages)
Document Number: 2012-26348
Shorter URL: https://federalregister.gov/a/2012-26348 Related Topics
The Secretary amends the Federal Perkins Loan (Perkins Loan) program, Federal Family Education Loan (FFEL) program, and William D. Ford Federal Direct Loan (Direct Loan) program regulations. These final regulations implement a new 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 (TPD) discharge process for borrowers in loan programs under title IV of the Higher Education Act of 1965, as amended (HEA). These final regulations implementing a new ICR plan and the statutory changes to the IBR plan will assist borrowers in repaying their loans while the changes to the TPD discharge process will reduce burden for borrowers who are disabled and seeking a discharge of their title IV debt.
Borrower Representatives (34 CFR 674.61(b)(1), 682.402(c)(1), and 685.213(a)(4))
Disability Discharge Application Process (34 CFR 674.61(b)(2), 682.402(c)(2), and 685.213(b))
Suspension of Collection Activity (34 CFR 674.61(b)(2)(ii)(C), 674.61(b)(2)(vi), 682.402(c)(2)(ii)(C), 682.402(c)(2)(vi), 685.213(b)(1) and 685.213(b)(3)(i))
TPD Discharge Application Denial and Re-evaluation (34 CFR 674.61(b)(3)(vi), 674.61(b)(3)(vii), 682.402(c)(3)(v), 682.402(c)(3)(vi), 685.213(b)(4)(iv), and 685.213(b)(4)(v))
Treatment of Disbursements of Title IV Loans and TEACH Grants or Receipt of New Title IV Loans and TEACH Grants After Date of Physician's Certification (34 CFR 674.61(b)(4) and (b)(5), 682.402(c)(4) and (c)(5), and 685.213(b)(5) and (b)(6))
Conditions for Reinstatement of a Loan and Borrower's Responsibilities After a Total and Permanent Disability Discharge (34 CFR 674.61(b)(6), 674.61(b)(7), 682.402(c)(6), 682.402(c)(7), 685.213(b)(7), and 685.213(b)(8))
FFEL Lender and Guaranty Agency Actions (34 CFR 682.402(c)(8), 682.402(g)(2), and 682.402(k)(2))
Implementation and Forms Development
Income-Based and Income-Contingent Repayment Plans: General Comments
Use of Electronic and Internet-Based Processes for Borrowers Repaying Under the IBR, ICR, and Pay As You Earn Repayment Plans
Income-Based and Income-Contingent Repayment Plans: Initial Determination of Eligibility, Annual Income Documentation Requirements, and Associated Notices
Income-Based and Income-Contingent Repayment Plans: Eligibility for Interest Subsidy on Income-Based and Pay As You Earn Repayment Plan Payments of Less Than Accrued Interest for Borrowers Who Change Plans (§§ 685.209(a)(2)(iii) and 685.221(b)(3))
Determination of Initial Borrower Partial Financial Hardship Status and Recalculated Payment Amount for Borrowers Transferring Between the IBR and Pay As You Earn Repayment Plans (§§ 685.209(a)(1)(v), 685.209(a)(4), 685.209(a)(4)(i)(A), 685.221(a)(4), 685.221(d), and 685.221(d)(1)(i))
Income-Based and Income-Contingent Repayment Plans: Payment Issues Qualifying Payments for IBR, Pay As You Earn, and ICR Loan Forgiveness
Treatment of Prepayments for Borrowers Repaying Under the IBR, ICR, and Pay As You Earn Repayment Plans
Leaving the IBR Plan (§§ 682.215(d)(3) and 685.221(d)(2)(ii))
Income-Based and Income-Contingent Repayment Plans: Other Issues
Notices to Borrowers in Anticipation of Receiving Forgiveness Under the IBR, ICR, and Pay As You Earn Repayment Plans (§§ 682.215(g), 685.209(a)(6)(v)(A), 685.209(b)(3)(iii)(D), and 685.221(f)(5))
IBR Plan Maximum Repayment Period
Repayment of FFEL Program Loans Under the Income-Based Repayment Plan (§ 682.215(b)(3))
Spousal Consent for Loan Holder Access to NSLDS Information (§ 682.215(e)(1)(iii)(A))
The Need for Regulatory Action
Regulatory Alternatives Considered and Analysis of Significant Comments
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))
Income-Based Repayment Plan (§§ 682.215(e)(2) and 685.221(e)(2)—Eligibility Documentation, Verification, and Notifications)
Loan Forgiveness Processing and Payment
List of Subjects in 34 CFR Parts 674, 682, and 685
Chart 1—Summary of the Proposed Regulations
Table 2—Summary of Existing and Final IBR and ICR Plans
Sample First-Year Monthly Repayment Amounts for a Borrower With $26,000 in Student Loans
Table 3—Estimated Outlays for Cohorts 2012-2021
Accounting Statement Classification of Estimated Expenditures at 3 Percent and 7 Percent Discount Rates
Effective date: These regulations are effective July 1, 2013.
Implementation dates: For implementation dates, see the Implementation Date of These Regulations section of the Supplementary Information.
For further information related to the Pay As You Earn repayment plan, and the IBR and ICR plans, Pamela Moran or Jon Utz at (202) 502-7732 or (202) 377-4040 or by email at: Pamela.Moran@ed.gov or Jon.Utz@ed.gov. For information related to Total and Permanent Disability Discharge, Gail McLarnon or Brian Smith at (202) 219-7048 or (202) 502-7551 or by email at Gail.McLarnon@ed.gov or Brian.Smith@ed.gov. If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Purpose of This Regulatory Action: The combination of increased enrollment and rising tuition has contributed to a significant increase in student loan debt among Americans. The ability of recent college graduates to find immediate employment with wages adequate enough to repay this debt has been challenging.
For Federal student loan borrowers who suffer from a total and permanent disability, the Department's current TPD discharge process has led to inconsistencies in determining their eligibility for discharge and created undue hardship.
Based on the results of the negotiated rulemaking process and the advice and recommendations submitted by individuals and organizations in public hearing testimony and in written comments submitted to the Department, the final regulations will create a new Income-Contingent Repayment (ICR) plan in the Direct Loan program based on the President's “Pay As You Earn” repayment initiative, incorporate recent statutory changes to the Income-Based Repayment (IBR) plan in the Direct Loan and FFEL programs, and streamline and add clarity to the TPD discharge process for borrowers in the title IV, HEA loan programs.
Summary of the Major Provisions of This Regulatory Action: The final regulations will—
Create a new ICR plan (the Pay As You Earn repayment plan) in the Direct Loan program based on the President's Pay As You Earn repayment initiative. The regulations support the administration's goal of making the statutory improvements made by the SAFRA Act included in the Health Care and Reconciliation Act of 2010 (Pub. L. 111-152) to the IBR plan available to some borrowers earlier than July 1, 2014, and make technical corrections and minor changes to the current ICR plan regulations, including the addition of provisions related to notification of income documentation requirements and the ICR loan forgiveness process.
Amend the regulations governing the IBR plan to incorporate statutory changes made by the SAFRA Act and add new provisions related to notification of income documentation requirements, repayment options after leaving the IBR plan, and the IBR loan forgiveness process.
Revise the Perkins Loan and FFEL program regulations to permit borrowers to apply directly to the Department for a TPD discharge. In the Direct Loan program, borrowers would continue to apply directly to the Department for TPD discharges, as they do under the current Direct Loan regulations.
Revise the Perkins, FFEL, and Direct Loan program regulations to permit a TPD discharge based on a borrower's Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits indicating that the borrower's eligibility for disability benefits will be reviewed on a five- to seven-year schedule. This five- to seven-year review schedule classifies the borrower as permanently impaired—medical improvement not expected. Borrowers will still be subject to the three-year discharge review that is currently in place.
Make conforming changes throughout the Perkins, FFEL, and Direct Loan program regulations referencing the use of an SSA disability notice of award in the TPD process.
Reinstate a title IV loan discharged based on the borrower's TPD if the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.
Require a Perkins, FFEL, or Direct Loan borrower to notify the Secretary, during the three-year period following a TPD discharge, if the borrower has been notified by the SSA that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.
Modify regulations in the Perkins Loan, FFEL, and Direct Loan programs to provide more detailed information to borrowers in letters explaining why a disability discharge has been denied.
Define the term “borrower's representative” for purposes of the disability discharge application process and state that references to a borrower or a veteran in the TPD discharge regulations include a borrower's representative or a veteran's representative.
Specify that the Department will deny a disability discharge application and collection will resume on the borrower's loans if the borrower receives a disbursement of a new title IV loan or receives a new grant under the Teacher Education Assistance for College and Higher Education (TEACH) grant program made on or after the date the physician certified the borrower's disability discharge application or on or after the date the Secretary receives the borrower's SSA disability notice of award and before the date the Department makes a decision on the borrower's application for a TPD discharge.
Specify that if a borrower's Perkins, FFEL, or Direct Loan program loan is reinstated, it returns to the status that it would have had if the TPD discharge application had not been received.
Make corresponding changes to the TPD application process based on a certification from the Department of Veterans Affairs.
Chart 1 summarizes the final regulations and related benefits, costs, and transfers that are discussed in more detail in the Regulatory Impact Analysis of this preamble. The Department estimates that approximately 1.6 million borrowers could take advantage of the Pay As You Earn repayment plan with another million borrowers being affected by the statutory changes to the IBR plan reflected in these regulations. Significant benefits of these final regulations include a streamlined process for TPD discharges, enhanced notifications related to TPD, IBR, and ICR application and servicing processes, and reduced monthly payments for borrowers in partial financial hardship (PFH) status as a result of using a lower PFH threshold of 10 percent. The net budget impact of the regulations is $2.1 billion over the 2012 to 2021 loan cohorts.
Chart 1—Summary of the Proposed Regulations Back to Top
Issue and key features
Cost/transfers
Income-Contingent Repayment (34 CFR part 685):
Establishes the Pay As You Earn repayment plan with features of IBR as revised by SAFRA for new borrowers on or after 10/1/2007 with a loan disbursement made on or after 10/1/2011. The Pay As You Earn repayment plan retains a cap on interest capitalization from current ICR
Enhanced cash management option for borrowers
Estimated net budget impact of $2.1 billion over the 2012-2021 loan cohorts.
Establishes threshold for PFH at 10 percent for Pay As You Earn repayment plan borrowers
Reduced payments and shorter forgiveness period may encourage acknowledgement and payment of debt
Loan forgiveness after 20 years of qualifying payments compared to 25 years under current regulations
Reduced monthly payments may allow greater participation in the economy
Retains current ICR program as ICR
An income-driven repayment option remains available to all borrowers
Establishes process for borrower notification and processing of loan forgiveness by loan holders
Income-Based Repayment (34 CFR part 685):
Incorporates statutory changes from SAFRA
Benefits mirror those associated with proposed ICR changes
Threshold for PFH reduced from 15 percent to 10 percent for new borrowers after 7/1/2014
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.
Total and Permanent Disability (34 CFR 674.61; 34 CFR 682.402; 34 CFR 685.213):
Creates single discharge application process through the Department for all of a borrower's FFEL, Direct, and Perkins loans
Simplifies process for borrowers
Estimated paperwork compliance burden of approximately $725,000.
Specifies that borrower's representative will receive all notifications and can be involved in all aspects of the process
Departmental processing should increase consistency of TPD determinations
Enhanced notifications, including more detailed reasons for denials and information about options for reapplying
Process changes could reduce reinstatements for paperwork reasons
Revised treatment of payments made following a TPD discharge
Simplifies application process for borrowers and the Department
Creation of standard form for reporting income during 3-year post-discharge monitoring period
Allows for acceptance of an SSA disability notice of award for Social Security Disability Insurance or Supplemental Security Income benefits as proof of a borrower's TPD if the notice indicates that the SSA will review the borrower's continuing eligibility for benefits once every five to seven years, thus indicating that the borrower's disability is in the medical improvement not expected category. The borrower would still be subject to the three-year post discharge monitoring period
On July 17, 2012 the Secretary published a notice of proposed rulemaking (NPRM) for these programs in the Federal Register (77 FR 42086). The final regulations contain several changes from the NPRM. We fully explain the changes in the Analysis of Comments and Changes section of the preamble that follows.
Section 482(c) of the HEA requires that regulations affecting programs under title IV of the HEA be published in final form by November 1 prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier and the conditions for early implementation.
Consistent with the Department's objective to provide critical information to and improve servicing processes for borrowers who repay under the IBR plan, the Secretary is exercising his authority under section 482(c) to designate the following new and amended regulations included in this document for early implementation beginning on November 1, 2012 at the discretion of each loan holder, as appropriate:
(1) Section 682.209(a)(6)(v)(C).
(2) Section 682.211(f)(16).
(3) Section 682.215(d).
(4) Section 682.215(e).
The Secretary intends to implement the regulations governing the Pay As You Earn repayment plan as soon as possible. We will publish a separate Federal Register notice to announce when the plan becomes available to borrowers.
In response to the Secretary's invitation in the NPRM, 2,892 parties submitted comments on the proposed regulations. An analysis of the comments and of the changes in the regulations since publication of the NPRM follows.
We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address technical and other minor changes.
Comments: Many commenters supported the Department's proposed rules that allow a borrower to submit one application directly to the Department for a TPD discharge on all of the borrower's loans rather than to submit an application to each loan holder. The commenters also stated that the proposed changes to the discharge process would make it easier for disabled borrowers to provide the Department information necessary to make a loan discharge determination.
Discussion: The Department appreciates the commenters' support.
Comments: Many individual commenters suggested a range of modifications to the proposed TPD regulations that would require statutory change. Some commenters suggested that private student loans should be discharged if the borrower is determined to be TPD. Other suggestions were:
Eliminate the post-discharge monitoring period of a borrower's income following a TPD discharge;
Do not treat loan amounts discharged based on the borrower's permanent and total disability as income for Federal tax purposes;
Do not reinstate a title IV loan that was discharged due to TPD if the borrower has annual earnings from employment that exceed the poverty line if the earnings are not related to the degree financed by the discharged loan; and
Require credit reporting agencies to remove references to TPD discharges from a borrower's credit report.
Discussion: We appreciate the commenters' suggestions; however, absent congressional action to amend the HEA or other pertinent laws, the Department generally does not have the authority to make these changes. The Federal Government does not have authority to require the discharge of a private student loan.
The post-discharge monitoring of a borrower's earned income is required under section 437(a)(1)(A)(ii) of the HEA when FFEL and, by extension, Direct Loans are discharged due to the borrower's TPD. Since the standard for TPD discharges is the same in all of the title IV loan programs, we believe that it is appropriate to require that the income of Perkins Loan borrowers be monitored and that the Perkins Loan be reinstated if the borrower's income exceeds the poverty line in the same manner as Direct Loan and FFEL program loans.
The treatment of loan amounts discharged based on the borrower's TPD as income for Federal tax purposes is governed by the Federal tax code, not the HEA.
Section 437(a)(1)(A)(ii) of the HEA requires reinstatement of a FFEL or Direct Loan discharged due to the borrower's TPD if the borrower's earned income exceeds the poverty line. The HEA does not distinguish between how the income is earned.
Finally, sections 430A(a)(5) and 463(c)(2)(C) of the HEA require FFEL and Perkins Loan holders, respectively, to report to credit reporting agencies when a FFEL or Perkins Loan is discharged due to TPD. This requirement applies to Direct Loans in accordance with section 455(a)(1) of the HEA. Section 605(a)(4) of the Fair Credit Reporting Act requires credit reporting agencies to report the disability discharge on the borrower's credit report for seven years.
Comments: Many commenters indicated that they believed that the statutory definition of TPD added to the HEA by the Higher Education Opportunity Act of 2008 (HEOA) (Pub. L. 110-315) is very similar to the definition used in the disability benefit programs administered by the Social Security Administration (SSA). The commenters expressed the belief that, by including a similar definition of the term “total and permanent disability” in the HEA, Congress showed that it intended for the Department to align its TPD determinations more closely with the SSA's determinations of permanent disability status to reduce the TPD application burden on borrowers already determined to be permanently disabled by the SSA. The commenters requested that the Department accept existing SSA disability determinations when making a determination that a borrower is TPD for title IV loan discharge purposes. The commenters stated that using SSA disability determinations, along with the proposed rule to allow borrowers to submit a single TPD application to the Department rather than submit separate discharge applications to each of their lenders, would further streamline the Department's TPD discharge process and reduce burden on borrowers, the Department, and loan holders.
One commenter urged the Department to consider borrowers eligible for a TPD discharge if the borrower, at a minimum, met the SSA definition of “Medical Improvement Not Expected” or “Medical Improvement Possible” after a period of at least 60 months. Another commenter noted that when the Department transitioned to a single servicer for TPD application purposes and before the Department adopted the current TPD discharge process, the Department considered, but decided against, adopting a TPD process under which borrowers could provide proof of an SSA disability determination in the form of an SSA disability notice of award indicating when the borrower's next SSA medical review would occur as evidence that the borrower was totally and permanently disabled for title IV loan discharge purposes. The commenter urged the Department to reconsider this decision.
Finally, several commenters noted that the Department already accepts disability determinations from the Department of Veterans Affairs (VA) when making the determination that a title IV borrower is eligible for a TPD discharge and urged the Department to do the same with SSA disability determinations.
Discussion: Upon consideration of these comments and internal deliberations, we have determined that we will accept the specific SSA notice of award for Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits as proof of a borrower's TPD if the notice indicates that the SSA will review the borrower's continuing eligibility for SSDI or SSI benefits once every five to seven years. Sections 437(a) and 464(c)(1)(F) of the HEA provide for the discharge of a borrower's title IV loans if the borrower becomes totally and permanently disabled in accordance with the Secretary's regulations, or if the borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months (five years), or can be expected to last for a continuous period of not less than 60 months (five years). In two related final regulations published in the Federal Register on October 28, 2009 (74 FR 55626), and on October 29, 2009 (74 FR 55972), we included the specific statutory substantial gainful activity standard in our regulations at §§ 674.51(aa) and 682.200(b). Section 674.51(x) of the Department's October 28, 2009, final regulations and § 682.200(b) of the Department's October 29, 2009, final regulations both defined “substantial gainful activity” to mean a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both. We do not use an earnings standard to determine substantial gainful activity. However, if a title IV borrower has received a TPD discharge and, within three years after the loan is discharged, the borrower earns income from employment that exceeds 100 percent of the poverty guideline for a family of two ($1,275 per month in the 48 contiguous states, $1,577 per month in Alaska, and $1,451 per month in Hawaii) in a year, the borrower is not considered to have been disabled and the loan repayment obligation is reinstated.
The SSA defines the term “disability” to mean the inability of an individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months (42 U.S.C. 423). Upon making a disability determination based on this standard, the SSA is required by law to conduct disability reviews to determine the continuing eligibility of an individual for SSDI or SSI benefits where a finding has been made that such disability is permanent at such times as the Commissioner of Social Security determines to be appropriate (42 U.S.C. 421). The SSA has promulgated regulations to meet this statutory requirement under 20 CFR 404.1590 and 20 CFR 416.990. (20 CFR Part 404 and 20 CFR Part 416 govern the SSDI and SSI programs, respectively). Specifically, under 20 CFR 404.1590(d) and 20 CFR 416.990(d) of the SSA regulations, if an individual's impairment is expected to improve, generally the SSA reviews the individual's eligibility for disability benefits at intervals from six to 18 months following its most recent decision. This status is referred to as “medical improvement expected diary” under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of the SSA regulations. If an individual's disability is not considered permanent but is such that any medical improvement is possible, the SSA reviews the individual's continuing eligibility for disability benefits at least once every three years under 20 CFR 404.1590(d) and 20 CFR 416.990(d), unless SSA determines the requirement should be waived under 20 CFR 404.1590(g) or 20 CFR 416.990(g). This type of disability is considered a “nonpermanent impairment” under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of SSA regulations. Finally, if an individual's disability is considered a “permanent impairment,” the SSA reviews an individual's eligibility for benefits no less frequently than once every seven years, but no more frequently than once every five years under § 404.1590(d) and § 416.990(d). SSA regulations at 20 CFR 404.1590(c) and 20 CFR 416.990(c) use the term “permanent impairment” to refer to a case in which any medical improvement in an individual's impairment is not expected. The SSA uses the term “permanent impairment” to mean an extremely severe condition determined on the basis of the SSA's experience in administering the disability programs to be at least static, but more likely to be progressively disabling either by itself or by reason of impairment complications and unlikely to improve so as to permit the individual to engage in substantial gainful activity. SSA may also consider the interaction of the individual's age, impairment consequences and lack of recent attachment to the labor market in determining whether an impairment is permanent. Regardless of an individual's classification, the SSA will conduct an immediate continuing disability review if a question of continuing disability is raised that meets any of the provisions of 20 CFR 404.1590(b) or 20 CFR 416.990(b). When the SSA notifies an individual that he or she is eligible for disability benefits, the notice also tells the individual when he or she can expect the first continuing disability review.
The SSA regulations, at 20 CFR 404.1572 and 20 CFR 416.910, use the term “substantial gainful activity” to describe a level of work activity and earnings. “Substantial work activity” involves doing significant physical or mental activities. “Gainful work activity” is either work performed for pay or profit or work of a nature generally performed for pay or profit. Substantial gainful activity is also indicated by earnings averaging over $1,010 per month (for the year 2012) for individuals whose impairment is anything other than blindness. The formula for determining substantial gainful activity for individuals who are blind is set forth in 42 U.S.C. 423, see also 20 CFR 404.1584, Social Security Ruling 12-1p. The formula for determining substantial gainful activity for individuals who are not blind is similar to that used for individuals who are blind and is provided in 20 CFR 404.1574 and 20 CFR 404.1575.
Although the Department's definition of “substantial gainful activity” does not precisely mirror the SSA's definition, we agree that they are substantially similar. For example, both agencies require that an individual must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment in order to be determined disabled. Both agencies also define substantial gainful activity to mean a level of work performed for pay or profit that involves doing significant physical or mental activities or a combination of both. Both agencies allow an individual to engage in minimal levels of employment after receiving a disability determination as long as such employment does not exceed a specified dollar amount. And while it is unclear whether Congress intended for the Department to align its TPD determinations with the determination of permanent disability made by the SSA, we acknowledge that the standard a borrower must meet to establish eligibility for a title IV TPD discharge under section 437(a)(1) is substantially similar to the SSA's regulatory scheme governing a “permanent impairment” in 20 CFR 404.1590 and 20 CFR 416.990.
Section 437(a)(3) of the HEA explicitly provides the Secretary with the authority to provide the appropriate safeguards with regard to TPD. In light of this authority, the substantial similarity between the SSA and TPD statutory standards, and the burden reduction for applicants that will result from making this change, we have decided to allow a borrower to submit, as proof of the borrower's TPD, an SSA determination of permanent impairment-medical improvement not expected in the form of a SSDI or SSI notice of award that informs a borrower that his or her eligibility for SSA disability benefits will be reviewed no less frequently than once every seven years and no more frequently than once every five years (the five/seven year category).
We chose to accept only the five/seven year category as proof of TPD as opposed to the SSA's continuing disability review standard of every six- to 18-months or every three years to meet the Department's standard for TPD discharge purposes because the latter two standards indicate medical improvement expected or that medical improvement is possible, respectively, under 20 CFR 404.1590(c) and 20 CFR 416.990 of SSA's regulations. Medical improvement is expected in cases where a borrower's impairment can be treated and recovery can be anticipated. Medical improvement is possible where a borrower's impairment does not rise to the level of severity of an impairment that is considered permanent.
These regulations, along with regulations to allow borrowers to submit a single TPD application to the Department rather than separate discharge applications to each of their lenders, will further streamline the Department's TPD process and reduce burden on the Department as well as on borrowers who have already obtained such SSA documentation. Specifically, if we review the borrower's TPD application and the SSA notice of award for SSDI or SSI benefits specifies that the borrower will be reviewed no less frequently than once every seven years and no more frequently than once every five years for the purpose of establishing the borrower's continued eligibility for SSDI or SSI benefits, we will consider the borrower's title IV loans discharged as of the date we receive the SSA notice of award. The borrower would not be required to submit a certification by a physician that the borrower is TPD; the SSA notice of award for SSDI or SSI benefits alone will suffice as proof of the borrower's TPD.
We use the date the Secretary receives the borrower's SSA notice of award for SSDI or SSI benefits to ensure, for the program integrity purposes described below, that a borrower who receives a discharge based on an application supported by an SSA notice of award for SSDI or SSI benefits would still be subject to the three-year post-discharge monitoring period and the borrower responsibilities after discharge. Also, because a borrower who submits such a notice of award is not required to obtain a physician's certification (the date of which is used as the date of discharge), the date we receive an SSA notice of award for SSDI or SSI benefits is the earliest possible date we can use to discharge a borrower's loan without the benefit of the physician's certification date that is contained in the borrower's TPD application under the current process and which we use as the official TPD discharge date if the Secretary approves the borrower's application. We are making conforming changes throughout the Perkins, FFEL, and Direct Loan regulations to reflect the use of the SSA notice of award for SSDI or SSI benefits in the process.
In accepting the SSA notice of award for SSDI or SSI benefits, we must also preserve the integrity of the TPD process. In the past, we have not used the SSA's SSDI and SSI disability determinations in the TPD discharge process because the SSA's decisions on whether to do a disability review are not binding on the agency. As stated above, the SSA, with some exceptions, conducts an immediate continuing disability review if there is any evidence that raises a question as to whether an individual's disability continues. These exceptions, in 20 CFR 404.1590(h) and (i) and 20 CFR 416.990(h) and (i), are crafted narrowly—for example, if an individual is working and has received SSDI benefits for at least 24 months, the SSA will not start a continuing disability review based solely on an individual's activity if he or she is currently entitled to widow's or widower's insurance benefits based on disability. To maintain the integrity of the TPD process when accepting an SSA notice of award for SSDI or SSI benefits indicating that a borrower's medical review will be conducted in five to seven years as proof of a borrower's disability for title IV discharge purposes, we are adding a provision to the Perkins, FFEL, and Direct Loan program regulations requiring the reinstatement of a borrower's obligation to repay a loan that was discharged due to TPD if, within three years after the date the discharge was granted, the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. This reflects the fact that any continuing disability review done less frequently than five to seven years indicates a change in the borrower's permanent disability status. We are also adding §§ 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require borrowers, during the three-year monitoring period following the date the borrower's loan is discharged, to promptly notify the Secretary if the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. Again, this would indicate that the SSA has changed the borrower's classification of impairment from permanent impairment-medical improvement not expected to another status.
We do not agree with the commenter who recommended that the Department consider borrowers eligible for a TPD discharge if the borrower was determined by the SSA to be eligible for disability benefits with a continuing disability review schedule of every three years. This review schedule represents the status of nonpermanent impairment under which medical improvement is possible. We do not believe this SSA status rises to the level of severity required to meet the Department's definition of total and permanent disability because this status does not result in death or meet the disability longevity standards in the HEA. If, however, a borrower can provide documentation proving that he or she has been in this nonpermanent impairment status for at least five years, we will consider such evidence in determining whether the borrower has engaged in any substantial gainful activity for a period of at least 60 months (five years) under our current TPD standards. Of course, we will continue to accept TPD applications from borrowers under our current process that requires the borrower's application to contain a certification by a physician, who is a doctor of medicine or osteopathy legally authorized to practice in a State, that the borrower is TPD as defined in Department of Education regulations. Thus, a borrower who has not received an SSA notice of award for SSDI or SSI benefits may still be eligible for a TPD under other provisions of these final regulations.
Lastly, sections 437(a)(2) and 464(c)(1)(F)(iv) of the HEA authorize the Department to accept disability determinations from the VA when making the determination that a title IV borrower is eligible for a TPD discharge. The HEA does not specifically authorize the Department to accept SSA disability determinations but rather gives the Secretary the authority to provide the appropriate safeguards with regard to TPD. We believe that allowing borrowers to submit an SSA notice of award for SSDI or SSI benefits indicating a five- to seven-year review period as proof of the borrower's TPD in conjunction with other applicable Department regulations provides these safeguards, and, for the reasons explained in this section, is consistent and aligns with the statutory language in the HEA. This change with regard to SSA determinations will further streamline and simplify the TPD process and ease regulatory burden for both applicants and the Department.
Changes: We are making conforming amendatory changes throughout the Perkins, FFEL, and Direct Loan final regulations to incorporate the use of an SSA notice of award for SSDI or SSI benefits in the process of determining whether borrowers have a TPD for the purposes of the discharge of their title IV loans. Specifically, we are providing in §§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2) that a borrower may submit an SSA notice of award for SSDI or SSI benefits indicating that the borrower's next scheduled disability review will be within five to seven years as proof of the borrower's TPD.
We are also providing in §§ 674.61(b)(3)(i), 682.402(c)(3)(i), and 685.213(b)(4)(i) that if, after reviewing a borrower's completed application, the Secretary finds that the SSA notice of award for SSDI or SSI benefits indicates that the borrower has a permanent disability, the borrower is considered TPD as of the date the Secretary received the SSA disability notice of award. Final §§ 674.61(b)(3)(iii) and 682.402(c)(3)(iii) provide that in notifying the borrower's lenders that the borrower has been approved for a TPD discharge, the Secretary includes the date the Secretary received the SSA notice of award for SSDI or SSI benefits. Final §§ 674.61(b)(3)(v), 682.402(c)(3)(iii), and 685.213(b)(4)(iii) provide that any payments on a loan received after the date the Secretary received the SSA notice of award for SSDI or SSI benefits are returned to the person who made them. Final §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) state that if the SSA notice of award for SSDI or SSI benefits provided by the borrower does not support the conclusion that the borrower is TPD, the Secretary notifies the borrower and the lender that the discharge has been denied. We are amending §§ 674.61(b)(4), 682.402(c)(4), and 685.213(b)(5) to provide that if a borrower received a title IV loan or TEACH grant before the date the Secretary received the SSA notice of award for SSDI or SSI benefits and a disbursement of that loan or grant is made during the period from the date the Secretary received the SSA notice of award until the date the Secretary grants a TPD discharge, the processing of the discharge application will be suspended until the borrower returns the disbursement. We are amending §§ 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) to provide that if a borrower receives a disbursement of a new title IV loan or receives a new TEACH grant made on or after the date the Secretary received the SSA notice of award for SSDI or SSI benefits and before the date the Secretary grants a discharge, the Secretary denies the discharge application and collection resumes on the loans. We are amending §§ 674.61(b)(7), 682.402(c)(6), and 685.213(b)(7) to provide that the Secretary reinstates a borrower's obligation to repay a loan that was discharged due to TPD if, within three years after the date the discharge was granted, the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. We are amending §§ 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require borrowers, during the three-year monitoring period following the date the borrower's loan is discharged, to promptly notify the Secretary if the borrower received a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. Lastly, we are amending § 682.402(c)(8) to require that once the Secretary approves the borrower's TPD application, and the lender receives a claim payment from the guaranty agency, the lender must return to the sender any payments received by the lender after the date the Secretary received the SSA notice of award for SSDI or SSI benefits.
Comments: One commenter expressed support for the regulations in §§ 674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), and 685.213(a)(4) that provide for a borrower's or veteran's representative to act on behalf of the borrower or veteran, but noted that the regulations refer to a representative as an “individual.” The commenter asked if the representative could be a law firm or a legal aid society rather than an individual. The commenter noted that personnel at law firms or legal aid societies change, and it would reduce burden on the borrower if the borrower or veteran did not have to authorize a different individual as a representative as a result of a personnel change at a law firm or legal aid society.
Another commenter asked whether the authorization of a representative had to come from the borrower or veteran. This commenter asked whether a court could authorize a representative to act on behalf of the borrower or veteran.
A third commenter expressed concerns over the Department's current process for sending notices to borrowers' representatives. In this commenter's experience, the Department does not consistently send notices to borrower's representatives. The commenter urged the Department to improve the process for sending such notices as soon as possible.
Discussion: Under the regulations as proposed and finalized, an “individual” could include a law firm or legal aid society authorized to act on the borrower's or veteran's behalf without identifying a specific individual within that law firm or legal aid society as the representative. We agree that the authorization could be provided through such means as a Power of Attorney or a court order. The Department will review the validity of such authorizations on a case-by-case basis to determine if the authorization meets applicable legal requirements.
Since October 1, 2010, the Department has taken steps to identify TPD discharge requests in which the borrower listed a representative. When the borrower lists a representative, we send notices related to the TPD discharge application to those borrower representatives, as well as to the borrowers. The Department will continue to do so under the new TPD discharge process. Borrowers who submitted TPD applications prior to October 1, 2010, may request that a borrower representative be added to their account at any time.
Comments: One commenter recommended that all of a borrower's loan holders be notified of a borrower's request for a TPD discharge after the borrower submits a single TPD discharge application.
Another commenter recommended that if one lender discharges a borrower's loans due to TPD, all of the borrower's other title IV loans should be automatically discharged.
One commenter recommended that we streamline what the commenter described as an “extremely daunting” application process for TPD discharges. Similarly, another commenter requested that the Department make it easier for borrowers with disabilities to seek TPD discharges.
Discussion: The Department appreciates the concerns expressed by the commenters regarding the current TPD discharge process. Consistent with the NPRM, these final regulations reflect the recommendations made by the commenters. Sections 674.61(b)(2), 682.402(c)(2), and 685.213(b) establish a single application process in which the borrower will submit one TPD discharge application to the Department. The Department has one contractor employed to handle TPD discharges and that servicer will be the sole office receiving these TPD discharge applications. Once the Department is notified that the borrower intends to apply for a TPD discharge, we will notify all of the borrower's title IV loan holders and instruct them to suspend collection activity on the borrower's loans for 120 days. If the Department determines that the borrower qualifies for a TPD discharge, the Department will notify all of the borrower's title IV loan holders and instruct them to assign the borrower's loans to the Department. After the Department accepts the loan assignments, the Department will discharge the loans unless the processing of the discharge request is suspended or denied under § 674.61(b)(4), 674.61(b)(5), 682.402(c)(4), 682.402(c)(5), 685.213(b)(5), or 685.213(b)(6). We believe that the streamlined disability discharge application process will alleviate many of the difficulties borrowers have encountered in applying for TPD discharges.
Comments: Sections 674.61(b)(2)(ii) and 682.402(c)(2)(ii) of the Perkins and FFEL regulations specify that if a borrower notifies the Secretary that the borrower intends to apply for a TPD discharge, the Secretary provides the borrower with the information needed to apply for the discharge and informs the borrower that the suspension of collection activity will end after 120 days if the borrower does not submit the TPD discharge application within that timeframe. One commenter noted that these requirements were not included in proposed § 685.213(b)(1), the comparable section of the Direct Loan regulations, and asked if there was a specific reason for the difference.
Discussion: The Department will provide the same information and notifications required under the Perkins and FFEL regulations to Direct Loan borrowers. We agree that to provide consistency with the Perkins and FFEL regulations these requirements should be included in the Direct Loan regulations as well.
Changes: We have revised § 685.213(b)(1) of the Direct Loan regulations to state that the Secretary will provide borrowers with the information needed to apply for a TPD discharge and inform the borrower that collection will resume on the borrower's loan after 120 days if the borrower does not submit a TPD discharge application.
Comments: One commenter recommended that the Department grant TPD discharges retroactively as of the application date, so that both voluntary and involuntary payments made after that date would be refunded to the borrower.
Discussion: Sections 674.61(b)(3)(i)(A), 682.402(c)(3)(i)(A), and 685.213(b)(4)(i)(A) specify that if the Department determines that the borrower is totally and permanently disabled, the borrower is considered totally and permanently disabled “as of the date the physician certified the borrower's application.” It is more beneficial to the borrower to use the physician certification date than the application date, because the physician certification date is earlier than the application date.
Comments: One commenter recommended that the Department cease collection on a borrower's title IV loans upon receipt of a TPD discharge application. Another commenter recommended that the Department confirm that the indefinite suspension of collection activity—which occurs after the Secretary receives the borrower's TPD discharge application—is not dependent on whether the application is complete. A similar comment stated that it is not clear how incomplete applications received after the 120-day suspension of the collection period are treated. This commenter gave an example in which a borrower submits an incomplete application on day 119 of the suspension of collection activity, but does not file the complete application until day 130. The commenter asked if, under those circumstances, collection activity would resume on day 121, or if the incomplete application would be sufficient to keep the suspension of collection in place.
One commenter also noted that §§ 674.61(b)(2)(ix), 682.402(c)(2)(ix), and 685.213(b)(3) describe the contents of the notice that the Department sends to the borrower upon receipt of the disability discharge application. This commenter asked if this notice is sent for incomplete applications, or if it is only sent once the borrower has submitted a completed application.
In addition, some commenters recommended that Treasury Offset Program (TOP) offsets and administrative wage garnishment (AWG) collection activity on the loan cease during the suspension of collection activity.
Discussion: The final regulations in §§ 674.61(b)(2)(ii)(C), 682.402(c)(2)(ii)(C), and 685.213(b)(1) provide that the 120-day suspension of collection begins on the date the borrower notifies the Secretary of the borrower's intent to apply for a TPD discharge. Collection ceases based on a borrower's notification to the Secretary—which could be a verbal notification—and does not require submission of an application.
The Secretary notifies the lenders of the second, indefinite period of suspension of collection activity after the Secretary receives the TPD discharge application, as specified in §§ 674.61(b)(2)(vi), 682.402(c)(2)(vi), and 685.213(b)(3)(i). If the application is incomplete, the Secretary contacts the borrower, or the physician who certified the application, and asks for the missing information, as provided by §§ 674.61(b)(2)(vii), 682.402(c)(2)(vii), and 685.213(b)(3)(ii). The second, indefinite suspension of a collection activity is not dependent on the TPD discharge application containing all of the information needed for the Secretary to conduct the eligibility review, as more detailed medical information regarding the borrower's disability may be collected during the period of suspension of collection activity. However, the application must contain sufficient information for the Secretary to begin review of the application, such as the borrower's identifying information, physician's contact information, and the physician certification required under §§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2)(i). The application must be provided to the Secretary within 90 days of the date the physician certifies the application under §§ 674.61(b)(2)(v), 682.402(c)(2)(v), and 685.213(b)(3). If the application arrives without the physician certification or certification date, the Secretary cannot determine if the 90-day requirement has been met. An application missing this information would not meet the requirements of §§ 674.61(b)(2)(vi), 682.402(c)(2)(vi), or 685.213(b)(3).
Borrowers who file a TPD discharge application will receive a different notice depending on whether collection activity is suspended. Thus, if the application does not meet the basic requirement of including a physician certification and certification date (unless the borrower submits an application that includes acceptable VA or SSA documentation as proof of the borrower's TPD), the borrower would receive a notice informing the borrower that suspension of collection will not continue. The borrower would receive a notice requesting the missing information, and notifying the borrower that collection activity will resume on the loan if the information is not provided before the end of the 120-day period of suspension.
We discussed the effect of the suspension of collection activity on payments collected through AWG and TOP in the NPRM. The Department disagrees with the recommendation that AWG and TOP payments be included in the suspension of collection activity. Borrowers who apply for a TPD discharge must, by definition, be unable to engage in substantial gainful activity. Thus, these borrowers would not be earning wages and would not generally be subject to AWG. With regard to TOP, given the administrative effort and timing issues associated with suspending TOP, we do not believe it is in the best interests of the taxpayers to suspend TOP based solely on the filing of the TPD discharge application. Notifying the Department of the intent to file a TPD discharge request does not necessarily demonstrate that a borrower is TPD. Suspending TOP based on such a notification might encourage frivolous TPD discharge requests submitted solely to suspend TOP. If a borrower's loan account has been certified for TOP, the Secretary or the guaranty agency is not required to stop TOP offsets while the borrower is preparing to submit the TPD discharge application or during the Secretary's review of the TPD discharge request. The Secretary or the guaranty agency may, however, stop or reduce TOP offsets during this period if it believes such action is warranted under the borrower's circumstances.
Comments: One commenter expressed concern that the notice of suspension of collection activity from the Department might not reach the appropriate office in the case of a multi-campus system with a central collection office. If the notice of suspension is sent to the specific campus, rather than to the central collection office for all of the campuses, the collection office would not know to suspend collection for a borrower who obtained a Perkins Loan for attendance at the school. The commenter noted that the National Student Loan Data System (NSLDS) listing for such a borrower would show the specific campus as the loan holder, not the central collection office.
Discussion: The Department is aware of the issues that may arise with multi-campus systems with a centralized collection office. Under the new TPD discharge process, if a borrower notifies us of the intent to apply for a TPD discharge, we will contact the borrower's title IV loan holders listed on the NSLDS. Unless the loan has been assigned to the Department, the holder of a Perkins Loan is always the school that awarded the loan to the borrower.
As we implement the new streamlined TPD discharge process, the Department will work with multi-campus systems that have centralized collection offices to find strategies to address this problem.
Comments: One commenter stated that during the negotiated rulemaking sessions non-Federal negotiators proposed modifying the administrative forbearance regulations for the FFEL program to allow guaranty agencies to retroactively grant administrative forbearances to borrowers. This would eliminate delinquencies occurring before the borrower notified the Department of the intent to apply for a TPD discharge. When the Department decided to split the proposed regulations into two separate regulatory packages, the administrative forbearance provision was not included in the NPRM to these final regulations. The commenter noted that including the administrative forbearance provision in a subsequent rulemaking will create a period of time where guaranty agencies will not be able to eliminate a prior delinquency with an administrative forbearance. Delinquent borrowers whose 120-day suspension period expires, or whose TPD discharge application is denied before the effective date of the second set of regulations resulting from these negotiations, will resume repayment after the suspension periods at the same delinquency status. This commenter recommended that the Department provide clear guidance that would allow a borrower to exit a TPD suspension period in a nondelinquent status, regardless of the status of the loan at the time the suspension of collection activity began, until the changes to the administrative forbearance regulations are published and are in effect.
Discussion: The NPRM that would contain this revision to the administrative forbearance provisions has not yet been published. Consequently, there has been no opportunity for public comment on an NPRM that includes this revision. The Department believes that it would be inappropriate to establish such an administrative forbearance through subregulatory guidance prior to publication of the proposed regulatory change in an NPRM, receipt of public comment, and publication of a final regulation. In addition, we have no evidence that this has created a significant problem for borrowers seeking TPD discharges under our current regulations.
Comments: One commenter asked if the references in proposed §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) to the “certification provided by the borrower” meant the physician's certification on the TPD application form. If so, the commenter asked us to change the reference to the “physician's certification.” The commenter also asked us to make the same change in the corresponding regulations for the veteran's disability discharge process.
Discussion: The references to a “certification provided by the borrower” in proposed §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) do refer to the physician certification. We agree with the commenter and have revised these provisions in the final regulations to make this explicit. However, the corresponding language in §§ 674.61(c), 682.402(c)(9), and 685.213(c) covering the veteran's disability discharge process refers to documentation from the Department of Veteran's Affairs not to a physician's certification, and does not need to be revised.
Changes: We have replaced “certification provided by the borrower” with “physician's certification” in §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv).
Comments: The proposed regulations in §§ 674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) would allow a borrower to request a re-evaluation of the borrower's TPD discharge application within 12 months of receiving the Secretary's decision denying the application. The proposed rules specified that the request for a re-evaluation must include information that was not available at the time of the borrower's prior application. One commenter noted, however, that the information might have been available at the time of the prior application but might not have been included in the application for any number of reasons. The commenter recommended replacing the words “not available” with “not included” for these regulatory provisions.
In addition, commenters asked the Department to confirm that a FFEL or Perkins loan holder will not provide a new period of suspension of collection activity during the re-evaluation period, unless advised otherwise by the Department.
Discussion: We agree with the recommendation to revise the language, although, since detailed information is not included in the TPD discharge application itself, we have revised the new language.
In response to the second comment noted above, we confirm that the borrower does not receive a second period of suspension when a TPD discharge is being re-evaluated.
Changes: We have replaced “not available” with “not provided to the Secretary in connection with the prior application” in §§ 674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) of the final regulations.
Comments: The proposed regulations in §§ 674.61(b)(4), 682.402(c)(4), and 685.213(b)(5) stipulated that if a borrower receives a title IV loan or TEACH grant before the date the physician certified the TPD discharge application, and disbursement of the loan or grant is made after the date of the physician's certification and before the date the loan is discharged, the processing of the discharge request is suspended until the borrower returns the disbursement. One commenter noted that this regulatory requirement could be easily misunderstood. The commenter asked the Department to clarify what it means by a borrower “receiving” a loan or grant prior to the loan or grant being disbursed. The commenter asked if this requirement refers to a loan that is partially disbursed before the physician's certification, and a subsequent disbursement is made after the date of the certification. Alternatively, the commenter asked if by “received” the Department means originated or awarded.
Discussion: The commenter's second interpretation is correct. In the context of these regulations, we are referring to a situation in which the loan or grant has been originated or awarded prior to the physician certification date. The provision is intended to apply to situations in which a student has established eligibility for a title IV loan or TEACH grant, the loan or grant is approved, and the process for disbursing the funds has started. The Department believes that a student in this situation should not be denied the TPD discharge. However, the student must return the disbursed funds before the TPD discharge may be granted.
Comments: The proposed regulations in §§ 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) provided that if a borrower receives a disbursement of a new title IV loan or receives a TEACH grant made on or after the date the physician certified the TPD discharge application, the Department denies the TPD discharge application and collection resumes on the borrower's loans. One commenter asked if this refers to situations in which a title IV loan or TEACH grant was originated or awarded on or after the date of the physician's certification and is disbursed before the date the discharge is granted.
Discussion: The commenter's understanding of the provision is correct. This provision is intended to address borrowers who actively request or apply for a new title IV loan or TEACH grant after the date of the physician's certification. In applying for a loan or requesting a TEACH grant the student commits to repay the loan or perform the required teaching service. This commitment contradicts the borrower's claim in the TPD discharge application that the borrower is too disabled to work. Borrowers seeking a discharge on existing loans while taking out new loans should not receive the benefit of a TPD discharge.
Comments: The regulations in §§ 674.61(b)(6)(i)(A), 682.402(c)(6)(i)(A), and 685.213(b)(7)(i)(A) provide that a loan that has been discharged based on the borrower's TPD is reinstated if, within three years after the discharge date, the borrower has annual earnings from employment that exceed 100 percent of the poverty guideline for a family of two. One commenter recommended that, in some cases, the Department should examine a borrower's income for the three years prior to the TPD discharge, rather than the three years after the discharge.
Another commenter recommended that the Department allow part-time work for disability discharge recipients. A third commenter echoed this comment, and added that full-time work on a short-term basis should also be allowed.
In addition, the proposed regulations in §§ 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) provided that, for a three-year period after the borrower receives a TPD discharge, the borrower must: notify the Department of any changes in address or telephone number; notify the Department if the borrower's annual earnings exceed the poverty level; and provide the Department, upon request, with documentation of the borrower's earnings. One commenter asked what the consequences are for a borrower who does not provide the requested documentation.
Discussion: Under both the current and proposed TPD discharge regulations and these final regulations, the monitoring of the borrower's income only occurs after the discharge has been granted. The post-discharge monitoring of a borrower's earned income is required by section 437 of the HEA.
The proposed and final regulations in §§ 674.61(b)(6), 682.402(c)(6), and 685.213(b)(7) treat earnings during the three-year post-discharge monitoring period as an indicator that a borrower is no longer TPD. A borrower's loans are reinstated if the borrower's annual earnings are greater than 100 percent of the poverty line for a family of two, as published annually by the Department of Health and Human Services. This standard allows the borrower to attempt part-time or short-term full-time work without raising a question about the borrower's disability, if the earnings from such work for the year do not exceed the threshold. Earnings in excess of these amounts indicate that the borrower is sufficiently able to engage in substantial gainful activity, and does not meet the definition of “totally and permanently disabled.”
A borrower who does not provide the required documentation (particularly income documentation) will have his or her loans reinstated and will be required to resume payment on the loan.
Comments: Several commenters requested that the Department state in this preamble to the final regulations that the guarantor of the loans for which the borrower has submitted a TPD discharge application may request and receive from the Department, on a case-by-case basis, any information that may be needed to assist the borrower during the TPD discharge process. These commenters noted that the guaranty agency may be a trusted contact for a disabled borrower, and may have worked with the borrower in the past with respect to default prevention activities or ombudsman interactions.
Discussion: These regulations are intended to centralize the TPD discharge process and to enable borrowers to receive TPD discharges more easily. One way that the regulations accomplish this is by minimizing the role of guaranty agencies and loan holders in the TPD discharge process. We do not envision guaranty agencies or lenders having a significant role in the processing of TPD discharge requests under the new process. Because the role of guaranty agencies will be limited, we do not believe that it is necessary for guaranty agencies to receive information from the Department regarding specific TPD discharge requests beyond the documentation already specified in the regulations.
We note that an individual borrower who considers a guaranty agency to be a trusted contact may choose to provide a copy of the TPD discharge application or any communications that the borrower receives from the Department to the guaranty agency.
Comments: Some commenters noted that the regulatory language agreed to during the negotiated rulemaking process would modify the current requirements for a guaranty agency to file a disability claim. Currently, § 682.402(g)(1)(iv) requires a guaranty agency to include a copy of the certified TPD discharge application with the disability claim. Under the new TPD discharge process in this final rule, the guaranty agency will not receive a copy of the TPD discharge application. Under final § 682.402(g)(1)(iv), the guaranty agency will only receive the notice from the Department informing the lender that the borrower is eligible for a TPD discharge. The commenters noted that the regulatory language approved during the negotiated rulemaking process would replace the reference to the TPD discharge form. The commenters stated that proposed § 682.402(g)(1)(iv) incorrectly retained the requirement that the TPD discharge application be submitted with the disability claim. The commenters requested that the final regulations be modified to conform to the agreement reached during negotiations.
These commenters also requested that the final regulations modify Appendix D of 34 CFR Part 682 to remove language stating that the Department does not reimburse a guaranty agency for a disability claim if the lender has violated due diligence or timely filing requirements. The commenters viewed this as a conforming change to the proposed regulations.
Some commenters recommended that the Department revise proposed § 682.402(c)(8)(i)(E) that established assignment deadlines for loans held by the guaranty agency at the time the borrower applies for a disability discharge. The NPRM proposed to require the guaranty agency to assign the loan to the Secretary within 45 days of the date that the guaranty agency receives notice that the borrower qualifies for a TPD discharge. The commenters recommended that the loan be assigned within 45 days of the date the Secretary pays the remaining disability claim amount to the guaranty agency.
Discussion: The language approved by the negotiating committee and referenced by the commenters was included in the NPRM. However, in finalizing the NPRM, we did not replace § 682.402(g)(1)(iv) in its entirety. Instead, we amended that section through an instruction. The revision is reflected as instruction 6.B at 77 FR 42133. The instruction that was included in the NPRM, and is included in these final regulations, does not need to be modified.
During the negotiated rulemaking process, non-Federal negotiators did not suggest that the Department waive the due diligence requirements for disability discharge claims under the new process for TPD discharges. This change was not discussed during the negotiated rulemaking process or agreed to by the Department. Further, the NPRM did not propose changing the current regulatory language in § 682.402(k)(2) stating that the Department only pays a disability claim to a guaranty agency “after the agency has paid a default claim to the lender thereon and received payment under its reinsurance agreement” or the current requirement in § 682.402(k)(2)(v) that the Department only reimburses a guaranty agency on a disability claim if “the guaranty agency has exercised due diligence in the collection of the loan.” Nor did the NPRM propose changes to current § 682.406(a), which specifies that a guaranty agency only receives a reinsurance payment from the Department on a loan “if the lender exercised due diligence in making, disbursing, and servicing the loan as prescribed by the rules of the agency.” The changes to Appendix D that the commenters request as a conforming change with the NPRM would actually be inconsistent with the proposed and final regulations.
In these final regulations, § 682.402(c)(3)(iii) states that, after the Department determines that a borrower is totally and permanently disabled, the Department “directs each lender to submit a disability claim to the guaranty agency * * * .” Section 682.402(c)(8)(i)(B) requires a guaranty agency to pay the claim “if the claim satisfies the requirements of § 682.402(g)(1).” To clarify that the disability claim must meet all of the due diligence requirements, we have modified this language to specify that the claim must meet the requirements of § 682.406 as well.
The purpose of these regulations is to streamline and speed up the process for granting TPD discharges as much as possible. Therefore, we decline the recommendation from the guaranty agencies that they not be required to assign a TPD claim to the Department until the remaining reinsurance claim amount has been paid by the Department. The borrower's discharge should not be delayed while the Department and the guaranty agencies complete their financial transactions. We note that, under the final regulations, the guaranty agency would have 45 days to submit a claim to the Department for reimbursement before it is required to assign the loan to the Department.
Changes: We have revised §§ 682.402(c)(8)(i)(B) and 682.402(c)(9)(xii)(B) to state that a guaranty agency must pay a disability claim if the claim satisfies the requirements of §§ 682.402(g)(1) and 682.406.
Comments: Some commenters urged the Department to implement the proposed reforms to the TPD discharge process earlier than the July 1, 2013, effective date of the regulations, to the extent possible.
Conversely, another commenter recommended that the revised TPD discharge application not be made available to borrowers before the July 1, 2013, effective date to minimize borrower confusion and ensure an orderly transition to the new discharge process. In addition, the latter commenter recommended that the Department be prepared to accept both versions of the TPD discharge application—the current version and the revised version—as of the July 1, 2013, effective date, so that borrowers who have completed the current version of the TPD discharge application may also benefit from the streamlined TPD discharge process.
One commenter recommended that the Department implement the third-party release form that borrowers would use to identify borrower representatives as soon as possible.
Discussion: Due to the complexity of the changes made by these final regulations, the Department has determined that implementation of the new TPD discharge process before the July 1, 2013, effective date is not feasible. The new process will require extensive systems and process changes by the Department, guaranty agencies, and loan holders and servicers before the new TPD discharge process can be implemented.
The Department does not address implementation of forms in final regulations. Forms developed or revised as a result of these final regulations will be made available for public comment through the Paperwork Reduction Act forms clearance process. After the forms have been approved by OMB, the forms will be made available to program participants through Dear Colleague Letters or Electronic Announcements. Deadline dates for forms implementation, and any transition period between the current TPD discharge application and the new TPD discharge application, will be announced in the Dear Colleague Letter or Electronic Announcement implementing the new and revised TPD discharge forms.
Comments: Several commenters stated that navigating the TPD discharge process is stressful and urged the Department to streamline the process by providing a one-stop Web site where borrowers can get information about the process.
One commenter recommended that the Department forgive loans of individuals caring for permanently disabled veterans and to accept the VA's determination of permanent disability.
One commenter asked the Department to allow borrowers who are experiencing dire economic hardship because of health and disability issues to modify their loan terms or restructure their loans to ease the burden of repayment.
Discussion: The Department maintains a TPD discharge Web site at the following link: http://www.disabilitydischarge.com/Pages/General.aspx?id=80
The Web site provides information on the TPD discharge process for borrowers, loan holders, physicians, and veterans. The Web site allows individuals to set up user accounts and can be used to help borrowers, loan holders, and physicians navigate the TPD discharge process. The Web site will be updated with new information, revised forms, and other information that will be helpful to borrowers as the new streamlined process is implemented.
The recommendations that the Department forgive loans for individuals caring for disabled veterans and allow borrowers who are experiencing financial hardship due to health or disability issues to modify or restructure their title IV loans are outside the Department's statutory authority. However, we note that there are other avenues for borrowers who are experiencing dire economic circumstances due to health issues or disabilities. Economic hardship deferments, unemployment deferments, and forbearances are generally available to borrowers in the Perkins, FFEL, and Direct Loan programs. In addition, Direct Loan and FFEL borrowers can use the income-based or income-contingent repayment plans discussed elsewhere in this preamble.
Comments: One commenter suggested that we adopt more consumer-friendly names for the two income-contingent repayment plans designated as “ICR-A” and “ICR-B” in proposed § 685.209. In light of the fact that the President's “Pay As You Earn” repayment initiative has been widely publicized, the commenter suggested that it may be helpful to clarify for borrowers that the ICR-A repayment plan is in fact the Pay As You Earn initiative.
Another commenter strongly urged the Department to consider using a more descriptive and less confusing name than ICR-A and suggested “Pay As You Earn” as an appropriate alternative. This commenter believed that borrowers will have difficulty understanding the differences between the similarly named income-driven repayment plans and noted that the proposed ICR-A plan is much more like the current IBR plan than the proposed ICR-B plan.
The majority of commenters expressed strong support for the Secretary's proposed regulations, especially the proposed implementation of the President's “Pay As You Earn” repayment initiative as a new type of income-contingent repayment plan, in light of rising student loan debt and the difficulty some borrowers experience repaying their student loans. Many of the commenters noted that the proposed regulations would make it easier and more affordable for Federal student loan borrowers to repay their loans. A few commenters stated that all of the income-driven repayment plans should be discontinued because they believed that these plans are a poor use of taxpayer funds, encourage students to enroll in substandard educational programs, encourage students to borrow more than necessary, and absolve borrowers of their responsibility to repay their student loans in full.
Discussion: During the negotiated rulemaking sessions we invited suggestions for naming the two income-contingent repayment plans described in proposed § 685.209, but did not receive any recommendations at that time. We explained in the NPRM that the proposed regulations would create a new income-contingent repayment plan based on the President's Pay As You Earn initiative that would be called the ICR-A plan, and that the existing income-contingent repayment plan would be retained, with certain changes, as the ICR-B plan. We agree with the commenters' recommendation that we adopt more descriptive and consumer-friendly names for these repayment plans and believe the most appropriate approach would be to use a distinctive name for the new plan that is based on the Pay As You Earn initiative and leave the name of the current income-contingent repayment plan unchanged.
The Department appreciates the numerous comments we received in support of the proposed regulations. With regard to the comments recommending that the income-driven repayment plans be discontinued, we note that the IBR and ICR plans were established by Congress to assist borrowers in repaying their student loan debt, and the Pay As You Earn repayment plan is based on a presidential initiative to help borrowers reduce their monthly student loan payments. We believe these repayment options provide a significant benefit to borrowers and taxpayers by helping borrowers better manage their student loan debt and avoid default.
Changes: We have revised § 685.209 by redesignating the plan called “ICR-A” in the NPRM as the “Pay As You Earn repayment plan,” and by redesignating the plan called “ICR-B” in the NPRM as the “income-contingent repayment (ICR) plan.” References to the “income-contingent repayment plans” in other sections of the Direct Loan program regulations may mean either the Pay As You Earn repayment plan or the ICR plan, since both plans are presented in § 685.209 as income-contingent repayment plans. Where it is necessary to distinguish between the two plans in other sections of the Direct Loan program regulations, the regulations refer to the income-contingent repayment plan described in § 685.209(a) (the Pay As You Earn repayment plan) or the income-contingent repayment plan described in § 685.209(b) (the ICR plan).
Comments: Many individual commenters suggested various changes to the proposed regulations that would require amendments to the HEA. These recommended changes included—
(1) Allowing private education loans to be repaid under the IBR and ICR plans;
(2) Allowing private education loans to be consolidated together with Federal student loans;
(3) Allowing parent PLUS loan borrowers to repay their loans under the IBR and ICR plans;
(4) Making changes to the IBR plan that will be available to new borrowers on or after July 1, 2014, available to all borrowers;
(5) Not taxing loan amounts forgiven under the IBR and ICR plans;
(6) Extending the length of time that borrowers with disabilities are eligible for the interest subsidy provided in the IBR and proposed Pay As You Earn repayment plans;
(7) Reducing the maximum IBR payment amount to five percent of adjusted gross income (AGI);
(8) Counting payments made prior to entering IBR toward the 25-year IBR loan forgiveness period;
(9) Allowing borrowers to separate joint consolidation loans in cases of divorce, separation, spousal abandonment, or remarriage;
(10) Allowing defaulted borrowers to repay under IBR;
(11) Providing restructured loans for disabled borrowers and for borrowers that meet other criteria;
(12) Reducing the interest rates charged on Federal student loans, or charging no interest; and
(13) Basing the determination of PFH for IBR eligibility purposes on factors other than eligible loan debt, AGI, and family size; some of the suggested factors that commenters recommended for consideration in determining whether a borrower has a PFH and other suggested changes were—
Each borrower's unique individual expenses;
Regional cost-of-living differences;
Use of net pay or net taxable income, rather than AGI;
Modification of the poverty guidelines currently in use;
Adjustment of PFH determinations based on whether the borrower is listed as the “head of household” on his or her income tax return;
Inclusion of private student loan debt; and
Lower-income qualifications for PFH status.
Discussion: We appreciate the many comments we received recommending changes that the commenters believe would benefit borrowers and improve the administration of the title IV loan programs. However, the suggested changes would require Congress to make changes to the HEA or other laws. The following paragraphs identify the statutory provisions that limit the Department's ability to adopt the recommended changes in items (1) through (13).
With respect to items (1) and (2), the HEA does not govern the terms and conditions of private education loans. Congress could not legally require that the IBR or ICR plans be made available for private education loans or provide for the consolidation of such loans into a Direct Consolidation Loan because it cannot change the terms of private contracts.
With respect to item (3), section 493C(b)(1) of the HEA limits eligibility for IBR to “a borrower of any loan made, insured, or guaranteed under part B or D (other than an excepted PLUS loan or excepted consolidation loan).” Sections 493C(a)(1) and (a)(2) of the HEA define “excepted PLUS loan” and “excepted consolidation loan,” respectively, as a PLUS loan made to a parent on behalf of a dependent student, or a consolidation loan that repays a PLUS loan made to a parent on behalf of a dependent student. The Pay As You Earn repayment plan is based on the IBR plan and includes the same restrictions on the types of loans that may be repaid under the plan. Section 455(d)(1)(D) of the HEA provides that the income-contingent repayment plan is not available to borrowers of Direct PLUS Loans made on behalf of dependent students. Therefore, the HEA does not permit repayment of PLUS loans made to parent borrowers through the IBR or ICR plans.
With respect to item (4), section 493C(e) of the HEA provides that the changes to the IBR plan that reduce the maximum repayment timeframe from 25 years to 20 years and the maximum income-based payment amount from 15 percent of discretionary income to 10 percent of discretionary income are only available to “new borrowers on and after July 1, 2014.”
With respect to item (5), 26 U.S.C. 108(f) provides that an individual's gross income for tax purposes does not include loan amounts forgiven under certain types of loan discharge programs if the loan amount was discharged on the basis that the borrower “worked for a certain period of time in certain professions.” Based on the Internal Revenue Service's (IRS) interpretation of this statutory provision, loan amounts forgiven under the IBR, ICR, and Pay As You Earn repayment plans must be treated as taxable income. The tax implications of loan forgiveness are addressed in the Internal Revenue Code and the regulations of the IRS, and the Department has no authority to address this issue.
With respect to item (6), section 493C(b)(3) of the HEA provides that if the calculated income-based payment for a borrower repaying under the IBR plan does not cover all of the monthly interest that accrues, the Secretary pays the remaining interest on the borrower's subsidized loans for a period not to exceed three years from the date the borrower entered repayment under the IBR plan, excluding periods of economic hardship deferment. The Department does not have the authority under the HEA to extend this maximum three-year interest subsidy period.
With respect to item (7), section 493C(a)(3)(B) of the HEA provides that a PFH exists when the annual amount due on a borrower's total outstanding eligible loan debt, as calculated under a standard repayment plan with a 10-year repayment period, exceeds 15 percent of the difference between the borrower's, and the borrower's spouse's (if applicable), AGI and 150 percent of the poverty line applicable to the borrower's family size. The Department does not have the authority to change this statutory provision.
With respect to item (8), section 493C(b)(7)(B) of the HEA specifies the types of qualifying payments that are counted toward the maximum 25-year IBR repayment period. Payments made prior to entering the IBR repayment plan are not included. The Secretary does not have the authority under the law to count other types of payments toward the IBR repayment period.
With respect to item (9), section 428C(a)(3)(C) of the HEA provided that married borrowers are jointly and severally liable for the repayment of a joint consolidation loan “without regard to any subsequent change that may occur in the couple's marital status.” As part of the Higher Education Reconciliation Act of 2005 (Pub. L. 109-171), Congress prohibited the origination of any new joint consolidation loans, and as a consequence of this action, section 428C(a)(3)(C) was removed from the HEA. However, for those joint consolidation loans that are still in repayment, this statutory provision continues to apply. Without a statutory change, the Department cannot permit the separation of a joint consolidation loan for the reasons suggested by the commenter.
With respect to item (10), section 493C(b)(1) of the HEA permits a borrower to elect IBR if the borrower has a PFH, “whether or not the borrower's loan has been submitted to a guaranty agency for default aversion or had been in default.” The HEOA amended the prior version of section 493C(b)(1) by replacing the term “or is already in default” with “or had been in default.” This change in the IBR eligibility criteria served to prohibit defaulted borrowers from participating in IBR, and a statutory change would be required to once again allow defaulted borrowers to select the IBR plan.
With respect to item (11), no provision of the HEA permits the Secretary to restructure loans for any borrowers.
With respect to recommendation (12), the interest rates charged on loans made under the FFEL and Direct Loan programs are established by statute in sections 427A and 455(b) of the HEA, respectively. The Department does not have the authority to change these statutory provisions.
With respect to recommendation (13), section 493C(a)(3)(B) of the HEA specifies the standard for determining whether a borrower has a PFH, as discussed earlier in connection with item (7). Absent a statutory change, the Department is unable to make such changes.
Comments: Many commenters requested that the Department make the initial application and annual renewal process for the IBR, ICR, and Pay As You Earn repayment plans more efficient through the use of electronic, automated, or Internet-based methods. Some commenters requested that the Department develop an interface with the IRS to facilitate a borrower accessing and providing required income information electronically to the borrower's loan servicer.
Discussion: The Department has recently made an electronic application for the IBR plan available to borrowers. Specifically, the Department's StudentLoans.gov Web site has been modified to allow borrowers to login to that site with their Federal Student Aid Personal Identification Number (PIN), apply for the IBR plan, populate their application with the AGI on file with the IRS, and submit it electronically to their Federal loan servicer. Borrowers may also use this process to annually provide updated AGI information, as required by the IBR regulations.
Initially, this enhanced functionality will only be available to borrowers with Direct Loans and FFEL loans that are held by the Department, or with commercially-held FFEL loans that are serviced by an entity that has an association with certain members of the Department's federal loan servicer team, who wish to apply to repay under the IBR plan. The Department plans, however, to add a comparable process for the ICR and Pay As You Earn repayment plans in the near future. In addition, the Department also intends to eventually establish the electronic exchange relationships necessary for all servicers of commercially-held FFEL loans to participate in the electronic application process.
The Department has also taken steps to modify and combine the various forms that borrowers currently use to request the IBR and ICR plans into a single standardized form borrowers can use to apply for the IBR, ICR, and Pay As You Earn repayment plans and provide alternative documentation of income, if appropriate, regardless of the type of loan or loan holder. The Department has greatly simplified the form to make it easier to understand and complete. The Department anticipates that the form will become available for borrowers to use by the end of 2012.
Changes: None. Comments: Many commenters suggested that the Department should expand eligibility for the Pay As You Earn repayment plan (the proposed ICR-A plan) to include borrowers other than new borrowers as of October 1, 2007 who receive Direct Loan disbursements on or after October 1, 2011. Many of these commenters felt that it was unfair to exclude certain borrowers from the Pay As You Earn repayment plan. The commenters argued that all Federal student loan borrowers should have access to all repayment plans.
Comments: One commenter noted that under proposed § 682.215(e)(9), FFEL program loan holders may grant forbearance under certain circumstances to a borrower repaying under the IBR plan whose required income documentation is received more than 10 days after the specified annual deadline, and whose loan payments are overdue or would be due at the time the borrower's new income-based monthly payment amount is determined. The commenter further noted that in the preamble to the NPRM the Secretary indicated that proposed § 685.221(e)(9)(i) would establish the same requirement in the Direct Loan program. However, the commenter pointed out that proposed § 685.221(e)(9)(i) (and also proposed §§ 685.209(b)(3)(vi)(F)(1) and 685.209(a)(5)(ix)(A) for the ICR and Pay As You Earn repayment plans, respectively) states that the Secretary “grants forbearance” whereas the corresponding FFEL program regulation states that the loan holder “may grant forbearance.” The commenter believed that the different language in the proposed regulations would require the Secretary to grant forbearance in the Direct Loan program, but make the granting of the forbearance optional on the part of the loan holder in the FFEL program. The commenter recommended that the Department revise § 682.215(e)(9) to require FFEL loan holders to grant the forbearance under the specified conditions.
The commenter also recommended that the Department expand the conditions under which the forbearance described in proposed §§ 682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) is granted. Under the proposed regulations, this forbearance is granted only if the borrower's new calculated monthly payment amount is $0.00 or is less than the borrower's previously calculated monthly payment amount. The commenter recommended that the Department revise the regulations to include borrowers whose new calculated monthly payment amount is equal to the borrower's previously calculated monthly payment amount. The commenter believed that the forbearance should be available to a borrower whose new calculated monthly payment is equal to the borrower's previous monthly payment amount. The commenter suggested that a borrower whose financial situation has not improved would likely have trouble paying the “permanent standard” payment amount (which is not based on the borrower's income) that applies when a borrower's income documentation is not received within 10 days of the specified annual deadline.
Finally, the commenter recommended that the regulations be revised to provide that the forbearance described in proposed §§ 682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) could be granted at the discretion of the Secretary or loan holder under conditions other than those specified in the proposed regulations, if a borrower is experiencing exceptional circumstances such as personal or family health emergencies that prevented the borrower from submitting the required income documentation on time.
Discussion: With regard to the recommendation that § 682.215(e)(9) be revised to require FFEL loan holders to grant forbearance (instead of specifying that the loan holder “may grant forbearance”), the words “may grant” indicate that FFEL program loan holders are authorized to grant this forbearance. The Department does not have the authority to require loan holders to grant forbearance under conditions not provided for in section 428(c)(3)(A) of the HEA. However, the Department expects that loan holders will grant forbearance to FFEL program borrowers under the conditions specified in § 682.215(e)(9).
The Department declines to modify the forbearance regulations to provide a forbearance to a borrower who submits the required income information more than 10 days after the specified annual deadline if the borrower's new calculated monthly payment amount is equal to the borrower's previously calculated monthly payment amount. As discussed in the preamble to the NPRM, the Department believes it is appropriate to allow a forbearance under limited circumstances, namely if a borrower's new calculated monthly payment amount is $0.00 or is less than the borrower's prior calculated monthly payment amount. A new calculated payment that is $0.00 or less than the prior calculated payment amount may indicate a worsening of the borrower's financial circumstances that may have contributed to the borrower becoming delinquent or failing to provide the required documentation in a timely manner. However, it is not reasonable to attribute delinquent payments or failure to meet the documentation deadline to a borrower's worsening financial situation if the borrower's new calculated payment amount is the same as the previously calculated payment amount, as this would suggest that there has been no significant change in the borrower's financial circumstances.
Similarly, the Department declines to make the recommended change that would allow forbearance to be granted under conditions other than those specified in §§ 682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) if there are exceptional circumstances. This approach would be inconsistent with the Department's intent to allow forbearance for borrowers who fail to submit income documentation in a timely manner and who are delinquent in making loan payments only under limited circumstances, and could result in inconsistent treatment of borrowers. Finally, we note that a borrower who is having difficulty making payments but who does not qualify for forbearance under §§ 682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) would have the option of requesting forbearance under §§ 682.211(a)(1) or 685.205(a)(1).
Comments: One commenter recommended that the Department modify the proposed regulations in §§ 682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) governing the written notification that is sent to a borrower after the Secretary or the loan holder has determined that the borrower has a PFH to qualify for the IBR or Pay As You Earn repayment plan. Under the proposed regulations, this written notification would inform the borrower of the requirement for the borrower to provide certain information annually and would explain that the borrower will be notified in advance of the date by which the Secretary or loan holder must receive this information. The notification does not include the actual deadline date; the specific deadline by which the information must be received is provided to the borrower in a separate notification described in §§ 682.215(e)(3)(i), 685.209(a)(5)(iii), and 685.221(e)(3)(i) that is sent closer to the deadline date. The commenter asked the Department to modify proposed §§ 682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) to require that the first written notification include the specific annual deadline by which the required information must be received, instead of simply explaining that the borrower will be notified in advance of the deadline date. The commenter believed that including the actual deadline date in the earlier notification would help borrowers plan ahead for submitting the required information in a timely manner.
Discussion: As discussed in the preamble to the NPRM, the Department initially proposed during the negotiated rulemaking sessions that the annual notification reminding borrowers repaying under the IBR and Pay As You Earn repayment plans of the upcoming deadline date for submitting income documentation would be sent no later than 60 days before the annual deadline date established by the Secretary or the loan holder. However, some non-Federal negotiators were concerned that this approach would allow for the notification to be sent too far in advance of the annual deadline date for it to be effective. In response to that concern, the Department proposed the regulatory language in the NPRM that specifies that the notification of the deadline date for submitting income documentation may be sent no later than 60 days and no earlier than 90 days before the annual deadline date.
The Department believes that including the annual deadline date in the initial notification required under §§ 682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2), as suggested by the commenter, would not be effective or helpful to most borrowers, as this notification is sent many months in advance of the annual deadline date. The Department believes the requirement for the borrower to be notified of the annual deadline date no later than 60 days and no earlier than 90 days before the annual deadline date provides sufficient advance notice for borrowers to plan for submitting the required information on time and will be more effective than notifying borrowers of the deadline date many months in advance. In addition, the Department notes that the notification required under §§ 682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) also includes information about the borrower's option to request that the loan holder recalculate the borrower's monthly payment amount if the borrower's financial circumstances have changed and the income amount that was used to calculate the borrower's current monthly payment no longer reflects the borrower's current income. If a borrower makes such a request and the borrower's monthly payment is recalculated based on updated information provided by the borrower, there would be an associated change in the annual deadline date for submitting income information. This could be confusing for the borrower if the borrower had previously been notified of a different annual deadline date.
Comments: One commenter asked the Department to modify the proposed regulations governing the IBR, ICR, and Pay As You Earn repayment plans by replacing all references to the requirement for income information to be received “within 10 days” of the annual deadline date with alternative language stating that the information must be received “before or within 10 days” of the annual deadline. The commenter believed that income information received from a borrower more than 10 days before the specified deadline date should be considered to have been received on time.
Discussion: The regulatory language specifying that income information must be received by the Secretary or loan holder within 10 days of the specified annual deadline date provides a “grace period” that allows a borrower who misses the annual deadline date to be considered to have submitted the required information on time if the information is received by the Secretary or the loan holder within 10 days of the specified deadline date. This language does not mean that income information received before the annual deadline date is not considered on time. The Department encourages borrowers to submit the required income information prior to the annual deadline.
Comments: One commenter recommended that the Department revise proposed § 682.215(e)(8)(i), which requires a FFEL program loan holder to “promptly” determine a borrower's new monthly IBR payment amount if the required income information is received within 10 days of the specified annual deadline date, by defining the term “promptly” in order to establish specific guidelines on how quickly a loan holder must calculate a borrower's new monthly payment amount. The commenter noted that the corresponding Direct Loan regulations do not specify that the Secretary “promptly” determines the borrower's new monthly payment amount, though the Department noted in the preamble to the NPRM that the Secretary would apply the same requirements in the Direct Loan program. The commenter recommended that the Direct Loan regulations be revised to clarify that the Secretary will “promptly” determine a borrower's new IBR, Pay As You Earn, or ICR payment amount if the required income documentation is received within 10 days of the specified annual deadline date.
Discussion: The Department does not believe that it is necessary to define “promptly” in § 682.215(e)(8)(i). The regulations provide that if a borrower's income information is received within 10 days of the specified annual deadline date, but the loan holder does not determine the borrower's new monthly payment amount by the end of the borrower's current annual payment period, the loan holder must maintain the borrower's current monthly payment amount until the new payment amount is determined, and the borrower is not penalized in any way as a result of the loan holder's failure to make a more timely determination of the new payment amount. However, the Department agrees with the recommendation to revise the applicable Direct Loan program regulations to clarify that if a borrower's income information is received within 10 days of the specified annual deadline date, the Secretary will “promptly” determine the borrower's new monthly payment amount.
Changes: We have amended proposed §§ 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(e)(8) to provide that if the Secretary receives the required income information from the borrower within 10 days of the specified annual deadline date, the Secretary “promptly determines the borrower's new scheduled monthly payment amount and maintains the borrower's current scheduled monthly payment amount until the new scheduled monthly payment amount is determined.”
Comments: One commenter recommended that the Department add language to § 685.209(a)(5)(iii)(B) clarifying that, for borrowers repaying under the Pay As You Earn repayment plan whose income information is received more than 10 days after the specified annual deadline date, unpaid interest is not capitalized until the end of the borrower's current annual payment period. The NPRM stated that interest would be capitalized, but did not specify when the capitalization would occur. The suggested change would make the regulatory language for the Pay As You Earn repayment plan consistent with the corresponding IBR plan regulatory language in §§ 682.215(e)(3)(ii) and 685.221(e)(3)(ii).
Discussion: The Department agrees with the commenter's recommendation.
Changes: Proposed § 685.209(a)(5)(iii)(B) has been amended to clarify that unpaid interest will be capitalized “at the end of the borrower's current annual payment period.”
Comments: One commenter asked the Department to revise § 685.209(b)(3)(v)(C) to clarify that if a borrower repaying under the ICR plan believes that special circumstances warrant an adjustment to the borrower's repayment amount, the borrower may contact the Secretary at any time during the borrower's current annual payment period to request a change in the repayment amount. The NPRM indicated that the borrower could contact the Secretary for a determination as to whether an adjustment was appropriate, but did not clarify that the borrower could make such a request at any time during the borrower's current repayment period. The proposed change would make the regulations for the ICR plan consistent with the corresponding IBR and Pay As You Earn repayment plan regulations.
Discussion: We agree with the recommended change.
Changes: We have revised § 685.209(b)(3)(v)(C) to clarify that a borrower may request a determination from the Secretary as to whether an adjustment to the borrower's payment amount is appropriate based on special circumstances at any time during the borrower's current annual payment period.
Comments: One commenter recommended that the regulations governing the ICR plan be revised to require that the Secretary inform borrowers that they are required to annually certify their family size in addition to providing income information. The commenter noted that while the proposed regulations for the IBR and Pay As You Earn repayment plans require borrowers to annually certify family size, and specify that the Secretary or the loan holder assumes a family size of one if the borrower does not do so, the proposed regulations for the ICR plan specified only that the borrower must annually provide income information. To ensure that the calculated monthly payment under the ICR plan accurately reflects the borrower's current family size, the commenter believed that the regulations governing the ICR plan should also require borrowers to annually certify their family size.
Discussion: Proposed § 685.209(b)(1)(iii)(A) reflected the current ICR plan regulations that provide that the Secretary applies the HHS Poverty Guidelines for the borrower's family size if the borrower provides acceptable documentation that the borrower's family includes more than one person. In accordance with this provision, the Secretary requires borrowers to certify family size only at the time the borrower initially selects the ICR plan and the Secretary then continues to use that family size to calculate the borrower's monthly payment amount unless the borrower reports a change in family size. For greater consistency among the income-driven repayment plans, and to ensure that the ICR payment amount reflects the borrower's current family size, the Department agrees with the commenter that it would be appropriate to require borrowers repaying under the ICR plan to certify family size upon initially selecting the ICR plan and annually thereafter, and to specify that the Secretary assumes a family size of one if the borrower fails to certify family size.
Changes: We have amended proposed § 685.209(b)(3)(vi)(A) by retaining the first part of the paragraph as introductory text and creating two new paragraphs (b)(3)(iv)(A)(1) and (b)(3)(iv)(A)(2), respectively. New paragraph (b)(3)(iv)(A)(1) contains the requirement that was in proposed § 685.209(b)(3)(vi)(A) for the borrower to provide documentation of his or her AGI. New paragraph (b)(3)(iv)(A)(2) requires the borrower to certify family size upon initially selecting the ICR plan and annually thereafter, and explains that the Secretary will assume a family size of one if the borrower fails to certify family size. In addition, new paragraph (b)(3)(iv)(A)(1) has been modified by adding a cross-reference to the alternative documentation of income provision in § 685.209(b)(3)(i) that was inadvertently omitted from the proposed regulations. Minor conforming changes have also been made elsewhere in § 685.209. We have also added language to § 685.209(b)(1)(iii)(A) clarifying that for purposes of the ICR plan, family size is defined in § 685.209(a)(1)(iv).
Comments: One commenter recommended that the Department modify the proposed IBR, ICR, and Pay As You Earn repayment plan regulations in §§ 682.215(e)(8), 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(e)(8) governing the treatment of borrowers whose annual income information is received within 10 days after the annual deadline. Specifically, the commenter recommended that proposed § 682.215(e)(8) be revised to clarify that if the loan holder does not calculate the borrower's new monthly payment amount by the end of the prior annual payment period, and the borrower continues to make payments at the previously calculated payment amount before the new payment amount is calculated, those payments would be considered to be qualifying payments for loan forgiveness purposes, as long as the payments otherwise meet the eligibility requirements for the respective repayment plans. The commenter recommended that similar language be added to the corresponding Direct Loan program regulations in §§ 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(f), to clarify that payments the borrower continued to make at the previously calculated payment amount would count for loan forgiveness purposes. The commenter noted that the proposed regulations in §§ 685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii) indicate that, in the case of a borrower whose income information is received more than 10 days after the annual deadline, any payments that the borrower continues to make at the previously calculated payment amount after the end of the prior annual payment period and before the new payment amount is calculated would count as qualifying payments for purposes of Public Service Loan Forgiveness under § 685.219. The Department stated in the preamble to the NPRM that these payments would also count for purposes of IBR plan loan forgiveness. The commenter believed that the regulations governing the treatment of borrowers who submit their income information on time should likewise clarify that payments a borrower continues to make at the previously calculated amount before the new payment amount is calculated are counted for loan forgiveness purposes.
The commenter also recommended that comparable changes be made in §§ 682.215(e)(9), 685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii) to clarify that in the case of a borrower whose income information is received more than 10 days after the annual deadline, any payments the borrower continued to make at the previously calculated payment amount after the end of the prior annual payment period and before the new monthly payment amount is calculated would be considered qualifying payments for loan forgiveness purposes. The commenter noted that the Department clarified in the preamble to the NPRM that under proposed § 685.221(e)(9)(ii) any payments the borrower continued to make at the previously calculated amount would count for purposes of IBR loan forgiveness, and believed that adding this clarification to the regulations for all of the income-driven repayment plans would encourage borrowers to continue making payments, even if they miss the annual deadline for submitting their required income information.
Discussion: The Department does not believe it is necessary to revise the regulations to explicitly state that if a borrower's income information is received within 10 days after the specified annual deadline date, but the Secretary or the loan holder does not determine the borrower's new monthly payment amount prior to the end of the current annual payment period, payments the borrower continues to make at the previously calculated amount before the new payment amount is determined will count for purposes of loan forgiveness under the various income-driven repayment plans. The regulations make it clear that in such situations the Secretary or the loan holder maintains the borrower's previously calculated payment amount until the new payment amount is determined, and that the borrower is not subject to any adverse consequences as a result of the Secretary's or loan holder's failure to calculate the new payment amount in a timely manner. Payments the borrower continues to make at the previously calculated payment amount until the new payment amount is calculated are treated for loan forgiveness purposes the same as any other payments made under the IBR, ICR, or Pay As You Earn repayment plans.
Likewise, we do not believe it is necessary to make the similar changes that were recommended for §§ 682.215(e)(9), 685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii). In the case of a borrower whose income information is received more than 10 days after the annual deadline, and the borrower's monthly payment is converted to the permanent standard payment amount, any payments that the borrower continues to make at the previously calculated payment amount are qualifying payments made under the IBR, ICR, or Pay As You Earn repayment plan and count as qualifying payments for purposes of loan forgiveness under those plans. The proposed regulations clarified that payments a Direct Loan borrower continues to make at the previously calculated amount would count for Public Service Loan Forgiveness purposes because otherwise these payments might be viewed as not meeting the eligibility requirements of the Public Service Loan Forgiveness program. We do not believe this clarification is needed with regard to counting payments for other loan forgiveness purposes.
We note also that the commenter's recommendation that the FFEL program regulations be revised to state that payments would count for purposes of Direct Loan program IBR, Pay As You Earn repayment plan loan forgiveness, and ICR loan forgiveness, and a similar proposed revision of the Direct Loan program regulations to refer to FFEL program IBR loan forgiveness would be incorrect. Qualifying payments that a borrower made on a FFEL program loan under the IBR plan are not counted toward Direct Loan program IBR, ICR, or Pay As You Earn repayment plan loan forgiveness. Also, qualifying payments that a borrower made on a Direct Loan program loan under one of the income-driven repayment plans do not count toward IBR loan forgiveness on the borrower's FFEL program loans.
Comments: Several commenters recommended that the Department modify the proposed IBR and Pay As You Earn repayment plan regulations that provide for capitalization of unpaid interest if the Secretary or the loan holder does not receive a borrower's required annual income information within 10 days of the specified annual deadline.
The commenters believed that the adverse consequences for borrowers whose required information is received more than 10 days after the annual deadline date (capitalization of unpaid interest and conversion of their monthly loan payment to the permanent standard payment amount) are unduly harsh, particularly for borrowers with the lowest incomes. One of the commenters presented an example in which a borrower with $50,000 in loan debt chose the IBR plan and had a monthly payment amount of zero for the first three years because she was unemployed and had no income. The borrower finds a job paying $45,000 per year shortly before the fourth year of repayment under IBR, but misses the deadline for submitting the required annual income information to the loan holder. As a result, the borrower's required monthly payment amount would increase from zero to more than $500 (the permanent standard payment amount), and more than $10,000 in unpaid interest would be capitalized, significantly increasing the total amount the borrower would repay over the IBR plan repayment period. The commenter felt that this is a harsh and disproportionate penalty for missing a paperwork submission deadline. To address this issue, the commenter recommended that the regulations be revised to make the “penalty” for missing the annual deadline proportionate to the amount of time that elapses between the end of the most recent annual payment period and the date the borrower's income information is received. Specifically, the commenter proposed that if a borrower's income information is received more than 10 days after the specified annual deadline, only unpaid interest that accrues during the period that the borrower's income information is late would be capitalized.
Two other options suggested by the commenter would be to revise the IBR regulations to include a limit on the amount of unpaid interest that may be capitalized, or to authorize loan holders to reduce the interest capitalization penalty under exceptional circumstances. The commenter did not provide more detailed recommendations concerning these two additional options.
The commenter believed these suggested changes would lessen the consequences of missing the deadline date for the required annual income information. The commenter also believed that these proposals would have little or no budgetary implications because the budget baseline for IBR and ICR does not include significant revenue from large numbers of borrowers missing the income documentation deadline and having their unpaid accrued interest capitalized. The commenter stated that until recently, an IRS consent process allowed ICR and IBR borrowers to provide a multi-year consent to allow the Department to check their income, effectively preventing them from missing the annual income documentation deadline date. The commenter added that if the budget baseline never assumed revenue from large numbers of borrowers submitting late paperwork and having their accrued interest capitalized, limiting the capitalization of interest for late paperwork would have little to no budgetary impact.
Discussion: We decline to make the requested changes. The proposed regulations and the Department's current regulations reflect the statutory requirement in section 493C(b)(3)(B) of the HEA that requires capitalization of unpaid interest at the time a borrower repaying under the IBR plan elects to no longer make income-based payments, or is determined to no longer have a PFH. Under the current and proposed regulations, a borrower who fails to provide the annual income information required by the Secretary is considered to no longer have a PFH, and unpaid interest will be capitalized. Under the proposed regulations, unpaid interest would be capitalized only if the Secretary or the loan holder does not receive the required income information within 10 days after the annual deadline for the borrower to submit income information. In addition, the HEA (for the IBR plan), the current and proposed IBR plan regulations, and the proposed Pay As You Earn repayment plan regulations provide that if a borrower elects to discontinue making payments that are based on the borrower's income or is determined to no longer have a PFH, the borrower's monthly payment amount is recalculated and is no longer based on the borrower's income. In such cases, the recalculated payment amount is the amount the borrower would pay under a 10-year standard repayment plan, based on the loan amount the borrower owed upon entering repayment under the IBR or Pay As You Earn repayment plan. In the preamble to the NPRM, this recalculated payment amount is referred to as the “permanent standard” payment amount.
The proposed regulations provide for borrowers to be informed of the annual income documentation requirement at the time they initially choose the IBR, ICR, or Pay As You Earn repayment plan. Borrowers are notified of the specific deadline for submitting the income information no later than 60 days before the deadline date. In addition, the proposed regulations include a 10-day “grace period” following the specified annual deadline date and ensure that borrowers are not subject to any adverse consequences if their income information is received by the end of the grace period. We believe that these required notifications and borrower protections will significantly reduce the number of instances in which borrowers are subject to interest capitalization and conversion to the permanent standard payment amount as a result of their failure to submit required income information on time. As discussed elsewhere in this preamble, the Department is also planning to implement processes that will allow borrowers who select an income-driven repayment plan to apply electronically and populate the application with AGI information obtained directly from the IRS, eliminating the need for borrowers to separately submit documentation of AGI. Borrowers will also be able to use this process to update their AGI information annually, as required by the IBR regulations. Although borrowers will be provided with ample time and opportunity to meet the income documentation requirements of the IBR plan, compliance with these requirements is ultimately the borrower's responsibility. For borrowers who do not submit their income information on time, capitalization of unpaid interest is not a penalty, but rather a result of the borrower's failure to comply with the terms and conditions of the repayment plan that the borrower chose.
With regard to the suggested option of modifying the IBR plan regulations to include a cap on the amount of interest that may be capitalized, the Department does not have the statutory authority under the HEA to apply such a cap in the IBR plan. Section 493C(b)(3)(B) of the HEA requires the capitalization of any unpaid interest if a borrower is determined to no longer have a PFH or chooses to stop making income-based payments. The commenter's other recommendations (capitalizing only the interest that accrues during the period when a borrower's income information is late or giving loan holders discretion to limit interest capitalization under exceptional circumstances) are also inconsistent with the statutory interest capitalization requirements that apply in the IBR plan. Additionally, giving loan holders discretion to limit interest capitalization would result in inconsistent treatment of borrowers, since individual loan holders would determine what constitutes an exceptional circumstance.
Finally, the commenter's recommendations would present significant operational challenges for loan holders and servicers, including the Department. In accordance with section 493C(c) of the HEA, a borrower who is repaying under the IBR plan must annually provide income information so that the Secretary or loan holder may determine the borrower's continued eligibility to make income-based payments and calculate the borrower's IBR plan payment amount for the next annual payment period. Section 493C(b)(6) of the HEA provides that if a borrower repaying under the IBR plan is determined to no longer have a PFH or chooses to stop making income-based payments, all unpaid interest is capitalized. The policy reflected in the NPRM is consistent with these statutory requirements. Based on these same requirements, the systems of most loan holders and servicers are currently designed to automatically capitalize all unpaid interest at the end of a borrower's current annual payment period under the IBR plan and convert the borrower's payment to the permanent standard payment amount if the borrower has not provided the required income information. The commenter's recommendation to limit capitalization to the interest that accrues during the period when a borrower's income information is late would likely require interest capitalization to be handled as a manual process on an individual borrower basis. Such a manual process would not be feasible for the Secretary or loan holders to implement.
Comments: One commenter recommended that the Department make two changes to proposed §§ 682.215(e)(7), 685.209(a)(5)(vii), 685.209(b)(3)(vi)(D), and 685.221(e)(7). First, the commenter asked the Department to add language clarifying that in the case of a borrower whose income information is received more than 10 days after the specified annual deadline, and whose monthly payment is converted to the permanent standard payment amount, the permanent standard payment amount will apply only until the Secretary or the loan holder receives the borrower's income documentation and calculates the new monthly payment amount. Second, the commenter recommended that additional language be added to the same sections of the regulations clarifying that a borrower's monthly payment will not be converted to the permanent standard payment amount if the borrower's income information is received more than 10 days after the annual deadline, but the Secretary or loan holder is able to determine the new monthly payment amount before the end of the borrower's current annual payment period. The commenter noted that this is consistent with what the Department said in the preamble to the NPRM, and believed that this borrower protection should be reflected in the regulations.
Discussion: We do not believe it is necessary to state in the regulations that the permanent standard payment amount applies only until the borrower's new monthly payment amount is determined. Sections 682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) make it clear that the Secretary or loan holder calculates a new monthly payment amount once the borrower's income information is received, and it is understood that the new payment amount would then replace the permanent standard payment amount. However, we agree with the second change recommended by the commenter, for the reasons cited by the commenter.
Changes: We have modified §§ 682.215(e)(7), 685.209(a)(5)(vii), 685.209(b)(3)(vi)(D), and 685.221(e)(7) to clarify that in the case of a borrower whose income information is received more than 10 days after the specified annual deadline, the borrower's monthly payment is not converted to the permanent standard payment amount if the Secretary or the loan holder is able to determine the borrower's new monthly payment amount before the end of the borrower's current annual payment period.
Comment: Several commenters recommended that the Department revise §§ 685.209(a)(5)(vii), (a)(5)(viii) and (a)(5)(ix)(A), and 685.221(e)(6), (e)(8), and (e)(9) by changing “and” to “through.” The commenters believed that the use of the word “and” in each of these paragraphs would suggest that a borrower must provide both documentation of his or her AGI and alternative documentation of income. They recommended that the Department replace the word “and” with the word “through” to make it clear that both types of income documentation are not required.
Discussion: The proposed language cited by the commenters was not intended to suggest that a borrower must, in all cases, provide both documentation of AGI and alternative documentation of income. However, we do not believe that any changes are needed. The language describing alternative documentation of income in proposed §§ 685.209(a)(5)(i)(B) and 685.221(e)(1)(ii) makes it clear that alternative documentation of income is required only if the borrower's AGI is unavailable, or if the Secretary believes that the borrower's reported AGI does not reasonably reflect the borrower's current income. The use of the word “and” in §§ 685.209(a)(5)(vii), (a)(5)(viii), and (a)(5)(ix)(A), and 685.221(e)(6), (e)(8), and (e)(9) does not suggest that borrowers are always required to provide both types of income documentation. In some cases a borrower may be required to provide only AGI or only alternative documentation of income, but in other cases a borrower may be required to provide both types of income documentation (for example, if the Secretary believes that the AGI information previously provided by the borrower does not reasonably reflect the borrower's current income).
Comments: A number of commenters recommended that the Department change the proposed regulations for the Direct Loan program governing the treatment of borrowers repaying under the IBR, ICR, and Pay As You Earn repayment plans whose income information is received within 10 days of the specified annual deadline, and those borrowers whose income information is received more than 10 days after the annual deadline. One commenter recommended that, for consistency with the corresponding FFEL program IBR plan regulations in § 682.215(e)(8)(iii), the proposed Direct Loan program regulations in §§ 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(e)(8) should be revised to clarify that if a borrower's new calculated monthly payment amount is equal to or greater than the borrower's previously calculated monthly payment amount, and the borrower continued to make payments at the previously calculated amount after the end of the most recent annual payment period, the Secretary does not make any adjustments to the borrower's account to make up for the difference between any payments the borrower made at a lower previously calculated amount and the higher current payment amount. Several other commenters recommended that the Department make this same change in §§ 685.209(a)(5)(viii) and 685.221(e)(8), and proposed that the Department further revise and restructure these paragraphs for greater clarity. Using § 685.209(a)(5)(viii) from the proposed Pay As You Earn repayment plan regulations as an example, these commenters proposed to restructure § 685.209(a)(5)(viii) by dividing the current single paragraph into (a)(5)(viii)(A) and (B). All of the text from proposed (a)(5)(viii) would be retained with no changes, but most of the current text would be placed in new paragraph (a)(5)(viii)(A)(1), and new paragraphs (a)(5)(viii)(A)(2) and (a)(5)(viii)(A)(3) would be added, along with a new paragraph (a)(5)(viii)(B). New paragraph (a)(5)(viii)(A)(2) would clarify that if the borrower's new calculated monthly payment amount is equal to or greater than the borrower's previously calculated payment amount, and the borrower continued to make payments at the previous amount before the new payment was calculated, the Secretary does not make any adjustments to the borrower's account. New paragraph (a)(5)(viii)(A)(3) would clarify that payments made by the borrower at the previously calculated payment amount would be considered qualifying payments for purposes of the Public Service Loan Forgiveness program under § 685.219, provided that the payments otherwise meet the requirements of that program. New paragraph (a)(5)(viii)(B) would include the Department's clarification in the preamble to the NPRM that the new annual payment period begins on the day after the end of the most recent annual payment period. The commenters recommended that the Department make the same changes in § 685.221(e)(8) of the Direct Loan program IBR plan regulations, and that similar changes be made in proposed § 682.215(e)(8) of the FFEL program IBR plan regulations.
The same commenters proposed an additional change in §§ 685.209(a)(5)(ix) and 685.221(e)(9), which govern the treatment of borrowers whose income information is received more than 10 days after the specified annual deadline. Specifically, the commenters proposed to remove §§ 685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), which provide that any payments that a borrower continued to make at the previously calculated payment amount after the end of the prior annual payment period and before the new payment amount is calculated are considered to be qualifying payments for purposes of the Public Service Loan Forgiveness program, provided that the payments otherwise meet the eligibility requirements of that program. The commenters proposed to remove these paragraphs from §§ 685.209(a)(5)(ix) and 685.221(e)(9) and place the same text in new §§ 685.209(a)(5)(viii)(A)(3) and 685.221(e)(8)(i)(C), respectively.
Discussion: We agree that the recommended changes provide greater consistency and clarity, except for the proposed removal of §§ 685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii). These paragraphs, which reflect the consensus language agreed to at the conclusion of the negotiated rulemaking sessions, clarify that even if a borrower misses the annual deadline and the borrower's payment is converted to the permanent standard payment amount, any payments that the borrower continues to make at the previously calculated income-based payment amount after the end of the prior annual payment period and before the new monthly payment amount is calculated are considered to be qualifying payments for purposes of the Public Service Loan Forgiveness program. Although we disagree with the proposal to remove §§ 685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), we believe that for consistency it would be appropriate to add the same clarifying language to the regulatory provisions governing the treatment of borrowers whose income information is received on time, and who continue to make payments at the previously calculated payment amount before the new monthly payment amount is determined.
Changes: We have revised §§ 682.215(e)(8), 685.209(a)(5)(viii), and 685.221(e)(8) as described earlier in the Comments and Discussion sections. We have also made comparable changes to the ICR plan regulations in § 685.209(b)(3)(vi)(E).
Comments: Several commenters recommended that the Department restructure proposed §§ 682.215(e)(2) and (e)(4) and 685.221(e)(2) and (e)(4) for greater clarity. Proposed §§ 682.215(e)(2) and 685.221(e)(2) specify, in paragraphs (e)(2)(i) through (e)(2)(v) of both the FFEL and Direct Loan program regulations, the information that must be included in a written notification to a borrower after the Secretary or the loan holder makes a determination that a borrower has a PFH to qualify for the IBR plan for the year the borrower initially selects the plan and for any subsequent year that the borrower has a PFH. In both the FFEL and Direct Loan program regulations, proposed paragraph (e)(2)(v) states that the written notification must include information about the borrower's option to request, at any time during the borrower's current annual payment period, that the Secretary or the loan holder recalculate the borrower's monthly payment amount if the borrower's financial circumstances have changed. The last sentence of paragraph (e)(2)(v) states that if the Secretary or loan holder recalculates the borrower's payment at the borrower's request, the Secretary or loan holder sends the borrower a written notification that includes the information described in paragraphs (e)(2)(i) through (e)(2)(v).
Proposed §§ 682.215(e)(4) and 685.221(e)(4) specify, in paragraphs (e)(4)(i) through (iii) of both the FFEL and Direct Loan program regulations, the information that must be included in a written notice to the borrower each time the Secretary or the loan holder makes a determination that a borrower no longer has a PFH for a subsequent year that the borrower remains on the IBR plan. In both the FFEL and Direct Loan program regulations, paragraph (e)(4)(iii) states that the written notification must include information about the borrower's option to request, at any time during the borrower's current annual payment period, that the Secretary or the loan holder recalculate the borrower's monthly payment amount if the borrower's financial circumstances have changed. The last sentence of paragraph (e)(4)(iii) states that if the Secretary or loan holder recalculates the borrower's payment based on the borrower's request, the Secretary or loan holder sends the borrower a written notification that includes the information described in paragraphs (e)(2)(i) through (v).
The commenters believed that §§ 682.215(e)(2)(v) and (e)(4)(iii) and 685.221(e)(2)(v) and (e)(4)(iii) could, as currently structured, be interpreted to mean that the written notifications required by the introductory text of §§ 682.215(e)(2) and (e)(4) and 685.221(e)(2) and (e)(4) must inform the borrower that the Secretary or the loan holder will send the borrower another written notification if the Secretary recalculates the borrower's payment amount based on the borrower's request. To avoid this possible misinterpretation, the commenters recommended that the last sentences in §§ 682.215(e)(2)(v), 682.215(e)(4)(iii), 685.221(e)(2)(v), and 685.221(e)(4)(iii) be placed in separate paragraphs, with additional conforming changes to the numbering of the paragraphs to reflect the suggested restructuring.
Discussion: The recommended changes are not necessary. The phrasing of the last sentences in §§ 682.215(e)(2)(v), 682.215(e)(4)(iii), 685.221(e)(2)(v), and 685.221(e)(4)(iii) (“If the [Secretary/loan holder] recalculates * * *”) makes it clear that these sentences describe actions that must be taken only if the borrower's payment is recalculated. The written notification required by the introductory text of §§ 682.215(e)(2) and (e)(4) and 685.221(e)(2) and (e)(4) does not have to inform the borrower that another written notification will be sent if the borrower's payment is later recalculated based on the borrower's request.