[Federal Register Volume 59, Number 245 (Thursday, December 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31354]
[[Page Unknown]]
[Federal Register: December 22, 1994]
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Part VII
Department of Education
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34 CFR Part 685
William D. Ford Federal Direct Loan Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 685
William D. Ford Federal Direct Loan Program
RIN 1840-AC11
AGENCY: Department of Education.
ACTION: Final standards, criteria, and procedures.
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SUMMARY: The Secretary of Education issues final standards, criteria,
and procedures governing the alternative repayment and income
contingent repayment (ICR) plans under the William D. Ford Federal
Direct Loan (Direct Loan) Program for the academic year beginning July
1, 1994.
These standards, criteria, and procedures apply to loans under the
Federal Direct Stafford/Ford Loan Program, the Federal Direct
Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS
Program, and the Federal Consolidation Loan Program, collectively
referred to as the Direct Loan Program.
EFFECTIVE DATE: December 22, 1994.
FOR FURTHER INFORMATION CONTACT: Ms. Rachel Edelstein, Room 3012, ROB-
3, 600 Independence Avenue, SW, Washington, D.C., 20202, telephone:
(202) 708-9406. Individuals who use a telecommunications device for the
deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-
800-877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through
Friday.
SUPPLEMENTARY INFORMATION: The Student Loan Reform Act of 1993, enacted
on August 10, 1993, established the Direct Loan Program under the
Higher Education Act of 1965, as amended (HEA). See Subtitle A of the
Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66). Under the
Direct Loan Program, loan capital is provided directly to student and
parent borrowers by the Federal Government rather than through private
lenders. Borrowers under the Direct Loan Program are provided a range
of repayment options, including an ICR plan.
The HEA directs the Secretary to consult with members of the higher
education community and to publish a notice of standards, criteria, and
procedures for the program's first year in lieu of issuing regulations
using the Department's usual procedures. The Secretary's
representatives have consulted with representatives of students,
colleges, universities, proprietary schools, and educational
associations, as well as representatives of the financial aid
community, in developing this notice. In particular, the Secretary's
representatives have had extensive consultations with the other members
of the Direct Student Loan Regulations Negotiated Rulemaking Advisory
Committee established to develop proposed regulations for the second
and subsequent years of the program. See the Secretary's announcement
of his intention to establish this Committee at 58 FR 68619 (December
28, 1993). The Secretary, in consultation with the above-discussed
members of the higher education community, has determined that this
notice is reasonable and necessary to the successful implementation of
the first year of the program.
This notice modifies the provisions of the ICR plan and the
alternative repayment plan for the 1994-95 academic year.
I. Background
On July 1, 1994, the Secretary published a final regulation
governing the Direct Loan Program for the 1994-95 academic year. That
regulation prescribes the formula used to determine the repayment
amounts under the ICR plan for borrowers whose loans enter repayment
during the 1994-95 academic year.
On August 18, 1994, the same formula was published in a Notice of
Proposed Rulemaking relating to the 1995-96 and subsequent years of the
Direct Loan Program. The Secretary received 98 comments on that NPRM,
most of which include discussion of the ICR plan. In response to those
comments, the Secretary made several changes to the ICR plan for the
1995-96 and subsequent academic years. The changes provide borrowers
with better repayment terms than are currently available for the 1994-
95 academic year. For example, the limit on the amount of interest that
will be capitalized (or added to principal) was reduced from 50 percent
of the original principal to 10 percent of the original principal,
thereby reducing the cost of borrowing significantly for some borrowers
whose monthly payments are lower than the amount of interest accrued.
The new ICR formula also lowers the required monthly payment for many
borrowers who have lower incomes.
This notice extends the revised ICR formula and its benefits,
including the reduced level of capitalization, to borrowers whose loans
enter repayment in the 1994-95 academic year. This notice also reduces
the level of capitalization of interest on loans repaid under the
alternative repayment plan for borrowers whose loans enter repayment in
the 1994-95 academic year. Finally, this notice establishes a 30-year
maximum repayment period for the alternative repayment plan.
The Secretary believes that it is desirable for all Direct Loan
borrowers who choose the ICR plan to be subject to the same formula
during the first years of this new program. As of this date, no Direct
Loan borrowers have entered repayment under the ICR formula published
on July 1, 1994, but some Direct Loan borrowers will enter income
contingent repayment before the 1994-95 academic year is over. This
notice provides that the revised ICR plan will apply to those
borrowers.
The Secretary believes that applying one formula to all borrowers
allows the Secretary to publish materials that clearly explain the
repayment options to borrowers without having to discuss multiple
formulas. Furthermore, having a single formula during the initial years
of this program simplifies the administration of the program for
schools and promotes a clear understanding of the repayment provisions.
II. Summary of Contents
Section 685.208 Repayment Plans
The Secretary has established the maximum repayment period
allowable under the alternative repayment plan at 30 years. Further,
under the alternative plan, interest that accrues and is not paid will
be capitalized annually until the outstanding principal is 10 percent
greater than the original principal amount.
Section 685.209 Income Contingent Repayment Plan
The Secretary has significantly modified the income contingent
repayment (ICR) plan provisions. The Secretary is lowering the limit on
interest capitalization that may occur when interest accrues, but is
not paid, from 50 percent greater than the original principal amount to
10 percent greater than the original principal amount. Also, monthly
payments will be limited to 20 percent of discretionary income (AGI
minus the poverty level appropriate to the family size). This change
eliminates the need for the previous family size offset of $7 and
provides a new cap on the amount of income assessed. The Secretary is
including years of repayment under the 10-year standard repayment plan
and the 12-year extended repayment plan as years eligible for
determining the 25-year period for loan forgiveness. The monthly
repayment amount below which no payment is required under the formula
calculation is $15. Under the 12-year standard amortization cap, the
minimum payment is $15 (that is, a borrower must pay at least $15 each
month). The 12-year standard amortization cap calculation has been
modified to provide for the recalculation of the cap following periods
of negative amortization because these periods result in an increase in
the outstanding loan balance. The payback rate for married borrowers
paying jointly under ICR will be calculated on the outstanding debt at
the time the borrowers are approved for joint repayment. For borrowers
repaying jointly, payments will be applied to interest on both accounts
prior to principal reduction in either.
Section 685.209 (ICR plan) contains provisions governing the two
monthly payment calculations, namely the formula amount and the capped
amount, available for repayment of Direct Loans under the ICR plan.
Borrowers may choose to repay either the formula amount or the capped
amount. (See Appendix A for detailed examples illustrating, for single
borrowers and for married borrowers who are repaying under the ICR
plan, the calculations of the formula and capped monthly repayment
amounts.)
Formula Amount
Calculation of the ICR formula monthly payment amount is described
in paragraph (b) of this section. In general, the borrower's annual
repayment obligation is the borrower's AGI multiplied by a ``payback
rate'' that is based on the borrower's debt. The monthly payment is the
annual repayment obligation divided by 12. The ``payback rate'' varies
from four to 15 percent, calculated as described in paragraph (b)(2).
The payment amount cannot exceed 20 percent of discretionary income
(AGI minus the annual poverty level appropriate to the family size)
divided by 12. If the calculated monthly payment is less than $15, the
borrower is not required to make a payment. When a borrower is not
required to make a payment, interest on the principal accrues and will
be capitalized until the limitation on capitalization is reached.
Capped Amount
Calculation of the capped monthly payment amount is described in
paragraph (c), and equals the monthly amount the borrower would repay
over 12 years using standard amortization schedules. If the formula
amount exceeds the capped amount, the borrower may choose to pay the
capped amount. If the borrower chooses to pay the capped amount, the
borrower's repayment period may be longer than if the borrower chooses
to pay the higher formula amount.
Joint Repayment By Married Borrowers
This section includes provisions for joint income contingent
repayment of Direct Loans by married borrowers. Negative amortization
is minimized by attributing joint repayments first to the interest due
on each spouse's account and then to principal. A step-by-step
calculation of a combined repayment amount is included as Example 2 in
Appendix A.
Repayment Period
Provisions governing the repayment period under ICR are contained
in paragraph (d)(2). The maximum period is 25 years, excluding periods
of authorized deferment and forbearance under Secs. 685.204 and
685.205, respectively, and periods in which the borrower made payments
under a repayment plan other than the 10-year standard or 12-year
extended plans. The Secretary believes the exclusion of repayment
periods under all other extended and graduated plans is needed to
prevent potential borrower repayment abuses.
If a borrower repays more than one loan under ICR and the loans
enter repayment at different times, a separate repayment period for
each loan begins when the loan enters repayment. This approach ensures
that no loan will be repaid under ICR for more than 25 years. If loans
enter repayment at the same time, a single repayment period applies.
To encourage borrowers to begin repaying their loans and to limit
negative amortization at the beginning of the repayment period, a
borrower must make monthly payments of accrued interest until the
Secretary calculates the borrower's monthly payment on the basis of the
borrower's income. A borrower who is unable to make monthly payments of
accrued interest or is unable to qualify for a deferment under
Sec. 685.204, may request forbearance under Sec. 685.205.
Limit on Capitalization of Interest
The Secretary believes a limit on the amount of interest that is
added to principal (the capitalization of interest) is desirable to
prevent an excessive increase in a borrower's debt burden when the
borrower's income is insufficient to cover accruing interest. Paragraph
(d)(3) permits capitalization of unpaid interest until the outstanding
principal amount is 10 percent greater than the original principal
amount, a decrease from the 50 percent proposed in the NPRM.
Thereafter, unpaid interest accrues but is not capitalized.
Consent to Disclosure of Tax Return Information
In order to repay a Direct Loan under ICR, a borrower must consent,
on a form provided by the Secretary, to the disclosure of certain tax
return information by the Internal Revenue Service to agents of the
Secretary for purposes of calculating a monthly repayment amount and
servicing and collecting a loan. The information subject to disclosure
is taxpayer identity information as defined in 26 U.S.C. 6103(b)(6)
(including such information as name, address, and social security
number), tax filing status, and AGI. Paragraph (d)(5) describes the
procedures for providing written consent and requires that consent be
provided for a period of five years. If a borrower selects ICR but
fails to provide or renew consent, or withdraws consent without
selecting a different repayment plan, the Secretary designates the 10-
year standard repayment plan for the borrower.
III. Waiver of Rulemaking
In accordance with the Administrative Procedures Act, 5 U.S.C. 553,
it is the practice of the Secretary to offer interested parties an
opportunity to comment on proposed regulations. However, Pub. L. 103-66
permits the Secretary to publish a notice in lieu of regulations for
the first year of the Direct Loan Program and exempts the contents of
the notice from the rulemaking requirements of section 431 of the
General Education Provisions Act (recently revised and renumbered by
Pub. L. 103-382 as section 437). In developing this notice, the
Secretary's representatives have consulted extensively with the other
members of the Direct Student Loan Regulations Negotiated Rulemaking
Advisory Committee established to develop proposed regulations for the
second and subsequent years of the program, and has taken into
consideration the public comments submitted in response to the
Secretary's invitation in the August 18, 1994 Direct Loan NPRM. The
timely implementation of the ICR plan for borrowers entering repayment
in academic year 1994-1995 does not permit the solicitation of further
public comment. A public comment period would seriously delay operation
of the Direct Loan Program and would prevent borrowers entering
repayment during the first year of the program from receiving the same
benefits as borrowers who enter repayment in the second year of the
program. Therefore, the Secretary finds that solicitation of public
comments is impracticable and contrary to the public interest under 5
U.S.C. 553(b)(B). For the same reasons, the Secretary has decided to
waive the 30-day delayed effective date under 5 U.S.C. 553(d).
List of Subjects in 34 CFR Part 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Numbers: 84.268, William D.
Ford Federal Direct Loan Program)
Dated: December 16, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary revises part 685 of title 34 of the Code of Federal
Regulations as follows:
PART 685--STANDARDS, CRITERIA, AND PROCEDURES FOR THE DIRECT LOAN
PROGRAM
1. The authority citation continues to read as follows:
Authority: 20 U.S.C. 1087a et seq.
2. Section 685.208 is amended by revising paragraph (g) to read as
follows:
Sec. 685.208 Repayment plans.
* * * * *
(g) Alternative repayment. (1) The Secretary may provide an
alternative repayment plan for a borrower who demonstrates to the
Secretary's satisfaction that the terms and conditions of the repayment
plans specified in paragraphs (b) through (f) of this section are not
adequate to accommodate the borrower's exceptional circumstances.
(2) The Secretary may require a borrower to provide evidence of the
borrower's exceptional circumstances before permitting the borrower to
repay a loan under an alternative repayment plan.
(3) If the Secretary agrees to permit a borrower to repay a loan
under an alternative repayment plan, the Secretary notifies the
borrower in writing of the terms of the plan. After the borrower
receives notification of the terms of the plan, the borrower may accept
the plan or choose another repayment plan.
(4) A borrower shall repay a loan under an alternative repayment
plan within 30 years of the date the loan entered repayment, not
including periods of deferment and forbearance.
(5) If the amount of a borrower's monthly payment under an
alternative repayment plan is less than the accrued interest on the
loan, the unpaid interest is capitalized until the outstanding
principal amount is 10 percent greater than the original principal
amount. After the outstanding principal amount is 10 percent greater
than the original principal amount, interest continues to accrue but is
not capitalized. For purposes of this paragraph, the original principal
amount is the amount owed by the borrower when the borrower enters
repayment.
(Authority: 20 U.S.C. 1087a et seq.)
3. Section 685.209 is revised to read as follows:
Sec. 685.209 Income contingent repayment plan.
(a) General. (1) Under the income contingent repayment plan
described in Sec. 685.208(f), a borrower may choose to repay under the
formula described in paragraph (b) of this section or may choose to
have payments capped as described in paragraph (c) of this section. The
amount calculated under paragraph (b) of this section is called the
``formula amount,'' and the amount calculated under paragraph (c) of
this section is called the ``capped amount.''
(2) Borrowers may choose to repay either the formula amount or the
capped amount when they enter repayment and may change between the
options one time each year.
(3) The Secretary may determine that special circumstances, such as
a loss of employment by the borrower or the borrower's spouse, warrant
an adjustment to the borrower's repayment obligations.
(4) Married borrowers may repay their loans jointly if they meet
the following requirements:
(i) The spouses have both chosen either the formula amount or the
capped amount.
(ii) The spouses filed a joint Federal income tax return for the
most recent year for which the Secretary has obtained income
information.
(iii) The spouses submit a written request to the Secretary that
includes their names and social security numbers.
(5) Examples of the calculation of monthly repayment amounts and
tables that shows monthly repayment amounts for borrowers at various
income and debt levels are included in appendix A to this part.
(b) Formula amount. (1) General. (i) If a borrower chooses to pay
the formula amount under the income contingent repayment plan, the
borrower generally makes monthly payments that are calculated using a
percentage of the borrower's Adjusted Gross Income (AGI) called the
``payback rate.''
(ii) A borrower's monthly payment is equal to the borrower's AGI
multiplied by the payback rate, divided by 12 months. However, a
borrower's monthly payment is never larger than 20 percent of the
borrower's discretionary income as defined in paragraph (b)(1)(iii) of
this section, divided by 12 months. Additionally, if the monthly
repayment amount is less than $15, the borrower is not required to make
a payment.
(iii) For purposes of this section, discretionary income is defined
as a borrower's AGI minus the amount of the ``HHS Poverty Guideline for
all States (except Alaska and Hawaii) and the District of Columbia'' as
published by the United States Department of Health and Human Services
on an annual basis.1 If a borrower provides documentation
acceptable to the Secretary that the borrower has more than one person
in the borrower's family, the Secretary applies the HHS Poverty
Guideline for the borrower's family size.
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\1\The HHS Poverty Guidelines are available from the Office of
the Assistant Secretary for Planning and Evaluation, Department of
Health and Human Services (HHS), Room 438F, Humphrey Building, 200
Independence Avenue, S.W., Washington, D.C. 20201.
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(2) Payback rate. (i) A borrower's payback rate is based upon the
borrower's Direct Loan debt when the borrower's first loan enters
repayment and does not change unless the borrower obtains another
Direct Loan or the borrower and the borrower's spouse obtain approval
to repay their loans jointly under paragraph (a)(4) of this section. If
the borrower obtains another Direct Loan, a new payback rate for all of
the borrower's Direct Loans is calculated on the basis of the combined
amounts of the loans when the last loan enters repayment. If the
borrower and the borrower's spouse repay the loans jointly, the
provisions under paragraph (b)(3) of this section apply.
(ii) If the total amount of a borrower's Direct Loans is less than
or equal to $1,000, the payback rate is four percent. If the total
amount of a borrower's Direct Loans is greater than $1,000, the payback
rate is four percent plus an additional percent that begins at zero and
increases at a rate of 0.2 percent for each additional $1,000 borrowed
up to a maximum payback rate of 15 percent.
(iii) More specifically, if the total amount of a borrower's Direct
Loans is greater than $1,000, the payback rate is the lesser of 0.15 or
the following: 0.04 + (debt - 1,000) (0.000002).
(3) Exception for certain married borrowers. (i) The combined
monthly payment amount for married borrowers who repay their loans
jointly under paragraph (a)(4) of this section and who repay the
formula amount is the total of the individual monthly payment amounts
for each borrower calculated under paragraph (b)(1)(ii) of this
section.
(ii) The payback rate for each borrower is calculated separately on
the basis of the amount of the outstanding debt on the borrower's
Direct Loans at the time the borrower enters into joint repayment with
the borrower's spouse. For purposes of this paragraph, the Secretary
assumes that the AGI for each borrower is proportionate to the relative
size of the borrower's individual debt.
(iii) For purposes of determining whether a borrower's payment
amount is larger than 20 percent of the borrower's discretionary income
under paragraph (b)(1)(ii), a portion of the appropriate HHS Poverty
Guideline for the borrowers' family size is applied to each borrower in
proportion to the relative size of the individual borrower's debts.
(iv) If the combined monthly repayment amount is less than $15, the
borrowers are not required to make a payment.
(v) The amount of a borrower's individual monthly payment is
applied to the borrower's debt, except that the Secretary credits joint
payments toward interest accrued on any loan before any payment is
credited to principal.
(c) Capped amount. (1) General. If a borrower's monthly payments
calculated under the formula amount as determined in paragraph (b) of
this section are greater than the capped amount calculated under
paragraph (c)(2), the borrower may choose to repay the capped amount.
(2) Calculation of the capped amount. (i) The capped amount is the
amount that a borrower would repay monthly over 12 years using standard
amortization or $15, whichever is greater.
(ii) The amount of the cap is recalculated on an annual basis to
include changes in the variable rate.
(iii) After periods in which a borrower makes payments that are
less than interest accrued on the loan, the amount of the cap is
recalculated. If the new cap is larger than the existing cap, the new
cap is applied. If the new cap is smaller than or equal to the existing
cap, the existing cap is applied.
(3) Exception to the calculation of the capped amount for certain
married borrowers. The capped amount for married borrowers who repay
jointly under paragraph (a)(4) of this section is the same amount as
calculated under paragraph (c)(2) of this section except that the
amount is based on the combined Direct Loan debt of the borrowers.
(d) Other features of the income contingent repayment plan. (1)
Alternative documentation of income. If a borrower's AGI is not
available or if, in the Secretary's opinion, the borrower's reported
AGI does not reasonably reflect the borrower's current income, the
Secretary may use other documentation of income provided by the
borrower to calculate the borrower's monthly repayment amount.
(2) Repayment period. (i) The maximum repayment period under the
income contingent repayment plan is 25 years.
(ii) The repayment period includes periods in which the borrower
makes payments under the standard repayment plan and under extended
repayment plans in which payments are based on a repayment period that
is up to 12 years. The repayment period does not include periods in
which the borrower makes payments under the graduated and alternative
repayment plans or periods of authorized deferment or forbearance. The
repayment period also does not include periods in which the borrower
makes payments under an extended repayment plan in which payments are
based on a repayment period that is longer than 12 years.
(iii) If a borrower repays more than one loan under the income
contingent repayment plan, a separate repayment period for each loan
begins when that loan enters repayment.
(iv) If a borrower has not repaid a loan in full at the end of the
25-year repayment period under the income contingent repayment plan,
the Secretary cancels the unpaid portion of the loan.
(v) At the beginning of the repayment period under the income
contingent repayment plan, a borrower shall make monthly payments of
the amount of interest that accrues on the borrower's Direct Loans
until the Secretary calculates the borrower's monthly repayment amount
on the basis of the borrower's income.
(3) Limitation on capitalization of interest. If the amount of a
borrower's monthly payment is less than the accrued interest, the
unpaid interest is capitalized until the outstanding principal amount
is ten percent greater than the original principal amount. After the
outstanding principal amount is ten percent greater than the original
amount, interest continues to accrue but is not capitalized. For
purposes of this paragraph, the original amount is the amount owed by
the borrower when the borrower enters repayment.
(4) Notification of terms and conditions. When a borrower elects or
is required by the Secretary to repay a loan under the income
contingent repayment plan, the Secretary notifies the borrower of the
terms and conditions of the plan, including--
(i) That the Internal Revenue Service will disclose certain tax
return information to the Secretary or the Secretary's agents; and
(ii) That if the borrower believes that special circumstances
warrant an adjustment to the borrower's repayment obligations, as
described in Sec. 685.209(a)(3), the borrower may contact the Secretary
and obtain the Secretary's determination as to whether an adjustment is
appropriate.
(5) Consent to disclosure of tax return information. (i) A borrower
shall provide written consent to the disclosure of certain tax return
information by the Internal Revenue Service (IRS) to agents of the
Secretary for purposes of calculating a monthly repayment amount and
servicing and collecting a loan under the income contingent repayment
plan. The borrower shall provide consent by signing a consent form,
developed consistent with 26 CFR 301.6103(c)-1 and provided to the
borrower by the Secretary, and shall return the signed form to the
Secretary.
(ii) The borrower shall consent to disclosure of the borrower's
taxpayer identity information as defined in 26 U.S.C. 6103(b)(6), tax
filing status, and AGI.
(iii) The borrower shall provide consent for a period of five years
from the date the borrower signs the consent form. The Secretary
provides the borrower a new consent form before that period expires.
The IRS does not disclose tax return information after the IRS has
processed a borrower's withdrawal of consent.
(iv) The Secretary designates the standard repayment plan for a
borrower who selects the income contingent repayment plan but--
(A) Fails to provide the required written consent;
(B) Fails to renew written consent upon the expiration of the five-
year period for consent; or
(C) Withdraws consent and does not select another repayment plan.
(v) If a borrower defaults and the Secretary designates the income
contingent repayment plan for the borrower but the borrower fails to
provide the required written consent, the Secretary mails a notice to
the borrower establishing a repayment schedule for the borrower.
(Approved by the Office of Management and Budget under control
number 1840-0693)
(Authority: 20 U.S.C. 1087a et seq.)
4. Appendix B is removed, and Appendix A to part 685 is revised to
read as follows:
APPENDIX A--INCOME CONTINGENT REPAYMENT
Examples of the Calculation of Monthly Repayment Amounts
Example 1. A single borrower with $12,500 of Direct Loans and an
Adjusted Gross Income (AGI) of $25,000.
Step 1: Calculate the payback rate. Because the borrower's debt is
greater than $1,000, the payback rate is calculated on the basis of the
formula in Sec. 685.209(b)(2)(iii), as follows:
Subtract $1,000 from the total amount of the borrower's
Direct Loans: ($12,500-$1,000=$11,500).
Multiply the result by 0.000002:
($11,500 x 0.000002=0.023).
Add the result to 0.04: (0.04+0.023=0.063).
The result is the payback rate.
Step 2: Compare the calculated payback rate (0.063) to the maximum
payback rate (0.15). Because the calculated rate is less than the
maximum rate, the borrower's payback rate is 0.063.
Step 3: Calculate the annual repayment amount by multiplying the
borrower's AGI by the payback rate: ($25,000 x 0.063=$1,575).
Step 4: Calculate the monthly repayment amount by dividing the
annual repayment amount by 12 months: ($1,57512=$131.25).
Step 5: Calculate the borrower's discretionary income (AGI minus
HHS Poverty Guideline for a family of one): ($25,000-$7,360=$17,640).
Step 6: Multiply the borrower's discretionary income ($17,640) by
20 percent: ($17,640 x .2=3,528).
Step 7: Divide the amount calculated in Step 6 by 12 months:
($3,52812=$294).
Step 8: Compare the amount calculated in Step 4 ($131.25) with the
amount calculated in Step 7 ($294). The lower amount is the formula
amount. The formula amount is $131.25. The borrower's monthly payment
under the formula amount would be $131.25.
Step 9: Compare the monthly formula amount ($131.25) to the $15
floor repayment amount. Because the formula amount is greater than the
$15 floor, the borrower's monthly formula amount is $131.25.
Step 10: Compare the formula amount calculated in Step 9 ($131.25)
to the capped amount, which is the monthly amount the borrower would
repay under a 12-year standard amortization schedule. If the interest
rate is seven percent, the 12-year standard amortization amount is
approximately $10.28 for every $1,000 of debt. In this example, since
the borrower has $12,500 in debt, the capped amount is approximately
$128.50 ($10.28 x 12.5). Because the formula amount ($131.25) exceeds
the capped amount ($128.50), the capped amount is the minimum monthly
repayment. The borrower has the option of paying the formula amount (or
any higher amount).
Example 2. Married borrowers both repaying under the ICR plan with
a combined Adjusted Gross Income (AGI) of $30,000. The husband has
$5,000 of Direct Loans. The wife has $15,000 of Direct Loans. The
couple has two children.
Step 1: Calculate the husband's payback rate. Because his debt is
greater than $1,000, the payback rate is calculated on the basis of the
formula in Sec. 685.209(b)(2)(iii) as follows:
Subtract $1,000 from the amount of the husband's loans:
($5,000-$1,000=$4,000).
Multiply the result by 0.000002:
($4,000 x 0.000002=0.008).
Add the result to 0.04: (0.04+0.008=0.048).
The result is the husband's payback rate.
Step 2: Compare the husband's calculated payback rate (0.048) to
the maximum payback rate (0.15). Because the calculated rate is less
than the maximum rate, the husband's payback rate is 0.048.
Step 3: Calculate the husband's assumed AGI by multiplying the
couple's total AGI ($30,000) by the amount of the husband's loans
($5,000), divided by the total amount of the couple's debt ($20,000):
($30,000 x $5,000$20,000=$7,500).
Step 4: Calculate the husband's annual repayment amount by
multiplying the husband's assumed AGI ($7,500) by his payback rate
(0.048): ($7,500 x 0.048=$360).
Step 5: Calculate the husband's monthly repayment amount by
dividing his annual repayment amount by 12 months:
($36012=$30).
Step 6: Calculate the couple's discretionary income (AGI minus HHS
Poverty Guideline for a family of four): ($30,000-14,800=$15,200).
Step 7: Calculate the husband's portion of the couple's
discretionary income by multiplying the couple's discretionary income
($15,200) by the amount of the husband's loans ($5,000) divided by the
total amount of the couple's debt ($20,000):
($15,200 x $5,000$20,000=$3,800).
Step 8: Multiply the husband's discretionary income by 20 percent:
($3,800-.2=$760).
Step 9: Divide the amount calculated in Step 8 by 12 months:
($76012=$63.33).
Step 10: Compare the monthly amount calculated in Step 5 ($30) with
the monthly amount calculated in Step 9 ($63.33). The lower amount is
the formula amount. The formula amount is $30. If the borrowers choose
to repay the formula amount, the husband's payment would be $30.
Step 11: Calculate the wife's payback rate. Because her debt is
greater than $1,000, the payback rate is calculated on the basis of the
formula in Sec. 685.209(b)(2)(iii) as follows:
Subtract $1,000 from the amount of the wife's loans:
($15,000-$1,000=$14,000).
Multiply the result by 0.000002:
($14,000 x 0.000002=0.028).
Add the result to 0.04: (0.04+0.028=0.068).
The result is the wife's payback rate.
Step 12: Compare the wife's calculated payback rate (0.068) to the
maximum payback rate (0.15). Because the calculated rate is less than
the maximum rate, the wife's payback rate is 0.068.
Step 13: Calculate the wife's assumed AGI by multiplying the
couple's total AGI ($30,000) by the amount of the wife's loans
($15,000), divided by the total amount of the couple's debt ($20,000):
($30,000 x $15,000$20,000=$22,500).
Step 14: Calculate the wife's annual repayment amount by
multiplying the wife's assumed AGI ($22,500) by her payback rate
(0.068): ($22,500 x 0.068=$1,530).
Step 15: Calculate the wife's monthly repayment amount by dividing
the annual repayment amount calculated in Step 14 ($1,530) by 12
months: ($1,53012=$127.50).
Step 16: Calculate the wife's portion of the couple's discretionary
income by subtracting the husband's portion of the couple's
discretionary income calculated in Step 7 ($3,800) from the couple's
total discretionary income calculated in Step 6 ($15,200):
($15,200-$3,800=$11,400).
Step 17: Multiply the wife's discretionary income ($11,400) by 20
percent: ($11,400 x .2=$2,280).
Step 18: Divide the amount calculated in Step 17 by 12 months:
($2,28012=$190).
Step 19: Compare the monthly amount calculated in Step 15 ($127.50)
with the monthly amount calculated in Step 18 ($190). The lower amount
is the formula amount. The formula amount is $127.50. If the borrowers
choose to repay the formula amount, the wife's payment would be
$127.50.
Step 20: Calculate the couple's combined monthly formula amount by
adding the husband's monthly formula amount calculated in Step 10 ($30)
and the wife's monthly formula amount calculated in Step 19 ($127.50):
($30+$127.50=$157.50).
Step 21: Compare the couple's combined monthly formula amount
($157.50) to the $15 floor repayment amount. Because the combined
formula amount is greater than the $15 floor, the couple's combined
monthly formula amount is $157.50.
Step 22: Compare the formula amount calculated in Step 21 ($157.50)
to the capped amount, which is the amount the couple would repay under
a 12-year standard amortization schedule. If the interest rate is seven
percent, the capped amount is approximately $10.28 for every $1,000 of
debt. In this example, since the couple has $20,000 in debt, the capped
amount is approximately $205.60 ($10.28 x 20). Because the formula
amount ($157.50) does not exceed the capped amount ($205.60), the
couple's combined monthly repayment amount is the formula amount of
$157.50.
Note: The following tables will not appear in the Code of
Federal Regulations.
BILLING CODE 4000-01-P
TR22DE94.001
TR22DE94.002
[FR Doc. 94-31354 Filed 12-21-94; 8:45 am]
BILLING CODE 4000-01-C
