2015-06704. Annual Updates to the Income Contingent Repayment (ICR) Plan Formula for 2015-William D. Ford Federal Direct Loan Program

Catalog of Federal Domestic Assistance (CFDA) Number: 84.063.

AGENCY:

Federal Student Aid, Department of Education.

ACTION:

Notice.

SUMMARY:

The Secretary announces the annual updates to the ICR plan formula for 2015, as required by 34 CFR 685.209(b)(1)(ii)(A), to give notice to Direct Loan borrowers and the public regarding how monthly ICR payment amounts will be calculated for the 2015-2016 year.

DATES:

The adjustments to the income percentage factors for the ICR plan formula contained in this notice are effective from July 1, 2015, to June 30, 2016, for any borrower who enters the ICR plan or has his or her monthly payment amount recalculated under the ICR plan during that period.

FOR FURTHER INFORMATION CONTACT:

Ian Foss, U.S. Department of Education, 830 First Street NE., Room 113H2, Washington, DC 20202. Telephone: [phone] or by email: [e-mail].

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.

SUPPLEMENTARY INFORMATION:

Under the William D. Ford Federal Direct Loan (Direct Loan) Program, borrowers may choose to repay their non-defaulted loans (Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans) under the ICR plan. The ICR plan bases the borrower's repayment amount on the borrower's income, family size, loan amount, and the interest rate applicable to each of the borrower's loans.

A Direct Loan borrower who repays his or her loans under the ICR plan pays the lesser of: (1) The amount that he or she would pay over 12 years with fixed payments multiplied by an income percentage factor or (2) 20 percent of discretionary income.

Each year, to reflect changes in inflation, we adjust the income percentage factor used to calculate a borrower's ICR payment. We use the adjusted income percentage factors to calculate a borrower's monthly ICR payment amount when the borrower initially applies for the ICR plan or when the borrower submits his or her annual income documentation, as required under the ICR plan. This notice contains the adjusted income percentage factors for 2015, examples of how the monthly payment amount in ICR is calculated, and charts showing sample repayment amounts based on the adjusted ICR plan formula. This information is included in the following three attachments:

• Attachment 1—Income Percentage Factors for 2015
• Attachment 2—Examples of the Calculations of Monthly Repayment Amounts
• Attachment 3—Charts Showing Sample Repayment Amounts for Single and Married Borrowers

In Attachment 1, to reflect changes in inflation, we have updated the income percentage factors that were published in the Federal Register on April 21, 2014 (79 FR 22107). Specifically, we have revised the table of income percentage factors by changing the dollar amounts of the incomes shown by a percentage equal to the estimated percentage change between the not-seasonally-adjusted Consumer Price Index for all urban consumers for December 2014 and December 2015.

The income percentage factors reflected in Attachment 1 may cause a borrower's payments to be lower than they were in prior years, even if the borrower's income is the same as in the prior year. However, the revised repayment amount more accurately reflects the impact of inflation on the borrower's current ability to repay.

Accessible Format: Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or compact disc) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT in this section of the notice.

Electronic Access to This Document: The official version of this document is the document published in the Federal Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available via the Federal Digital System at: www.gpo.gov/​fdsys. At this site, you can view this document, as well as all other documents of this Department published in the Federal Register, in text or Adobe Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

Program Authority: 20 U.S.C. 1087 et seq.

Dated: March 19, 2015.

James W. Runcie,

Chief Operating Officer, Federal Student Aid.

Attachment 1—Income Percentage Factors for 2015

Income Percentage Factors for 2015

Single		Married/head of household
Income	% Factor	Income	% Factor
$11,150	55.00	$11,150	50.52
15,342	57.79	17,593	56.68
19,741	60.57	20,965	59.56
24,240	66.23	27,408	67.79
28,537	71.89	33,954	75.22
33,954	80.33	42,648	87.61
42,648	88.77	53,487	100.00
53,488	100.00	64,331	100.00
64,331	100.00	80,596	109.40
77,318	111.80	107,695	125.00
99,003	123.50	145,638	140.60
140,221	141.20	203,682	150.00
160,776	150.00	332,833	200.00
286,370	200.00

Attachment 2—Examples of the Calculations of Monthly Repayment Amounts

General notes about the examples in this attachment:

• We have a calculator that borrowers can use to estimate what their payment amount would be under the ICR plan. The calculator is called the “Repayment Estimator” and is available at StudentAid.gov/repayment-estimator. This calculator provides a detailed, individualized assessment of a borrower's loans and repayment plan options, including the ICR plan.
• The interest rates used in the examples are for illustration only. The actual interest rates on an individual borrower's Direct Loans depend on the loan type and when the postsecondary institution first disbursed the Direct Loan to the borrower.
• The Poverty Guideline amounts used in the examples are from the 2015 U.S. Department of Health and Human Services (HHS) Poverty Guidelines for the 48 contiguous States and the District of Columbia. Different Poverty Guidelines apply to residents of Alaska and Hawaii. The Poverty Guidelines for 2015 were published in the Federal Register on January 22, 2015 (80 FR 3236).
• All of the examples use an income percentage factor corresponding to an adjusted gross income (AGI) in the table in Attachment 1. If your AGI is not listed in the income percentage factors table in Attachment 1, calculate the applicable income percentage by following the instructions under the “Interpolation” heading later in this attachment.
• Married borrowers may repay their Direct Loans jointly under the ICR plan. If a married couple elects this option, we add the outstanding balance on the Direct Loans of each borrower and we add together both borrowers' AGIs to determine a joint ICR payment amount. We then prorate the joint payment amount for each borrower based on the proportion of that borrower's debt to the total outstanding balance. We bill each borrower separately.
• For example, if a married couple, John and Sally, has a total outstanding Direct Loan debt of $60,000, of which $40,000 belongs to John and $20,000 to Sally, we would apportion 67 percent of the monthly ICR payment to John and the remaining 33 percent to Sally. To take advantage of a joint ICR payment, married couples need not file taxes jointly; they may file separately and subsequently provide the other spouse's tax information to the borrower's Federal loan servicer.

Calculating the monthly payment amount using a standard amortization and a 12-year repayment period.

The formula to amortize a loan with a standard schedule (in which each payment is the same over the course of the repayment period) is as follows:

M = P × <(I ÷ 12) ÷ [1−{1 + (I ÷ 12)}⁁−N]>

In the formula—

• M is the monthly payment amount;
• P is the outstanding principal balance of the loan at the time the calculation is performed;
• I is the annual interest rate on the loan, expressed as a decimal (for example, for a loan with an interest rate of 6.8 percent, 0.068); and
• N is the total number of months in the repayment period (for example, for a loan with a 12-year repayment period, 144 months).

For example, assume that Billy has a $10,000 Direct Unsubsidized Loan with an interest rate of 6.8 percent.

Step 1: To solve for M, first simplify the numerator of the fraction by which we multiply P, the outstanding principal balance. To do this divide I, the interest rate, as a decimal, by 12. In this example, Billy's interest rate is 6.8 percent. As a decimal, 6.8 percent is 0.068.

• 0.068 ÷ 12 = 0.005667

Step 2: Next, simplify the denominator of the fraction by which we multiply P. To do this divide I, the interest rate, as a decimal, by 12. Then, add one. Next, raise the sum of the two figures to the negative power that corresponds to the length of the repayment period in months. In this example, because we are amortizing a loan to calculate the monthly payment amount under the ICR plan, the applicable figure is 12 years, which is 144 months. Finally, subtract the result from one.

• 0.068 ÷ 12 = 0.005667
• 1 + 0.005667 = 1.005667
• 1.005667 ⁁ −144 = 0.44319544
• 1−0.44319554 = 0.55680456

Step 3: Next, resolve the fraction by dividing the result from step one by the result from step two.

• 0.005667 ÷ 0.55680456 = 0.01017772

Step 4: Finally, solve for M, the monthly payment amount, by multiplying the outstanding principal balance of the loan by the result of step 3.

• $10,000 × 0.01017772 = $101.78

The remainder of the examples in this attachment will only show the results of the formula.

Example 1. Brenda is single with no dependents and has $15,000 in Direct Subsidized and Unsubsidized Loans. The interest rate on Brenda's loans is 6.80 percent, and she has an AGI of $28,537.

Step 1: Determine the total monthly payment amount based on what Brenda would pay over 12 years using standard amortization. To do this, use the formula that precedes Example 1. In this example, the monthly payment amount would be $152.67.

Step 2: Multiply the result of Step 1 by the income percentage factor shown in the income percentage factors table (see Attachment 1 to this notice) that corresponds to Brenda's AGI. In this example, an AGI of $28,537 corresponds to an income percentage factor of 71.89 percent.

• 0.7189 × $152.66 = $109.75

Step 3: Determine 20 percent of Brenda's discretionary income and divide by 12 (discretionary income is AGI minus the HHS Poverty Guideline amount for a borrower's family size and State of residence). For Brenda, subtract the Poverty Guideline amount for a family of one from her AGI, multiply the result by 20 percent, and then divide by 12:

• $28,537−$11,770 = $16,767
• $16,767 × 0.20 = $3,353.40
• $3,353.40 ÷ 12 = $279.45

Step 4: Compare the amount from Step 2 with the amount from Step 3. The lower of the two will be the monthly ICR payment amount. In this example, Brenda will be paying the amount calculated under Step 2 ($109.75).

Example 2. Joseph is married to Susan and has no dependents. Joseph has a Direct Loan balance of $10,000, and Susan has a Direct Loan balance of $15,000. The interest rate on all of the loans is 6.80 percent.

Joseph and Susan have a combined AGI of $80,596 and are repaying their loans jointly under the ICR plan (for general information regarding joint ICR payments for married couples, see the fifth and sixth bullets under the heading “General notes about the examples in this attachment”).

Step 1: Add Joseph's and Susan's Direct Loan balances to determine their combined aggregate loan balance:

• $10,000 + $15,000 = $25,000

Step 2: Determine the combined monthly payment amount for Joseph and Susan based on what both borrowers would pay over 12 years using standard amortization. To do this, use the formula that precedes Example 1. In this example, the combined monthly payment amount would be $254.44.

Step 3: Multiply the result of Step 2 by the income percentage factor shown in the income percentage factors table (see Attachment 1 to this notice) that corresponds to Joseph and Susan's combined AGI. In this example, the combined AGI of $80,596 corresponds to an income percentage factor of 109.40 percent.

• 1.094 × $254.44 = $278.36

Step 4: Determine 20 percent of Joseph and Susan's combined discretionary income (discretionary income is AGI minus the HHS Poverty Guideline amount for a borrower's family size and State of residence). To do this subtract the Poverty Guideline amount for a family of two from the combined AGI, multiply the result by 20 percent, and divide by 12:

• $80,596−$15,930 = $64,666
• $64,666 × 0.20 = $12,933.20
• $12,933.20 ÷ 12 = $1,077.77

Step 5: Compare the amount from Step 3 with the amount from Step 4. The lower of the two will be Joseph and Susan's joint monthly payment amount. Joseph and Susan will jointly pay the amount calculated under Step 3 ($278.36).

Step 6: Because Joseph and Susan are jointly repaying their Direct Loans under the ICR plan, the monthly payment amount calculated under Step 5 applies to both Joseph and Susan's loans. To determine the amount for which each borrower will be responsible, prorate the amount calculated under Step 4 by each spouse's share of the combined Direct Loan debt. Joseph has a Direct Loan debt of $10,000 and Susan has a Direct Loan Debt of $15,000. For Joseph, the monthly payment amount will be:

• $10,000 ÷ ($10,000 + $15,000) = 40 percent
• 0.40 × $278.36 = $111.34

For Susan, the monthly payment amount will be:

• $15,000 ÷ ($10,000 + $15,000) = 60 percent
• 0.60 × $278.36 = $167.02

Example 3. David is single with no dependents and has $60,000 in Direct Subsidized and Unsubsidized Loans. The interest rate on all of the loans is 6.80 percent, and David's AGI is $33,954.

Step 1: Determine the total monthly payment amount based on what David would pay over 12 years using standard amortization. To do this, use the formula that precedes Example 1. In this example, the monthly payment amount would be $610.66.

Step 2: Multiply the result of Step 1 by the income percentage factor shown in the income percentage factors table (see Attachment 1 to this notice) that corresponds to David's AGI. In this example, an AGI of $33,954 corresponds to an income percentage factor of 80.33 percent.

• 0.8033 × $610.66 = $490.54

Step 3: Determine 20 percent of David's discretionary income and divide by 12 (discretionary income is AGI minus the HHS Poverty Guideline amount for a borrower's family size and State of residence). To do this subtract the Poverty Guideline amount for a family of one from David's AGI, multiply the result by 20 percent, then divide by 12:

• $33,954−$11,770 = $22,184
• $22,184 × 0.20 = $4,436.80
• $4,436.80 ÷ 12 = $369.73

Step 4: Compare the amount from Step 2 with the amount from Step 3. The lower of the two will be David's monthly payment amount. In this example, David will be paying the amount calculated under Step 3 ($369.73).

Interpolation. If an income is not included on the income percentage factor table, calculate the income percentage factor through linear interpolation. For example, assume that Joan is single with an income of $50,000.

Step 1: Find the closest income listed that is less than Joan's income ($50,000) and the closest income listed that is greater than Joan's income ($50,000).

Step 2: Subtract the lower amount from the higher amount (for this discussion we will call the result the “income interval”):

• $53,488−$42,648 = $10,840

Step 3: Determine the difference between the two income percentage factors that correspond to the incomes used in Step 2 (for this discussion, we will call the result the “income percentage factor interval”):

• 100.00 percent−88.77 percent = 11.23 percent

Step 4: Subtract from Joan's income the closest income shown on the chart that is less than Joan's income of $50,000:

• $50,000−$42,648 = $7,352

Step 5: Divide the result of Step 4 by the income interval determined in Step 2:

• $7,352 ÷ $10,840 = 67.82 percent

Step 6: Multiply the result of Step 5 by the income percentage factor interval:

• 11.23 percent × 67.82 percent = 7.62 percent

Step 7: Add the result of Step 6 to the lower of the two income percentage factors used in Step 3 to calculate the income percentage factor interval for $50,000 in income:

• 7.62 percent + 88.77 percent = 96.39 percent (rounded to the nearest hundredth)

The result is the income percentage factor that we will use to calculate Joan's monthly repayment amount under the ICR plan.

Attachment 3—Charts Showing Sample Repayment Amounts for Single and Married Borrowers

Sample First-Year Monthly Repayment Amounts for a Single Borrower

Income	Family Size = 1
	Initial debt
	$10,000	$20,000	$30,000	$40,000	$50,000	$60,000	$70,000	$80,000	$90,000	$100,000
$10,000	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
20,000	63	126	137	137	137	137	137	137	137	137
30,000	78	155	233	304	304	304	304	304	304	304
40,000	89	179	268	358	447	471	471	471	471	471
50,000	100	201	301	401	502	602	637	637	637	637
60,000	102	204	305	407	509	611	712	804	804	804
70,000	110	220	329	439	549	659	769	878	971	971
80,000	117	234	351	469	586	703	820	937	1,054	1,137
90,000	123	246	369	492	614	737	860	983	1,106	1,229
100,000	128	256	384	512	640	768	896	1,024	1,152	1,280

Sample First-Year Monthly Repayment Amounts for a Married or Head-of-Household Borrower

Income	Family Size = 3
	Initial debt
	$10,000	$20,000	$30,000	$40,000	$50,000	$60,000	$70,000	$80,000	$90,000	$100,000
$10,000	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
20,000	0	0	0	0	0	0	0	0	0	0
30,000	73	147	165	165	165	165	165	165	165	165
40,000	88	176	263	332	332	332	332	332	332	332
50,000	100	200	301	401	499	499	499	499	499	499
60,000	102	204	305	407	509	611	665	665	665	665
70,000	107	214	321	428	534	641	748	832	832	832
80,000	113	226	339	452	565	678	791	904	999	999
90,000	119	238	357	476	596	715	834	953	1,072	1,165
100,000	125	250	376	501	626	751	877	1,002	1,127	1,252