06-5772. William D. Ford Federal Direct Loan Program

AGENCY:

Federal Student Aid, Department of Education.

ACTION:

Notice of the annual updates to the Income Contingent Repayment (ICR) plan formula for 2006.

SUMMARY:

The Secretary announces the annual updates to the ICR plan formula for 2006. Under the William D. Ford Federal Direct Loan (Direct Loan) Program, borrowers may choose to repay their student loans (Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct Consolidation Loan) under the ICR plan, which bases the repayment amount on the borrower's income, family size, loan amount, and interest rate. Each year, we adjust the formula for calculating a borrower's payment to reflect changes due to inflation. This notice contains the adjusted income percentage factors for 2006 and charts showing sample repayment amounts based on the adjusted ICR plan formula. It also contains examples of how the calculation of the monthly ICR amount is performed and a constant multiplier chart for use in performing the calculations. The adjustments for the ICR plan formula contained in this notice are effective from July 1, 2006 to June 30, 2007.

FOR FURTHER INFORMATION CONTACT:

Don Watson, U.S. Department of Education, room 114I2, UCP, 400 Maryland Avenue, SW., Washington, DC 20202-5400. Telephone: [phone].

If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service (FRS) at 1-800-877-8339.

Individuals with disabilities may obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Direct Loan Program borrowers may choose to repay their Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct Consolidation Loan under the ICR plan. The attachment to this notice provides updates to examples of how the calculation of the monthly ICR amount is performed, the income percentage factors, the constant multiplier chart, and charts showing sample repayment amounts.

We have updated the income percentage factors to reflect changes based on inflation. 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 in the Consumer Price Index for all urban consumers from December 2005 to December 2006. Further, we provide examples of monthly repayment amount calculations and two charts that show sample repayment amounts for single and married or head-of-household borrowers at various income and debt levels based on the updated income percentage factors.

The updated income percentage factors, at any given income, may cause a borrower's payments to be slightly lower than they were in prior years. This updated amount more accurately reflects the impact of inflation on a borrower's current ability to repay.

Electronic Access to This Document

You may review this document, as well as all other documents of this Department published in the Federal Register, in text or Adobe Portable Document Format (PDF) on the Internet at the following site: http://www.ed.gov/​news/​federegister.

To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free at 1-888-293-6498; or in the Washington, DC area at [phone].

Note:

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 on GPO Access at: http://www.gpoaccess.gov/​nara/​index.html.

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

Dated: June 23, 2006.

Theresa S. Shaw,

Chief Operating Officer, Federal Student Aid.

Attachment—Examples of the Calculations of Monthly Repayment Amounts

Example 1. This example assumes you are a single borrower with $15,000 in Direct Loans, the interest rate being charged is 6.80 percent, and you have an adjusted gross income (AGI) of $35,260. (The 6.80 percent interest rate used in this example is a fixed interest rate that is charged on all Direct Loans, excluding Direct PLUS Loans and certain Direct PLUS Consolidation Loans, disbursed on or after July 1, 2006; your actual interest rate may be less than or greater than 6.80 percent.)

Step 1: Determine your annual payments based on what you would pay over 12 years using standard amortization. To do this, multiply your loan balance by the constant multiplier for 6.80 percent interest (0.122130). The constant multiplier is a factor used to calculate amortized payments at a given interest rate over a fixed period of time. You can view the constant multiplier chart at the end of this notice to determine the constant multiplier that you should use for the interest rate on your loan. If your exact interest rate is not listed, use the next highest rate for estimation purposes.

• 0.122130 × $15,000 = $1,831.95.

Step 2: Multiply the result of Step 1 by the income percentage factor shown in the income percentage factors table that corresponds to your income and then divide the result by 100 (if your income is not listed in the income percentage factors table, calculate the applicable income percentage factor by following the instructions under the “Interpolation” heading later in this notice):

• 88.77 × $1,831.95 ÷ 100 = $1,626.22.

Step 3: Determine 20 percent of your discretionary income (your discretionary income is your AGI minus the U.S. Department of Health and Human Services (HHS) Poverty Guideline amount for your family size). Because you are a single borrower, subtract the poverty level for a family of one, as published in the Federal Register on January 24, 2006 (71 FR 3848), from your AGI and multiply the result by 20 percent:

• $35,260 − $9,800 = $25,460.
• $25,460 × 0.20 = $5,092.00.

Step 4: Compare the amount from Step 2 with the amount from Step 3. The lower of the two will be your annual payment amount. In this example, you will be paying the amount calculated under Step 2. To determine your monthly repayment amount, divide the annual amount by 12.

• $1,626.22 ÷ 12 = $135.52.

Example 2. In this example, you are married. You and your spouse have a combined AGI of $66,631 and are repaying your loans jointly under the ICR plan. You have no children. You have a Direct Loan balance of $10,000, and your spouse has a Direct Loan balance of $15,000. Your interest rate is 6.80 percent. (The 6.80 percent interest rate used in this example is a fixed interest rate that is charged on all Direct Loans, excluding Direct PLUS Loans and certain Direct PLUS Consolidation Loans, disbursed on or after July 1, 2006; your actual interest rate may be less than or greater than 6.80 percent.)

Step 1: Add your and your spouse's Direct Loan balances together to determine your aggregate loan balance:

• $10,000 + $15,000 = $25,000.

Step 2: Determine the annual payment based on what you would pay over 12 years using standard amortization. To do this, multiply your loan balance by the constant multiplier for 6.80 percent interest (0.122130). You can view the constant multiplier chart at the end of this notice to determine the constant multiplier that you should use for the interest rate on your loan. If your exact interest rate is not listed, use the next highest rate for estimation purposes.

• 0.122130 × $25,000 = $3,053.25.

Step 3: Multiply the result of Step 2 by the income percentage factor shown in the income percentage factors table that corresponds to your and your spouse's income and then divide the result by 100 (if your and your spouse's aggregate income is not listed in the income percentage factors table, calculate the applicable income percentage factor by following the instructions under the “Interpolation” heading later in this notice):

• 109.40 × $3,053.25 ÷ 100 = $3,340.26.

Step 4: Determine 20 percent of your discretionary income. To do this, subtract the poverty level for a family of two, as published in the Federal Register on January 24, 2006 (71 FR 3848), from your combined AGI and multiply the result by 20 percent:

• $66,631 − $13,200 = $53,431.00.
• $53,431.00 × 0.20 = $10,686.20.

Step 5: Compare the amount from Step 3 with the amount from Step 4. The lower of the two will be your annual payment amount. You and your spouse will pay the amount calculated under Step 3. To determine your monthly repayment amount, divide the annual amount by 12.

• $3,340.26 ÷ 12 = $278.36.

Example 3. This example assumes you are a single borrower with $15,000 in Direct Loans, the interest rate being charged is 8.25 percent, and you have an adjusted gross income (AGI) of $28,071. (The 8.25 percent interest rate used in this example is the maximum interest rate that may be charged for all Direct Loans excluding Direct PLUS Loans and certain Direct PLUS Consolidation Loans that were disbursed before July 1, 2006; your actual interest rate may be lower.)

Step 1: Determine your annual payments based on what you would pay over 12 years using standard amortization. To do this, multiply your loan balance by the constant multiplier for 8.25 percent interest (0.131545). The constant multiplier is a factor used to calculate amortized payments at a given interest rate over a fixed period of time. You can view the constant multiplier chart at the end of this notice to determine the constant multiplier that you should use for the interest rate on your loan. If your exact interest rate is not listed, use the next highest rate for estimation purposes.

• 0.131545 × $15,000 = $1,973.18.

Step 2: Multiply the result of Step 1 by the income percentage factor shown in the income percentage factors table that corresponds to your income and then divide the result by 100 (if your income is not listed in the income percentage factors table, calculate the applicable income percentage factor by following the instructions under the “Interpolation” heading later in this notice):

• 80.33 × $1,973.18 ÷ 100 = $1,585.06.

Step 3: Determine 20 percent of your discretionary income (your discretionary income is your AGI minus the HHS Poverty Guideline amount for your family size). Because you are a single borrower, subtract the poverty level for a family of one, as published in the Federal Register on January 24, 2006 (71 FR 3848), from your AGI and multiply the result by 20 percent:

• $28,071 − $9,800 = $18,271.
• $18,271 × 0.20 = $3,654.20.

Step 4: Compare the amount from Step 2 with the amount from Step 3. The lower of the two will be your annual payment amount. In this example, you will be paying the amount calculated under Step 2. To determine your monthly repayment amount, divide the annual amount by 12.

• $1,585.06 ÷ 12 = $132.09.

Example 4. In this example, you are married. You and your spouse have a combined AGI of $53,185 and are repaying your loans jointly under the ICR plan. You have no children. You have a Direct Loan balance of $10,000, and your spouse has a Direct Loan balance of $15,000. Your interest rate is 8.25 percent. (The 8.25 percent interest rate used in this example is the maximum interest rate that may be charged for all Direct Loans excluding Direct PLUS Loans and certain Direct PLUS Consolidation Loans that were disbursed before July 1, 2006; your actual interest rate may be lower.)

Step 1: Add your and your spouse's Direct Loan balances together to determine your aggregate loan balance:

• $10,000 + $15,000 = $25,000.

Step 2: Determine the annual payment based on what you would pay over 12 years using standard amortization. To do this, multiply your aggregate loan balance by the constant multiplier for 8.25 percent interest (0.131545). You can view the constant multiplier chart at the end of this notice to determine the constant multiplier that you should use for the interest rate on your loan. If your exact interest rate is not listed, use the next highest rate for estimation purposes.

• 0.131545 × $25,000 = $3,288.63.

Step 3: Multiply the result of Step 2 by the income percentage factor shown in the income percentage factors table that corresponds to your and your spouse's income and then divide the result by 100 (if your and your spouse's aggregate income is not listed in the income percentage factors table, calculate the applicable income percentage factor by following the instructions under the “Interpolation” heading later in this notice):

• 100.00 × $3,288.63 ÷ 100 = $3,288.63.

Step 4: Determine 20 percent of your discretionary income. To do this, subtract the poverty level for a family of two, as published in the Federal Register on January 24, 2006 (71 FR 3848), from your combined AGI and multiply the result by 20 percent:

• $53,185 − $13,200 = $39,985.
• $39,985 × 0.20 = $7,997.

Step 5: Compare the amount from Step 3 with the amount from Step 4. The lower of the two will be your annual payment amount. You and your spouse will pay the amount calculated under Step 3. To determine your monthly repayment amount, divide the annual amount by 12.

• $3,288.63 ÷ 12 = $274.05.

Interpolation: If your income does not appear on the income percentage factor table, you will have to calculate the income percentage factor through interpolation. For example, assume you are single and your income is $30,000.

Step 1: Find the closest income listed that is less than your income of $30,000 and the closest income listed that is greater than your income of $30,000.

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

• $35,260 − $28,071 = $7,189.

Step 3: Determine the difference between the two income percentage factors that are given for these incomes (for this discussion, we will call the result the “income percentage factor interval”):

• 88.77% − 80.33% = 8.44%.

Step 4: Subtract from your income the closest income shown on the chart that is less than your income of $30,000:

• $30,000 − $28,071 = $1,929.

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

• $1,929 ÷ $7,189 = 0.2683.

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

• 8.44% × 0.2683 = 2.2645%.

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 $30,000 in income:

• 2.2645% + 80.33% = 82.59% (rounded to the nearest hundredth).

The result is the income percentage factor that will be used to calculate the monthly repayment amount under the ICR plan.

Income Percentage Factors for 2006

[Based on annual income]

Single		Married/head of household
Income	Factor (percent)	Income	Factor (percent)
9,218	55.00	9,218	50.52
12,683	57.79	14,544	56.68
16,320	60.57	17,333	59.56
20,040	66.23	22,659	67.79
23,592	71.89	28,071	75.22
28,071	80.33	35,260	87.61
35,260	88.77	44,220	100.00
44,221	100.00	53,185	100.00
53,185	100.00	66,631	109.40
63,922	111.80	89,035	125.00
81,849	123.50	120,404	140.60
115,925	141.20	168,391	150.00
132,919	150.00	275,163	200.00
236,752	200.00

Constant Multiplier Chart for 12-Year Amortization

Interest rate (percent)	Annual constant multiplier
3.500	0.102174
4.000	0.105063
4.500	0.108001
5.000	0.110987
5.500	0.114021
6.000	0.117102
6.800	0.122130
7.000	0.123406
7.900	0.129237
8.000	0.129894
8.250	0.131545