[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Proposed Rules]
[Pages 48848-48856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23299]
[[Page 48847]]
_______________________________________________________________________
Part VII
Department of Education
_______________________________________________________________________
34 CFR Part 685
William D. Ford Federal Direct Loan Program; Proposed Rule
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 /
Proposed Rules
[[Page 48848]]
DEPARTMENT OF EDUCATION
34 CFR Part 685
RIN 1840-AC19
William D. Ford Federal Direct Loan Program
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Secretary of Education proposes to amend provisions of the
income contingent repayment plan under the William D. Ford Federal
Direct Loan (Direct Loan) Program regulations. The Secretary is
amending these provisions to provide benefits to borrowers and protect
the taxpayers' interests.
DATES: Comments on the proposed regulations must be received on or
before October 31, 1995.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Ms. Rachel Edelstein, U.S. Department of Education, P.O.
Box 23272, Washington, D.C. 20026-3272. Comments may also be sent via
the internet to: direct____loans@ed.gov.
To ensure that public comments have maximum effect in developing
the final regulations, the Department urges that each comment clearly
identify the specific section or sections of the regulations that the
comment addresses and that comments be in the same order as the
regulations.
Comments that concern information collection requirements must be
sent to the Office of Management and Budget at the address listed in
the Paperwork Reduction Act section of this preamble. A copy of those
comments may also be sent to the Department representative named in the
preceding paragraph.
FOR FURTHER INFORMATION CONTACT:
Ms. Rachel Edelstein, telephone: (202) 708-9406. (Internet address:
direct __loans@ed.gov). 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:
Background
On July 1, 1994, the Secretary published final regulations that
included provisions for the income contingent repayment plan during
Year One of the Direct Loan Program. The Higher Education Act of 1965,
as amended (HEA), directed the Secretary, to the extent practicable, to
develop proposed rules for the Direct Loan Program through a negotiated
rulemaking process for the second and subsequent years of the program
(1995-1996 and beyond). Therefore, following negotiated rulemaking, the
Secretary published a Notice of Proposed Rulemaking on August 18, 1994,
and final regulations on December 1, 1994, both of which included new
provisions for the income contingent repayment plan of the Direct Loan
Program. On December 22, 1994, the Secretary published regulations that
revised the July 1, 1994, regulations to provide that provisions for
income contingent repayment would be identical for Year One and Year
Two of the Direct Loan Program. After a year of administering the
Direct Loan Program, the Secretary proposes to make improvements to the
existing income contingent repayment plan.
Provisions Proposed
These proposed regulations include policies and procedures that
would apply to borrowers who initially select the income contingent
repayment plan under the Director Loan Program when they enter
repayment on or after July 1, 1996 and borrowers who switch into the
income contingent repayment on or after July 1, 1996. To improve the
existing income contingent repayment plan, the Secretary proposes the
following: To revise the income contingent repayment formula so that
payments will increase more significantly as debt increases than under
the current formula; to eliminate the minimum payment amount currently
allowed under regulations so that more borrowers will be in the habit
of repaying regularly; to alter the treatment of married borrowers when
calculating the repayment amount by always including the income of the
borrower and the borrower's spouse so that the Secretary may more
accurately assess the married borrower's ability to repay; and to
require alternative documentation of income for most borrowers in their
first and second years of repayment, because, for most of these
borrowers, the previous year's adjusted gross income (AGI) will not
accurately reflect current income.
Summary of Contents
Revised Repayment Formula
After administering the current income contingent loan repayment
plan, the Secretary is proposing several ways to improve the repayment
formula. The Statement of Managers language included in the Conference
Report on the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-
66) stated that payments should generally be directly proportional to
the amount borrowed in order to discourage over-borrowing. The current
income contingent repayment plan increases borrowers' payments by only
0.2 percent of income per $1,000 borrowed; therefore, increased
borrowing affects monthly repayment amounts only negligibly. For
example, a student who has borrowed $5,000 could continue to borrow
until his or her loan balance reaches almost six times that amount
($29,000) before the repayment amount doubles, and almost 11 times that
amount ($53,000) before the repayment amount triples. Because payments
do not increase significantly with the amount borrowed, the Secretary
believes the current income contingent repayment plan may encourage
over-borrowing.
Under the proposed formula, borrowers' payments would equal the 12-
year amortization repayment amount for their outstanding loans
multiplied by an income percentage factor that varies with annual
income; however, borrowers would never pay more than 20 percent of
their discretionary income. Discretionary income for single borrowers
and single head of household borrowers is defined as adjusted gross
income (AGI) minus $7,087; discretionary income for married borrowers
is AGI minus $8,517. Therefore, under the revised formula, no payment
will be required of single borrowers or single head of household
borrowers with incomes of $7,087 or less, and no payments will be
required of married borrowers with income of $8,517 or less. The
Secretary believes that the threshold income levels discussed above are
reasonable measures for determining discretionary income.
Except for the protection that borrowers never pay more than 20
percent of their discretionary income under the proposed formula, the
formula increases payment amounts directly in proportion to the amount
borrowed. Therefore, payments required under the proposed formula
increase more significantly in relation to amounts borrowed than under
the current formula, and this proposed plan is more likely to
discourage over-borrowing than the current plan.
Under the current formula, payments are a flat percentage of income
for any given debt. Thus, as annual income rises from $10,000 to
$100,000, the expected repayment amount increases by a factor of 10.
This variance is too wide and results in a plan that is not useful for
many borrowers because the monthly repayment amount is too large for
higher income borrowers. The Secretary believes that it would be more
[[Page 48849]]
appropriate to structure a plan so that, for any given debt level, the
highest repayment amounts should be no more than four times the lowest
payments for most borrowers.
Because the new formula uses a factor relative to income and takes
debt into greater consideration, payments are no longer a flat
percentage of income. Under the proposed plan, while payments increase
significantly in relation to amounts borrowed, the highest repayment
amount at any debt level is no more than four times the lowest payment
for that debt level. Limiting the variance in repayment amounts results
in some borrowers at higher income levels repaying a smaller percentage
of total income than borrowers at lower income levels with the same
level of debt; however, the borrowers with higher income levels will
make larger monthly payments than the borrowers with lower income
levels. The income percentage factors ensure that payments increase
with income, that borrowers pay what they can afford to pay, and that
borrowers repay their loans within a reasonable period of time.
Under the existing income contingent repayment plan, borrowers
choose between two repayment formulas. The choice of two repayment
calculation options may have confused borrowers. In addition, under one
of these options, the ``capped amount,'' borrowers repay under an
income contingent repayment plan that does not take income into
account. Under the proposed plan, there is only one repayment formula.
This change would reduce borrower confusion and simplify administration
of the income contingent repayment plan.
In addition to the improvements listed above, for many low- to
middle-income borrowers the proposed formula plan offers lower monthly
payment amounts. For borrowers with annual incomes between $15,000 and
$35,000 and average levels of debt, the revised repayment formula
offers lower monthly repayment amounts than the current plan. However,
the proposed formula does not significantly increase the number of
borrowers who have not paid in full after 25 years. In fact, for
medium- and high-income borrowers, who represent 75 percent of total
borrowers, the percentage who repay within 25 years increases.
Finally, the current plan has been criticized for allowing
borrowers to make monthly payments that are less than interest accrued
(that is, borrowers may go into negative amortization). Recognizing
that borrowers cannot always afford to make payments to cover interest,
the Secretary also understands the importance of avoiding negative
amortization whenever possible. Under the proposed plan, the overall
percentage of borrowers who experience a period of negative
amortization is expected to decrease slightly.
Examples of the calculation of monthly repayment amounts, together
with tables showing the repayment amounts for borrowers at various
income and debt levels, are included in Appendix A to the regulations.
Minimum Payments
Under the current plan, borrowers with a calculated monthly payment
below $15 are not required to make any payment. The Secretary proposes
to change this provision. Instead, all borrowers with a calculated
repayment amount greater than zero would be required to make payments.
Further, the Secretary proposes requiring borrowers with a calculated
repayment amount that is at least 1 cent but less than $2.00 to make a
two dollar payment. The Secretary believes that removing the minimum
payment threshold promotes responsible repayment practices. Even if
borrowers are required to repay only a small amount each month, this
requirement will ensure that borrowers are in the habit of repaying and
remain in contact with the Direct Loan Servicing Center. Under this
approach, borrowers with very low incomes may still have a calculated
monthly payment of zero.
The Secretary also requests comments on establishing a policy
whereby borrowers who are repaying under the income contingent
repayment plan (and who are not in deferment or forbearance) would
always make a monthly payment, even if their calculated monthly
repayment amount is $0. The Secretary solicits comments and supporting
arguments on whether requiring monthly payments of all borrowers would
promote responsible repayment practices and help to prevent defaults.
The Secretary also solicits comments and supporting evidence about what
an appropriate minimum repayment level would be, if one were to be
required.
Treatment of Married Borrowers
Under the current regulations, a married borrower who files a
Federal income tax return separately from his or her spouse is not
required to provide any income information concerning his or her spouse
(unless the spouses are repaying their loans jointly). The Secretary
has determined that this policy may prevent an accurate assessment of
the borrower's ability to repay the loan and may allow for uneven
treatment of married borrowers, depending upon whether they file their
income tax separately or jointly. Section 455(e)(3) of the HEA provides
the Secretary with the authority to obtain additional information
concerning a borrower's income when AGI does not reasonably reflect the
borrower's income. Therefore, in order to assess accurately the
borrower's ability to repay, the Secretary proposes requiring married
borrowers who do not file joint tax returns with their spouses and who
choose to repay under the income contingent repayment plan to obtain a
consent to disclosure of tax information from their spouses. This
policy will ensure that the Secretary obtains the AGI of both the
borrower and the borrower's spouse; the couple's joint AGI will be used
to calculate the borrower's repayment amount. However, the Secretary
would not require a spouse's tax return information if the spouses are
legally separated.
In addition, under the current regulations, for married borrowers
who each have loans and who choose to repay their loans jointly under
the income contingent repayment plan, the Secretary assumes that the
AGI for each married borrower is proportionate to the relative size of
the borrower's individual debt. The Secretary proposes to eliminate the
assumption that the AGI for each married borrower is proportionate to
debt in order to assess more accurately borrowers' ability to repay.
Under the proposed repayment formula, the repayment amounts for married
borrowers who repay jointly are based on their combined AGIs and their
combined debts. A step-by-step calculation of a combined amount is
included as Example 2 in Appendix A.
Married borrowers who each have outstanding balances on Direct
Loans are not required to repay their loans jointly. However, even if
only one borrower chooses to repay under the income contingent
repayment plan, the Secretary will use the AGI of both spouses to
determine the payback rate of the borrower who is repaying under the
income contingent repayment plan.
Cohort of Borrowers Affected by New Plan
When these regulations become effective, this new formula will
apply to borrowers who select the income contingent repayment plan when
they enter repayment and to borrowers who are in other repayment plans
and switch into the income contingent repayment plan on or after July
1, 1996. Borrowers
[[Page 48850]]
who are already in repayment under the income contingent repayment plan
will continue under the current formula, although they will be given
the option of converting to the new formula.
Borrowers in Their First and Second Years of Repayment
The Secretary proposes requiring borrowers who are in their first
and second years of repayment and who are repaying under the income
contingent repayment plan to submit alternative documentation of their
income (that is, other than IRS-reported AGI) to the Secretary, when,
in the Secretary's opinion, the borrower's reported AGI does not
reasonably reflect the borrower's current income. Under current
regulations, the previous year's IRS-reported AGI is used to calculate
the monthly payment amount for all borrowers. However, borrowers in
their first year of repayment have recently left school, and their
incomes while in school were likely lower than their incomes after
leaving school. Therefore, if these borrowers filed taxes while they
were in school, the AGI representing the year prior to the year they
entered repayment would not, in most cases, reflect their current
income and their current ability to repay their loans. In addition,
borrowers may need some time to find their first job after graduation.
Therefore, the AGI the secretary would obtain for the borrower's second
year of repayment still might not reflect current income. As discussed
above, the HEA provides the Secretary with the authority to obtain
additional information concerning a borrower's income when the AGI does
not reasonably reflect the borrower's income (see section 455(e)(3) of
the HEA). The Secretary believes that, for the majority of borrowers,
the AGI will not accurately reflect a borrower's income or ability to
repay during the first and second years of repayment. Therefore, the
Secretary proposes to request alternative documentation of income from
these borrowers under the statutory authority provided in the HEA,
when, in the Secretary's opinion, the borrower's reported AGI does not
reasonably reflect the borrower's current income.
Executive Order 12866
1. Assessment of Costs and Benefits
These proposed regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this proposed regulatory
action.
The plan does not impose unacceptable new costs; it would increase
costs of the Federal Government by an estimated $145 million over 5
years. This increase in costs represents only a 2 percent increase in
overall program costs. Costs increase under this proposed plan because
low-income borrowers make lower payments than under the current formula
and some do not fully repay; in addition, high-income high-debt
borrowers repay their loans more quickly than under the current formula
and, therefore, pay less in interest. Although not reflected in the
cost estimate, this proposal may actually reduce long-term costs
because under the income contingent repayment plan, defaults may
decrease. Defaults may decrease because payments will be more
affordable under the income contingent repayment plan than under other
available repayment plans. The Secretary has determined that the
potential costs associated with the proposed regulations are necessary
for administering the income contingent repayment plan effectively and
efficiently. Burdens specifically associated with information
collection requirements, if any, are explained elsewhere in the
preamble under the heading of Paperwork Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these proposed regulations, the Secretary has
determined that the benefits of the proposed regulations justify the
costs. A further discussion of the benefits and costs of the proposed
regulations is contained in the summary of the provisions proposed.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the title IV, HEA programs.
2. Clarity of the Regulations
Executive Order 12866 requires each agency to write regulations
that are easy to understand.
The Secretary invites comments on how to make these regulations
easier to understand, including answers to questions such as the
following: (1) Are the requirements in the regulations clearly stated?
(2) Do the regulations contain technical terms or other wording that
interferes with their clarity? (3) Does the format of the regulations
(grouping and order of sections, use of headings, paragraphing, etc.)
aid or reduce their clarity? Would the regulations be easier to
understand if they were divided into more (but shorter sections? (A
``section'' is preceded by the symbol ``Sec. '' and a numbered heading;
for example, Sec. 685.209 Income Contingent Repayment Plan.) (4) Is the
description of the proposed regulations in the ``Supplementary
Information'' section of this preamble helpful in the understanding of
the proposed regulations? How could this description be more helpful in
making the proposed regulations easier to understand? (5) What else
could the Department do to make the regulations easier to understand?
A copy of any comments that concern whether these proposed
regulations are easy to understand should also be sent to Stanley
Cohen, Regulations Quality Officer, U.S. Department of Education, 600
Independence Avenue, SW., (Room 5442 FOB-10), Washington, DC. 20202-
2110.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. The regulations will affect borrowers who are in repayment.
They will not have a significant economic impact on any small entities
under the Regulatory Flexibility Act.
Paperwork Reduction Act of 1995
Section 685.209 contains an information collection requirement. As
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
the Department of Education has submitted a copy of this section to the
Office of Management and Budget (OMB) for its review.
Collection of Information
Income Contingent Repayment Plan Consent to Disclosure of Tax
Information form from spouses of married borrowers who file separately
and select the income contingent repayment plan and collection of
alternative documentation of income from borrowers in their first and
second years of repayment, when in the opinion of the Secretary, AGI
does not reasonably reflect a borrower's current income.
[[Page 48851]]
Married Borrowers
Under the current regulations, a married borrower who is not
repaying jointly with his or her spouse is not required to provide any
income information concerning his or her spouse unless the couple files
their taxes jointly. The Secretary proposes requiring all spouses of
married borrowers who choose to repay under income contingent repayment
to complete the Income Contingent Repayment Plan Consent to Disclosure
of Tax Information form. This policy will ensure that the Secretary
obtains the AGI of both the borrower and the borrower's spouse and will
enable to the Secretary to assess more accurately a borrower's ability
to repay.
First and Second Year Borrowers
The Secretary proposes requiring borrowers who are in their first
and second years of repayment and who are repaying under the Income
Contingent Repayment Plan to complete the Income Contingent Repayment
Plan Request of Alternative Documentation of Income Form when, in the
Secretary's opinion, AGI does not reasonably reflect the borrower's
current income.
Spouses of married borrowers would be required to provide consent
to tax disclosure only once every five years. The Secretary estimates
that all first and most second year borrowers would be required to
provide alternative documentation of income annually, while in the
first two years of repayment.
Annual public reporting burden for this collection of information
is estimated to average .32 hours for each of the estimated 230,288
individuals providing information regarding Income Contingent Repayment
Information (total annual reporting burden equals 73,692 hours).
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, room 10235, New Executive
Office Building, Washington, D.C. 20503; Attention: Desk Officer for
U.S. Department of Education.
The Department considers comments by the public on this proposed
collection of information in--
Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the
Department, including whether the information will have practical use;
Evaluating the accuracy of the Department's estimate of
the burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
proposed regulations.
Invitation To Comment
Interested persons are invited to submit comments and
recommendations regarding these proposed regulations. All comments
submitted in response to these proposed regulations will be available
for public inspection, during and after the comment period, in room
4624, Regional Office Building 3, 7th and D Streets SW., Washington,
DC, between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of
each week except federal holidays.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority of the United States.
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.
Dated: September 13, 1995.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number 84.268, William D.
Ford Federal Direct Loan Program)
The Secretary proposes to amend Part 685 of Title 34 of the Code of
Federal Regulations as follows:
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
1. The authority citation continues to read as follows:
Authority: 20 U.S.C. 1087a et seq.
2. Section 685.209 is amended by revising paragraphs (a) and (b);
removing paragraph (c) and redesignating paragraph (d) as paragraph
(c); in newly designated paragraph (c), redesignating paragraphs (c)(2)
through (5) as (c)(4) through (7), respectively; and adding new
paragraphs (c)(2) and (c)(3) to read as follows:
Sec. 685.209 Income contingent repayment plan.
(a) Repayment amount calculation. (1) The amount the borrower would
repay is based upon the borrower's Direct Loan debt when the borrower's
first loan enters repayment, and this basis for calculation 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 (b)(2) of this section. If the borrower obtains another
Direct Loan, the amount the borrower would repay is based on 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
amount the borrowers would repay is based on both borrowers' Direct
Loan debt at the time they enter joint repayment.
(2) The annual amount payable under the income contingent repayment
plan by a borrower is the lesser of--
(i) The amount the borrower would repay annually over 12 years
using standard amortization multiplied by an income percentage factor
that corresponds to the borrower's adjusted gross income (AGI) as shown
in the income percentage factor table in Appendix A; or
(ii) 20 percent of discretionary income.
(3) For purposes of this section, discretionary income is AGI
minus--
(i) For a single borrower, the lowest amount shown in the income
percentage factor table in Appendix A for single borrowers;
(ii) For a single head of household borrower, the lowest amount
shown in the income percentage factor table in Appendix A for head of
household borrowers; or
(iii) For a married borrower, the lowest amount shown in the income
percentage factor table in Appendix A for married borrowers.
(4) For exact incomes not shown in the income percentage factor
table in
[[Page 48852]]
Appendix A, an income percentage factor is calculated, based upon the
intervals between the incomes and income percentage factors shown on
the table.
(5) Each year, the Secretary recalculates the borrower's annual
payment amount based on changes in the borrower's AGI, the variable
interest rate, and the income percentage factors in Table A.
(6) For purposes of the annual recalculation described in paragraph
(a)(4), after periods in which a borrower makes payments that are less
than interest accrued on the loan, the payment amount is recalculated
based upon unpaid accrued interest and the highest outstanding
principal loan amount (including amount capitalized) calculated for
that borrower while paying under the income contingent repayment plan.
(7) For each calendar year after calendar year 1996, the Secretary
publishes in the Federal Register a revised income percentage factor
table reflecting changes based on inflation. This revised table is
developed by changing each of the dollar amounts contained in the table
by a percentage equal to the estimated percentage changes in the
Consumer Price Index (as determined by the Secretary) between December
1995 and the December next preceding the beginning of such calendar
year.
(8) Examples of the calculation of monthly repayment amounts and
tables that show monthly repayment amounts for borrowers at various
income and debt levels are included in Appendix A to this part.
(b) Treatment of married borrowers. (1) A married borrower who
wishes to repay under the income contingent repayment plan and who has
filed an income tax return separately from his or her spouse must
provide his or her spouse's written consent to the disclosure of
certain tax return information under paragraph (c)(5) of this section
(unless the borrower is legally separated from his or her spouse). The
AGI for both spouses is used to calculate the monthly repayment amount.
(2) Married borrowers may repay their loans jointly. The
outstanding balance on the loans of each borrower are added together to
determine the borrowers' payback rate under (a)(1) of this section.
(3) The amount of the payment applied to each borrower's debt is
the proportion of the payments that equals the same proportion as that
borrower's debt to the total outstanding balance, except that the
payment is credited toward outstanding interest on any loan before any
payment is credited toward principal.
(c) * * *
(2) First and second year borrowers. The Secretary requires
alternative documentation of income from borrowers in their first and
second years of repayment, when in the Secretary's opinion, the
borrower's reported AGI does not reasonably reflect the borrower's
current income.
(3) Adjustments to repayment obligations. 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.
* * * * *
3. 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, 8.25
percent interest and an AGI of $25,000.
Step 1: Determine annual payments based on what the borrower
would pay over 12 years using standard amortization. To do this,
multiply the principal balance by the constant multiplier for 8.25%
interest (0.1315452). The constant multiplier is a factor used to
calculate amortized payments at a given interest rate over a fixed
period of time. (See the constant multiplier chart below to
determine the constant multiplier you should use for the interest
rate on the loan. If the exact interest rate is not listed, choose
the next highest rate for estimation purposes.)
0.1315452 x 12,500=1,644.315
Step 2: Multiply the result by the income percentage factor
shown in the income percentage factor table that corresponds to the
borrower's income (if the income is not listed, you can
``interpolate'' by following the instructions under the
interpolation heading below):
85.55% (0.8555) x 1,644.315=1,406.7115
Step 3: Determine 20 percent of discretionary income. To do
this, subtract the lowest income for single borrowers shown in the
income percentage factor table from the borrower's income and
multiply the result by 20%:
$25,000-$7,087=$17,913
$17,913 x 0.20=$3,582.60
Step 4: Compare the amount from step 2 with the amount from step
3. The lower of the two will be the borrower's annual payment
amount. This borrower will be paying the amount calculated under
step 2. To determine the monthly repayment amount, divide the annual
amount by 12.
1,406.711512=$117.23
Example 2. Married borrowers both repaying under the income
contingent repayment plan with a combined Adjusted Gross income
(AGI) of $30,000. The husband has a Direct Loan balance of $5,000,
and the wife has a Direct Loan balance of $15,000.
Step 1: Add the Direct Loan balances of the husband and wife
together to determine the aggregate loan balance.
$5,000+$15,000=$20,000
Step 2: Determine the annual payments based on what the couple
would pay over 12 years using standard amortization. To do this,
multiply the aggregate principal balance by the constant multiplier
for 8.25% interest (0.1315452). (See the constant multiplier chart
to determine the constant multiplier you should use for the interest
rate on the loan. If the exact interest rate is not listed, choose
the next highest rate for estimation purposes.)
0.1315452 x 20,000=2630.904
Step 3: Multiply the result by the income percentage factor
shown in the income percentage factor table that corresponds to the
couple's income (if the income is not listed, you can
``interpolate'' by following the instructions under the
interpolation heading below):
82.74% (0.8274) x 2,630.904=2,176.80997
Step 4: Determine 20 percent of the couple's discretionary
income. To do this, subtract the lowest income for married borrowers
shown in the income percentage factor table from the couple's income
and multiply the result by 20%:
$30,000-$8,517=$21,483
$21,483 x 0.20=$4,296.60
Step 5: Compare the amount from step 3 with the amount from step
4. The lower of the two will be the annual payment amount. The
married borrowers will be paying the amount calculated under step 3.
To determine the monthly repayment amount, divide the annual amount
by 12.
$2,176.8099712=$181.40
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, let's say you
are single and your income is $26,000. To interpolate, you must
first find the interval between the closest income listed that is
less than $26,000 and the closest income listed that is greater than
$26,000 (for this discussion, we'll call the result ``the income
interval''):
$27,122-$25,000=$2,122
Next, find the interval between the two income percentage factors
that are given for these incomes (for this discussion, we'll call
the result, the ``income percentage factor interval''):
88.77-85.55=3.22
Subtract the income shown on the chart that is immediately less than
$26,000 from $26,000:
$26,000-$25,000=1,000
Divide the result by the number representing the income interval:
1,0002,122=0.4713
Multiply the result by the income percentage factor interval:
0.4713 x 3.22=1.52
[[Page 48853]]
Add the result to the lower income percentage factor used to
calculate the income percentage factor interval for $26,000 in
income:
1.52+85.55=87.07%
Income Percentage Factors
[Based on annual income]
----------------------------------------------------------------------------------------------------------------
Single Married Head of Household
----------------------------------------------------------------------------------------------------------------
Income Percent factor Income Percent factor Income Percent factor
----------------------------------------------------------------------------------------------------------------
7,087............ 55.00 8,517 50.52 7,087 50.52
9,752............ 57.79 10,000 52.72 10,000 54.90
10,000........... 58.03 12,678 56.68 11,183 56.68
12,548........... 60.57 15,000 59.29 13,328 59.56
15,000........... 65.42 18,139 62.83 15,000 62.92
15,409........... 66.23 20,000 64.98 17,424 67.79
18,139........... 71.89 23,536 69.07 20,000 72.39
20,000........... 76.44 25,000 72.31 21,585 75.22
21,585........... 80.33 29,127 81.46 25,000 82.87
25,000........... 85.55 30,000 82.74 27,112 87.61
27,112........... 88.77 35,000 90.09 30,000 92.80
30,000........... 93.48 35,434 90.73 34,003 100.00
34,003........... 100.00 40,000 96.87 35,000 100.00
35,000........... 100.00 42,325 100.00 40,000 100.00
40,000........... 100.00 50,000 100.00 40,895 100.00
40,895........... 100.00 52.663 100.00 50,000 108.28
49,152........... 111.80 60,000 106.92 51,233 109.40
50,000........... 112.52 68,787 115.20 60,000 117.34
60,000........... 121.01 70,000 115.76 68,462 125.00
62,935........... 123.50 80,000 120.40 70,000 125.99
70,000........... 128.27 90,000 125.04 80,000 132.46
80,000........... 135.03 94,663 127.20 90,000 138.93
89,137........... 141.20 100,000 128.73 92,583 140.60
90,000........... 141.78 126,822 136.40 100,000 142.49
100,000.......... 148.52 150,000 142.02 129,481 150.00
102,205.......... 150.00 176,713 148.50 150,000 162.50
150,000.......... 179.93 200,000 162.71 200,000 192.95
182,045.......... 200.00 250,000
261,096 193.23
200.00 211,581 200.00
----------------------------------------------------------------------------------------------------------------
Constant Multiplier Chart
Interest Rate....... 7.00% 7.25% 7.43% 7.50% 7.75% 8.00% 8.25% 8.38% 8.50% 8.75% 9.00%
Annual Constant
Multiplier......... 0.1234056 0.1250112 0.126174 0.1266276 0.1282548 0.129894 0.1315452 0.132408 0.1332072 0.123488 0.1365636
BILLING CODE 4000-01-M
[[Page 48854]]
[GRAPHIC][TIFF OMITTED]TP20SE95.003
[[Page 48855]]
[GRAPHIC][TIFF OMITTED]TP20SE95.004
[[Page 48856]]
[GRAPHIC][TIFF OMITTED]TP20SE95.005
[FR Doc. 95-23299 Filed 9-19-95; 8:45 am]
BILLING CODE 4000-01-C
