# Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2015-27143 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** October 30, 2015 - **Citation:** 80 FR 67204 ## Text DEPARTMENT OF EDUCATION 34 CFR Parts 668, 682, and 685 [Docket ID ED-2014-OPE-0161] RIN 1840-AD18 Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Final regulations. SUMMARY: The Secretary amends the regulations governing the William D. Ford Federal Direct Loan (Direct Loan) Program to create a new income-contingent repayment plan in accordance with the President's initiative to allow more Direct Loan borrowers to cap their loan payments at 10 percent of their monthly incomes. The Secretary is also implementing changes to the Federal Family Education Loan (FFEL) Program and Direct Loan Program regulations to streamline and enhance existing processes and provide additional support to struggling borrowers. These regulations will also amend the Student Assistance General Provisions regulations by expanding the circumstances under which an institution may challenge or appeal a draft or final cohort default rate based on the institution's participation rate index. DATES: The regulations are effective July 1, 2016. Implementation date: For the implementation dates of the included regulatory provisions, see the Implementation Date of These Regulations section of this document. FOR FURTHER INFORMATION CONTACT: For further information related to the Servicemembers Civil Relief Act (SCRA), the treatment of lump sum payments made under Department of Defense (DOD) student loan repayment programs for the purposes of public service loan forgiveness, and expanding the use of the participation rate index (PRI) challenge and appeal, Barbara Hoblitzell at (202) 502-7649 or by email at: Barbara.Hoblitzell@ed.gov. For information related to loan rehabilitation, Ian Foss at (202) 377-3681 or by email at: Ian.Foss@ed.gov. For information related to the Revised Pay As You Earn repayment plan, Brian Smith or Jon Utz at (202) 502-7551 or (202) 377-4040 or by email at: Brian.Smith@ed.gov or Jon.Utz@ed.gov. If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339. SUPPLEMENTARY INFORMATION: Executive Summary Purpose of This Regulatory Action: These final regulations will amend the Student Assistance General Provisions regulations governing Direct Loan cohort default rates (CDRs) to expand the circumstances under which an institution may challenge or appeal the potential consequences of a draft or final CDR based on the institution's PRI. In addition, we are implementing changes to the FFEL Program regulations to streamline and enhance existing processes and provide support to borrowers by establishing new procedures for FFEL Program loan holders to identify servicemembers who may be eligible for benefits under the SCRA. The final regulations will also require guaranty agencies to provide FFEL Program borrowers who are in the process of rehabilitating a defaulted loan with information on repayment plans available to them after the loan has been rehabilitated, as well as additional financial and economic education materials. We have also made several technical changes to the loan rehabilitation provisions contained in § 682.405. In addition, the final regulations will add a new income-contingent repayment plan, called the Revised Pay As You Earn repayment plan (REPAYE plan), to § 685.209. The REPAYE plan is modeled on the existing Pay As You Earn repayment plan, and will be available to all Direct Loan student borrowers regardless of when the borrower took out the loans. Finally, the regulations will allow lump sum payments made through student loan repayment programs administered by the DOD to count as qualifying payments for purposes of the Public Service Loan Forgiveness Program. Summary of the Major Provisions of This Regulatory Action: To expand the circumstances under which an institution may challenge or appeal the potential consequences of a draft or official CDR based on the institution's PRI, the final regulations-- • Permit an institution to bring a timely PRI challenge or appeal in any year in which the institution's CDR is less than or equal to 40 percent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years. • Provide that an institution will not lose eligibility based on three years of official CDRs that are less than or equal to 40 percent, but greater than or equal to 30 percent, and will not be placed on provisional certification based on two such rates, if it brings a timely appeal or challenge with respect to any of the relevant rates and demonstrates a PRI less than or equal to 0.0625, provided that the institution has not brought a PRI challenge or appeal with respect to that rate before, and that the institution has not previously lost eligibility or been placed on provisional certification based on that rate. • Provide that a successful PRI challenge with respect to a draft CDR is effective not only in preventing imposition of sanctions upon issuance of the official CDR for that year, but in preventing the institution from being placed on provisional certification or losing eligibility in subsequent years based on the official CDR for that year if the official rate is less than or equal to the draft rate. To reduce the burden on military servicemembers who may be entitled to an interest rate reduction under the SCRA, the final regulations— • Require FFEL Program loan holders to proactively use the authoritative database maintained by the DOD to begin, extend, or end, as applicable, the SCRA interest rate limit of six percent. • Permit a borrower to use a form developed by the Secretary to provide the loan holder with alternative evidence of military service to demonstrate eligibility when the borrower believes that the information contained in the DOD database may be inaccurate or incomplete. In regard to loan rehabilitation, the final regulations— • Assist with the transition to loan repayment for a borrower who rehabilitates a defaulted loan, by requiring a guaranty agency to: Provide each borrower with whom it has entered into a loan rehabilitation agreement with information on repayment plans available to the borrower after rehabilitating the defaulted loan; explain to the borrower how to select a repayment plan; and provide financial and economic education materials to borrowers who successfully complete loan rehabilitation. • Amend § 682.405 with respect to the cap on collection costs that may be added to a rehabilitated loan when it is sold to a new holder and the treatment of rehabilitated loans for which the guaranty agency cannot secure a buyer, to conform with the Higher Education Act of 1965, as amended (HEA). To establish a new, widely available income-contingent repayment plan targeted to the neediest borrowers, the REPAYE regulations— • Provide that, for each year a borrower is in the REPAYE plan, the borrower's monthly payment amount is recalculated based on income and family size information provided by the borrower. If a process becomes available in the future that allows borrowers to give consent for the Department of Education (the Department) to access their income and family size information from the Internal Revenue Service (IRS) or another Federal source, the regulations will allow use of such a process for recalculating a borrower's monthly payment amount. • In the case of a married borrower filing a separate Federal income tax return, use the adjusted gross income (AGI) of both the borrower and the borrower's spouse to calculate the monthly payment amount. A married borrower filing separately who is separated from his or her spouse or who is unable to reasonably access his or her spouse's income is not required to provide his or her spouse's AGI. • Limit the amount of interest charged to the borrower of a subsidized loan to 50 percent of the remaining accrued interest when the borrower's monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization). This limitation applies after the consecutive three-year period during which the Secretary does not charge the interest that accrues on subsidized loans during periods of negative amortization. • Limit the amount of interest charged to the borrower of an unsubsidized loan to 50 percent of the remaining accrued interest when the borrower's monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization). • For a borrower who only has loans received to pay for undergraduate study, provide that the remaining balance of the borrower's loans that have been repaid under the REPAYE plan is forgiven after 20 years of qualifying payments. • For a borrower who has at least one loan received to pay for graduate study, provide that the remaining balance of the borrower's loans that have been repaid under the REPAYE plan is forgiven after 25 years of qualifying payments. • Provide that, if the borrower does not provide the income information needed to recalculate the monthly repayment amount, the borrower is removed from the REPAYE plan and placed in an alternative repayment plan. The monthly payment amount under the alternative repayment plan will equal the amount required to pay off the loan within 10 years from the date the borrower begins repayment under the alternative repayment plan, or by the end date of the 20- or 25-year REPAYE plan repayment period, whichever is earlier. • Allow the borrower to return to the REPAYE plan if the borrower provides the Secretary with the income information for the period of time that the borrower was on the alternative repayment plan or another repayment plan. If the payments the borrower was required to make under the alternative repayment plan or the other repayment plan are less than the payments the borrower would have been required to make under the REPAYE plan, the borrower's monthly REPAYE payment amount will be adjusted to ensure that the excess amount owed by the borrower is paid in full by the end of the REPAYE plan repayment period. • Provide that payments made under the alternative repayment plan will not count as qualifying payments for purposes of the Public Service Loan Forgiveness Program, but may count in determining eligibility for loan forgiveness under the REPAYE plan, the income-contingent repayment plan, the income-based repayment plan, or the Pay As You Earn repayment plan (each of these plans may be referred to as an “income-driven repayment plan” or “IDR plan”) if the borrower returns to the REPAYE plan or changes to another income-driven repayment plan. Costs and Benefits: As further detailed in the Regulatory Impact Analysis, the benefits of these regulations, which will require guaranty agencies to provide additional information to borrowers in the process of rehabilitating a defaulted loan, include a reduction of the risk that a borrower will re-default on a loan after having successfully completed loan rehabilitation. Student borrowers will benefit from the availability of the REPAYE plan that makes an IDR plan with payments based on 10 percent of income available to borrowers regardless of when they borrowed. The changes to the SCRA provisions should reduce the burden on servicemembers and ensure the correct application of the six percent interest rate limit. Additionally, the changes to the PRI challenges and appeals process may encourage more institutions to participate in the loan program, giving their students additional options to finance their education at those institutions. There will be costs incurred by guaranty agencies under these regulations. In particular, guaranty agencies will be required to make information about repayment plans available to borrowers during the rehabilitation process. On July 9, 2015, the Secretary published a notice of proposed rulemaking (NPRM) for these parts in the Federal Register (80 FR 39607). 1 The final regulations contain changes from the proposed regulations, which are fully explained in the Analysis of Comments and Changes section of this final rule. 1 The NPRM is available at www.gpo.gov/fdsys/pkg/FR-2015-07-09/html/2015-16623.htm. Implementation Date of These Regulations: Section 482(c) of the HEA requires that regulations affecting programs under title IV of the HEA be published in final form by November 1, prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier and the conditions for early implementation. Consistent with the Department's objective to ensure all borrowers with Federal student loans can use a loan repayment plan that caps their monthly payments at an affordable amount, the Secretary is exercising his authority under section 482(c) to implement the new and amended regulations specific to the REPAYE repayment plan included in this document in December 2015. The implementation of the regulations that expand availability of PRI challenges and appeals from the potential consequences of an institution's CDR is predicated on the automated support that will be provided through the implementation of the Data Challenges and Appeals Solutions (DCAS) system within the Department's Federal Student Aid office. The DCAS system is slated for implementation in 2017. We will publish a separate Federal Register document to announce when we are ready to implement these regulations. The Secretary has not designated any of the remaining provisions in these final regulations for early implementation. Therefore, the remaining final regulations included in this document are effective July 1, 2016. Public Comment: In response to our invitation in the NPRM, 2,919 parties submitted comments on the regulations. We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the final regulations to which they pertain. Generally, we do not address technical or other minor changes. We received many recommendations from commenters to make other changes to the Federal student loan programs. Generally, we do not address recommendations that are out of the scope of this regulatory action, or that would require statutory changes, in this preamble. Analysis of Comments and Changes: An analysis of the comments and of any changes in the regulations since publication of the NPRM follows. General Comment: The majority of commenters expressed strong support for the proposed regulations. They stated that these regulations would: Protect colleges with low borrowing rates from sanctions triggered by high CDRs; increase the efficacy of PRI challenges and appeals to encourage colleges to continue offering Federal student loans; help ensure that military servicemembers benefit from the interest rate cap provided under the SCRA; help ensure that borrowers who are rehabilitating their loans make an informed decision about which repayment plan to select after successfully rehabilitating their loans; help borrowers by creating a repayment plan that allows all Direct Loan student borrowers to cap their monthly payments at 10 percent of their discretionary income, and prevents ballooning loan balances by limiting interest accrual for borrowers with low income relative to their debt; and provide that lump sum payments made on borrowers' behalf directly to the Department through student loan repayment programs administered by the DOD are counted as qualifying payments for public service loan forgiveness. Discussion: We appreciate the support from the overwhelming majority of commenters. Changes: None. Implementation Comment: Several commenters urged the Department to implement the change to the PRI challenge and appeal processes in 2015, rather than in February 2017. Some commenters suggested that delaying the implementation of the regulations to coincide with the launch of the DCAS system would decrease the effectiveness of the change and result in missed opportunities to assure institutions continue to participate in the Direct Loan program. Several commenters opined that the number of schools with borrowing rates low enough to qualify for a PRI challenge or appeal due to CDRs that would trigger sanctions was so low as to suggest that the Department would not experience any increased burden in processing these challenges and appeals without the support of the DCAS system. Discussion: We agree that only a relatively small number of institutions are likely to qualify to submit a PRI challenge or appeal due to CDRs that would trigger sanctions. At the current time, however, PRI challenges and appeals, as well as certain other types of challenges and appeals, must be handled through time-consuming manual processes. Due to the number of challenges and appeals that must be processed manually and the need to devote limited resources to processing a high volume of loan servicing appeals, it is not feasible for the Department to implement the regulatory changes to the PRI challenge and appeal process earlier than February 2017, when the DCAS system is scheduled to be implemented. The implementation of the DCAS system will allow the Department to handle PRI challenges and appeals in a timely manner through an automated process. While we appreciate the commenters' interest in accelerating the implementation of this change, we do not agree that the current implementation schedule decreases the effectiveness of the rule change or results in missed opportunities to protect students from having to take out private loans or having to drop out of school. Institutions are currently able to appeal a CDR based on PRI, which enables those institutions that do so successfully to continue to participate in the title IV student aid programs and ensure their students have access to Federal funds. Changes: None. Draft Cohort Default Rates and Your Ability to Challenge Before Official Cohort Default Rates Are Issued (§ 668.204(c)(1)(ii)) Comment: One commenter expressed concern that the regulations did not sufficiently ensure that protections for students are maintained when an institution's default rate has risen to 30 or 40 percent ( i.e., the point at which suspension or sanctions are imposed). While the commenter recognized the benefit this rule would provide to community colleges with low Federal student loan participation rates, the commenter was concerned that it may also allow unscrupulous schools with poor training outcomes the opportunity to delay their suspension or sanction under the title IV programs. The commenter recommended a limited pilot implementation of the PRI challenge and appeals processes with only community colleges to assess the impact before considering expanding the scope of the rule to other institutional sectors. Discussion: Section 435(a)(8) of the HEA requires PRI appeals and challenges, outlines how the PRI is to be computed, and establishes the PRI ceiling applicable to appeals or challenges from statutory sanctions based on three years of CDRs equal to or greater than 30 percent. The statute does not distinguish between institutional sectors with respect to appeals and challenges. The new regulations do not relax the standards for a successful challenge or appeal or change how the PRI is computed. Instead, they provide opportunities for schools to bring their challenges and appeals earlier than in the past, including before the point at which it becomes clear that sanctions would apply absent a successful challenge or appeal. The regulations do not purport to affect the timing of statutory sanctions in the event of an unsuccessful appeal or challenge; that timeline is also set by statute (section 435(a)(2)(A) of the HEA). Indeed, altering the PRI challenge or appeal required by statute to impose a higher hurdle for avoiding sanctions, or to impose sanctions sooner, whether for all institutions or for only some, in the manner suggested by the commenter, would require a statutory change. In addition, the Department would regard regulations providing differential treatment of institutions by sector, even as a pilot, as inappropriate given the absence of such a distinction in the statutory provisions regarding CDRs. Changes: None. Due Diligence in Servicing a Loan (§ 682.208(j)) Comment: One commenter noted that, in other areas of lending covered by the SCRA, creditors often extend voluntary “grace” periods to servicemembers. The commenter suggested that we consider extending application of the SCRA's six percent interest rate to servicemembers for a transitional period after the end of the servicemembers' military service. Discussion: We appreciate the commenter's concern for servicemembers who are transitioning from the SCRA interest rate limit to the regular interest rate that applies to their Federal student loans. Section 427A(m) of the HEA provides that a FFEL lender may charge a borrower interest at a rate less than the rate that is applicable under statute. Accordingly, a FFEL lender may choose to continue to charge the SCRA interest rate for a period after the end of the servicemember's military service. Under the HEA, the Department is required to charge the statutory interest rate on Direct Loans. Changes: None. Comment: One commenter suggested that if a borrower has multiple loans and the application of the SCRA's six percent interest rate limit to one of the loans results in an overpayment of the final remaining balance on the loan, the excess amount should be returned to the borrower rather than applied to his or her other outstanding loans. Discussion: The commenter's suggested treatment of overpayments would be inconsistent with the way the Federal student loan programs are administered. If a borrower has multiple loans with the same servicer and a payment is made that exceeds the amount required to fully pay off one of the loans, the excess amount is not refunded to the borrower. Rather, it is applied to reduce the outstanding balance on the borrower's other loans. We believe this approach is more beneficial to the borrower, as it reduces the borrower's remaining loan debt. Changes: None. Comment: A few commenters suggested that we not use the term “active duty military service” when referring to borrowers who may be eligible for the SCRA six percent interest rate limit. The commenters recommended the regulation use the definition of “military service” in the SCRA at 50 U.S.C. App. 511(2). Discussion: We appreciate the commenters' suggestion and agree that it is more appropriate to use the terminology used in the SCRA. We also agree that the regulations should clearly describe how the SCRA provisions in these regulations apply to National Guard members. Changes: We have replaced the term “active duty” throughout §§ 682.202(a)(8), 682.208(j), and 685.202(a)(11) with the term “military service” and added the definition of the term “military service” in §§ 682.208(j)(10) and 685.202(a)(11). These changes will provide consistency with the language in the SCRA and clarify how the SCRA applies to National Guard members. Comment: One commenter requested that consolidation loans made after a borrower has started a period of military service be made eligible for the SCRA interest rate limit of six percent if the underlying loans were originated prior to the start of the period of military service. Discussion: We appreciate the commenter's concern. However, under the law, a consolidation loan is a new loan and new loans made after a period of military service are not covered by the SCRA for that period of military service. We note that servicemembers who are eligible for the SCRA six percent interest rate limit are not disadvantaged by this treatment. If a borrower obtains a consolidation loan during a period of military service when the interest rate on the loans the borrower is consolidating is reduced to six percent under the SCRA, the interest rate used in determining the weighted average interest rate for the Direct Consolidation Loan will be the six percent SCRA rate rather than the higher statutory rate that would otherwise apply to the loans. Since the interest rate on a Direct Consolidation Loan is a fixed rate, this means that the borrower would effectively lock in the benefit of the lower SCRA interest rate for the life of the consolidation loan. If a borrower consolidates his or her loans prior to beginning a period of military service, the new consolidation loan is subject to the six percent SCRA interest rate limit during any future period of military service. Changes: None. Comment: One commenter suggested that a consolidation loan should not be treated as a new loan unless the loan holder has notified the servicemember of the impact of consolidation on his or her eligibility for the SCRA six percent interest rate limit. Discussion: Under the HEA, borrowers who take out a consolidation loan may lose some benefits available on their prior loans while receiving other benefits offered by the consolidation loan. The current loan consolidation materials that we provide to borrowers include notification of this possibility. We are scheduled to update the Federal Direct Loan Consolidation promissory note during the first quarter of 2016. At that time, we will revise the disclosure regarding the potential loss of benefits to include a specific reference to the SCRA interest rate limit of six percent. However, it is unlikely that a borrower would lose SCRA benefits as a result of consolidation, as discussed in response to the previous comment. Changes: None. Comment: One commenter requested that the Department accept letters from commanders and other military documents as alternative evidence of military service so that servicemembers seeking to demonstrate an error in the information in the Defense Manpower Data Center (DMDC) database are not required to complete a special form. Discussion: We consulted with the DOD and determined that DOD considers the information contained within the Defense Enrollment Eligibility Reporting System (DEERS), which is accessed through the DMDC, to be the definitive record of servicemembers' military service. We also note that the letters or other documents suggested by the commenter could be vulnerable to fraud. Therefore, it is most appropriate that the servicemember work with the DOD to correct his or her DEERS data and, in the meantime, submit the online form to enable application of the SCRA interest rate limit of six percent. Changes: None. Comment: Two commenters requested that the regulation specifically state that loan holders, upon finding evidence of SCRA eligibility, must provide a refund for the benefit retroactive to at least August 14, 2008, or the first date of SCRA eligibility. Discussion: The regulation requires loan holders to apply the SCRA interest rate limit of six percent for the longest period supported by the official electronic database, or by alternative evidence of military duty status provided by the borrower, using the combination of evidence that provides the borrower with the earliest military duty start date on or after August 14, 2008, and the latest military duty end date. In response to a search request, the DMDC provides data for the last 367 days. If the loan holder finds evidence in the database that a borrower had a period of military service within that 367-day period that began earlier, the loan holder would apply the SCRA six percent interest rate limit beginning on the day the period of military service began, but not earlier than August 14, 2008. The SCRA interest rate limit was established by the Higher Education Opportunity Act, which made the SCRA interest rate limit applicable as of the date of its enactment, August 14, 2008. As discussed previously, overpayments resulting from the application of the SCRA six percent interest rate limit will be applied to future loan payments (and these payments will be qualifying payments under the Public Service Loan Forgiveness Program). In the event the application of the SCRA six percent interest rate limit results in payment of all of the borrower's loans in full, any overpayment greater than the de minimus amount of $25 for Federal student loan overpayments would be refunded to the borrower. Changes: None. Comment: One commenter requested clarification that a loan's disbursement date is only relevant to the military service period for which the loan holder is evaluating eligibility for the SCRA interest rate limit of six percent. Discussion: The DOD database provides information regarding periods of military service within a 367-day window prior to the date on which the loan holder queries the database. As long as the loan disbursement date is before the beginning of the military service period reflected in the database, the loans are eligible for the SCRA six percent interest rate. However, if the loan holder has other information showing an earlier service period, the loan holder must apply the SCRA interest rate limit as of the earliest date, on or after August 14, 2008, supported by that evidence. The loan holder is not required to conduct multiple queries of prior periods to determine if the servicemember may have had a previous period of military duty service that coincides with the date(s) the loans were disbursed. Changes: None. Loan Rehabilitation Agreement (§ § 682.405(b)(1)(vi)(B)) Comment: One commenter asked the Department to provide guidance to guaranty agencies that are seeking to assign to the Department otherwise rehabilitated loans for which the guaranty agencies have been unable to secure a buyer. Discussion: Guaranty agencies may continue to contact the Department with specific questions concerning this issue. Changes: None. Revised Pay As You Earn Repayment Plan (REPAYE Plan) Repayment Plans (§ 685.208(a)(2)(iii) and (iv)) Comment: Section 685.208(a)(1)(i)(D) of the regulations provides that Direct Subsidized, Direct Unsubsidized, Direct Subsidized Consolidation Loans, and Direct Unsubsidized Consolidation Loans may be repaid under the REPAYE plan. However, under § 685.208(a)(2)(iv)(D), a Direct PLUS Loan made to a parent borrower, or a Direct Consolidation Loan that repaid a parent PLUS loan, may not be repaid under the REPAYE plan. One commenter noted that, currently, the only way for parent PLUS borrowers to access an income-driven repayment plan is by consolidating their loan(s) into a Direct Consolidation Loan, and repaying that loan under the income-contingent repayment plan described in § 685.209(b). The commenter asserted that this option is often insufficient to meet the needs of many parent PLUS borrowers. The commenter disagreed with the Department's position that we are prohibited from making the REPAYE plan available to parent PLUS borrowers. The commenter argued that there is no basis in the HEA for excluding consolidation loans that include parent PLUS loans from eligibility for the REPAYE plan. The commenter recommended that we modify the REPAYE plan regulations to allow consolidation loans that include parent PLUS loans to be repaid under the REPAYE plan. Several commenters echoed that recommendation. As an alternative, one commenter recommended that we create a process under which a borrower who repaid a parent PLUS loan through a consolidation loan could somehow recreate the parent PLUS loan by removing it from the consolidation loan, so the consolidation loan can be repaid under the REPAYE plan, or be grandfathered into another more affordable repayment plan. The commenter argued that this would help borrowers who consolidated their student loans with parent PLUS loans without understanding the financial consequences. Discussion: Section 455(d)(1)(D) of the HEA, which authorizes the income-contingent repayment (ICR) plans, specifically provides that the ICR plans are not available to parent PLUS borrowers. Although Direct Consolidation Loans that have repaid parent PLUS loans may be repaid through the original ICR plan, they may not be repaid through the income-based repayment (IBR) or Pay As You Earn repayment plans. To maintain consistency with those plans, we have retained that restriction in the REPAYE plan. Contrary to the commenter's suggestion, there is no basis for the Department to “recreate” a PLUS loan that was intentionally repaid by the borrower through consolidation. A loan can be “backed out” of a consolidation loan and reconstituted only if the loan was included in the consolidation loan by error after the borrower requested that the loan not be included. Therefore, the situation described by the commenter would not qualify for this treatment. Changes: None. Comment: Commenters had a variety of suggestions for expanding REPAYE plan eligibility. These commenters recommended making the REPAYE plan available to: • All borrowers, regardless of when they obtained student loans. • Borrowers with government loans disbursed prior to October 2007. • Borrowers with FFEL Program loans who are repaying the loans through the IBR repayment plan • FFEL Stafford Loan borrowers. Discussion: Under the regulations, Direct Loan student borrowers will be able to select the REPAYE plan regardless of when they obtained their Direct Loans. The REPAYE plan does not include the requirement in the Pay As You Earn repayment plan limiting eligibility to loans disbursed after October 1, 2007. While borrowers with FFEL loans may repay those loans under the IBR plan, REPAYE is an ICR plan and is only available to Direct Loan borrowers. Borrowers with FFEL loans may pay their loans under the REPAYE plan if they consolidate their loan(s) into a Direct Consolidation Loan, and then pay the consolidation loan under the REPAYE plan. Changes: None. REPAYE Plan (§ 685.209(c)) Comment: Thousands of student loan borrowers expressed strong support for the REPAYE plan, praising the Department for its efforts to let all Direct Loan borrowers cap their monthly payments at 10 percent of their income, and to prevent ballooning loan balances by limiting interest accrual for borrowers with low incomes relative to their debt. One commenter stated that the REPAYE plan rightly reflects the Department's interest in expanding income-driven repayment to all borrowers, while ensuring that the benefits of an IDR plan remain targeted toward the most at-risk individuals. The commenter also noted that the regulations take important steps to keep the costs of income-based repayment reasonable. The commenter supported the decisions, discussed in more detail in the following sections, to: Not establish a cap on monthly payment amounts to ensure that high-income borrowers pay their fair share; require that payments for married borrowers be based on their combined income; and include provisions to discourage borrowers from intentionally failing to report their income accurately when they experience a significant increase in earnings. Commenters also supported the decision not to require borrowers to have a partial financial hardship (PFH) to select the REPAYE plan. As one commenter noted, this decision allows borrowers to select the REPAYE plan regardless of their debt-to-income ratio, and provides all Direct Loan student borrowers with a repayment plan that allows their payments to reflect their income. Those who earn less will pay less, and those who earn more will pay more. Not all commenters supported the REPAYE plan. One commenter believed that the REPAYE plan would have a minimal beneficial impact on law school graduates. Another commenter questioned the need for establishing a complicated repayment plan, and recommended that the Department make case-by-case loan forgiveness determinations with regard to borrowers who cannot make payments on their loans. Several commenters opposed to the REPAYE plan viewed the plan as a loan forgiveness plan, and argued that it would provide an incentive to institutions to continue the constant escalation of education costs. These commenters felt strongly that individuals should take responsibility for how they choose to pursue and fund their educations, and it should not be the taxpayers' responsibility to pay for those who choose to spend irresponsibly. Discussion: We thank the commenters who expressed support for the REPAYE plan. We acknowledge that the REPAYE plan might not be the best option for all borrowers and encourage law school graduates and all borrowers to learn about their options and select the repayment plan that they believe will work best for them. We understand the desire for a more simplified approach to borrower repayment. But, with millions of student loan borrowers in repayment, it is not practical for the Department to make case-by-case loan forgiveness determinations. We appreciate the concerns raised by several commenters who do not support REPAYE. We agree that borrowers are responsible for repaying their student loans, and we believe that most borrowers repaying their loans under the REPAYE plan will be successful in repaying their loans, in many cases before the end of the 20- or 25-year repayment period. However, we also believe the REPAYE plan will provide relief to struggling borrowers who experience financial difficulties that prevent them from repaying their loans. We note that the REPAYE plan requires 20 or 25 years of qualifying payments before a loan is forgiven. We also note that under the REPAYE plan, while lower-income borrowers will make reduced payments, higher-income borrowers will make increased payments. Given these characteristics of the REPAYE plan, we do not believe the plan will encourage irresponsible over-borrowing by students. Changes: None. Comment: Several commenters expressed significant concerns about the Department's proposal to create a new IDR plan instead of expanding the current Pay As You Earn repayment plan. These commenters believed that adding a new IDR plan to the existing array of repayment plans adds unnecessary complication. The commenters noted that the Department already offers four separate income-driven student loan repayment plans with varying eligibility requirements, costs, and benefits. These commenters noted that the Direct Loan Program continues to generate significant revenue for the Federal government, estimated to total $89 billion over the next ten years. In the commenters' view, regardless of the changes the Department makes to income-driven repayment options, the Federal government will undoubtedly continue to generate revenue from borrowers repaying their student loans. The commenters believed that the Department can and should channel a substantial portion of these revenues into expanding and improving the existing Pay As You Earn repayment plan. They asserted that the Department's goal should be to help as many borrowers as possible, not to maximize government revenue. One commenter noted that, in 2014, President Obama announced his intention to make student loans more affordable by extending the current Pay As You Earn repayment option to an additional five million borrowers with loans too old to qualify under the Pay As You Earn rules. According to this commenter, many financial aid administrators thought that modifications would be made to the current Pay As You Earn repayment plan as a result of the President's announcement. Many commenters preferred this approach, urging the Department to support the extension of the existing Pay As You Earn repayment plan to cover additional borrowers, rather than create the REPAYE plan. Several commenters expressed support for streamlining the multiple IDR plans into one improved IDR plan that would cap monthly payments at 10 percent of income, provide loan forgiveness after 20 years of payments, and target benefits to borrowers who need help the most. These commenters recognized that this would require statutory changes. The commenters believed that the REPAYE plan, with certain modifications, would become an excellent model for Congress to consider when developing a single, streamlined IDR plan. Similarly, another commenter recommended that, instead of creating new processes and options, the Department work towards a unified, simplified standard for borrowers going forward that is less complex and burdensome. Some commenters recommended reducing the number of repayment plans to two: A standard repayment plan and the REPAYE plan as the only income-driven repayment plan. They noted that this would simplify student loan repayment options. One commenter noted that, with the addition of REPAYE, there will be eight different repayment plans with different terms and eligibility requirements. Borrowers will have to navigate many options that look similar but have complex differences that may not be immediately obvious. The commenter contended that an abundance of options with varying terms and benefits can confuse borrowers and make choosing a repayment plan difficult. This commenter believed that providing better information and assistance with making the best choice could help increase the benefits of the REPAYE plan and other income-driven plans. Commenters encouraged the Department to explore streamlining and improving the loan repayment and forgiveness programs that are already in place to ensure borrowers receive clear and thorough information regarding their repayment options. Discussion: We appreciate the commenters' concerns but believe that the best approach is to establish the REPAYE plan as a new ICR repayment plan. If we only modified the existing Pay As You Earn repayment plan to reflect the provisions included in the REPAYE plan, the current Pay As You Earn repayment plan terms and conditions would continue to apply to borrowers who were in the plan before the REPAYE plan provisions became effective. We believe that having two versions of the Pay As You Earn repayment plan with different terms and conditions would be more confusing for borrowers and servicers than having two separate and distinct plans. Contrary to the suggestion by some commenters, the Department's motivation in developing the REPAYE plan is not to maximize government revenue. If that were our goal, the simplest way to achieve it would be to not offer any income-driven repayment plans that provide for loan forgiveness. Instead, our goal with the REPAYE plan is two-fold: to create an income-driven repayment plan that requires a reasonable monthly payment amount from those borrowers who can afford it; and to provide relief to struggling borrowers who may still have large outstanding balances after years of making payments on their student loans. We thank the commenters for their recommendation that the REPAYE plan be the model for a single income-driven repayment plan. However, as the commenters noted, such a change would require congressional action. We reiterate our intention to provide clear, understandable information regarding the various Federal student loan repayment plans, to enable borrowers to make informed choices when selecting repayment plans. Changes: None. Definition of “Adjusted Gross Income” (§ 685.209(c)(1)(i)(A) and (B)) AGI of Married Borrowers Filing Separately Comment: Under the proposed definition of “adjusted gross income (AGI)” in § 685.209(c)(1)(i), for a married borrower filing separately, the AGI for each spouse is combined to calculate the monthly payment amount under the REPAYE plan. Several commenters supported this provision of the REPAYE regulations. The commenters noted that, under the REPAYE plan, married borrowers are treated consistently, regardless of how they file their Federal income taxes. In the Pay As You Earn, IBR, and ICR plans, married borrowers who file their Federal income taxes jointly have their eligibility and payment amounts based on their combined income and combined Federal debt. However, those who file separately exclude their spouse's income from payment calculations, but still include their spouse in their family size, which could result in an artificially low monthly payment. In addition, a married borrower who earns a low income and files taxes separately could have very low or even $0 monthly payments, even if the borrower's spouse is a high income earner. As noted by one commenter, the costs of the REPAYE plan to taxpayers will be kept reasonable by ensuring that married borrowers' incomes are properly captured for purposes of determining the appropriate payment amount. The definition of AGI in the REPAYE regulations ensures that borrowers cannot manipulate the system to qualify for lower payments than other similarly-situated borrowers. One commenter expressed concern that counting the AGI of the spouse for married borrowers who file separately could have unintended consequences. Because the treatment of married borrowers' income under REPAYE would be inconsistent with the treatment in the other income-driven repayment plans, the commenter expressed concern that this may lead to confusion, particularly among struggling borrowers who may already have difficulty navigating the characteristics of the different income-driven repayment plans. The commenter noted that the approach used in the REPAYE plan may lead to higher payments for some married borrowers who file taxes separately for a myriad of practical reasons, and who already accept significant financial consequences as a result of filing separate tax returns. The commenter supported the Department's goal of ensuring that borrowers do not “game” the system. However, the commenter expressed concern that many borrowers whose tax filing decisions are not determined by their title IV loan repayment options will be hurt under the REPAYE plan. The commenter asked whether the Department could adopt for the REPAYE plan the methodology used in the other income-driven repayment plans, with some additional protections, if needed, to prevent abuse. Along these lines, the commenter proposed including an income threshold under which married borrowers filing separately may repay their loans under the REPAYE plan based on their individual incomes. This would ease the difficulty for struggling borrowers while closing a loophole for married borrowers who may be more financially secure than single borrowers. Several commenters were opposed to the proposed definition of AGI. These commenters believed that combining the AGIs of spouses who file separately would encourage borrowers to divorce and continue to cohabitate with the former spouse in order to prevent their student loan payments from increasing. One commenter argued that the provision will lead to the degradation of the concept of marriage by encouraging people to live together unmarried and have children out of wedlock. Another commenter believed that the proposed AGI definition would shift the burden of student loan payments to married couples from single borrowers, increasing married couples' payment requirements under the REPAYE plan. One commenter believed that the proposed AGI definition would, in effect, take the decision to file income taxes separately out of the married couple's hands. Several commenters noted that they acquired their student loan debt before they met their spouse, and did not believe the spouse should be held accountable for their debt. Several commenters noted that a married couple could easily have a financial arrangement in which one spouse does not receive any financial benefit from the other, even if the other has taxable income. One commenter noted that student loan payments based on the combined AGI of borrowers who file separately may not be something that a married couple has budgeted or can afford. Commenters noted that married borrowers who file a separate tax return already lose substantial tax benefits by filing separately with the elimination of various tax deductions and/or credits. Another commenter recommended a uniform AGI calculation for both single and married borrowers, arguing that the tax penalty of filing taxes separately makes the REPAYE plan not helpful for married borrowers in most cases. Some commenters offered counter-proposals to the proposed definition of AGI. One commenter proposed allowing a married borrower the same AGI calculation as a single borrower, provided that the married borrower would not qualify for any student loan forgiveness. Another commenter recommended allowing borrowers in public sector jobs to use their individual AGI for REPAYE calculations regardless of marital status. One commenter proposed combining the AGI of two spouses and dividing that number by two instead of counting all of the spouse's AGI. As an alternative to this proposal the commenter recommended adding one-half of the spouse's AGI to the borrower's AGI. The commenter believed that this approach would recognize that almost all spouses will have expenses of their own, so not all of their income is actually available for repayment of the borrower's student loans. But it would also reflect the fact that, typically, some of a spouse's income is available for this purpose. Commenters also asserted that the spouse's income should not be considered unless the married couple's loans can be added together even if they are from different loan providers, or unless both spouses cosigned the loans. One commenter stated that borrowers who qualify for the REPAYE plan will also qualify for IBR. A borrower who is married to a spouse with, for example, the same amount of AGI as the borrower, and who wanted to avoid the higher repayment under the Department's formula could simply elect IBR instead of the REPAYE plan. The person would pay 15 percent rather than 10 percent of discretionary income, but would still save money compared to using the REPAYE plan. Many married borrowers would thereby be discouraged from using the REPAYE plan. Some commenters suggested that the definition of AGI was not consistent with the law. These commenters asserted that computing the AGI of all married borrowers by adding the incomes of the spouses is inconsistent with 20 U.S.C. 1087e(e)(2), and beyond the statutory authority of the Department. According to the commenters, the Department is only authorized to base the repayment schedule on the AGI of the borrower, unless the borrower files a joint return. Two commenters raised constitutional concerns, asserting that the approach under the REPAYE plan stigmatizes and disincentives marriage and is contrary to both the recent Supreme Court decision that finds a dignity right to marriage and to the classical equal protections afforded by the 14th Amendment. Discussion: We agree with the commenters who supported using the AGI of both spouses when a married couple files separate Federal income tax returns. As noted by the commenters, this provides for more equitable treatment of married borrowers—most of whom file joint income tax returns. As the commenters noted, married borrowers who file separately already lose some tax benefits by filing separately, as they are not able to take advantage of various tax deductions and/or tax credits. The treatment of a spouse's AGI for the purpose of determining the payment amount under the REPAYE plan would simply be another factor that a married couple considers when determining how to file their income tax return. Depending on the couple's circumstances, filing separately may or may not continue to be advantageous for the couple. Either way, a married couple always has the option to either file separately or file jointly. While we acknowledge the commenters' concerns that the proposed treatment of married borrowers may incentivize divorce and cohabitation, it seems highly unlikely that a couple that wishes to marry (or remain married) would give that up for the 20- or 25-year REPAYE repayment period to lower their student loan payments. With regard to borrowers who are currently repaying their loans through IBR or the Pay As You Earn repayment plan, and have budgeted their student loan payments based on only counting the AGI of the borrower, the definition of AGI for purposes of those repayment plans is not changing. The only borrowers affected by the definition of AGI in the REPAYE regulations will be those borrowers who select the REPAYE plan. With regard to some of the other comments that we received on the AGI definition: • We agree that unless the borrowers have a joint consolidation loan, a borrower's spouse is not responsible for paying the borrower's student loan debt. The definition of AGI does not affect that. • The definition of AGI does not shift the burden of student loan payments from single borrowers to married borrowers. The payments made by married borrowers have no impact on the payments made by single borrowers, and vice versa. • There are many differences between the REPAYE plan and the other IDR plans. We believe that the difference with regard to the definition of AGI is fairly easily explained to borrowers, and will not be particularly confusing to struggling borrowers in their choice of an IDR plans. • The definition of AGI recognizes the reality that, to one degree or another, most married borrowers operate as a single economic unit. • We agree that the difference in the treatment of AGI for married borrowers may encourage some borrowers to select or stay in IBR or the Pay As You Earn repayment plan. Our intent in providing a choice of IDR plans is to provide borrowers with the option to choose among repayment plans. We encourage borrowers to select the repayment plan that the borrowers believe works best for them. • We disagree that the treatment of a married couple's income because of a tax filing status chosen by the borrower for purposes of determining student loan payments under a repayment plan voluntarily chosen by the borrower has any impact on the borrower's rights. We appreciate the comments we received suggesting alternative approaches to the treatment of married borrowers who file income taxes separately. The commenter who recommended establishing an income threshold above which married borrowers' payments would be based on their combined AGIs and below which payments would be based on individual AGIs didn't suggest a threshold amount. Any amount that we chose for this purpose could be deemed arbitrary. In addition, such an approach would potentially create a cliff effect, in which a borrower slightly above the threshold would have much higher payments than a borrower slightly below the threshold. The commenter who recommended that we consider only one-half of the spouse's AGI provided no basis for the assumption that that half of a spouse's income would commonly be for the spouse's own expenses. Neither did the commenter provide support for the claim that married couples tend to separate expenses such as food or health care between each spouse, rather than treat them as joint expenses for the married couple. With regard to the commenter's alternative suggestion that we add the AGI of both borrowers and divide by two, we note that, this would significantly reduce the calculated AGI for a high-income borrower with a low-income spouse. We do not agree with the legal arguments made by some commenters. Section 455(e)(2) of the HEA provides that a repayment amount for a Direct Loan repaid under an ICR plan by a borrower who is married and files a joint Federal income tax return with his or her spouse is based on the AGI of both the borrower and the spouse. The statute does not address the situation in which the borrower and his or her spouse file separate Federal income tax returns. Moreover, section 455(e)(1) of the HEA provides that the Secretary may obtain information that is reasonably necessary regarding the income of a borrower and the borrower's spouse if applicable for the purpose of determining the annual repayment obligation of the borrower. Thus, the statute leaves it up to the Secretary to determine what AGI to consider in the case of a married borrower who files a separate income tax return. In fact, between July 1, 1996 and 2012, the payment amount under ICR for married borrowers who filed separate Federal income tax returns was based on the joint AGI. See 34 CFR 685.209(b)(1) (2009). Changes: None. AGI of Married Borrowers Who Are Separated, or Are Unable To Access the Income Information of Their Spouse (§ 685.209(c)(1)(i)(A) and (B)) Comment: Under proposed § 685.209(c)(1)(i)(A) and (B) of the REPAYE regulations, the monthly payment for married borrowers is calculated based on the combined income of the borrower and spouse regardless of how they file Federal tax returns, except for a borrower who is separated from his or her spouse or cannot reasonably access his or her spouse's income information. As one commenter noted, the vast majority of married borrowers file joint tax returns due to the monetary advantage it provides. In this commenter's view, married borrowers who file separately are likely to be estranged from their spouses or otherwise unable to access their spouse's income. In some cases, these tax filers may be survivors of domestic violence. This commenter believed that the Department struck the right balance by allowing these borrowers to self-certify that they are separated from their spouse or are otherwise unable to reasonably access the income information of their spouse, and therefore should have their monthly payments calculated based solely on their own income--but without including the spouse in their household size calculation. Another commenter supported the Department's decision to allow vulnerable married borrowers who file their taxes separately to calculate their REPAYE payment based upon the borrower's adjusted gross income without a cumbersome appeal process. One commenter expressed concern that, by requiring a borrower to certify that he or she is unable to reasonably access the spouse's income information, the requirements to qualify for this exception will place too heavy a burden on the borrowers it is meant to help. The commenter asked the Department to clarify this certification process and confirm that no additional documents or verification will be required for this exemption, to ensure that struggling borrowers are not faced with further hardship. Another commenter expressed concern about the proposed exception, arguing that it would encourage two methods for evading the requirement to add spousal AGI. The commenter suggested that some sophisticated married couples will simply arrange to have separate and secret bank accounts, decline to share pay stubs, and file separate tax returns in order to reduce a borrower's student loan repayments without having to divorce. The commenter suggested that blogs will quickly spread suggestions for how to do this. The commenter also suggested that borrowers who want to evade the requirement will not bother to have their spouse keep separate income information, but will falsely claim that they have no access to such information instead. According to the commenter, if the Department simply accepts such claims, some borrowers will unfairly benefit, and if the Department contests borrower claims that their spouse's income information cannot be accessed, it will lead to controversies and lawsuits at great expense to taxpayers. Discussion: We thank the commenters for their support for the exceptions provided for borrowers who are separated from their spouse, or who are unable to obtain income information from their spouse. As we noted in the NPRM, the certification form will be modeled on a similar certification for individuals completing the Free Application for Federal Student Aid (FAFSA), and we intend to make the process of certifying separation or inability to obtain income information simple and straightforward. The certification will be done through the standard process of applying for the REPAYE plan. It will not require the borrower to appeal an earlier decision, and will not add undue burden or complexity to that process. We note that the strategies suggested by the commenter who raised concerns that some borrowers might try to evade higher payments by hiding income or falsifying the certification form would be fraudulent. We expect that most borrowers would be deterred from falsifying information on a Federal application form by the significant penalties that can be applied. We believe the benefits of providing these exceptions outweigh the costs that could result if some borrowers falsify information in violation of Federal law. Changes: None. Treatment of Recently Separated Borrowers Who Filed Jointly Comment: One commenter asserted that the proposed REPAYE regulations may still cause a hardship for some recently separated borrowers. Under the proposed regulations, a married borrower who has filed a joint tax return but who subsequently separates from his or her spouse is not allowed to self-certify that they are separated at the time of applying for the REPAYE plan. That option is only available to a borrower who is married but files a separate tax return. The commenter argued that a married borrower who filed a joint Federal tax return, but who is separated from his or her spouse at the time of application for the REPAYE plan, should have the option to exclude the spouse's income from the monthly payment amount calculation. The commenter acknowledged that the issue is not the borrower's inability to access income information of the spouse, since the spouses would have already filed a joint tax return. But, the commenter argued, if the borrower is separated from his or her spouse, the borrower would not have the joint resources with which to make the monthly payment amount that would be required under the REPAYE plan. In this situation, in the view of the commenter, the joint tax filing status would unfairly impact the monthly payment amount of the borrower. To exclude the spouse's income from the monthly payment calculation in these cases, the commenter recommended revising the definitions of “adjusted gross income” and “partial financial hardship” in § 685.209(c)(1) and the formula for calculating the monthly payment amount in § 685.209(c)(2)(i). The commenter also recommended that the definition of “family size” be modified to exclude a borrower's spouse if the borrower and the spouse are separated, regardless of whether the borrower and the spouse filed jointly or separately. Discussion: We do not believe it is necessary to provide an exemption for borrowers who have their spouse's income information. It is possible that married borrowers who are separated have not necessarily separated their finances. As one of the non-Federal negotiators during the negotiated rulemaking process noted, sometimes married couples who are legally separated continue to live together. In cases where couples have separated their finances and the joint AGI reported on the borrower's Federal tax return is no longer applicable to the borrower, the borrower may submit alternative documentation of income, as allowed by § 685.209(c)(4)(i)(B). The borrower would be required to provide alternative documentation to the borrower's loan servicer. If the documentation provided is approved by the Department, it would be used in place of the prior year's AGI. This process would most commonly be used in cases where a borrower has lost a job, but the process also would be used for the situation discussed by the commenter, with no need for changes to the regulation. We agree with the commenter that a borrower's spouse should be excluded from the determination of the borrower's family size if the borrower is separated, regardless of the tax filing status of the borrower and the spouse. Changes: We have revised the definition of “family size” in § 685.209(c)(1)(iii) to specify that “family size” does not include the borrower's spouse if the borrower is separated from his or her spouse. Terms of the REPAYE Plan (§ 685.209(c)(2)) Calculating Monthly Payment Amounts Comment: Commenters provided a wide variety of recommendations for modifying the formula for determining a borrower's monthly payment amount. One commenter recommended setting criteria for determining monthly payment amounts that take into consideration the borrowers' income levels, suggesting that we either protect a larger portion of income against which the payment is determined for borrowers with lower wages, or establish progressive loan payment-to-income ratios for borrowers with higher incomes. Other proposals included: • Factoring in private student loan payments. • Using take-home pay, after withholding of taxes, insurance, retirement payments, and other items. • Exempting Social Security income from consideration. • Taking into account judicial actions against the borrower that impact ability to repay (such as alimony or child support orders or Chapter 13 mandated payments). • Factoring in child care costs. • Taking into consideration the debt/loan ratio based on regional markets, such as city/state, instead of using the Federal poverty guidelines. • Considering the cost of living, specifically in high-rent areas where yearly income may not be an adequate reflection of disposable income. • Including house mortgages in the calculation of overall debt burden. • Considering total debt-to-income ratio. One commenter recommended that the REPAYE plan provide an option to reduce the payment amount to 5 percent of AGI, with a 40-year repayment period. Another commenter recommended that the Department lower the payment amount cap to five percent, and take other bills into account. Several commenters recommended that, in establishing a formula for calculating the monthly payment amount, we consider the implications of loan repayment on those who retire at a normal retirement age. One of these commenters recommended restructuring repayment conditions for those who are of normal retirement age or older, to provide for a higher allowance of income not counted toward setting the loan repayment amount, for set-asides such as medical expenses. One commenter noted that income may change from month to month, and suggested that borrowers should not have to file for a loan amount redetermination every month. One commenter recommended excluding a spouse's eligible loans from the determination of the borrower's payment amount when a married borrower files a separate tax return because he or she is separated from his or her spouse or is unable to obtain his or her spouse's income at the time of application for the REPAYE plan. Discussion: The REPAYE plan does take borrower income levels into account, basing payments on a formula using the borrower's AGI and family size, and the poverty guidelines for the State in which the borrower lives. We appreciate the many recommendations for modifications to the formula for determining monthly payment amounts. However, we believe each of the proposed revisions to the formula would be difficult to implement, and would create inconsistencies with the existing income-driven repayment plans that would be confusing for borrowers. The recommendation for an option for a longer repayment period of 40 years would not be consistent with the HEA, which sets a maximum length for the repayment period in an ICR plan at 25 years. Lowering the cap to five percent of disposable income without extending the repayment period, as one commenter suggested, would significantly increase the costs of the REPAYE plan. It would cut in half the monthly payment amounts the Department receives and would increase the amount of the outstanding loan balance that is forgiven at the end of the 20- to 25-year repayment period. The recommendation to “take other bills into account” is too vague for us to address with specificity because the commenter does not identify which types of bills the Department should consider. But any process to reduce the monthly payment amount by subtracting all or some of the borrower's bills from the calculation would be complicated for the Department to administer, and would require borrowers to meet additional documentation requirements both in the initial application process and the recertification process. We do not believe it is necessary to adjust the monthly payment amount formula for borrowers who retire at the standard retirement age. The determination of the monthly repayment amount uses AGI as a measure of income. After a borrower retires, the monthly payment amount calculated based on the borrower's income when the borrower was employed may no longer be applicable. However, the reduction in income will be reflected in the borrower's AGI and will result in a corresponding reduction in the monthly payment amount. Since the payment amount is already limited to 10 percent of the amount by which the AGI exceeds the applicable poverty guideline amount, we do not believe that reducing the payment amount further, by taking into consideration certain expenses for retirees that we do not take into consideration otherwise, is necessary. The comment about incomes changing from month to month may be true in many cases. But some measure of income must be used to determine payments under an income-based repayment plan. We believe AGI is the simplest way to do that, and easiest for borrowers to report. It also accounts for borrowers who may have fluctuating month-to-month incomes, by relying on income for the complete calendar year. We disagree with the comment that recommended excluding a spouse's eligible loans from the determination of the borrower's payment amount when a married borrower files a separate tax return because he or she is separated from his or her spouse or is unable to obtain his or her spouse's income at the time of application for REPAYE. While the spouse's income information may be unavailable to the borrower, the Department will be able to identify the eligible loans owed by the spouse, and take those loans into consideration when making its determinations. Although spouses are not responsible for repaying each other's loans unless the loans have been consolidated, under § 685.209(c)(2)(B), the Department adjusts the monthly payment amount for each borrower based on each borrower's percentage of the couple's total eligible debt. Changes: None. Payment Cap Comment: Several commenters noted that, while the Pay As You Earn repayment plan caps a borrower's monthly payment at the amount the borrower would have paid under the 10-year standard repayment plan, the REPAYE plan does not have a cap on the monthly payment amount. A borrower in the REPAYE plan will pay 10 percent of his or her discretionary income, even if that leads to a higher payment than under a standard repayment plan. While noting that this provision is directed towards ensuring that borrowers pay equitably, commenters expressed concerns that the new regulation could have a negative effect on certain borrowers. One commenter recommended adding a provision requiring the Department to provide a specific and clear notice to borrowers in this situation. The notice would inform borrowers that they are paying more than they might under other payment plans and present them with their other options for repayment. Several commenters supported not including a cap on the payment amount, believing that this change increases program fairness by requiring higher-income borrowers to pay the same share of their income as lower-income borrowers, and by preventing high-debt, high-income borrowers from receiving substantial loan forgiveness when they could afford to pay more. A commenter noted that one concern about the other income-driven payment plans is that individuals whose incomes rise dramatically over time may still receive loan forgiveness because they are never required to pay more than what they would owe under the 10-year standard plan. This raises the costs for the Federal government and targets benefits away from the most at-risk borrowers. The REPAYE plan addresses this issue by removing that payment cap so that high earners will still pay 10 percent of their discretionary income even if that amount is above what they would owe on the standard 10-year plan. The commenter further noted that borrowers in the REPAYE plan will have the option to switch to the standard 10-year plan if they desired, but payments under the standard plan will not count toward forgiveness. The commenter suggested that the REPAYE plan might also be a favorable option for higher-income earners wishing to pay off their loan balance faster than 10 years. One commenter contended that the ability to switch to another repayment plan without penalty defeats the purpose of not having a payment amount cap. A borrower who has a dramatic rise in income could easily switch to another repayment plan to avoid the higher monthly payment. This commenter also noted that high-income borrowers can easily select a different plan at the outset of repayment. One commenter suggested that it might not be beneficial to the Federal government for a high-income borrower to remain in the REPAYE plan. With no monthly payment amount cap, payments by high-income borrowers who remain in REPAYE will accelerate, and the borrower will pay off the loan faster. While this would benefit the borrower, it would correspondingly deprive the Department of additional revenue. The commenter argued that, given the government's low borrowing rates, it would be in the interest of the Department (and taxpayers) to keep these loans outstanding for as long as possible, particularly for borrowers in a negative amortization situation, who are paying the full interest charge. Other commenters opposed the absence of a payment amount cap in the REPAYE plan. One commenter stated that the purpose of the REPAYE plan should be to help relieve the stress borrowers and their families experience from student loan debt. Without a cap on the monthly payment amount, as in other income-driven repayment plans, a borrower will have to pay potentially ever-increasing amounts if the borrower receives a pay raise each year. The commenter contended that this reduces incentives for borrowers to seek higher incomes, especially when Federal and State tax brackets take higher percentages out at higher-income levels. The commenter further argued that a cap on monthly payments would give borrowers and families a better chance at buying other things, such as a house, which would in turn bring more money into local economies. Another commenter proposed making a payment cap available to borrowers working in public service who will be eligible for forgiveness after 10 years. Discussion: We agree with the commenters who supported not having a cap on the monthly payment amount. This feature of the REPAYE plan will help to ensure that the benefits of the plan are targeted to struggling borrowers and ensure that higher-income borrowers repay their loans. We disagree with the comment that high-income earners will switch out of the REPAYE plan, or select a different repayment plan at the outset, rather than pay under the REPAYE plan. Both the IBR plan and the Pay As You Earn repayment plan require a borrower to have a PFH to qualify for the plan. It is unlikely that a high-income borrower would meet this requirement. The standard repayment plan does not have an eligibility criterion based on income but also does not provide for loan forgiveness. Moreover, the Department is not trying to steer borrowers into one repayment plan over another. We believe borrowers should make informed decisions about the repayment plans that they choose, and we encourage borrowers to select the repayment plan that they believe will work best for them. We disagree with the commenter who suggested that it would be more beneficial to the Federal government to keep borrowers in repayment as long as possible. It is not the Department's goal to use income-driven repayment plans to maximize revenues. Our goal for these plans is to provide options to borrowers that make it easier for them to repay their loans. We also disagree with the comment that the absence of a payment cap will reduce incentives for borrowers to seek higher incomes. While a pay raise that results in increased AGI would increase a borrower's monthly payments under the REPAYE plan, few borrowers will forgo a pay raise for that reason. Pay raises frequently result in additional expenses and tax withholding. The commenter did not provide any evidence demonstrating that individuals regularly make a conscious choice not to seek a higher-paying job to avoid the additional expenses that come with a higher income. With regard to borrowers who are making qualifying payments under the Public Service Loan Forgiveness Program, we believe that such borrowers should make payments on their student loans commensurate with their income. High-income borrowers qualifying for public service loan forgiveness could conceivably receive extensive loan forgiveness at the end of their 10 years of qualifying payments. We do not believe such borrowers should have both the benefit of an income-driven repayment plan when their incomes are low, and then have their increased incomes shielded from the monthly payment calculation when their incomes increase. We believe that a notice specifically informing borrowers of the option to switch to another repayment plan could be confusing for borrowers. It could result in borrowers switching to repayment plans that are less beneficial to them, or create misunderstandings and confusion among borrowers. Therefore, we disagree with the recommendation to provide such notices. Changes: None. Negative Amortization Comment: Several commenters supported the proposal to limit the amount of interest charged to borrowers whose monthly payments do not cover accrued interest (“negative amortization”). As in the Pay As You Earn and IBR plans, for borrowers in a negative amortization situation, no unpaid interest accrues on subsidized loans during the first three years a borrower is in the REPAYE plan. In addition, under the REPAYE regulations, if the borrower is in negative amortization, only 50 percent of any unpaid interest will accrue on subsidized loans after the first three years, and only 50 percent of any unpaid interest on unsubsidized loans will accrue at any time. The commenters noted that capping the accrual of unpaid interest for borrowers who are in negative amortization is a targeted benefit that helps minimize the growth of loan balances for borrowers with low incomes relative to their debt. Other commenters believed that adding on 50 percent of the remaining interest cost would still be a hardship to people with incomes at the level of 150 percent to 200 percent of the poverty level. One commenter stated that the assumption that amortization is taking place in the course of loan repayment, so that after several years the amount of interest is low, and that 50 percent of the interest would not be a large amount, is a false assumption. For some borrowers, the accumulation of interest means that after many years of making payments, the current balance is larger than the original amount borrowed. The commenter believed that, for borrowers in this situation, the new rules will result in a slight, but not very significant, discount. As noted by one commenter, even with the amount of unpaid interest each month not covered by the minimum monthly payment being reduced by 50 percent, a borrower might still pay a lot more than the original principal of the loan. According to this commenter, this increase might more than offset the reduced monthly payment on the REPAYE plan (10 percent) versus IBR (15 percent). One commenter believed that, as used in the regulations, the terms “charge,” “accrue,” and “capitalize” are unclear. The commenter expressed concerns that these rules could pose problems for loan servicers, or for borrowers dealing with issues around consolidation, economic hardship, and bankruptcy. Furthermore, the commenter believed that any confusion caused by the use of these terms may make it especially difficult for borrowers to make informed decisions when selecting repayment plans. The commenter proposed defining the terms “charge,” “accrue,” and “capitalize.” Another commenter raised legal objections to proposed § 685.209(c)(2)(iii)(A), which would charge borrowers only half of the interest that accrues but is unpaid after the initial three-year period. According to this commenter, the proposed regulation conflicts with section 455(e)(5) of the HEA, which specifies that the balance due “shall equal the unpaid principal amount of the loan, any accrued interest . . .” The commenter believed that the Secretary's regulatory authority is limited to specifying details of the capitalization of this interest. The commenter also claimed this proposal is moot, as negatively amortized borrowers will have the accrued but unpaid interest forgiven at the end of the repayment term. The commenter believed that this proposed aspect of the REPAYE plan merely adds complexity to an already complicated repayment plan. Discussion: We appreciate the commenters' support for the treatment of negatively amortizing loans in the REPAYE plan. We acknowledge that, even with the “discount” on interest payments provided for in the REPAYE regulations, some borrowers may have a greater amount of interest accrue over time. However, we believe that the treatment of negatively amortizing loans balances the goal of providing some relief to struggling borrowers, while protecting the interests of the taxpayers. We believe the use of the terms “charge,” “accrue,” and “capitalize” in the regulations is clear and consistent with existing regulations and current operational processes. We see no need to define these longstanding student financial aid terms at this time. We do not agree with the legal concerns raised by a commenter. Section 455(e)(5) of the HEA defines how to calculate the balance due on a loan repaid under the ICR plan but does not restrict the Secretary's discretion to define or limit the amounts used in calculating the balance. These regulations reflect the Secretary's regulatory authority to define those terms for purposes of the REPAYE plan. We disagree with the suggestion that all negatively amortized loans will be forgiven at the end of the repayment period. The comment assumes a borrower in negative amortization will remain in that situation for the entire 20 or 25-year repayment period. However, a borrower's income can change significantly over that period of time. A borrower who recovers from the financial difficulties that put the borrower into negative amortization may resume making payments towards principal, and may repay the loan in its entirety by the end of the repayment period. Changes: None. Capitalization of Accrued Interest Comment: Several commenters recommended elimination of the capitalization of interest within the REPAYE plan. Under the proposed regulations, interest would capitalize when a borrower enrolled in the REPAYE plan no longer has a PFH and when he or she switches from the REPAYE plan to another repayment plan. A borrower no longer has a PFH when 10 percent of his or her discretionary income is greater than or equal to the permanent standard payment amount due to changes in his or her income and/or family size. These commenters recommended eliminating the capitalization of interest while a borrower remains in the REPAYE plan because they believe that it adds unnecessary complexity and can increase costs for borrowers whose incomes are low for extended periods of time. In the view of these commenters, given the lack of a standard payment cap and of a PFH requirement for initial eligibility for the REPAYE plan, PFH is no longer a relevant benchmark, but rather is simply a carryover from other IDR plans with different eligibility requirements. Since borrowers' monthly payments in the REPAYE plan are always based on income, there is no need to capitalize interest when their debt-to-income ratio falls below a particular threshold. Under the proposed regulations, the only reason the Department would have to calculate PFH would be to determine whether interest should capitalize at what will be an irrelevant threshold, adding, according to these commenters, unnecessary complexity for the Department and creating confusion for borrowers. The commenters postulated that removing interest capitalization within the REPAYE plan would simplify implementation of the program because the Department would no longer need to treat interest differently under specific scenarios or implement the current 10 percent interest capitalization cap in the REPAYE plan. The commenters also argued that capitalizing interest when borrowers in the REPAYE plan lose their PFH status may increase costs for borrowers whose incomes are low for extended periods of time. The commenters said that borrowers with low incomes relative to their debt are more likely to have monthly payment amounts that do not cover accrued interest. One commenter noted that capitalization is not required by Federal law. The commenter suggested that it is not necessary to charge borrowers additional interest and urged the Department to consider elimination of capitalization in the REPAYE plan, and in all Federal student loan programs. One commenter noted that switching from one plan (such as IBR) to another (such as the REPAYE plan) would result in accrued interest capitalizing, and, as a result a borrower's monthly interest payments could increase significantly. A commenter currently enrolled in IBR with interest that has accrued (but not been capitalized) due to negative amortization asked for clarification regarding what happens to this type of interest if one switches from IBR to REPAYE. The commenter asked if it would be capitalized before the REPAYE monthly payment amount is calculated or if the interest would remain uncapitalized. Another commenter recommended that we not capitalize interest on borrowers switching into the REPAYE plan from a similar income-driven repayment plan. The commenter argued that if it makes sense for someone to switch to the REPAYE plan, any unpaid interest that has accumulated under those programs should not capitalize, since the borrower is simply switching from one income-driven repayment plan to another. As noted by one commenter, under the IBR repayment plan, interest that is accrued but unpaid (due to the payment amount being lower than the total interest due) is capitalized into the loan balance only upon a borrower leaving the IBR plan or ceasing to have a PFH. Thus, as long as a borrower continues to have a PFH and is in the IBR plan, the accrued interest will not be capitalized. However, under the current wording of § 685.221(b)(4), if an existing borrower who has been repaying under the IBR plan elects to take advantage of the new REPAYE plan, he or she would suffer the negative consequence of triggering full capitalization of all interest accrued up to such time. The commenter contended that this could be a significant deterrent to many borrowers in taking advantage of the new REPAYE plan and a potential “trap for the unwary.” One commenter requested that we specify that interest that accrued under the IBR plan would not be capitalized for a borrower who switches from the IBR plan to the REPAYE plan. The commenter asserted that failing to allow borrowers to switch to the REPAYE plan without capitalizing accrued interest will create a significant hardship for many of the borrowers that the REPAYE plan is designed to help. One commenter recommended allowing a one-time switch into the REPAYE plan without capitalizing interest for those that are eligible for the new REPAYE plan. They suggested that a deadline could be added to this one-time switch opportunity. The commenter felt that it is unfair to offer a new repayment plan to people who have already begun repayment, but then penalize them for using it. One commenter requested that we not allow interest to capitalize retroactively when a PFH is no longer demonstrated. The commenter believed that this point is vague in the proposed regulation, but that interest should never capitalize retroactively. The commenter suggested that anyone could no longer have a PFH at any point ( e.g., if they received an inheritance one year), and given that many people have negatively amortizing loans, this could have disastrous consequences. One commenter suggested that student borrowers under the REPAYE plan receive a notice regarding accrued interest in certain circumstances. Specifically, the commenter recommended that the regulations require the Department to clearly describe the role of PFH in the REPAYE plan, notify a borrower when the Department determines that he or she no longer has a PFH, and explain to the borrower whether and how accrued interest will be capitalized in such circumstances. Several commenters recommended ending capitalized interest entirely. In addition, commenters recommended changing the regulations, variously, to eliminate the accrual of interest, lower the accruing interest, freeze the accrual of interest, not accrue interest above minimal payments, waive accrued interest, or not accrue interest while the borrower is in school. Discussion: We agree with the commenters who recommended eliminating capitalization of interest when a borrower paying under the REPAYE plan no longer has a PFH. However, we have retained the requirement to capitalize interest at the time a borrower leaves the REPAYE plan. This is consistent with the treatment of accrued interest when a borrower leaves the IBR plan or the Pay As You Earn repayment plan. We also note that the removal of the provision for capitalizing interest when a borrower is determined to no longer have a PFH does not totally eliminate the possibility of interest capitalization while a borrower is in repayment under the REPAYE plan. As provided in § 685.202(b)(3), unpaid interest will be capitalized upon the expiration of a deferment or forbearance period. As many commenters noted, if a borrower who is currently in the IBR plan or the Pay As You Earn repayment plan had accrued interest on his or her loan and chose to switch from the IBR plan or the Pay As You Earn repayment plan to the REPAYE plan, the interest would be capitalized at the time the borrower leaves the IBR plan or the Pay As You Earn repayment plan. Some commenters stated that this would be a deterrent to such borrowers entering the REPAYE plan. While this may be the case, we note that the primary goal of the REPAYE plan is to allow borrowers who do not qualify for the 10 percent IBR plan or the Pay As You Earn repayment plan to have access to an affordable income-driven repayment plan. In fact, we estimate that most borrowers in those repayment plans will stay in those repayment plans after the REPAYE plan becomes available. (See “Net Budget Impacts.”) Borrowers who are currently in the IBR plan or the Pay As You Earn repayment plan may determine that it is not in their financial interest to switch to the REPAYE plan. Since these borrowers are already on track to have their loans forgiven, we do not believe that it significantly disadvantages these borrowers to retain the requirement that accrued interest be capitalized for borrowers switching from one of those plans to the REPAYE plan. For the same reasons, we do not believe that allowing a one-time switch without capitalizing interest is warranted. With regard to some of the other comments we received relating to capitalization of accrued interest: • When accrued interest is capitalized, it is always done retroactively. Some event, such as leaving a particular repayment plan, triggers capitalization of all interest that has accrued up to that point. • With the elimination of the requirement to capitalize unpaid interest when a borrower ceases to have a PFH, there will be no necessity for the Department to make an annual determination of PFH status, or provide the borrower a notification if the borrower does not have a PFH. • Modifications to how interest accrues on Direct Loans, or the elimination of capitalization of interest altogether, are outside the scope of this regulatory action. Changes: We have removed the provision in proposed § 685.209(c)(2)(iv)(A)( 1 ) that would have required capitalization of unpaid accrued interest when the Secretary determines that a borrower does not have a PFH. We have also removed proposed § 685.209(c)(2)(iv)(B), which would have limited the amount of unpaid interest that is capitalized when a borrower loses PFH status, and the reference to subsequent year PFH determinations in § 685.209(c)(4)(i)(A). In addition, we have removed proposed § 685.209(c)(4)(iv), which provided that the Secretary would send the borrower a written notification that unpaid interest would be capitalized each time the Secretary made a determination that a borrower did not have a PFH, and have redesignated paragraphs (c)(4)(v) through (ix) as paragraphs (c)(4)(iv) through (viii), respectively. Finally, we have made a conforming change to § 685.209(c)(1) by removing the definition of “partial financial hardship.” Comment: Some commenters raised a concern that it would be inappropriate to allow the “importation” of existing accrued but uncapitalized interest into the REPAYE plan, for borrowers who switch from another repayment plan to the REPAYE plan. The commenters noted that under proposed § 685.209(c)(2)(iv), the 10 percent limit on capitalization within the REPAYE plan provides more favorable treatment of unpaid accrued interest than other repayment plans. These commenters believed that requiring capitalization of interest for borrowers who switch to the REPAYE plan would be an appropriate safeguard to prevent “importation” of accrued interest when a borrower switches to the REPAYE plan. In the view of these commenters, the proposed rules provide adequate protection to ensure that a borrower with interest accrued under the IBR plan would not benefit from the more generous capitalization provisions of the REPAYE plan. Discussion: We agree with the commenters that the REPAYE regulations provide appropriate safeguards against accrued interest from other repayment plans being “imported” into the REPAYE plan, with the borrower being given more generous treatment as a result. However, we note that, with the elimination of the capitalization requirement for borrowers who no longer have a PFH, we have also eliminated the 10 percent cap on accrued interest that may be capitalized for such borrowers. Changes: None. Application of Payments (34 CFR 685.209(c)(3)) Comment: One commenter recommended that we mandate that any payments made by borrowers in excess of the monthly amount due be applied to the loan principal. Another commenter recommended that the Department provide borrowers with accounts in good standing incentives for keeping loan payments current. Discussion: The application of payments in the Direct Loan Program is specified in § 685.211. Under § 685.211(a)(3)(i), a prepayment is applied first to any accrued charges and collection costs, then to outstanding interest, and then to outstanding principal. We do not believe that establishing a different application of payments rule for Direct Loans paid under the REPAYE plan is warranted. Under section 455(b)(8)(C) of the HEA, the Department has limited authority to provide payment incentives to certain categories of Direct Loan borrowers. The Department cannot expand on this statutory authority through our regulations. Changes: None. Eligibility Documentation, Verification, and Notifications (§ 685.209(c)(4)) Comment: An overwhelming majority of commenters urged the Department to implement a system whereby a borrower repaying under the REPAYE plan or another income-driven repayment plan could provide advance consent for the Department to automatically obtain the borrower's AGI from the IRS for multiple tax years, so that it would not be necessary for the borrower to submit income documentation each year, as is currently required. Some commenters stated that borrowers should be able to revoke the consent at any time. The commenters believed that a multi-year consent approach would greatly simplify the annual income documentation requirement for borrowers, reduce burden for both borrowers and the Department, and significantly reduce the number of borrowers who fail to provide the required documentation on time and as a result lose eligibility to make payments based on income. Many commenters noted that in the past it was possible for borrowers to provide the Department with a multi-year consent to obtain income information directly from the IRS and believed that this process should be reinstated. Discussion: For all of the reasons cited by the commenters, we strongly agree that allowing borrowers to provide advance consent for the Department to obtain their AGI directly from the IRS for multiple tax years would be preferable to the current process that requires borrowers to submit income documentation each year. As we noted in the NPRM, in an Executive Memorandum dated March 10, 2015, the President instructed the Department to work with the IRS and the U.S. Department of the Treasury to develop and create a multi-year consent process. The Department continues to work closely with these agencies to resolve the issues that currently preclude the use of a multi-year consent process and we intend to implement such a process in the future. We note that the regulations governing the REPAYE plan and the other income-driven repayment plans require a borrower to provide documentation “acceptable to the Secretary” of the borrower's AGI. This language is sufficiently broad to allow for income information to be obtained through a multi-year consent process in the future without regulatory changes. In response to the commenters who noted that borrowers were previously able to provide the Department with multi-year consent to obtain their income information from the IRS, we note that when the process described by the commenters was in place, there was only one income-driven repayment plan (the original ICR Plan) and only one servicer for Direct Loans. After new income-driven repayment plans were established and the Department contracted with additional servicers for Direct Loans, the multi-year consent process was no longer feasible, due to the significant increased complexity. As explained earlier in this discussion, we are working with the IRS and the Department of Treasury to address the issues that forced us to discontinue the prior multi-year consent process, so that a multi-year consent process will be possible for the REPAYE plan. As we do so, we will consider the issues raised by the commenters, including procedures for revocation of consent. Changes: None. Comment: A few commenters asked the Department to revise proposed § 685.209(c)(4)(iii)(B) to allow borrowers more than 10 days following the specified annual deadline to provide their required annual documentation of income and avoid the consequence of being removed from the REPAYE plan and being placed on the alternative repayment plan. One commenter believed that an extension of the deadline would allow for unforeseen delays that a borrower might face or possible deficiencies in notification procedures. Another commenter suggested that giving borrowers 30 days after the annual deadline to provide income documentation would be appropriate. A few commenters expressed support for the Department's plan, announced in the preamble to the NPRM, to conduct a pilot to test enhanced messaging techniques that would help the Department determine whether the current process for notifying borrowers of the annual deadline for providing income documentation should be modified to prevent more borrowers from missing the deadline. One commenter urged the Department to inform the public of the results of the pilot, and to move forward as soon as possible to implement changes based on those results. Discussion: During the negotiated rulemaking sessions, some of the non-Federal negotiators recommended that the Department extend the time after the annual deadline during which a borrower may submit income documentation. As we explained in the NPRM, the Department declined to consider this recommendation, noting that the proposed regulations related to the annual deadline for submitting income documentation were the same as the corresponding regulations for the Pay As You Earn repayment plan that were developed through negotiated rulemaking after extensive discussion. We further noted that, because those regulations have been in effect for less than two years, we did not believe there was sufficient evidence to conclude that the existing timeframes for borrowers to submit income documentation should be modified. This continues to be our view. However, as we also noted in the preamble to the NPRM, we have initiated a pilot project to determine if there may be more effective means of communicating information about the annual deadline to borrowers. The pilot project is still ongoing and will not be completed until after these final regulations are published. Once the project has been completed and the results have been analyzed, the Department will issue an announcement with more information. Changes: None. Comment: One commenter recommended that the annual notification to the borrower described in proposed § 685.209(c)(4)(iii) should explain that a failure to provide income documentation by the annual deadline will result in capitalization of any unpaid accrued interest. The commenter noted that the comparable notification to borrowers in the Pay As You Earn repayment plan under § 685.209(a)(5)(iii)(B) includes this information. Discussion: We agree with the commenter. Changes: We have revised § 685.209(c)(4)(iii)(B) to specify that the notice's description of the consequences if the Secretary does not receive the required income information by the annual deadline will include capitalization of any unpaid accrued interest in accordance with § 685.209(c)(2)(iv). Comment: One commenter asked the Department to confirm that a borrower who is repeatedly late in providing his or her required annual income documentation could be placed on the alternative repayment plan in accordance with proposed § 685.209(c)(4)(vi) more than once, and each time this occurs the borrower's required monthly payment amount under the alternative repayment plan would be recalculated. Discussion: The commenter's understanding is correct. Changes: None. Comment: One commenter strongly recommended that, for greater clarity, the Department restructure proposed § 685.209(c)(4)(vii), which describes the notice that is sent to a borrower who has been placed on an alternative repayment plan due to failure to provide required income documentation by the annual deadline. Specifically, the commenter suggested that we present the provisions in proposed § 685.209(c)(4)(vii)(D) through (G), which describe the requirements that apply to a borrower who wishes to return to the REPAYE plan after being removed from the plan or voluntarily leaving the plan, in a separate section of the regulations. In the commenter's view, the current structure of proposed § 685.209(c)(4)(vii) results in confusing cross-references elsewhere in the REPAYE plan regulations. The commenter noted that, as a result of these changes, we would need to renumber other paragraphs and update cross-references, as appropriate. The same commenter also believed that proposed § 685.209(c)(4)(vii)(D) may be confusing in the context of the lead-in language in proposed § 685.209(c)(4)(vii), which explains the requirements that apply to a borrower who wishes to return to the REPAYE plan after having been removed from that plan due to a failure to provide income information or after voluntarily leaving the plan. The commenter noted that the lead-in language in proposed § 685.209(c)(4)(vii) refers only to borrowers who have been removed from the REPAYE plan and placed on an alternative repayment plan due to a failure to provide income information by the specified annual deadline, yet proposed § 685.209(c)(4)(vii)(D) also covers borrowers who voluntarily chose to leave the plan. Discussion: Although we do not believe it is necessary to restructure proposed § 685.209(c)(4)(vii) as suggested by the commenter, we agree with the commenter that proposed § 685.209(c)(4)(vii)(D) may be confusing in the context of the lead-in language in proposed § 685.209(c)(4)(vii). We have made changes to address this concern. Changes: We have revised redesignated § 685.209(c)(4)(vi)(D) by removing the references to borrowers who have voluntarily changed to a different repayment plan (including borrowers who changed to a different plan after being placed on the alternative repayment plan), and have added language to § 685.209(c)(2)(vi) explaining that borrowers who leave the REPAYE plan because they no longer wish to repay under that plan or borrowers who change to a different repayment plan after being placed on an alternative repayment plan may return to the REPAYE plan under the conditions described in redesignated §§ 685.209(c)(4)(vi)(D) and (E). Comment: One commenter noted that proposed § 685.209(c)(4)(vii)(B) implies, but does not explicitly state, that the notice sent to a borrower who has been placed on an alternative repayment plan will include the alternative repayment plan monthly payment amount. The commenter recommended that the Department revise § 685.209(c)(4)(vii) to clearly state that the notice will include the borrower's new monthly payment amount. Discussion: We agree with the commenter's recommendation. Changes: We have revised redesignated § 685.209(c)(4)(vi) to clarify that the notice sent to a borrower who has been placed on an alternative repayment plan will include the borrower's new monthly payment amount. Comment: One commenter contended that the proposed treatment of borrowers who miss the annual deadline for providing updated income information, as described in proposed § 685.209(c)(4)(vi), is unnecessarily complex and will be difficult for borrowers to understand. The commenter stated that under the Department's proposed approach, a borrower who wishes to return to the REPAYE plan after having been removed due to their failure to provide income documentation would be required to provide what could be years of income documentation and to clear any delinquencies resulting from alternative repayment plan payments. The commenter proposed an alternative approach under which borrowers who miss the annual income documentation deadline would not be removed from the REPAYE plan but instead would remain on the REPAYE plan with a recalculated monthly payment equal to the higher of the 10-year standard repayment plan payment amount based on the borrower's outstanding loan balance at the time he or she entered the REPAYE plan, or the borrower's previous income-driven payment amount under the REPAYE plan based on the most recent income documentation provided. In addition, the commenter proposed that any payments made in the absence of updated income information would not count toward loan forgiveness under the REPAYE plan or the Public Service Loan Forgiveness Program. The commenter noted that excluding such payments from counting toward loan forgiveness would encourage borrowers to submit income documentation on time, and would help prevent borrowers who miss the deadline for providing the income documentation from receiving loan forgiveness under the REPAYE plan or the Public Service Loan Forgiveness Program sooner than they should. Borrowers who never recertify their income under the REPAYE plan would end up paying their loans in full and receiving no loan forgiveness. The same commenter recommended that if the Department maintains the approach described in proposed § 685.209(c)(4)(vi), the calculation of the borrower's required monthly payment under the alternative repayment plan should be revised. Under proposed § 685.209(c)(4)(vi), the monthly payment amount under the alternative repayment plan would be the amount necessary to repay the borrower's loan in full within the earlier of 10 years from the date the borrower begins repayment under the alternative repayment plan, or the ending date of the borrower's 20- or 25-year repayment period as described in § 685.209(c)(5)(i) or (ii). The commenter believed that the alternative plan payment amount should instead be the amount needed to repay the borrower's loan in full by the later of 10 years from the date the borrower begins repayment under the alternative plan, or the ending date of the borrower's 20- or 25-year repayment period. The commenter stated that the Department's proposed approach could require borrowers to make monthly payments under the alternative repayment plan that are much higher than their previous income-based payments, particularly if they have a low income or are near the end of their 20- or 25-year repayment period. The commenter argued that their alternative approach, by providing for a longer repayment period under the alternative repayment plan, would give borrowers a lower alternative plan monthly payment amount than the Department's proposed approach and thus would help borrowers who fail to recertify their income from falling into delinquency due to their inability to afford the alternative plan payment amount. Discussion: We believe it is important to provide a strong incentive for borrowers who wish to continue receiving the benefits offered by the REPAYE plan to provide their annual income information by the specified annual deadline, and to discourage borrowers from purposely withholding income information to avoid the consequences of a higher monthly payment amount resulting from an increase in income. The Department's proposed approach serves this purpose by removing borrowers from the REPAYE plan if they miss the deadline for providing income information, placing them on an alternative repayment plan that requires them to pay the potentially higher amount that will repay their loans in full within the earlier of 10 years from the date the borrower begins repayment under the alternative plan or the ending date of the 20- or 25-year repayment period, and not allowing payments made under the alternative repayment plan to count toward public service loan forgiveness. One alternative suggested by the commenter was to allow borrowers who fail to recertify income to remain on the REPAYE plan with a recalculated monthly payment equal to the higher of the 10-year standard plan payment or the borrower's last income-driven payment amount, and to not count payments made without income documentation toward loan forgiveness under the REPAYE plan or the Public Service Loan Forgiveness Program. However, under this approach, there would be no basis under the law for not counting payments made without income documentation toward REPAYE or public service loan forgiveness. Payments made under an ICR plan are qualifying payments for loan forgiveness purposes under an ICR plan and under the Public Service Loan Forgiveness Program in accordance with section 455(e)(7)(B)(v) and (m)(1)(A)(iv) of the HEA. Under the commenter's proposed alternative approach, payments made without income documentation would still be payments made under the REPAYE plan (an income-contingent repayment plan) and therefore would have to be counted as qualifying payments for loan forgiveness under both the REPAYE plan and the Public Service Loan Forgiveness Program. This would be contrary to the Department's intent of providing a strong incentive for borrowers to provide updated income information by the specified annual deadline. We also note that the Department's approach is more favorable to borrowers than the commenter's alternative in that payments made under an alternative repayment plan will still count as qualifying payments toward income-driven loan forgiveness, if the borrower later returns to the REPAYE plan or another income-driven repayment plan. Changes: None. Comment: One commenter believed that the REPAYE plan regulations will unduly penalize borrowers in public service jobs who miss the annual deadline for submitting income documentation and are placed on an alternative repayment plan, because any payments made by borrowers under the alternative repayment plan are not counted as qualifying payments toward public service loan forgiveness. The commenter stated that the Department did not explain the reason for excluding these payments, and the commenter did not see any reason to exclude them, noting that payments made by borrowers under the Pay As You Earn repayment plan after they have missed the annual income documentation deadline continue to count toward public service loan forgiveness. The commenter added that there is no requirement in the Public Service Loan Forgiveness Program for all 120 qualifying monthly payments to be made under an income-driven repayment plan. The commenter recommended that the Department allow payments made by a borrower under the alternative plan after being removed from the REPAYE plan to count toward public service loan forgiveness. Discussion: In the preamble to the NPRM, we explained our view that, in the absence of a process that allows borrowers to provide consent to access their income information for multiple years, the regulations should provide an incentive for borrowers to comply with the annual income documentation requirement in a timely manner, and should also provide a disincentive for borrowers who might intentionally withhold updated income information when there is a significant increase in their income. Not allowing alternative plan payments to count toward public service loan forgiveness serves these purposes. Moreover, the statutory provisions governing the Public Service Loan Forgiveness Program in section 455(m) of the HEA do not provide for counting payments made under an alternative repayment plan as qualifying payments. In response to the commenter's observation that payments made by borrowers under the Pay As You Earn repayment plan after they have missed the annual income documentation deadline continue to count toward public service loan forgiveness, we note that under the Pay As You Earn repayment plan regulations, borrowers who do not submit their required income documentation by the annual deadline are not removed from the Pay As You Earn repayment plan. Rather, they remain on the Pay As You Earn repayment plan with a recalculated payment amount that is no longer based on their income. These recalculated payments are still made under the Pay As You Earn repayment plan and therefore count toward public service loan forgiveness. The commenter is correct in noting that there is no requirement in the Public Service Loan Forgiveness Program for all 120 qualifying payments to be made under an income-driven repayment plan. Payments made under the standard repayment plan with a 10-year repayment period count toward public service loan forgiveness, as do payments made under other repayment plans, if the payment amount is not less than what would have been paid under the 10-year standard repayment plan. However, as explained earlier, there is no statutory authority for counting payments made under an alternative repayment plan toward public service loan forgiveness. Changes: None. Comment: A number of commenters urged the Department to clarify that payments made under the REPAYE plan will count as qualifying payments for purposes of the Public Service Loan Forgiveness Program. One commenter understood the proposed regulatory language to mean that borrowers employed in public service would have to give up their access to the Public Service Loan Forgiveness Program to reduce their monthly loan payments through the REPAYE plan. Another commenter said that the proposed regulations would discourage public service by excluding payments made under the REPAYE plan from counting toward public service loan forgiveness. A couple of commenters asked the Department to clarify whether payments that a borrower previously made under the IBR plan would continue to count toward public service loan forgiveness if the borrower later changes to the REPAYE plan. One commenter said that the regulations for the REPAYE plan should allow borrowers who received loans prior to October 1, 2007 to qualify retroactively for public service loan forgiveness. Discussion: Some commenters may have misunderstood proposed § 685.209(c)(4)(vii)(G), which stated that payments made under the alternative repayment plan described in proposed § 685.209(c)(4)(vi) will not count toward public service loan forgiveness under § 685.219. This limitation applies only to payments made under the alternative repayment plan after a borrower has been removed from the REPAYE plan due to not meeting the annual income documentation deadline. Payments made under the alternative repayment plan are not REPAYE plan payments. Section 685.219(c)(1)(iv)(B) of the regulations governing the Public Service Loan Forgiveness Program indicates that payments made under an income-contingent repayment plan in § 685.209 are qualifying payments. The REPAYE plan is one of the income-contingent repayment plans in § 685.209, meaning that payments made under that plan, if they otherwise meet the requirements of the Public Service Loan Forgiveness Program, would count as qualifying payments for public service loan forgiveness. We do not believe it is necessary to state in the REPAYE regulations themselves that payments made under that plan count toward public service loan forgiveness, since the appropriate place to describe what constitutes a qualifying payment for public service loan forgiveness is in the regulations that govern the Public Service Loan Forgiveness Program. We note that the regulations governing the Pay As You Earn, ICR, and IBR plans do not specify that payments made under those plans count toward public service loan forgiveness. If a borrower who made qualifying public service loan forgiveness payments on an eligible Direct Loan Program loan under the IBR plan later begins repaying that loan under the REPAYE plan, the prior payments that were made under the IBR plan will still count toward public service loan forgiveness. In response to the commenter who believed that the REPAYE plan regulations should allow borrowers who received loans prior to October 1, 2007 to qualify retroactively for public service loan forgiveness, we note that there is nothing in the law or regulations that precludes borrowers who received loans prior to October 1, 2007 from receiving public service loan forgiveness. However, in accordance with section 455(m)(1)(A) of the HEA, only payments made after October 1, 2007 may be counted toward the 120 qualifying payments required to receive public service loan forgiveness. Changes: None. Loan Forgiveness Under the REPAYE Plan (§ 685.209(c)(5)) Comment: A large number of commenters strongly opposed the provisions in proposed § 685 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2015-27143. Public record. Not legal advice.