Federal Student Aid; William D. Ford Federal Direct Loan Program; Notice of the annual updates to the Income Contingent Repayment (ICR) plan formula for 2006 [FSA]

FR Doc 06-5772
[Federal Register: June 28, 2006 (Volume 71, Number 124)]
[Notices]
[Page 36758-36763]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jn06-54]
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DEPARTMENT OF EDUCATION

William D. Ford Federal Direct Loan Program

AGENCY: Federal Student Aid, Department of Education.

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

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

FOR FURTHER INFORMATION CONTACT: Don Watson, U.S. Department of
Education, room 114I2, UCP, 400 Maryland Avenue, SW., Washington, DC
20202-5400. Telephone: (202) 377-4008.
If you use a telecommunications device for the deaf (TDD), you may
call the Federal Relay Service (FRS) at 1-800-877-8339.

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

SUPPLEMENTARY INFORMATION: Direct Loan Program borrowers may choose to
repay their Direct Subsidized Loan, Direct Unsubsidized Loan, and
Direct Consolidation Loan under the ICR plan. The attachment to this
notice provides updates to examples of how the calculation of the
monthly ICR amount is performed, the income percentage factors, the
constant multiplier chart, and charts showing sample repayment amounts.
We have updated the income percentage factors to reflect changes
based on inflation. We have revised the table of income percentage
factors by changing the dollar amounts of the incomes shown by a
percentage equal to the estimated percentage change in the Consumer
Price Index for all urban consumers from December 2005 to December
2006. Further, we provide examples of monthly repayment amount
calculations and two charts that show sample repayment amounts for
single and married or head-of-household borrowers at various income and
debt levels based on the updated income percentage factors.
The updated income percentage factors, at any given income, may
cause a borrower's payments to be slightly lower than they were in
prior years. This updated amount more accurately reflects the impact of
inflation on a borrower's current ability to repay.

Electronic Access to This Document

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

To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free at 1-888-293-6498; or in
the Washington, DC area at (202) 512-1530.

Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at:
http://www.gpoaccess.gov/nara/index.html.

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

Dated: June 23, 2006.
Theresa S. Shaw,
Chief Operating Officer, Federal Student Aid.

Attachment--Examples of the Calculations of Monthly Repayment Amounts

Example 1. This example assumes you are a single borrower with
$15,000 in Direct Loans, the interest rate being charged is 6.80
percent, and you have an adjusted gross income (AGI) of $35,260. (The
6.80 percent interest rate used in this example is a fixed interest
rate that is charged on all Direct Loans, excluding Direct PLUS Loans
and certain Direct PLUS Consolidation Loans, disbursed on or after July
1, 2006; your actual interest rate may be less than or greater than
6.80 percent.)
Step 1: Determine your annual payments based on what you would pay
over 12 years using standard amortization. To do this, multiply your
loan balance by the constant multiplier for 6.80 percent interest
(0.122130). The constant multiplier is a factor used to calculate
amortized payments at a given interest rate over a fixed period of
time. You can view the constant multiplier chart at the end of this
notice to determine the constant multiplier that you should use for the
interest rate on your loan. If your exact interest rate is not listed,
use the next highest rate for estimation purposes.

0.122130 x $15,000 = $1,831.95.

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

88.77 x $1,831.95 / 100 = $1,626.22.

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

$35,260 - $9,800 = $25,460.
$25,460 x 0.20 = $5,092.00.

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

$1,626.22 / 12 = $135.52.

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

$10,000 + $15,000 = $25,000.

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

0.122130 x $25,000 = $3,053.25.

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

109.40 x $3,053.25 / 100 = $3,340.26.

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

$66,631 - $13,200 = $53,431.00.
$53,431.00 x 0.20 = $10,686.20.

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

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monthly repayment amount, divide the annual amount by 12.

$3,340.26 / 12 = $278.36.

Example 3. This example assumes you are a single borrower with
$15,000 in Direct Loans, the interest rate being charged is 8.25
percent, and you have an adjusted gross income (AGI) of $28,071. (The
8.25 percent interest rate used in this example is the maximum interest
rate that may be charged for all Direct Loans excluding Direct PLUS
Loans and certain Direct PLUS Consolidation Loans that were disbursed
before July 1, 2006; your actual interest rate may be lower.)
Step 1: Determine your annual payments based on what you would pay
over 12 years using standard amortization. To do this, multiply your
loan balance by the constant multiplier for 8.25 percent interest
(0.131545). The constant multiplier is a factor used to calculate
amortized payments at a given interest rate over a fixed period of
time. You can view the constant multiplier chart at the end of this
notice to determine the constant multiplier that you should use for the
interest rate on your loan. If your exact interest rate is not listed,
use the next highest rate for estimation purposes.

0.131545 x $15,000 = $1,973.18.

80.33 x $1,973.18 / 100 = $1,585.06.

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

$28,071 - $9,800 = $18,271.
$18,271 x 0.20 = $3,654.20.

$1,585.06 / 12 = $132.09.

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

$10,000 + $15,000 = $25,000.

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

0.131545 x $25,000 = $3,288.63.

100.00 x $3,288.63 / 100 = $3,288.63.

$53,185 - $13,200 = $39,985.
$39,985 x 0.20 = $7,997.

$3,288.63 / 12 = $274.05.

Interpolation: If your income does not appear on the income
percentage factor table, you will have to calculate the income
percentage factor through interpolation. For example, assume you are
single and your income is $30,000.
Step 1: Find the closest income listed that is less than your
income of $30,000 and the closest income listed that is greater than
your income of $30,000.
Step 2: Subtract the lower amount from the higher amount (for this
discussion, we will call the result the ``income interval''):

$35,260 - $28,071 = $7,189.

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

88.77% - 80.33% = 8.44%.

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

$30,000 - $28,071 = $1,929.

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

$1,929 / $7,189 = 0.2683.

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

8.44% x 0.2683 = 2.2645%.

Step 7: Add the result of Step 6 to the lower of the two income
percentage factors used in Step 3 to calculate the income percentage
factor interval for $30,000 in income:

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

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

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Income Percentage Factors for 2006
[Based on annual income]
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Single Married/head of household
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Factor Factor
Income (percent) Income (percent)
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9,218........................................ 55.00 9,218........................... 50.52
12,683....................................... 57.79 14,544.......................... 56.68
16,320....................................... 60.57 17,333.......................... 59.56
20,040....................................... 66.23 22,659.......................... 67.79
23,592....................................... 71.89 28,071.......................... 75.22
28,071....................................... 80.33 35,260.......................... 87.61
35,260....................................... 88.77 44,220.......................... 100.00
44,221....................................... 100.00 53,185.......................... 100.00
53,185....................................... 100.00 66,631.......................... 109.40
63,922....................................... 111.80 89,035.......................... 125.00
81,849....................................... 123.50 120,404......................... 140.60
115,925...................................... 141.20 168,391......................... 150.00
132,919...................................... 150.00 275,163......................... 200.00
236,752...................................... 200.00
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Constant Multiplier Chart for 12-Year Amortization
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Annual constant
Interest rate (percent) multiplier
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3.500................................................. 0.102174
4.000................................................. 0.105063
4.500................................................. 0.108001
5.000................................................. 0.110987
5.500................................................. 0.114021
6.000................................................. 0.117102
6.800................................................. 0.122130
7.000................................................. 0.123406
7.900................................................. 0.129237
8.000................................................. 0.129894
8.250................................................. 0.131545
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[FR Doc. 06-5772 Filed 6-27-06; 8:45 am]

BILLING CODE 4000-01-C