NASFAA Summary of Loan Issues Final Rules: ICR, IBR and Total and Permanent Disability Discharge
On November 1, 2012, the Federal Register published final rules on Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Total and Permanent Disability Discharge. The final rules contain several significant changes from the Notice of Proposed Rulemaking (NPRM) released this summer, notably a renaming of the new ICR plan and acceptance of certain Social Security Administration (SSA) determinations of total and permanent disability (TPD) for purposes of Title IV loan discharges.
The final rules represent the partial result of negotiated rulemaking sessions on loan issues held from January to March 2012. The remainder of the loan issues that were negotiated will be released as proposed rules by January 2013. Because of master calendar requirements, this delay on the second portion of the rulemaking issues would postpone the effective date on those issues to July 2014 at the earliest.
The objectives of the rules are to:
- Implement a new Income Contingent Repayment (ICR) plan in the Direct Loan program based on President Obama’s “Pay As You Earn” repayment initiative;
- Incorporate statutory changes to the Income Based Repayment (IBR) plan in the Direct Loan and FFEL programs; and
- Streamline and add clarity to the total and permanent disability discharge process for borrowers.
Summary of Major Provisions
The final rules:
- Create a new ICR plan (the Pay As You Earn repayment plan) in the Direct Loan program based on the President’s Pay As You Earn repayment initiative.
- Make technical corrections and minor changes to the current ICR plan regulations, including the addition of provisions related to notification of income documentation requirements and the ICR loan forgiveness process.
- Amend the regulations to incorporate statutory changes to the IBR plan that were made by the SAFRA Act (as part of the Healthcare and Education Reconciliation Act of 2010) and add new provisions related to notification of income documentation requirements, repayment options after leaving the IBR plan, and the IBR loan forgiveness process.
- Revise Perkins Loan and FFEL program regulations to permit borrowers to apply directly to the Department for a total and permanent disability discharge. In the Direct Loan program, borrowers would continue to apply directly to the Department for total and permanent disability discharges, as they do under the current Direct Loan regulations.
- Revise the Perkins, FFEL, and Direct Loan program regulations to permit a TPD discharge based on a borrower’s Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits indicating that the borrower’s eligibility for disability benefits will be reviewed on a five- to seven-year schedule. This five- to seven-year review schedule classifies the borrower as permanently impaired—medical improvement not expected. Borrowers will still be subject to the three-year discharge review that is currently in place.
- Reinstate a Title IV loan discharged based on the borrower’s TPD if the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or the borrower’s continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.
- Require a Perkins, FFEL, or Direct Loan borrower to notify the Secretary, during the three-year period following a TPD discharge, if the borrower has been notified by the SSA that the borrower is no longer disabled or that the borrower’s continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.
- Modify regulations in the Perkins Loan, FFEL, and Direct Loan programs to provide more detailed information to borrowers in letters explaining why a disability discharge has been denied.
- Define the term “borrower’s representative” for purposes of the disability discharge application process and state that references to a borrower or a veteran in the TPD discharge regulations include a borrower’s representative or a veteran’s representative.
- Specify that the Department denies a disability discharge request and collection resumes on the borrower’s loans if the borrower receives a disbursement of a new title IV loan or receives a new TEACH Grant made on or after the date the physician certified the borrower’s disability discharge application and before the date the Department makes a decision on the borrower’s application for a TPD discharge.
- Specify that, if a borrower’s Perkins Loan, FFEL, or Direct Loan program loan is reinstated, it returns to the status that would have existed if the TPD discharge application had not been received.
- Make corresponding changes to the TPD application process based on a certification from the Department of Veterans Affairs.
Significant Changes from the NPRM
Name Change for the new ICR Plan
The proposed regulations designated the new income-contingent repayment plan based on the President’s Pay As You Earn initiative as the ICR–A plan, and the existing income-contingent repayment plan would be retained, with certain changes, as the ICR–B plan. Based on commenters’ recommendation that ED adopt more descriptive and consumer-friendly names for these repayment plans, the final rules re-name the new ICR plan based on the Pay As You Earn initiative as the Pay as You Earn repayment plan and leave the name of the current income-contingent repayment plan unchanged, as the ICR repayment plan.
References to the ‘‘income-contingent repayment plans’’ in other sections of the Direct Loan program regulations may mean either the Pay As You Earn repayment plan or the ICR plan, since both plans
are presented in § 685.209 as income-contingent repayment plans. Where it is necessary to distinguish between the two plans in other sections of the Direct Loan program regulations, the regulations refer to the income-contingent repayment plan described in § 685.209(a) (the Pay As You Earn repayment plan) or the income-contingent repayment plan described in § 685.209(b) (the ICR plan).
Acceptance of Certain SSA Determinations of Disability for Loan Discharge Purposes
While it would seem logical that a borrower who had been determined disabled by SSA would be eligible for a total and permanent disability (TPD) discharge for any Title IV loans, differences in the definition of “disability” between SSA and ED have prevented the two processes from working in sync.
ED provides for the discharge of a borrower’s Title IV loans if the borrower becomes totally and permanently disabled in accordance with regulations, or if the borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months (five years), or can be expected to last for a continuous period of not less than 60 months (five years).
The SSA defines the term ‘‘disability’’ to mean the inability of an individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.
Upon making a disability determination, the SSA is required to conduct periodic disability reviews to determine the continuing eligibility of an individual for SSDI or SSI benefits. For disabilities that are considered to be temporary, these reviews are conducted more frequently, at intervals from every 6 months to every 3 years. For permanent impairments, the SSA reviews an individual’s eligibility for benefits every 5 to 7 years.
Because the standard a borrower must meet to establish eligibility for a title IV TPD discharge is substantially similar to the SSA’s regulatory scheme governing a ‘‘permanent impairment’’, ED will accept the specific SSA notice of award for SSDI benefits or SSI benefits as proof of a borrower’s TPD if the notice indicates that the SSA will review the borrower’s continuing eligibility for SSDI or SSI benefits once every five to seven years (i.e., the SSA considers the impairment to be permanent).
These final regulations generally are effective July 1, 2013. However, ED has designated the following sections as subject to early implementation beginning on November 1, 2012, at the discretion of each loan holder:
- 682.209(a)(6)(v)(C) – reassignment of a borrower to standard repayment when borrower has chosen income-based repayment but does not provide income documentation
- 682.211(f)(16) – new administrative forbearance permitted when the loan holder receives income documentation more than 10 days after the specified annual deadline and the borrower’s monthly payment amount, with respect to payments that are overdue or would be due at the time the new calculated income-based monthly payment amount is determined, if the new monthly payment amount is $0.00 or is less than the borrower’s previously calculated income-based monthly payment amount.
- 682.215(d) – changes in the payment amount under IBR
- 682.215(e) – eligibility documentation, verification, and notifications under IBR
ED intends to implement the regulations governing the Pay As You Earn repayment plan as soon as possible. A separate Federal Register notice will announce when the plan becomes available to borrowers.
NASFAA will continue to analyze the final rules. Stay tuned to Today’s News for additional articles and tools to help you understand these new regulations.
Publication Date: 11/5/2012