APPENDIX A TO PART 685-INCOME

CONTINGENT REPAYMENT

Examples of the Calculation of Monthly
Repayment Amounts

Example 1. A single borrower with $12,500 of Direct Loans, 8.25 percent interest, and an AGI of $25,000.

Step 1: Determine annual payments based on what the borrower would pay over 12 years using standard amortization. To do this, multiply the principal balance by the constant multiplier for 8.25% interest (0.1315452). The constant multiplier is a factor used to calculate amortized payments at a given interest rate over a fixed period of time. (See the constant multiplier chart below to determine the constant multiplier you should use for the interest rate on the loan. If the exact interest rate is not listed, choose the next highest rate for estimation purposes.)

0.1315452x12,500=1,644.315

Step 2: Multiply the result by the income percentage factor shown in the income percentage factor table that corresponds to the borrower's income (if the income is not listed, you can calculate the applicable income percentage factor by following the instructions under the interpolation heading below): • 84.46% (0.8446)×1,644.315=1,388.7884

Step 3: Determine 20 percent of discretionary income. To do this, subtract the lowest income for single borrowers shown in the income percentage factor table (HHS poverty level for a family of one) from the borrower's income and multiply the result by 20%: • $25,000-$7,740=$17,260

• $17,260×0.20=$3,452

Step 4: Compare the amount from step 2 with the amount from step 3. The lower of the two will be the borrower's annual payment amount. This borrower will be paying the amount calculated under step 2. To determine the monthly repayment amount, divide the annual amount by 12.

• 1,388.7884+12=$115.73

Example 2. Married borrowers both repaying under the income contingent repayment plan with a combined Adjusted Gross income (AGI) of $30,000. The husband has a Direct Loan balance of $5,000, and the wife has a Direct Loan balance of $15,000. This couple has no children.

Step 1: Add the Direct Loan balances of the husband and wife together to determine the aggregate loan balance.

$5,000+$15,000 $20,000

Step 2: Determine the annual payments based on what the couple would pay over 12 years using standard amortization. To do this, multiply the aggregate principal balance by the constant multiplier for 8.25% interest (0.1315452). (See the constant multi

plier chart to determine the constant multiplier you should use for the interest rate on the loan. If the exact interest rate is not listed, choose the next highest rate for estimation purposes.)

■ 0.1315452x20,000=2630.904

Step 3: Multiply the result by the income percentage factor shown in the income percentage factor table that corresponds to the couple's income (if the income is not listed, you can calculate the applicable income percentage factor by following the instructions under the interpolation heading below): • 91.27% (0.9127)×2,630.904=2,401.2261

Step 4: Determine 20 percent of the couple's discretionary income. To do this, subtract the lowest income for married borrowers shown in the income percentage factor table (HHS poverty level for a family of 2) from the couple's income and multiply the result by 20%:

• $30,000-$10,360 $19,640 • $19,640×0.020-$3,928

Step 5: Compare the amount from step 3 with the amount from step 4. The lower of the two will be the annual payment amount. The married borrowers will be paying the amount calculated under step 3. To determine the monthly repayment amount, divide the annual amount by 12.

• 2,401.2261+12=$200.10

Interpolation: If your income does not appear on the income percentage factor table, you will have to calculate the income percentage factor through interpolation. For example, let's say you are single and your income is $26,000. To interpolate, you must first find the interval between the closest income listed that is less than $26,000 and the closest income listed that is greater than $26,000 (for this discussion, we'll call the result "the income interval"):

• $27,904-$25,000-$2,904

Next, find the interval between the two income percentage factors that are given for these incomes (for this discussion, we'll call the result, the "income percentage factor interval"):

• 88.77-84.46=4.31

Subtract the income shown on the chart that is immediately less than $26,000 from $26,000: • $26,000-$25,000-$1,000

Divide the result by the number representing the income interval:

• 1,000+2,904-0.3444

Multiply the result by the income percentage factor interval:

• 0.3444x4.31=1.48

Add the result to the lower income percentage factor used to calculate the income percentage factor interval for $26,000 in income: • 1.48+84.46-85.94%

Income Contingent Repayment Plan

Sample First-Year Monthly Repayment Amounts for a Single Borrower at Various Income and Debt Levels

$2,500 $5,000 $7,500 $10,000 $12.500 $15,000 $17,500 $20,000 $22.500 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $80,000 $85,000 $70,000 $75,000 $80,000 $85,000 $90,000 $100,000 O

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