2). 3). Delinquencies and Defaults Under ICR Are Higher Than Under Other Repayment Plans

Across all four types of repayment plans, 14.4 percent of FDLP borrowers were delinquent and 1.7 percent were in default, according to the Department data in our analysis. Compared with the three other payment plans, the overall percentage of loans that were delinquent or in default under ICR were higher (see fig. There appear to be two possible explanations for why borrowers using ICR, as a group, have overall higher delinquencies and defaults than borrowers using the other repayment plans. 5). Given that the majority (53.3 percent) of borrowers with DCS consolidation loans are ICR users, the overall higher delinquency rate for ICR compared with the other repayment plans could be partly the result of considerably greater involvement of DCS consolidation loan borrowers (borrowers who previously defaulted on FFELP loans) in the ICR plan compared with the other repayment plans. 6). ICR users who had DCS consolidation loans defaulted at a rate of 8.8 percent, compared with rates of 0.9 percent and 2.5 percent for ICR users with nonconsolidated and direct consolidation loans, respectively. Total Borrower Payments Under ICR Are Higher in Some Circumstances, Lower in Others

There is no single answer to whether a borrower will pay more or less under ICR compared with standard, extended, or graduated plans. In contrast, a borrower with $40,000 or more in loans would repay far less under ICR than under the extended and graduated alternatives because under these two plans the borrower pays off the total loan; the borrower using ICR would not. Measures Taken to Obtain and Verify Borrower Income Information

Information on borrower income for computing monthly payment amounts for the ICR plan is obtained from either documentation provided by the borrower or information from IRS on the borrower’s AGI as reported on his or her federal income tax return. This documentation, referred to as “alternative documentation of income,” can be recent pay stubs, dividend statements, canceled checks, or a statement signed by the borrowers explaining their source of income. According to a Department official, the Department uses alternative documentation for borrowers in their first year of repayment because, in most cases, AGI information from IRS is zero or close to zero. However, when borrowers submit this documentation, they also certify that they are providing accurate and complete income information. After ICR users have been out of school for at least 1 year, their monthly payment amount is based on their AGI as reported on their federal income tax returns. According to Department officials, the Department does not verify the accuracy of the information the borrowers provide IRS on their tax returns. The officials also said that borrowers who do not cooperate in providing accurate income information are automatically removed from the ICR plan and placed into the standard repayment plan. Scope and Methodology

To determine the extent to which borrowers are using the income contingent repayment (ICR) plan compared with other repayment plans, we obtained and analyzed data from the Department of Education on Federal Direct Loan Programs (FDLP) loans being repaid as of March 31, 1997. To determine the extent to which the Department or its FDLP service center verifies the accuracy of borrowers’ income information, we reviewed Department regulations and guidelines. Data on FDLP Loans in Repayment

Table II.1: Repayment Plans Selected by Borrowers of All Kinds of FDLP Loans, as of March 31, 1997 Amount (in millions)
Table II.2: Repayment Plans Selected by Borrowers With Nonconsolidated Loans, as of March 31, 1997 Amount (in millions)
Table II.3: Repayment Plans Selected by Borrowers With Direct Consolidation Loans, as of March 31, 1997 Amount (in millions)
Table II.4: Repayment Plans Selected by Borrowers With DCS Consolidation Loans, as of March 31, 1997 Amount (in millions)

Kinds of Schools Attended by Nonconsolidated Loan Borrowers

Delinquency Rates of FDLP Borrowers

	Table IV.4: Delinquency Rates of DCS Consolidation Loan Borrowers by Kind of Repayment Plan, as of March 31, 1997

Defaults of FDLP Borrowers

The first copy of each GAO report and testimony is free.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed borrowers' use of the William D. Ford Federal Direct Loan Program's (FDLP) income contingent repayment (ICR) plan, focusing on: (1) the extent to which borrowers are using ICR compared with other repayment plans available under FDLP; (2) how loan delinquencies and defaults under ICR compare with delinquencies and defaults under other FDLP repayment plans; (3) how loan payments under ICR compare with payments under other FDLP repayment plans; and (4) how the Department of Education, which administers the program, verifies the accuracy of income reported by borrowers using ICR.

What GAO Found

GAO noted that: (1) as of March 31, 1997, about 663,000 borrowers owing about $5.3 billion in FDLP loans were repaying loans; (2) about 9 percent of these borrowers were using ICR; (3) GAO found that 80 percent of borrowers using ICR either were current in their monthly payments or had their payments suspended because they were in school or for other reasons; (4) borrowers using ICR tended to be delinquent or in default at higher percentages than borrowers using other repayment plans; (5) borrowers who have been placed into the ICR plan because they have defaulted on an Federal Family Education Loan Program (FFELP) loan are a major factor in the higher percentage of defaults for ICR users; (6) of the 2,832 borrowers using ICR and in default, 2,083, or 73.6 percent, had defaulted on an FFELP loan; (7) comparing estimated total loan payments for ICR users and borrowers who use the three other repayment plans is complicated; (8) compared with borrowers who use the standard repayment plan, ICR users and those using extended and graduated plans generally face higher total payments; (9) compared with borrowers who use the extended or graduated repayment plans, ICR users face comparatively higher total payments if their incomes are low but comparatively lower total payments if their incomes are high; (10) the Department of Education checks the reported income of borrowers using ICR in one of two ways; (11) for borrowers who are in their first year of repayment or who may have recently lost their jobs, the Department relies primarily on documentation submited by the borrower, such as pay stubs, dividend statements, or cancelled checks; (12) the Department does not verify the accuracy of this documentation when it is submitted; rather it relies on a signed certification from the borrower that the information is complete and accurate; (13) for borrowers who have been out of school for a year or more, the Department obtains income information directly from the Internal Revenue Service (IRS); (14) the Department does not verify the accuracy of information borrowers provide IRS but relies on IRS' verification process; (15) however, during the transition from using borrower documentation to using IRS information, the Department compares the income amounts from the two sources for discrepancies; and (16) if there are significant discrepancies or if borrowers do not cooperate in providing correct income information, they are removed from the ICR plan and placed into another repayment plan.