AwardYear: 1995-1996 EnterChapterNo: 6 EnterChapterTitle: Federal Perkins Loan Program SectionNumber: 4 SectionTitle: Forbearance and Deferments PageNumbers: 37-50 [[Definition of forbearance]] If a borrower is willing but financially unable to make the required payments on a loan, he or she may request that the school grant "forbearance." Forbearance is the temporary cessation of payments, allowing an extension of time for making payments, or accepting smaller payments than were previously scheduled. Interest will continue to accrue during any period of forbearance. The borrower must request forbearance in writing, providing documentation that supports the borrower's claim that he or she is financially unable to make payments. Forbearance provisions are included in Section 674.33(d) of the Final Rule published in the Federal Register on November 30, 1994. Forbearance is available for all Perkins Loans and NDSLs, regardless of when they were made. [[May grant forbearance one year at a time for up to 3 years]] When the school receives the borrower's written request and supporting documentation, the school must grant the borrower forbearance for a period of up to one year at a time. The forbearance may be renewed, but the periods of forbearance collectively may not exceed a total of three years. Both loan principal and any interest that accrues must be included in the forbearance, unless the borrower chooses to pay interest that accrues. The borrower and the school must agree upon the terms of forbearance in writing. The forbearance must be in the form of a temporary cessation of payments unless the borrower chooses one of the alternative types of forbearance (an extension of time for making payments, or accepting smaller payments). [[Criteria for granting forbearance]] A school must grant forbearance if the total amount the borrower is obligated to pay monthly on all Title IV SFA loans is equal to or greater than 20 percent of the borrower's "total monthly gross income" (defined on the next page). If the borrower's loan payments are due less frequently than monthly, a proportional share of the payments is used to determine the equivalent in total monthly payments. For example, if a payment is due quarterly, divide the amount by three to determine the equivalent monthly payment amount. The school must require the borrower to submit at least the following documentation: [[Evidence the borrower must submit]] - evidence showing the amount of the most recent total monthly gross income received by the borrower and - evidence showing the amount of the monthly payments owed by the borrower for the most recent month for the borrower's Title IV SFA loans. [[Definition of "total monthly gross income"]] "Total monthly gross income," as defined in Section 674.2 of the November 30 Final Rule, is "The gross amount of income received by the borrower from employment (either full-time or part-time) and from other sources." [[Other reasons for granting forbearance]] A school also must grant forbearance if it determines the borrower should qualify due to poor health or for other acceptable reasons, or if ED authorizes a period of forbearance due to a national military mobilization or other national emergency. DEFERMENT [[Definition of deferment]] A borrower is entitled to have the repayment of a loan deferred under certain circumstances. A deferment is a period of time during which the borrower is not required to repay the loan principal. Interest will not accrue during a deferment (with the exception of hardship deferments, during which INTEREST DOES ACCRUE). For loans made ON OR AFTER July 1, 1993, the hardship deferment has been replaced by the ECONOMIC HARDSHIP DEFERMENT, which may not be granted in excess of 3 years; INTEREST DOES NOT ACCRUE during the new economic hardship deferment. Federal Perkins Loans and NDSLs share several deferment provisions in common; however, other deferment provisions are not applicable to every type of loan. If a borrower is teaching or engaged in other services that qualify him or her for both deferment and cancellation, the loan deferment is considered to run concurrently with any period for which loan cancellation is granted. [[Borrower obtains deferment form from school]] [[Must file annually]] Borrowers must apply for a deferment in writing. They may do this by obtaining a form from the business or student loan office of the school that made them the loan (or from the school's billing service, if it uses one). The form must be submitted to the school, along with whatever documentation the school requires, by the date that the school establishes. (ED does NOT approve or supply deferment forms.) The borrower must file a form at least once a year for as long as the deferment can be claimed. The borrower must immediately report any change in deferment status to the lending institution. IN-SCHOOL DEFERMENT [[At least half-time enrollment required]] A borrower may defer repayment of a Federal Perkins, Direct, or Defense loan if he or she is enrolled at least half time in an eligible institution. To receive a deferment based on at least half-time enrollment, also called an "in-school deferment," the student must be enrolled as a regular student in an eligible institution of higher education or a comparable institution outside the U.S. approved by the U.S. Department of Education for this purpose. However, it is not a requirement that the school participate in the Federal Perkins Loan Program. Interest will not accrue during the deferment. A "regular student" is one who is enrolled for the purpose of obtaining a degree or certificate. If the borrower is attending as at least a half- time regular student for a full academic year and intends to do so in the next academic year, he or she is entitled to a deferment for 12 months. If a school ceases to qualify as an institution of higher education, the borrower's deferment ends on the date the school ceases to qualify. DEFERMENT OF FEDERAL PERKINS LOANS AND NDSLS MADE ON OR AFTER 7/1/93. [[In-school deferments]] For loans made on or after July 1, 1993, a borrower may defer loan repayment, and interest does not accrue while the borrower-- - is enrolled and in attendance as a regular student in at least a half-time course of study at an eligible institution; - is enrolled and in attendance as a regular student in a course of study that is part of an approved graduate fellowship program approved by ED (the borrower must provide certification that he or she has been accepted for or is engaged in full-time study in the school's graduate fellowship program); - is engaged in graduate or post-graduate fellowship-supported study (such as a Fulbright grant) outside the United States; [[Residency program in dentistry]] - is serving in a residency program in dentistry (deferments may no longer be granted to a borrower while serving in a medical internship or residency program, except for a program in dentistry); [[Rehabilitation training]] - is enrolled in a course of study that is part of an approved rehabilitation training program for disabled individuals approved by ED; [[Unemployment]] - is seeking and is unable to find full-time employment (this deferment may not be granted in excess of 3 years); [[Economic hardship]] - is suffering an economic hardship, discussed below (this deferment may not be granted in excess of 3 years); or - is engaged in certain types of service that qualifies the borrower for cancellation of the loan (refer to Section Five: "Cancellation"). [[Post-deferment grace period]] A borrower is entitled to a 6-month grace period after each of the deferments that apply to Federal Perkins Loans and NDSLs (a "post-deferment" grace period). Neither the deferment nor the grace period is included in determining the 10-year repayment period. ECONOMIC HARDSHIP DEFERMENT [[3-year economic hardship deferment replaces hardship deferment]] For Federal Perkins Loans and NDSLs made on or after July 1, 1993, a school may grant a deferment due to "ECONOMIC hardship" up to a MAXIMUM OF 3 YEARS (a school may not grant a borrower unlimited deferments due to "hardship" for Federal Perkins Loans and NDSLs made on or after July 1, 1993). The Final Rule of November 30, 1994 includes the new economic hardship deferment provisions in Section 674.34(e). An eligible borrower is entitled to an economic hardship deferment for periods of up to one year at a time, that collectively do not exceed three years, if the borrower provides satisfactory documentation to the school showing that the borrower- 1. has been granted an economic hardship deferment under either the FDSL or FFEL programs for the period of time for which the borrower has requested the deferment forhis or her Federal Perkins Loan; 2. is receiving federal or state public assistance, such as Aid to Families with Dependent Children, Supplemental Security Income, Food Stamps, or state general public assistance; 3. is working full time and is earning a total monthly gross income that does not exceed the greater of- a) the monthly earnings of an individual earning the federal minimum wage; or b) an amount equal to 100 percent of the poverty line for a family of two as determined in accordance with section 673(2) of the Community Service Block Grant Act; 4. is not receiving total monthly gross income from all sources that is more than twice the amount in (a) or (b) above and, after deducting an amount equal to the borrower's monthly payments on federal postsecondary education loans, the remaining amount of income does not exceed the amount specified in (a) or (b) above; or 5. is working full time and has a federal educational debt burden that equals or exceeds 20 percent of the borrower's adjusted gross income, and the difference between the borrower's adjusted gross income minus such burden is less than 220 percent of the greater of- a) the annual earnings of an individual earning the federal minimum wage; or b) an amount equal to 100 percent of the poverty line for a family of two, determined in accordance with section 673(2) of the Community Service Block Grant Act. For information on the minimum wage, contact the Wage and Hour Division of the U.S. Department of Labor. The telephone number is (202) 219-7043. The 1994 poverty level for a family of two was $12,300 for Alaska, $11,320 for Hawaii, and $9,840 all other states. For additional information on the poverty level for a family of two, contact the Office of the Assistant Secretary of the U.S. Department of Health and Human Services. The telephone number is (202) 690- 6141. [[Documentation for economic hardship]] To support a borrower's eligibility for an initial economic hardship deferment based on the criteria in option (4) above, the school must collect at least the following documentation: - evidence showing the amount of the borrower's most recent total monthly gross income from all sources-that is, the gross amount of income received by the borrower from employment (either full-time or part-time) and from other sources; and - evidence showing the most recent monthly amount due on the borrower's federal postsecondary education loans, as determined by the method described below. [[Determining monthly amount due on education loans]] To determine the monthly amount due on federal postsecondary education loans, the school must count only the monthly amount that the borrower WOULD HAVE OWED on each loan IF IT HAD BEEN SCHEDULED TO BE REPAID IN 10 YEARS from the date the loan entered repayment; the school should disregard the actual repayment schedule or the actual monthly payment amount (if any) that the borrower would owe during the period for which the economic hardship deferment is requested. To qualify for a SUBSEQUENT period of deferment that begins less than one year after the end of the deferment described in option (3) or (4) above, the school must require the borrower to submit a copy of his or her federal income tax return if the borrower filed a tax return within eight months prior to the date the deferment is requested. [[Working full time]] For purposes of qualifying under option 3 or 5 of the economic hardship deferment, a borrower is considered to be "working full time" if he or she is expected to be employed for at least three consecutive months at 30 hours per week. [[Rehabilitation training program deferment]] To qualify for a deferment for study in a rehabilitation training program, the borrower must be receiving, or be scheduled to receive, services under a program designed to rehabilitate disabled individuals and must provide the school with the following documentation: 1. a certification from the rehabilitation agency that the borrower is either receiving or scheduled to receive rehabilitation training services from the agency and 2. a certification from the rehabilitation agency that the rehabilitation program Is licensed, approved, certified, or otherwise recognized by one of the following entities as providing rehabilitation training to disabled individuals: - a state agency with responsibility for vocational rehabilitation programs; - a state agency with responsibility for drug abuse treatment programs; - a state agency with responsibility for mental health services programs; - a state agency with responsibility for alcohol abuse treatment programs; or - the Department of Veterans Affairs. 3. The rehabilitation agency must also certify that the rehabilitation program provides or will provide the borrower with rehabilitation services under a written plan that- - is individualized to meet the borrower's needs; - specifies the date on which the services to the borrower are expected to end; and - is structured in a way that requires a substantial commitment by the borrower to his or her rehabilitation. ED considers a substantial commitment by the borrower to be a commitment of time and effort that would normally prevent an individual from engaging in full-time employment either because of the number of hours that must be devoted to rehabilitation or because of the nature of the rehabilitation. DEFERMENT OF FEDERAL PERKINS LOANS MADE BEFORE 7/1/93 [[In-school deferment]] A borrower of a Federal Perkins Loan made before July 1, 1993, may defer repayment if he or she is enrolled at least half time as a regular student in an eligible institution of higher education (or a comparable institution outside the U.S. approved by the U.S. Department of Education for this purpose). Additional information about the "In-School Deferment" is included in the previous discussion about loans made on or after July 1, 1993. [[3-year deferments]] A borrower of a Federal Perkins Loan made before July 1, 1993, may defer repayment for up to 3 years and interest will not accrue while the borrower is- - a member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard; - a member of the National Guard or the Reserves serving a period of full-time active duty in the Armed Forces; - an officer in the Commissioned Corps of the U.S. Public Health Service; - on full-time active duty as a member of the National Oceanic and Atmospheric Administration Corps; - a Peace Corps volunteer; - a volunteer under Title I, Part A of the Domestic Volunteer Service Act of 1973 (ACTION programs); [[Comparable Volunteer Service]] A borrower is considered to be providing service comparable to Peace Corps or ACTION service if he or she meets the following five criteria: 1. The borrower serves in an organization that is exempt from taxation under the provisions of Section 501(c)(3) of the Internal Revenue Code of 1954; 2. The borrower provides service to low-income persons and their communities to assist them in eliminating poverty and poverty-related human, social, and environmental conditions; 3. The borrower does not receive compensation that exceeds the rate prescribed under section 6 of the Fair Labor Standards Act of 1938 (the federal minimum wage), except that the tax- exempt organization may provide health, retirement, and other fringe benefits to the volunteer that are substantially equivalent to the benefits offered to other employees of the organization; 4. The borrower, as part of his or her duties, does not give religious instruction, conduct worship service, engage in religious proselytizing, or engage in fund-raising to support religious activities; and 5. The borrower has agreed to serve on a full-time basis for a term of at least one year. [[Temporary total disability]] "Temporally totally disabled," with regard to the borrower, means the inability due to an injury or illness to attend an eligible school or to be gainfully employed during a reasonable period of recovery. "Temporarily totally disabled," with regard to a disabled spouse or other dependent of a borrower, means requiring continuous nursing or other services from the borrower for a period of at least 3 months due to illness or injury. - a full-time volunteer in service for a tax-exempt organization that ED has determined is comparable to Peace Corps or ACTION service (see the criteria in the box above); or - temporarily totally disabled or unable to work because he or she must care for a SPOUSE OR OTHER DEPENDENT who is so disabled (see the definitions in the box above). An affidavit from a qualified physician is required to prove disability. The definition of "dependent" for the temporary total disability deferment is the same as that used in the application for federal student aid-a child who receives more than half support or other person who lives with and receives more than half support from the borrower. A borrower of a Federal Perkins Loan made before July 1, 1993, who is serving in a medical internship or residency program may not defer repayment of a Federal Perkins Loan BASED ON THE BORROWERÂ’S FULL-TIME OR HALF-TIME STUDY; however, the borrower is eligible for an INTERNSHIP DEFERMENT (described on the next page) for up to 2 years. [[Internship deferment]] A borrower of a Federal Perkins Loan made before July 1, 1993, may defer repayment for up to 2 years and interest will not accrue while the borrower is serving an eligible internship. An eligible internship is one that requires the borrower to hold at least a bachelor's degree before beginning the program; in addition, it must meet the criteria of EITHER a OR b below: a. The successful completion of the internship must be required by a State licensing agency as a prerequisite for certification of the individual for professional practice or service. For this type of eligible internship, the borrower must provide the school with the following certifications: - a statement from an official of the appropriate State licensing agency that the successful completion of the internship is required by a State licensing agency as a prerequisite for certification for professional practice or service; - a statement from the organization where the borrower will be an intern, certifying that a bachelor's degree must be attained in order to be admitted in the program; - a statement from the organization where the borrower will be an intern that the borrower has been accepted into its internship program; and - the dates when the borrower is expected to begin and complete the program. b. The internship or residency program must lead to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility offering postgraduate training. For this type of eligible internship, the borrower must provide the school with a statement from an authorized official of the internship program certifying that- - a individual must have a bachelor's degree in order to be admitted in the program; - the borrower has been accepted into its program; and - the internship or residency program leads to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training. [[1-year "working mother deferment]] [[6-month "parental leave" deferment]] A borrower of a Federal Perkins Loan made before July 1, 1993, may also defer repayment and interest will not accrue during a period of- - up to 1 year if the borrower is a mother of a preschool-age child, provided the mother is going to work (or going back to work) at a salary that is no more than $1.00 in excess of the minimum hourly wage or - up to 6 months if the borrower is pregnant, or if he or she is taking care of a newborn or newly adopted child. (This deferment is called "parental leave.") The borrower must be unemployed and not attending school and must apply for deferment within 6 months of leaving school or dropping below half-time status. [[Hardship deferment]] A borrower may defer repayment for hardship, as determined by the school (for example, if the borrower is facing a prolonged period of illness or unemployment). However, interest will continue to accrue during the deferment. [[Post-deferment grace period]] A borrower is entitled to a 6-month grace period after each of the deferments that apply to Federal Perkins Loans (a "post-deferment" grace period) except after the deferment for hardship. Neither the deferment nor the grace period is included in determining the 10- year repayment period. DEFERMENT OF NDSLS MADE BETWEEN 10/1/80 and 7/1/93. The following deferment provisions are applicable to NDSLs made on or after October 1, 1980, but before July 1, 1993: [[At least half-time attendance]] A borrower may defer repayment if he or she is enrolled at least half time as a regular student in an eligible institution of higher education or a comparable institution outside the U.S. approved by the U.S. Department of Education for this purpose. [[3-year deferments]] A borrower may defer repayment for up to 3 years and interest will not accrue while the borrower is- - a member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard; - a member of the National Guard or the Reserves serving a period of full-time active duty in the Armed Forces; - an officer in the Commissioned Corps of the U.S. Public Health Service; - a Peace Corps volunteer; - a volunteer under Title I, Part A of the Domestic Volunteer Service Act of 1973 (ACTION programs); - a full-time volunteer in service for a tax-exempt organization ED has determined is comparable to Peace Corps or ACTION (see the volunteer service criteria in the box on page 44); or - temporarily totally disabled or unable to work because he or she must care for a SPOUSE who is so disabled (see the definitions in the box on page 44). A physician's statement is required to prove disability. [[2-year deferments]] A borrower of an NDSL made on or after October 1, 1980, and before July 1, 1993, may defer repayment for up to 2 years and interest will not accrue while the borrower is serving an eligible internship. An "eligible internship" is one that requires the borrower to hold at least a bachelor's degree before beginning the internship program; in addition, the completion of the internship must be required by the State licensing agency as a prerequisite for certification of the individual for professional practice or service. The borrower must provide the school with the following certifications: - a statement from an official of the appropriate State licensing agency that the completion of the internship is required by the State licensing agency as a prerequisite of certifying for professional practice or service; - a statement from the organization where the borrower will be an intern, certifying that a bachelor's degree must be attained in order to be admitted in the program; - a statement from the organization where the borrower will be an intern, that the borrower has been accepted into its internship program; and - the dates when the borrower is expected to begin and complete the program. [[Hardship deferment]] A borrower may defer repayment for hardship (for example, if the borrower is facing a prolonged period of illness or unemployment). However, interest will continue to accrue during the deferment. [[Post-deferment grace period]] [[Deferment provisions for loans made before 10/1/80]] For all NDSLs made on or after October 1, 1980, and before July 1, 1993, a borrower is also entitled to a 6-month post-deferment grace period after each of the deferments that apply to those loans except for hardship deferments. Neither the deferment nor the grace period is included in determining the 10-year repayment period. For information on deferment provisions for loans made before October 1, 1980, see the 1994-95 Federal Student Financial Aid Handbook or Section 674.37 of the regulations. DEFERMENT VS. POSTPONEMENT FOR SERVICE THAT WILL QUALIFY FOR LOAN CANCELLATION Deferment of repayment is applicable for periods of service that qualify the borrower for cancellation of a loan made on or after July 1, 1993. A school may grant a deferment of repayment for up to 12 months at a time. Interest does not accrue during a period of deferment. Deferment is an entitlement to the borrower; therefore, regardless of the length of time that the service is performed, repayment does not begin until six months after the cessation of service. Postponement in anticipation of cancellation is applicable only during periods of service that qualify the borrower for cancellation of a loan made before July 1, 1993. A school may grant postponement of repayment for up to 12 months at a time. Interest continues to accrue during the period of postponement. Postponement of repayment is not an entitlement to the borrower; therefore, should the borrower not complete the period required to receive cancellation benefits, any payments that had been postponed during the partial period of service become due and payable immediately upon the cessation of service. If a borrower has received more than one type of loan (Federal Perkins Loan and NDSL), but is not eligible for cancellation benefits on both types, the school may defer loan repayments (or postpone loan repayments for loans made prior to July 1, 1993) ONLY on the loan(s) for which cancellation will be available. A school may not exercise the minimum monthly repayment provisions on a note when the borrower has received a partial cancellation for the period covered by a deferment. (If the school was originally exercising the minimum repayment option, it must cease doing so.) If a borrower has received more than one loan, but not all can be cancelled, the amount due on the uncancelled loan(s) is the amount the borrower would normally pay. THE CONCURRENT DEFERMENT PERIOD If a borrower is teaching or engaged in other services that qualify him or her for both deferment and cancellation, the loan deferment is considered to run concurrently with any period for which loan cancellation is granted. DEFERMENT AND DEFAULT [[Deferment when loan is in default]] A borrower in default is NOT ENTITLED to a deferment, but a school MAY grant a deferment if the borrower signs a new repayment agreement. The policy to permit deferments on defaulted loans applies to ALL requests for deferment received after February 3, 1988 (the effective date of the December 1, 1987 campus-based regulations), REGARDLESS OF THE DATE THE LOAN WAS MADE. The borrower must file for deferment on time and provide satisfactory documentation that he or she qualifies for the deferment. SCHOOLS ARE NOT REQUIRED TO GRANT DEFERMENTS ON LOANS IN DEFAULT; however, if they do, they are expected to calculate past-due, accrued interest. If schools believe this is unduly burdensome, they may deny deferments. [[Deferment when loan is accelerated]] Once the borrower misses a scheduled payment, he or she is in default for purposes of determining the borrower's status for new federal student aid. However, if the borrower enters into a new written repayment agreement, the school may grant a deferment EVEN IF THE SCHOOL HAS ACCELERATED THE LOAN. However, the school would have to de-accelerate the loan. ED encourages schools to require the borrower to repay immediately some or all of the past-due amounts as a condition of the new agreement-thus "curing" the default. "Past-due amounts" are those scheduled to be repaid before the date the school determined that grounds for a deferment existed. Past-due amounts include late charges, penalty charges, and collection costs. DEFERMENT VS. IN-SCHOOL ENROLLMENT STATUS At times a borrower may neglect to notify a school that he or she has continued studies at least half time at another school prior to completion of the initial grace period. As the school would not have this information, the financial aid administrator would assume that the student's repayment period had started and might demand payment from the borrower. In such a case, borrowers often request relief in terms of a deferment, rather than on the basis of their student status. Actually, as the borrower was still enrolled at least half time, and had never completed the initial grace period, the term "deferment" would not be appropriate, as the repayment period had not started. The borrower may submit proof at any time-even after a loan has been accelerated-that the initial grace period had never been completed and that the repayment period should have begun later than the date originally calculated. THE SCHOOL MUST RECALCULATE THAT DATE IF IT RECEIVES THIS PROOF. The school must also deduct from the loan balance any interest accrued and any late charges added before the date the repayment period actually began. Note that the borrower remains responsible for payments that would have been due in any event, and the school is not obligated to grant a deferment for any past-due payments |