AwardYear: 1997-1998 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Program SectionNumber: 5 SectionTitle: Deferment & Forbearance PageNumbers: 57-68 Deferment periods are periods during which payment of principal on a Federal Family Education Loan (FFEL) is postponed and, for subsidized Federal Stafford Loans, interest subsidy payments are made by the federal government. Once repayment begins, a borrower is entitled to a deferment if he or she meets the requirements for one. However, A BORROWER MUST REQUEST A DEFERMENT EITHER VERBALLY OR ON A FORM THE LENDER PROVIDES. A BORROWER ALSO MUST PROVIDE DOCUMENTATION TO THE LENDER IN SUPPORT OF THE REQUEST. FOR AN IN-SCHOOL DEFERMENT ON A STAFFORD LOAN OR FEDERAL PLUS LOAN, THE BORROWER MAY APPLY ON THE LOAN APPLICATION. A borrower who requests deferment should continue making payments on a loan until he or she receives notification that the deferment has been approved. A deferment period begins on the date the qualifying condition, such as unemployment or military service, begins. The following deferments apply to "new" FFEL borrowers (Stafford Loan, PLUS Loan, and Consolidation Loan borrowers). A new borrower for deferment purposes is one whose first loan disbursement was made on or after July 1, 1993 and who, at the time the loan application was certified, had no outstanding balance on ANY FFEL made before that date. Deferments are authorized for - at-least-half-time study by the borrower at an eligible school; - study in an eligible graduate fellowship program, including study outside the United States; - study in an approved rehabilitation training program for the disabled; - up to three years during periods in which the borrower is seeking and unable to find full-time employment; and - up to three years during periods that the lender determines will cause the borrower economic hardship. IN-SCHOOL DEFERMENT A deferment for full- or half-time study at an eligible school is commonly referred to as an "in-school" deferment. Any school that meets the definition of an eligible institution, whether or not it is currently participating in any SFA Program, is an eligible school for the purpose of the in-school deferment. However, if a school has never participated in the SFA Programs, the Department must determine whether the school meets the definition of an eligible institution before the school may certify an in-school deferment. Please refer to Chapter 3 for additional information on institutional eligibility requirements. A Stafford Loan or PLUS Loan application can serve as a request for in-school deferment for a full-time student. A lender or guaranty agency may rely on the school's certification of a borrower's eligibility on the loan application for the in-school deferment. The anticipated graduation date on the application is considered to be the end date of the in-school deferment. However, the school is required to update the lender and guarantor on the borrower's status using the Student Status Confirmation Report (SSCR). [[Internships and residencies]] Since July 1, 1993, medical interns and residents have not qualified for in-school deferments because these borrowers are not considered to be maintaining an in-school status. However, medical interns or residents may meet the regulatory provisions for an economic hardship deferment. (This type of deferment is not based on the borrower's status as a medical intern or resident.) Dental interns and residents continue to qualify for in-school deferments. UNEMPLOYMENT DEFERMENT Before the end of each six-month period of unemployment, a borrower must provide an additional deferment request, affirming his or her continuing search for employment. For details on other unemployment deferment eligibility criteria, see 34 CFR 668.210(h). ECONOMIC HARDSHIP DEFERMENT Economic hardship exists when the borrower is receiving payment under a federal or state public assistance program or is working full time and is earning a total monthly gross income that does not exceed the greater of the following two amounts: - the minimum wage - the poverty line for a family of two, as determined in Section 673(2) of the Community Service Block Grant Act. [[Other criteria for economic hardship]] The borrower may also meet other criteria to determine economic hardship. Specifically, the borrower may qualify if he or she is working full time and has a federal education debt burden (including defaulted loans) that is at least 20% of the borrower's total monthly gross income. The borrower's income, minus the educational debt burden, must be less than 220% of the total monthly gross amount associated with minimum wage rate work or earnings equal to 100% of the poverty line for a family of two. For a borrower not working full-time, the criteria is more complex. See 34 CFR 682.210(s)(6)(v) for more information. In addition, a borrower may receive an economic hardship deferment under FFEL if he or she has been granted an economic hardship deferment under either the William D. Ford Federal Direct Loan Program (Direct Loans) or the Federal Perkins Loan Program for the same period of time for which the FFEL economic hardship deferment is requested. Other criteria for this deferment are described in 34 CFR 682.210(s)(6). ADDITIONAL PLUS LOAN DEFERMENT A PLUS Loan borrower whose loan was first made and disbursed prior to July 1, 1993 qualifies for a deferment when a dependent student for whom the parent borrowed a PLUS Loan is still dependent and meets one of the following conditions: - The student is attending an eligible school full time. - The student is attending full time at an institution of higher education or a vocational school that is operated by an agency of the federal government. - The student is enrolled in an eligible graduate fellowship program or in an approved rehabilitation training program for the disabled. - The student is attending an eligible school half time, and he or she meets ALL of the following conditions: - The student has an outstanding balance on a Stafford Loan or SLS loan borrowed on or after July 1, 1987 but before July 1, 1993. - On the date the student signed the promissory note for that loan, he or she had no outstanding balance on another FFEL borrowed before July 1, 1987. - The student obtains a Stafford Loan or Direct Loan for the same enrollment period for which the parent is applying for a deferment. DEFERMENT ELIGIBILITY ISSUES [[Retroactive granting of deferment]] A deferment may be granted retroactively. However, it cannot be granted retroactively to begin more than six months before the date the lender receives the request and supporting documentation. If, for example, a borrower whose Stafford Loan has entered repayment returns to school full time from September 1996 to May 1997. The borrower requests a deferment and provides supporting documentation to the lender in July 1997. The lender may grant the deferment (provided that the borrower meets all eligibility requirements for it), but the deferment can cover only the portion of enrollment from January 1997 (six months before the lender received the request and documentation) to May 1997 (the end of the qualifying period). If the borrower did not make payments between September 1996 and January 1997, the lender may apply a forbearance to that period to cure the delinquency. [[Defaulted loan]] A borrower whose loan is in default is NOT eligible for any deferments for that loan--unless the borrower has made payment arrangements acceptable to the lender prior to the payment of a default claim by a guaranty agency. Please note that a co-maker on a Federal Consolidation Loan may receive a deferment if both borrowers are simultaneously eligible for the same or different deferments. The financial aid administrator may wish to reassure students with previous loans--if they are concerned about changes in deferment conditions--that deferments listed on the promissory note cannot be changed; however, additional deferments that could apply to ALL borrowers may be added by future legislation. Because the repayment period on a PLUS Loan begins on the date of last disbursement, a deferment covering such a loan would also begin on the date of the last loan disbursement. DEFERMENT PROVISION CHART FOOTNOTES The following footnotes apply to the deferment chart on page 10-64: 1. Includes student PLUS Loan borrowers and Consolidation Loans made prior to November 1, 1983. 2. A borrower who, on the date he or she signs the promissory note, has no outstanding balance on (1) a Stafford Loan, SLS loan, or PLUS Loan made before July 1, 1987 for a period of enrollment beginning before July 1, 1987 or (2) a Consolidation Loan that repaid such a loan. 3. A new borrower who, on the date he or she applies for a loan, has no outstanding balance on a Stafford Loan, SLS loan, PLUS Loan, or Federal Consolidation Loan made before July 1, 1993 AND whose first disbursement of the loan is made on or after July 1, 1993. 4. Consolidation Loans made on or after July 1, 1993 to borrowers who have no outstanding FFELs other than the FFELs to be consolidated. 5. A Stafford Loan or SLS loan borrower or a PLUS Loan parent borrower who was made or disbursed on or after July 1, 1987 and before July 1, 1993 and who, on the date he or she signed the promissory note, had no outstanding balance on a FFEL made before July 1, 1987 is eligible for deferment while engaged in at least half-time study at a participating school if the borrower obtains a Stafford Loan or for that period of enrollment. If a new borrower (see footnote 3) under these loan programs receives a first disbursement on or after July 1, 1993, he or she is not required to borrow loans to qualify for the deferment. 6. Deferment approval for a new borrower enrolled in a graduate or postgraduate, fellowship-supported program (that is, a Fulbright Fellowship) will extend for the duration of the fellowship period. 7. Public Law 102-26 authorized, for the period of April 9, 1991 to September 30, 1997, special Stafford Loan deferment and grace period provisions for reservists called up for active duty service in connection with Operation Desert Shield and Operation Desert Storm. These benefits are: - A military deferment for the duration of service in connection with Operation Desert Shield or Operation Desert Storm, even if the length of the deferment exceeds the maximum deferment authorized in sections 428(b)(1)(M)(ii) or 427(a)(2)(C)(ii); - A six-month post-deferment grace period following an Operation Desert Shield or Operation Desert Storm military deferment; and - A one-time six-month post-deferment grace period following an in-school deferment for a borrower who received a military deferment and who later becomes eligible for an in-school deferment. 8. Periods of service in an eligible internship program (See 34 CFR Section 682.210(g)); or serving in an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health-care facility that offers postgraduate training. Lenders are now required to grant forbearance to medical interns and residents who have expended their two-year residency deferments before they have completed their intern and residency requirements. 9. A mother who - has a preschool-age child, - is entering or reentering the work force full time, and - is being paid no more than $1 above the minimum wage. 10. A borrower who is seeking, but who is unable to find, full-time employment. 11. A borrower is considered to have an economic hardship if the borrower - is receiving payment under a federal or state public assistance program; - is working full time but earning an amount that does not exceed the greater of - the federal minimum wage, or - an amount equal to 100% of the poverty line for a family of two as determined according to section 673(2) of the Community Service Block Grant Act; or - meets other regulatory criteria which take into account the borrower's debt-to-income ratio as a primary factor. Specifically, the borrower may qualify if - he or she is working full time and has a federal educational debt burden (including defaulted loans) that is at least 20% of the borrower's total monthly gross income. The borrower's income, minus the education debt burden, must be less than 220% of the total monthly gross amount associated with minimum wage rate work or earnings equal to 100% of the poverty line for a family of two. - he or she is not working full time and has a total monthly gross income that does not exceed twice the minimum wage or the poverty line for a family of two, and, after deducting the borrower's monthly education loan payments, the remaining amount of the borrower's income does not exceed those amounts. - has been granted an economic hardship deferment under either Direct Loans or the Federal Perkins Loan Program for the same period of time for which the FFEL economic hardship deferment is requested. 12. Period for which the borrower is pregnant, caring for his or her newborn child, or caring for his or her adopted child (immediately following adoption). The borrower may neither be attending school nor be gainfully employed and must have been enrolled at least half time at a participating school at some time during the six months preceding the period of parental leave. 13. A PLUS Loan borrower whose loan was first made and disbursed prior to July 1, 1993 qualifies for a deferment when a dependent student for whom the parent borrowed a PLUS Loan is still dependent and meets one of the following conditions: - The student is attending an eligible school full time. - The student is attending full time at an institution of higher education or a vocational school that is operated by an agency of the federal government. - The student is enrolled in an eligible graduate fellowship program or in an approved rehabilitation training program for the disabled. - The student is attending an eligible school half time, and he or she meets ALL of the following conditions: - The student has an outstanding balance on a Stafford Loan or SLS loan borrowed on or after July 1, 1987 but before July 1, 1993. - On the date the student signed the promissory note for that loan, he or she had no outstanding balance on another FFEL borrowed before July 1, 1987. - The student obtains a Stafford Loan or Direct Loan for the same enrollment period for which the parent is applying for a deferment. [[The chart "Federal Family Education Loan Program Deferment Provisions" on page 10-64 is currently unavailable for viewing. Please reference your paper document for additional information.]] GENERAL FORBEARANCE PROVISIONS If a borrower (or endorser) is willing but financially unable to make the required payments on an FFEL because of poor health or other unanticipated personal problems, he or she may request that the lender grant forbearance. Forbearance means permitting the temporary cessation of payments, allowing an extension of time for making payments, or temporarily accepting smaller payments than were previously scheduled. With the exception of the special categories of forbearances for variable interest rate changes and income-sensitive repayment schedules, the borrower may elect to pay nothing during the forbearance period. If the borrower wishes to make reduced payments, a lender may grant forbearance of principal, interest, or both. Forbearance usually requires a WRITTEN AGREEMENT between borrower and lender. When forbearance is granted, the borrower is always responsible for repayment of accrued interest charges. While lenders do not in most cases have to grant forbearance, they are encouraged to do so if such action would likely prevent the borrower from defaulting. If two persons are jointly liable for repayment (are co-makers) of a PLUS Loan or Consolidation Loan, the lender may grant forbearance only if BOTH persons meet the conditions for a forbearance. MANDATORY FORBEARANCE The law specifies that a lender must grant mandatory forbearance of both principal and interest (if requested) to a FFEL borrower in certain circumstances (the first two circumstances apply only to borrowers; the other two apply to borrowers and endorsers): - If a borrower serving in a medical or dental internship or residency program has already received the maximum two-year internship deferment or is not eligible for such a deferment because he or she is a new borrower, a forbearance must be granted. Forbearance in this instance must be cessation of all payments unless the borrower requests forbearance as an extension of time for making payments or requests a temporary reduction in payments. The forbearance is renewable at 12-month intervals while the borrower remains in the internship/residency program. The borrower must request forbearance in writing for each 12- month period. - If a borrower's monthly student loan payments are collectively equal to or greater than 20% of the borrower's total monthly income, a forbearance must be granted in yearly increments for periods of time that collectively do not exceed three years. - If a borrower is serving in a national service position for which he or she received a national service education award under the National and Community Service Trust Act of 1993, a forbearance must be granted; the forbearance is renewable in yearly increments during the time the borrower serves in this capacity. - If a borrower is eligible for partial repayment of a loan under the Student Loan Repayment Programs administered by the Department of Defense under 10 U.S.C. 2171, a forbearance must be granted. ADMINISTRATIVE FORBEARANCE Administrative forbearance does not require agreement from a borrower, and a lender may grant it only under specified conditions authorized by law or by the Department in regulations. Upon notifying the borrower, a lender may grant forbearance for payments of interest and principal that are overdue - when a deferment is granted and the lender later learns that the borrower did not qualify for the deferment, - at the beginning of a deferment period, - from the time the borrower entered repayment until the first payment was due, - during a period of national military mobilization such as Bosnia and Operation Desert Storm, and - during a period prior to a borrower's filing of bankruptcy. A lender may grant administrative forbearance - during a period not to exceed 60 days after a lender learns of a borrower's death or total and permanent disability, as long as the lender has received documentation verifying those conditions; - for a period of delinquency at the time a loan is sold or transferred, as long as the borrower or endorser is less than 60 days delinquent on the loan at the time of sale or transfer; - for periods necessary to determine a borrower's eligibility for loan discharge because of past attendance at a school that later closed or because of false certification of loan eligibility; - for periods when a borrower's or endorser's eligibility for bankruptcy discharge is being determined; or - for a period of delinquency that may remain after a borrower ends a period of deferment or mandatory forbearance until the next due date is established. MANDATORY ADMINISTRATIVE FORBEARANCE FFEL program regulations specify that a lender must grant a mandatory administrative forbearance to FFEL borrowers in certain circumstances: - For up to three years of payments when the effect of a variable interest rate change requires the extension of the maximum repayment term (under a standard or graduated repayment schedule), forbearance must be granted. - For up to five years of payments when an income-sensitive repayment schedule requires the extension of the maximum repayment term, forbearance must be granted to avoid ballooning payments. [[Exceptional circumstances]] - When the Department notifies the lender that exceptional circumstances (such as a local or national emergency or a military mobilization), a forbearance must be granted. Borrowers subject to a military mobilization must provide supporting documentation as proof. [[Natural disasters]] - When the Department notifies loan holders that specific geographical areas have been designated as natural disaster areas, the holders are strongly encouraged to grant administrative forbearance for up to three months to assist borrowers who have been affected by the disaster and who contact the holders and request assistance. A borrower in this situation is not required to sign a forbearance agreement or to submit supporting documentation. For example, victims of Hurricanes Marilyn and Opal were granted administrative forbearance. INTEREST ACCRUING DURING DEFERMENT AND FORBEARANCE Interest continues to accrue on all loans during deferment periods. Interest also accrues on all FFELs during forbearance. Unless a borrower qualifies for interest subsidy during deferment, he or she is responsible for paying this interest and may do so during deferment or forbearance. Or, a lender may agree to capitalize the interest (add it to loan principal) when repayment of the principal resumes. Interest that accrues during a deferment or forbearance may be capitalized no more frequently than quarterly. Procedures for capitalization of interest under different deferments may vary. The borrower should be instructed to read his or her promissory note and to check with the lender or guaranty agency for details on capitalization of interest. If a borrower agrees to pay interest during deferment but fails to do so, the borrower will be considered delinquent. |