Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Federal Family Education Loan Programs - Federal Stafford Loans

AwardYear: 1995-1996
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Programs
SectionNumber: 2
SectionTitle: Federal Stafford Loans
PageNumbers: 17-36


Each of the Federal Family Education Loan (FFEL) programs has
different loan limits, interest rates, and repayment and deferment
conditions; those elements will be covered in this section and in the
following two sections. Provisions common to all three programs,
such as forbearance, cancellation, and default, will be covered in
Section Six, along with some bases for comparing the loan
programs. A chart showing deferments for all FFEL programs is at
the end of Section Six.

[[OBRA '93]]
[[HETA '93]]
The Omnibus Budget Reconciliation Act of 1993 (OBRA) and the
Higher Education Technical Amendments of 1993 (Technical
Amendments of 1993) made major changes in the Federal Stafford
Loan Program. Those changes affecting both subsidized and
unsubsidized Stafford Loans will be discussed here; changes
affecting only unsubsidized Stafford Loans will be discussed in the
next section.

LOAN LIMITS

[[Restriction on first-year Stafford borrowers for loans
certified on/after 10/1/92]]
The following subsidized Stafford Loan limits for first-year
undergraduate students are effective for loans certified on or after
October 1, 1992, and are based on the borrower's academic standing
in the program in which he or she is currently enrolled. (Please note
that a loan proration chart at the end of Section Two summarizes the
information provided in the following outline.)

- FOR AN UNDERGRADUATE STUDENT who has not yet
completed the first year of study:

* up to $2,625 for a program of study at least an academic
year in length;

* up to $1,750 for a program at least two-thirds of an
academic year, but less than a full year;

* up to $875 for a program at least one-third but less than two-
thirds of an academic year.

For loans first disbursed on or after July 1, 1994, subsidized Stafford
Loan limits change FOR UNDERGRADUATE STUDENTS WHO
HAVE COMPLETED THE FIRST YEAR OF A PROGRAM OF
STUDY.

- For a student who has completed the first year of study, but has
not completed the remainder of the program, the loan limit is:

* up to $3,500 for a program of study of at least an academic
year in length;

* for programs less than an academic year in length, or for
programs of more than an academic year when the
remaining portion of the program in excess of an academic
year is less than an academic year in length, the loan must
be prorated, as explained on the following page.

- For a student who has completed the first and second year of
study, but has not completed the remainder of the program, the
loan limits are -

* up to $5,500 for a program of study at least an academic
year in length;

* for programs less than an academic year in length, or for
programs of more than an academic year when the
remaining portion of the program in excess of an academic
year is less than an academic year in length, the loan must
be prorated, as explained on the following page.

[[HETA '93]]
NOTE:
For the purpose of determining loan limits, the number of
years that a student has completed in a program of
undergraduate study includes any prior enrollment in an
eligible program of undergraduate education for which the
student was awarded an associate or baccalaureate degree, IF
such a degree is required by the school for admission to the
program in which the student is currently enrolled. (The
Technical Amendments of 1993 established this requirement,
effective December 20, 1993.)

An "academic year" requires a minimum of 30 weeks of instruction
during which a full-time undergraduate student is expected to
complete at least 24 semester or trimester hours, 36 quarter hours, or
900 clock hours. For undergraduate students who have not yet
completed the first year of study, loans for less than a full academic
year are prorated in fixed amounts, as explained on the previous
page. For all other students, the Technical Amendments of 1993
require proration of loans for any PORTION of an academic year, as
explained below.

PRORATION OF LOANS

Proration of a loan is required when --

- a program is less than an academic year in either clock hours or
credit hours, or number of weeks; or

- a program exceeds an academic year, but the portion of the
program in excess of an academic year is less than an academic
year in length.

To prorate a loan for a program that is less than an academic year,
figure what proportion of a full academic year that program
represents, and prorate the loan amount on that basis. Similarly, to
prorate the amount of a loan for a program that is in excess of an
academic year but the remainder is less than a full academic year in
length, figure what proportion of a full academic year the excess
represents, and prorate the loan amount on that basis. Here is an
example of how proration works:

[[Example of proration]]
Mary, a student at Magenta Sands Community College, is enrolled
in a program of 45 quarter hours. Mary received a Stafford Loan
of $2,625 for the first year of her program of study. Since Magenta
Sands' academic year is 36 quarter hours, Mary may receive more
than one Stafford Loan. However, since Mary needs to complete
only 9 hours to finish her program, her second Stafford Loan must
be prorated to cover a period of less than an academic year. Her
second Stafford Loan, covering a period of 1/4 of an academic
year, is limited to $875, which is 1/4 of $3,500, the loan limit for a
student who has completed the first academic year of study.

[[The chart on page 10-19 is currently unavailable for viewing.
Please reference your paper document for additional
information.]]

Keep in mind that these Stafford Loan limits apply to standards the
school has established for the length of time normally required to
complete a given program. For example, if a student requires more
than two years to complete a program the school has determined can
normally be completed in two years of full-time study, the student
may not receive more than the annual loan limit of $3,500,
regardless of how long it takes the student to complete the program.
Note that students may not receive Stafford Loans for programs of
less than one-third of an academic year of study.

Students enrolled in teacher certification or recertification programs
are considered the same as fifth year undergraduate students, and
may borrow up to $4,000 for loans disbursed before July 1, 1993,
and up to $5,500 for loans disbursed on or after July 1, 1993 (subject
to the reductions for programs less than an academic year in length,
as described above).

[[Loan limits for grad students]]
GRADUATE OR PROFESSIONAL STUDENTS with subsidized
Stafford Loans made for periods of enrollment beginning before
October 1, 1993 may borrow up to $7,500 per academic year; those
students with loans made for periods of enrollment beginning on or
after October 1, 1993 may borrow up to $8,500 per academic year.

[["7-month rule" no longer relevant-- new principles to
determine frequency of annual loan limits]]
Stafford Loan limits are restricted in terms of the time period to
which they apply. Previously, seven months was the minimum
period to which annual Stafford maximum loan limits could apply.
Because the academic year definition discussed earlier requires a
minimum of 30 weeks of instruction, which almost without
exception will be longer than seven months, the Department has
determined that the "seven consecutive month standard" will no
longer be relevent to annual loan limit maximums. In addition, the
Department has established guidelines to determine the requency for
annual loan limits. The guidelines define a minimum standard for
annual loan frequency to replace the "7-month rule" and allow
schools flexibility in applying the academic year requirements. The
"Principles to Determine the Frequency for Annual Loan Limits" are
included as Appendix B of this chapter.

[[Aggregate loan limits]]
The maximum outstanding debt allowed for undergraduate study is
$23,000. The maximum outstanding debt for graduate or
professional students, which includes any outstanding subsidized
Stafford Loans borrowed for undergraduate study, is $65,000. PLUS
AND SLS LOANS ARE NOT CONSIDERED IN DETERMINING
STAFFORD LOAN LIMITS. UNSUBSIDIZED STAFFORD
LOANS ARE COUNTED IN BOTH ANNUAL AND
AGGREGATE STAFFORD LOAN LIMITS. (See Section Three
for an explanation of unsubsidized Stafford Loan limits and Section
Six for a comparison of loan limits for Stafford and PLUS loans.)

[[Loan consolidation does not increase loan limits]]
The aggregate limit (or sum total) for both undergraduate and
graduate/professional students must also include any portion of a
borrower's Consolidation Loan that was used to repay a Stafford
Loan or SLS. Thus, CONSOLIDATION OF A STUDENT'S
LOANS DOES NOT INCREASE HIS OR HER LOAN LIMITS.
The student should contact the holder of his or her Consolidation
Loan to determine the makeup of the loan - that is, the loan amounts
and type of each loan consolidated - and to determine, if payment
has been made, how that payment has been apportioned among the
loans consolidated. See Section Five for more information on
Consolidation Loans.

For the Stafford Loan Program, the student can borrow up to the
aggregate limit on loans outstanding; once the loans are repaid in
full or in part, a student again may apply for a Stafford Loan. (In
the Perkins Loan Program, on the other hand, the loan maximum is
limited by the total borrowed, even though previous loans may have
been repaid.)

INTEREST RATES AND GRACE PERIODS

GRACE PERIOD

[[6-month grace period for most Stafford Loans]]
Borrowers with fixed-rate loans, and those with variable interest rate
loans, are entitled to a six month GRACE PERIOD, which is the
period between the termination of at least half-time study at a
participating school, and the beginning of loan repayment. (The one
exception is the 9- to 12-month grace period for borrowers with
Stafford Loans at the 7 percent interest rate.) For loans first
disbursed on or after July 23, 1992, the grace period begins on the
day after the borrower ceases attending school at least half time -
either because the course of study has been completed, or because
the student drops out of school, drops below half-time status, or
transfers to a school that does not participate in the Stafford Loan
Program. The borrower may request a shorter grace period. For
correspondence students, the grace period begins on the date the
borrower completes the program, or 60 days after: (1) the school's
deadline for completing the program, or (2) the student misses the
due date of a scheduled assignment.

For an SLS borrower who also has a Federal Stafford Loan on which
the borrower has not yet entered repayment, the grace period is an
equivalent period after the borrower ceases to be enrolled as at least
a half-time student at an eligible institution.

Borrowers with Stafford Loans made prior to October 1, 1981 are
entitled to a six month POST-DEFERMENT grace period following
any deferment. While a borrower may have several periods of
unemployment deferred, however, only one post-deferment grace
period per borrower is permitted for the unemployment deferment.
The 9- to 12-month grace period (noted above) for 7 percent loans is
set by the lender or the guaranty agency, and is shown on the
promissory note, signed by the borrower.


INTEREST RATES

[[HETA '93]]
In the past, the interest rate on a borrower's first Stafford Loan
applied to all subsequent Stafford Loans, as long as there was an
outstanding balance on any of those loans. However, the Technical
Amendments of 1993 have changed the law to enable borrowers
with fixed interest rates on earlier Stafford Loans to obtain the
variable interest rate previously available only to new borrowers.

- FOR LOANS DISBURSED ON OR AFTER OCTOBER 1,
1992 AND BEFORE JULY 1, 1994:

* note that the interest rate for a borrower with no FFEL loans
outstanding (either subsidized or unsubsidized) whose
Stafford Loan is first disbursed on or after October 1, 1992,
but before July 1, 1994, will be a variable rate, determined
on June 1 of each year.

* the rate will be based on the bond equivalent rate of 91-
day Treasury bills auctioned at the final auction before
June 1 plus 3.1 percent; and

* the interest rate for these loans may not exceed 9 percent.

- FOR LOANS FIRST DISBURSED ON OR AFTER JULY 1,
1994 (AND FOR LOANS FIRST DISBURSED ON OR AFTER
JULY 1, 1995 BUT PRIOR TO JULY 1, 1998 - EXCEPT
DURING IN-SCHOOL, GRACE, AND DEFERMENT
PERIODS):

* a Stafford Loan made to any borrower, regardless of whether
that borrower has FFEL loans outstanding, will have a
variable interest rate, determined on June 1 of each year.

* the rate will be based on the bond equivalent rate of 91-
day Treasury bills auctioned at the final auction before
June 1 plus 3.1 percent; and

* the interest rate for these loans may not exceed 8.25
percent.

For example, a borrower with outstanding Stafford Loans with
interest rates of 9 percent, or 7 percent, whose newest Stafford Loan
is disbursed on September 1, 1994 will receive a variable interest
rate on that loan. The terms and conditions (and interest rates) of
the previous loans will still apply to those loans.

For the two categories of loans just described in the bullets ( - ) on
the preceding page, the variable interest rate for the
period July 1, 1993 through June 30, 1994 was 6.22 percent. The
variable interest rate for the period July 1, 1994 through June
30, 1995 was determined in June 1994 to be 7.43 percent for these
loans. The variable interest rate for the period July 1, 1995
through June 30, 1996 will be determined in June 1995.

- FOR LOANS FIRST DISBURSED ON OR AFTER JULY 1, 1995
BUT PRIOR TO JULY 1, 1998 (ONLY DURING IN-SCHOOL,
GRACE, AND DEFERMENT PERIODS):

* a Stafford Loan made to any borrower, regardless of
whether that borrower has FFEL loans outstanding,
will have a variable interest rate, determined on
June 1 of each year.

* the rate will be based on the bond equivalent
rate of 91-day Treasury bills auctioned at the
final auction before June 1 plus 2.5 percent;
and

* the interest rate for these loans may not exceed
8.25 percent.

[[Effect of variable interest rate on repayment period]]
To account for the effect of a variable interest rate on the
outstanding debt, which must be repaid within the maximum
allowable repayment period, a lender may either make adjustments
in each borrower's monthly payment amount or must grant a
mandatory administrative forbearance as described on page 10-62
of the Handbook and in the June 29, 1994 FFELP Final Rule.

[[HETA '93]]
Certain loans disbursed in the past are also now subject to a
variable interest rate. This is an exception to the above
stipulation that interest rates for previous loans will remain as
they were when the loans were made. The Technical Amendments
of 1993 required lenders to convert loans SUBJECT TO REBATE
OF EXCESS INTEREST to variable rate loans by January 1, 1995.
The variable rate will depend on the type of loan converted, but will
not exceed the interest rate of the loan prior to conversion.
The holder of the loan must inform the borrower of the conversion
to a variable rate at least 30 days prior to conversion.

LOANS SUBJECT TO A REBATE OF EXCESS INTEREST

- Stafford Loans (subsidized or unsubsidized) at 8 percent
changing to 10 percent after four years either-

* made before July 23, 1992 or
* made to a new borrower on or after July 23, 1992 and
before October 1, 1992.

- Stafford Loans made on or after July 23, 1992 and before
July 1, 1994 to a borrower with outstanding FFEL loans.

Loans subject to the rebate of excess interest are explained in
more detail in the November 30, 1994 FFELP Final Rule and are
summarized under the following heading, "Rebate of excess
interest - windfall profits. "

REBATE OF EXCESS INTEREST - "WINDFALL PROFITS"

Fixed interest rate loans are subject to a rebate of excess
interest if the current average of bond equivalent rates of
91-day Treasury bills plus a "factor" (3.25 percent or 3.1
percent) for a particular quarter is less than the interest rate
of the loan. This rebate of excess interest is sometimes termed
"windfall profits." The rebate varies depending on the interest
rate of the loan and whether the borrower is a new borrower.

For any Stafford Loan (subsidized or unsubsidized) described
after the first of the two bullets ( - ) under the previous
section "Loans subject to a rebate of excess interest", the
borrower is entitled to a rebate of excess interest under the
following condition:

- If the sum of the average of the bond equivalent rates of
91-day Treasury bills for that quarter, plus 3.25 percent,
is less than the interest rate when it is at 10 percent,
the lender must calculate the adjustment to excess
interest and rebate the difference to the borrower's
account.

* The rebate can be made either by reducing the amount
of the borrower's payments, or by reducing the number
of payments required to repay the loan.

For any Stafford Loan (subsidized or unsubsidized) made on or
after July 23, 1992 to a borrower with outstanding FFEL loans
(described after the second of the two bullets on the previous
page), the borrower is entitled to a rebate of interest as
follows:

- If the sum of the average of the bond equivalent rates of
91-day Treasury bills for that quarter, plus 3.1 percent,
is less than the borrower's interest rate, the lender must
calculate the adjustment to excess interest and rebate the
difference to the borrower's account as described above.

- In the case of a Stafford Loan at the 8 percent changing
to 10 percent interest rate, the loan will be subject to a
rebate on the loan at both the 8 and 10 percent interest
rate.

[[Conversion of loans, subject to rebate to excess interest,
to variable-rate loans]]
As mentioned previously, the Technical Amendments of 1993
required lenders to convert loans subject to rebate of excess
interest to ANNUAL VARIABLE RATE LOANS by January 1,
1995. The holder of the loan was required to inform the borrower of
the conversion to a variable rate at least 30 days prior to
conversion.

Please note that while the borrower is in school, in the grace
period, or during periods of deferment of interest payment, the
excess interest must be refunded to the Department by the lender.
In addition, if the borrower's account is more than 30 days past
due on the last day of the calendar year, the rebate must be paid
to the Department instead of to the borrower's account. Under any
other circumstances, the lender must credit the rebate to the
borrower's loan account at the end of each calendar year. As
described above, the rebate can be made either by reducing the
amount of the borrower's payment, or by reducing the number of
payments required to repay the loan.

Variable interest rate loans are not subject to the rebate of
excess interest. In addition, SLS and PLUS loans are not subject
to rebate of excess interest provisions.


VARIABLE INTEREST RATES OF LOANS SUBJECT TO REBATE OF
EXCESS INTEREST

The variable interest rate is equal to -

- the sum of the bond equivalent rate of 91-day Treasury
bills plus
* 3.25 percent for loans subject to rebate only at 10
percent, or
* 3.1 percent for loans made on or after July 23, 1992
to borrowers with outstanding FFEL loans.
* The applicable bond rate will be determined by
the U. S. Department of Education based on the
rate at the final auction prior to June 1 of
each year and will apply to loans for a period
of one year beginning July 1 after the rate is
determined.

For July 1, 1994 through June 30, 1995, the variable rate for the
first category of loans (described under the first diamond * near
the end of the preceding page) was 7.58%. For the second
category of loans (next to the second * ), the variable rate was
7.43%. The variable interest rate for these loans for the period
July 1, 1995 through June 30, 1996 will be determined in June
1995.

ADDITIONAL COSTS OF BORROWING

[[Insurance premium reduced to 1%]]
[[OBRA '93]]
For loans first disbursed on or after July 1, 1994 for periods
of enrollment that begin on or after that date, the maximum
insurance premium that a guaranty agency may charge the lender of
a Stafford Loan or PLUS is a one-time fee not to exceed 1 percent
of the principal amount of the loan. (Formerly, a guaranty
agency could charge a lender a fee not to exceed 3 percent of the
loan principal.) If the lender passes this charge on to the
borrower, the fee must be deducted proportionately from each
disbursement of the loan.

[[Orignation fee reduced to 3%]]
For loans first disbursed on or after July 1, 1994 for periods of
enrollment beginning on or after that date, the origination fee
that a lender may charge the borrower has been reduced from 5
percent to 3 percent of the principal amount of the loan.
Lenders must deduct (or collect) the origination fee
proportionately from each disbursement of the loan proceeds.

The origination fee and the insurance premium must be refunded by
crediting the borrower's loan account if the loan check is
returned uncashed to the lender, is not cashed within 120 days of
disbursement, or if the loan is repaid in full within 120 days of
disbursement. Note that the loan origination fee is not retained
by the lender, but is turned over to the federal government to
help offset the cost of federal interest subsidies.

REPAYMENT

While the borrower is in school at least half time,
interest on a subsidized Stafford Loan is paid by the
federal government on the borrower's behalf. The loan repayment
period for a Stafford Loan first disbursed on or after July 23,
1992 begins the day after the grace period ends, and ends no
later than 10 years from that date (excluding periods of
deferment and forbearance). Generally, the first payment on a
Stafford Loan is due no later than 45 days after the first day of
the month in which repayment begins. The lender must notify the
borrower of the date the first payment is due no later than 120
days after the borrower has left school.

Note that if a borrower's attendance was interrupted by the
earthquake in California, he or she should be considered to be in
"in-school" status during the period of nonattendance resulting
from the earthquake damage. For more guidance to schools
affected by the earthquake, see Dear Colleague letter GEN 94-3
(January 1994).

[[Establishing a withdrawal date]]
The student's withdrawal date is the date that the student
notifies an institution of the student's withdrawal, or the date
of withdrawal specified by the student, whichever is later.
Effective July 1, 1995, a student who has been granted a leave of
absence is not considered to have withdrawn from school, as
stated in the November 29, 1994 Student Assistance General
Provisions and FFELP Final Rule. Prior to this point, a student
on a leave of absence is considered to have withdrawn.

If a student fails to return from an approved leave of absence
(whether approved or unapproved), the withdrawal date is the last
recorded date of class attendance. The same date (the last
recorded date of class attendance) is used if the student
withdraws unofficially by dropping out of an institution without
notifying that institution. An institution must determine the
withdrawal date for a student who drops out within 30 days of the
earlier of the --

- period of enrollment for which the student has been
charged;

- academic year in which the student withdrew; or

- educational program in which the student withdrew.

The refund policy for students who have withdrawn, dropped out,
or who have not returned from an approved or unapproved leave of
absence is explained on pages 10-129 to 10-131 of this chapter.

For correspondence study, the withdrawal date is the date of the
last lesson submitted by the student. For appeal procedures with
regard to the withdrawal date for correspondence study, see the
General Provisions regulations, Part 668.22 ("Institutional
Refunds and Repayments"), section (j)(1)(iii).

IT IS THE STUDENT'S RESPONSIBILITY TO NOTIFY
THE LENDER OF THE DATE ON WHICH HE OR SHE
CEASES TO BE ENROLLED AT A PARTICIPATING
SCHOOL AT LEAST HALF TIME.

[[Remind students to keep lenders informed!]]
You are urged to emphasize to students the importance of that
responsibility. Upon notification of this critical date, the
lender will send a repayment schedule to the borrower. If
assignment of a loan results in a change in where loan payments
should be sent, the borrower must be notified by the present and
former holder of the loan (either jointly or separately) of the
change within 45 days of its occurrence. In addition if, as
often happens, the lender sells the loan or otherwise transfers
the right to receive payment, the borrower must be notified.
This notification should spell out the borrower's obligations to
the new holder of the loan. (See Section Ten under "Exit
Counseling" for more detail on this requirement.) Provisions of
the loan repayment schedule must agree with those in the
promissory note and the loan Disclosure Statement. Generally,
the borrower has from five to ten years to pay off the loan. Any
periods of authorized deferment or forbearance granted are not
counted in the five- to ten-year repayment period.

[[Loan prepayment]]
The borrower may prepay all or part of a loan at any time without
penalty. Unless the borrower requests that the lender credit a
prepayment to future loan installments, the lender may credit the
prepayment first to late charges or collection costs, then to
outstanding interest, and then to unpaid principal. However, if
the prepayment amount equals or exceeds three full scheduled
payments, the lender may apply the prepayment to future
installments without the prior request of the borrower. The
lender must inform the borrower that the payments have been
applied to future installments, and must notify the borrower of
the advanced payment due date.

REMINDER:
SCHOOLS ARE REQUIRED TO INFORM THE LENDER (OR
GUARANTY AGENCY) OF ANY CHANGE IN THE
BORROWERÂ’S ENROLLMENT STATUS.

If a student returns to school at least half time BEFORE the
grace period ends, he or she may again postpone loan repayment
while in school and will be entitled to a full grace period upon
termination of enrollment or when dropping below half-time
status. The student should understand, however, that ONCE THE
GRACE PERIOD ENDS, HE OR SHE IS IN REPAYMENT
STATUS, AND MUST ENROLL IN A PARTICIPATING
SCHOOL FULL TIME IN ORDER TO QUALIFY FOR A
DEFERMENT. (See the exception to full-time enrollment for
new borrowers under "Deferment" in this section.)

In general, minimum payments must be at least $600 per year on
new loans. Loan payments for Stafford Loans, however, usually
exceed these minimums, and monthly payments may not be less
than the amount of interest due. The lender may round up the loan
payment to ensure that the payment is a multiple of five dollars.
The lender may require a repayment period of less than five
years, if necessary, to ensure that the above minimum payments
are met. Note that the $600-per-year minimum combined annual
payment for a couple who both have Stafford Loans is no longer
permitted.

[[Options for repayment]]
Lenders are now required to offer the option of standard,
graduated, or income-sensitive payments to new borrowers. A "new
borrower" is defined as someone who has no outstanding balance on
an FFEL Program Loan on or after July 1, 1993. In addition, this
category of borrowers includes those whose applications for
Federal Consolidation Loans are received on or after January 1,
1993, and also those who obtain a Federal Consolidation Loan on
or after July 1, 1993 (if these borrowers have no other
outstanding FFEL Program Loans when the Consolidation Loans
are made). Finally, please note that the Secretary encourages
lenders to offer this flexible range of repayment options to all
other borrowers.

A choice of repayment plans must be provided to borrowers not
more than six months prior to the date of the first scheduled
loan payment. Even if a particular plan is not chosen, lenders
are permitted to require each borrower to repay all of his or her
FFEL loans under one repayment schedule.

Lenders may agree to a standard, graduated, or income-sensitive
repayment schedule, as long as minimum annual payment and
maximum time periods for loan repayment are met and as long as
payments at least cover interest charges. Also, a borrower must
respond to the lender's offer of a choice of repayment options within
45 days after the lender makes the offer.

Please note that if a new borrower has already entered repayment
and wishes to select a new repayment option, the lender must
provide the borrower with this new schedule prior to July 1,
1995.


THE INCOME-SENSITIVE REPAYMENT PLAN

Borrowers requesting this option will be contacted by the lender
within 90 days of the date loan repayment is to begin. Under
this plan, the borrower is not required to provide documentation
of income unless the borrower reports income that would cause the
amount of his or her monthly payment to be insufficient to repay
the loan within the maximum ten-year repayment period. However,
the lender may still require a borrower's federal income tax
return as income verification if the lender thinks it is needed.

If this or any of the other plans is not chosen within the
above-specified 45-day time frame, or the borrower chooses the
income-sensitive plan but then does not provide any documentation
which may be required for repayment under that plan, a lender may
require that borrower to repay his or her loans under the
standard repayment option.

These and other requirements pertaining to repayment plans are
described in the June 29, 1994 FFELP Final Rule on repayment,
deferment, and forbearance provisions.


OTHER REPAYMENT PROVISIONS

A loan forgiveness demonstration program that would repay a
portion of a Stafford Loan for borrowers employed as teachers,
nurses, or in community service is described in Section Six under
"Loan forgiveness." However, the program is not yet funded.

If, after obtaining a Stafford Loan, the borrower enrolls less
than half time, fails to enroll during the period for which the
loan was intended, or is otherwise found to be ineligible for all
or part of the loan, the borrower must immediately notify the
lender and repay the amount due. (The school must also notify
the lender of the borrower's loan ineligibility.) IF THE
BORROWER FAILS TO DO SO, THE LENDER, AFTER
FOLLOWING DUE DILIGENCE REQUIREMENTS (WHICH
INCLUDE DEMANDING PAYMENT IN FULL), MAY FILE A
DEFAULT CLAIM FOR THE FULL LOAN AMOUNT.


DEFERMENT

Deferment periods are periods during which payment of principal
on a Stafford Loan is postponed and, except for unsubsidized
Stafford Loans, interest subsidy payments are made by the federal
government. Once repayment begins, borrowers are entitled to a
deferment if they meet the requirements below. However, THE
BORROWER MUST REQUEST A DEFERMENT EITHER
VERBALLY, OR MORE OFTEN, ON A FORM PROVIDED BY
THE LENDER, AND MUST PROVIDE DOCUMENTATION TO
THE LENDER IN SUPPORT OF THE REQUEST. The borrower
should continue making payments on the loan until notification of
the deferment is received. A deferment period begins on the date
the condition, such as unemployment or military service, begins.
The Department has developed a common deferment form; it was
mailed to all guaranty agencies on March 30, 1994.

[[Retroactive deferments]]
A deferment can be granted retroactively for up to six months.
For an unemployment deferment, the borrower must provide an
additional deferment request before the end of each six-month
period of unemployment, affirming his or her continuing search
for employment.

[[Change in definition of "eligible institution" for
in-school deferment]]
A deferment for full- or half-time study at an eligible school is
commonly referred to as an "in-school" deferment. Under the
Higher Education Amendments of 1992, any school that meets the
definition of an eligible institution, whether or not it is
currently participating in any SFA programs, is an eligible
school for the purpose of the in-school deferment. However, if a
school has never participated in SFA programs, it must be
determined by the Department to meet the definition of an
eligible institution before certifying an in-school deferment.

With the approval of the agency guaranteeing the loan, a Stafford
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 for the in-school deferment. The anticipated
graduation date on the application is considered to be the end
date of the in-school deferment.

[[No in-school deferment for medical intern or residency
program]]
Under prior law, medical interns or residents at certain schools
could receive an "in-school" deferment for the full internship or
residency program. (The Department has interpreted the term
"medical internship or residency" as limited to internships or
residencies required of doctors of medicine, osteopathy, or
optometry.) However, beginning January 1, 1990, a borrower in a
medical (not dental) internship or residency program may not
receive OR CONTINUE this "in-school" deferment. If eligible, the
borrower may receive the two-year internship or residency
deferment and subsequently must be granted forbearance of
principal for the remainder of the internship/residency program.
See Dear Colleague letters GEN-89-58 (December 1989) and
GEN-90-33 (September 1990) for more detail on this restriction.

However, it may be possible for medical interns or residents to
qualify for the economic hardship deferment described on page
10-35 after the margin note "Deferments for new borrowers with
loans first disbursed on or after 7/1/93" (and also described on
pages 10-72 to 10-73). Please note that these borrowers must
meet the regulatory provisions for an economic hardship
deferment. This type of deferment is not based on status as a
medical intern or resident.

PLEASE NOTE THAT IF A BORROWERÂ’S LOAN IS IN
DEFAULT, HE OR SHE IS NOT ELIGIBLE FOR ANY
DEFERMENTS FOR THAT LOAN.

Deferments of repayment for any Stafford Loan borrowers are
listed below. For more detailed information on deferments than
is provided here, see Section 682.210 of the FFEL Program
regulations.

Deferments of repayment for Stafford Loan borrowers with loans
made PRIOR TO JULY 1, 1987 are authorized for -

- Full-time study at an eligible school.

NOTE:
As noted on page 10-28, while a Stafford Loan borrower
may obtain a loan while a half-time student, once he or
she ceases enrollment at a participating school at
least half time and enters repayment, that student must
enroll full time in a program in order to be eligible
for a deferment. (See the exception on page 10-35.)

- Full-time study at an institution of higher education or a
vocational school which is operated by an agency of the
federal government. (Most federally operated schools are
associated with the Department of Veterans Affairs or with
the armed forces.)

- Study in an eligible graduate fellowship program,
including a recognized graduate international fellowship
program at a foreign university. The borrower will have
to provide the lender with specific information about the
program.

- Study in an approved rehabilitation training program for
the disabled.

- Up to three years of active duty status in the United
States armed forces (Army, Navy, Air Force, Marine Corps,
and the Coast Guard) or service as an officer in the
Commissioned Corps of the U.S. Public Health Service
(including any combination of such periods of service).
Members of the National Guard or the Reserves who are on
full-time ACTIVE DUTY STATUS -- as distinguished from
full-time service -- may qualify for military deferment.
Such a borrower is serving in the active military service.

- Up to three years of volunteer service under the Peace
Corps Act (if the borrower has agreed to serve for at
least one year).

- Up to three years of service as a full-time volunteer
under Title I of the Domestic Volunteer Act of 1973
(ACTION programs). Again, the borrower must agree to
serve for at least one year.

- Up to three years of full-time volunteer service (for a
tax exempt organization) that is comparable to service as
a Peace Corps or ACTION volunteer.

- Periods of unemployment totalling up to two years, if
during those periods the borrower is seeking but unable to
find full-time employment. The borrower must provide the
lender with periodic documentation of attempts to find
employment. The borrower may attend school during this
period as long as the requirements for this deferment are
met.

NOTE:
If a borrower's unemployment continues beyond two years
as a result of devastation caused by Hurricane Andrew,
Hurricane Iniki, or Typhoon Omar, the Department will
extend the unemployment deferment for an additional six
months.

- Up to two years of service in an internship program
required to begin professional practice or service.
Up to two years for a MEDICAL internship or residency
training program required by a state licensing agency
before beginning professional practice or service in that
state. The borrower must have a bachelor's degree or
equivalent before beginning the program.
OR
[[Lender must grant forbearance to medical or dental interns
who have exhauted internship deferment and request forbearance]]
Up to two years of service in a MEDICAL internship or
residency program which leads to a degree or certificate
awarded by an institution of higher education, hospital,
or a health care facility with postgraduate training. The
program must require a bachelor's degree as a condition of
acceptance. (See the restrictions on eligibility of
hospitals or health-care facilities under "Institutional
Eligibility" in Section One.)

Note that the two-year limit for an internship or residency
deferment does not include time spent in an in-school
deferment during internship or residency before January
1,1990. Lenders are now required to grant forbearance of
principal to medical or dental interns or residents whose
programs exceed the two-year internship deferment. See
"Forbearance" under Section Six for more information on this
forbearance provision.

- Up to three years during which the borrower is temporarily
totally disabled or during which the borrower is unable to
work because he or she is caring for a spouse or other
dependent who is temporarily totally disabled (including
any combinations of such periods). Certification for this
deferment must be provided by a doctor of medicine or
osteopathy, or a licensed clinical psychologist.

- Up to six months of parental leave for each period during
which a borrower is pregnant, caring for his or her
newborn child, or caring for his or her adopted child
immediately following adoption. The borrower must be
unemployed and not attending school and must apply within
six months after he or she leaves school or drops below
half-time status.

The following additional deferments of repayment for a Stafford
Loan apply only to new borrowers. FOR THESE DEFERMENTS, a
new borrower is one who, on the date the promissory note is signed,
has no outstanding balance on an FFEL Program loan made before
July 1, 1987 for a period of enrollment beginning before July 1,
1987. (Note that a borrower with NO outstanding FFEL Program
loans may be subject to the deferments for new borrowers with
loans disbursed on or after July 1, 1993, depending on the
borrower's status on his or her loan application date, and on the
first disbursement date of the loan. See the following page for
clarification of this distinction.) The following deferments are
authorized for -

- Up to three years of active duty in the National Oceanic
and Atmospheric Administration Corps.

- Up to three years of full-time teaching in a public or
nonprofit private elementary or secondary school in a
teacher shortage area as determined by the U. S.
Department of Education. The teacher shortage area may be
a geographic area with a shortage of teachers, or a
specific grade level or subject-matter area in which there
is a statewide shortage of elementary or secondary
teachers. The borrower must provide the lender with a
yearly certification that he or she is a full-time teacher
and is teaching in a designated teacher shortage area.

If the borrower's position does not retain its designation
as one in a teacher shortage area, the borrower may still
be eligible for the deferment if he or she continues to
teach full time in the position that originally provided
qualification for the deferment. (For more information
about this deferment, borrowers should be instructed to
contact the chief state school officer or the appropriate
guaranty agency in the state in which the borrower is
teaching.)

- Periods of half-time study, IF the school has documented
that the borrower has obtained a Stafford Loan or SLS for
that same enrollment period.

- Up to 12 months for mothers of preschool-age children who
are going to work (or back to work) for at least 30 hours
per week at a salary that is no more than $1.00 over the
federal minimum wage. The employment should be expected
to last at least three months.

[[Deferments for new borrowers with loans first disbursed on or after 7/1/93]]
The following deferments of repayment apply to borrowers of FFEL
program loans who are new borrowers (meaning a borrower with no
outstanding balance on ANY FFEL Program loan) on the date the
loan application is certified, and whose first disbursement of
the loan is made on or after July 1, 1993. This category of new
borrowers also includes those who obtain Federal Consolidation
Loans on or after July 1, 1993 if these borrowers have no other
outstanding FFEL Program Loans when these Consolidation Loans
are made.

Deferments are authorized for -

- at least half-time study 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

[[New definition of economic hardship]]
- up to three years during periods that the lender
determines will cause the borrower economic hardship.
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:
a) the minimum wage; or, b) the poverty line for a family
of two, as determined in Section 673(2) of the Community
Service Block Grant Act.

The borrower may instead meet other criteria used to
determine economic hardship. 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 percent of the borrower's total
monthly gross income; this income is based on full- and
part-time employment and revenue received from all other
sources. The borrower's income, minus the educational
debt burden, must be less than 220 percent of the total
monthly gross amount associated with minimum wage rate
work or earnings equal to 100 percent of the poverty line
for a family of two.

- In addition, a borrower may receive an economic hardship
deferment under FFEL if the borrower has been granted an
economic hardship deferment under either the Federal
Direct Loan Program 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 the
November 29, 1994 FFEL Final Rule.

Please note that an endorser on a Federal PLUS or Federal
Consolidation Loan may receive a deferment if both comakers are
simultaneously eligible for the same, or different, deferments.

You may wish to reassure students (and endorsers) with previous
loans, who are concerned about changes in deferment conditions,
that deferments listed on the promissory note cannot be removed;
however, additional deferment conditions which could apply to
ALL borrowers may be added by future legislation.

A chart at the end of Section Six provides deferment information
on Stafford Loans (subsidized and unsubsidized) and other FFEL
Program loans. For more information on specific deferment
provisions, the student should be advised to read carefully his
or her promissory note and contact the appropriate lender to
resolve any questions.

[[The chart on page 10-36 and 10-37 is currently unavailable for
viewing. Please reference your paper document for additional
information.]]