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.]] |