SAMPLE AGENCY PLAN 1: GUIDANCE ON STUDENT LOAN ELIGIBILITY, SERVICE AND REPAYMENT OPTIONS
The repayment authority, 5 U.S.C. 5379 as amended, is limited to student
loans authorized by the Higher Education Act of 1965 and the Public Health
Service Act. These are Federally insured loans made by educational institutions
or banks and other private lenders.
The Higher Education Act covers guaranteed student loan programs such as:
Stafford Loans (subsidized, unsubsidized, Direct subsidized, and Direct
Plus Loans (Federal and Direct Federal);
Federal Consolidation Loans (Direct subsidized and Direct unsubsidized);
Defense Loans (made before July 1, 1972);
National Direct Student Loans (made between 7/1/72 and 7/1/87); and
Loans covered under the Public Health Service Act include the:
Nursing Student Loan Program loans;
Health Profession Student Loan Program loans; and
Health Education Assistance Loan Program loans.
Eligibility, Size of Payments, Service, and Repayment Options
A. Eligibility for payments
The following options are intended to provide assistance in making determinations
of eligibility that satisfy the requirement for fair and equitable treatment
in the selection of repayment candidates. [Please note that, under the authorizing
legislation and regulations, the need to maintain a balanced workforce in
which women and members of racial and ethnic minority groups are represented
must be taken into consideration in determining which candidates will be
eligible. The spirit and intent of this requirement may be satisfied by
directing recruitment information and activities toward events and locations
that are most likely to produce candidates in the employment group(s) needed
by the respective [AGENCY COMPONENT], even though the results of all recruitment
efforts produce highly qualified candidates other than in the targeted employment
- Limit eligibility to those occupations which are priorities as specified
in an [AGENCY COMPONENT] staffing and diversity plan. Thus, a business
case is made on a pro-active basis as to which occupations and candidates
and/or employees will be eligible.
- Limit eligibility to those whose grade point averages (GPAs) meet the
standard established by the [AGENCY COMPONENT] for both graduates and
employees who are, or will be, enrolled in academic training while employed.
B. Periods of service and loan repayment periods
The next two payment options may require negotiations with the lender/note holder to adjust the existing payment schedule to conform to the dollar limits established under the Student Loan Repayment Program. They are intended to provide consistency in approach toward loan repayments. For example, in determining periods of service, the [AGENCY COMPONENT] may follow the current practice of service for [AGENCY]-paid training/education, which is to require service based on a ratio of 1:3, e.g., 3 months of service for a 1-month class.
Set the minimum period of service at 3 years for all candidates and then determine the loan payment period.
Convert the loan amount to years.
The loan payment period is the same as the period of service, which is determined by dividing the annual school cost into the loan balance.
Example 1 - total loan is $20,000; total cost for 4-year bachelors degree is $40,000; outstanding loan represents 2 years of total school cost; years of service is determined by multiplying 2 years of costs x 3 years of service per each year of payments = 6 years of service; loan is payable over 6 years at $3,333/yr.
Example 2 - total loan is $42,000 for an advanced degree; annual cost for 2 years is $21,000; outstanding loan represents the total 2 year cost; years of service is determined by multiplying 2 x 3 = 6; loan is paid over 6 years = $7,000/yr; therefore, the total amount that [AGENCY] would pay is 6 x $7,000 = $42,000.
The loan payment period is determined by dividing the maximum annual payment into the loan balance; the period of service is determined by multiplying the loan payment period by 3.
Example 1 - total loan is $20,000; $20,000 / $10,000 = 2 years of allowable payments, i.e., loan is payable over 2 years at $10,000 per year; 2 years of [AGENCY] payments x 3 years of service for each year of payments = 6 years of service.
Example 2 - total loan is $42,000 for an advanced degree; the maximum annual amount that may be paid by [AGENCY] is $10,000; therefore, the number of years of payments of $10,000 = 4.2 years; assuming that 3 years of service would be required for each year of student loan benefit payments, the related service requirement would be 4.2 years x 3 years = 12.6 years of service.
The loan payment period is determined by dividing the outstanding balance by the number of years to attain the degree; the period of service is determined by multiplying the loan payment period by 3.
Example 1 - total loan is $20,000 for a 4-year bachelors degree (which took 4 years to get); the loan payments are $5,000 per year ($20,000 / 4) for 4 years; years of service: 4 years of loan payments x 3 for each year of payment = 12;
Example 2 - total loan is $42,000 for a 2-year advance degree (which took 3 years to get); the loan payments are $10,000 per year, which is the maximum allowable per year, for 3 years, for a total of $30,000; years of service: 3 years of loan payments x 3 for each year of payment = 9.
A. Lump-Sum Net Payments
This occurs when the employee elects, and the lender/note holder agrees, to have one loan payment made each calendar year. The total amount of taxes is first deducted from the gross loan amount and a net payment is made annually to the lender/note holder. The flat rate of 28% will be used to determine the amount of Federal income taxes to be withheld from the gross loan payment amount; social security, Medicare, and State and local income taxes are then determined and withheld based on the gross amount authorized as supplemental wages.
Example - Gross amount of annual payment - $10,000; approximately $3,000 is withheld and reported on the employee's W-2; a net payment of approximately $7,000 is made to the lender/note holder.
B. Biweekly Payroll Payments
This occurs when the employee elects, and the lender/note holder agrees, to biweekly payments of a set amount. For this option, the amount of the loan payment is added to the gross salary amount to increase the total salary for that pay period; taxes are calculated and withheld based on the total salary to determine the employee's net pay.
The total payment amounts may vary from year to year because each calendar year does not always have 26 pay periods; the total amount will probably be less the first calendar year and is dependent on the employee's entry on duty date. Thus, the biweekly amount may need to be adjusted each year so that the maximum allowable per calendar year is not exceeded.
Example - Annual amount of payments - $5,200; employee's biweekly gross pay during the loan repayment period would be increased by $200; $200 would be paid to the lender/note holder each pay period (assuming 26 payments in any calendar year) resulting in a reduction in the employee's net pay of approximately $65 due to the taxes on the loan repayment amount.
An employee may use [FORM NUMBER] for providing payment information in lieu of providing information on the employee, lender/note holder, and loan account separately. A separate [FORM NUMBER] is required for each loan. For lump-sum payments, the [FORM NUMBER] must clearly indicate that it is for a one-time payment with the amount indicated as "NET loan repayment." For biweekly payroll deductions, no further action is needed, as the payment will remain in effect until the end of the agreement period or, as a result of the annual recertification process (see the next section), notice is provided to the payroll office that the payment should be changed or stopped. Payments will automatically stop when the total authorized amount has been paid each year. If [FORM NUMBER] is used, it should be attached to the payroll copy of the service agreement.
This process should be similar to recertifications of retention allowances, in which the servicing human resources staff "suspenses" the effective date of the service agreement and follows up with the appropriate management official; the management official provides a statement that funds are still available for the entire calendar year and that each loan has been reviewed to ascertain whether or not it is in arrears or default. If the amount of the allotment(s) will not change, then a statement to that effect must be provided to the payroll office. If the amount of the loan repayment(s) will be different from the prior year, the new information must be provided. If the loan(s) is in arrears or default, then the management official must determine the appropriate course of action and inform the employee and the servicing human resources staff. If payments will be terminated, then the [AGENCY COMPONENT] must inform the employee, the payroll office, and the lender/note holder.
Employees may be able to deduct the interest on their student loans even though the interest is included in the total loan amount and paid by the agency. Employees should review Chapter 3 of the Internal Revenue Service Publication 970, which is available at www.irs.gov/pub/irs-pdf/p970.pdf.