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AwardYear: 1996-1997 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loan Programs SectionNumber: 6 SectionTitle: Comparing Loan Programs PageNumbers: 51-69 The loan provisions that differ significantly between the Federal Stafford and Federal PLUS programs were discussed in sections 2, 3, and 4. The provisions that are essentially the same for all FFEL programs are presented here, along with comparison of some program elements. A comparison of deferment provisions for the FFEL programs is at the end of this section. A common loan application form and promissory note that can be used to apply for a subsidized or unsubsidized Stafford Loan is available from guarantors and lenders. Also, many guarantors process applications electronically and generate to the school or the student an output document application/promissory note similar to the common loan application. The Higher Education Amendments of 1992 encourage lenders to treat all loans of the same type as one loan for billing and deferment purposes. A borrower with several Stafford Loans held by a single lender would, therefore, receive one billing notice for all of his or her loans; any deferment received for one of the loans would apply to all of the borrowers Stafford Loans held by that lender. In addition, guaranty agencies must try to ensure that a borrowers loans are maintained by one lender, one loan holder, and one loan servicer, in order to reduce the number of agencies contacting the borrower. These efforts to simplify loan repayment are to be made with the cooperation of the borrower. Following is a comparison of loan limits for Stafford, unsubsidized Stafford, and PLUS borrowers. For more on loan limits for less than a full year of study, see "Loan Limits" in sections 2, 3, and 4. Interest rates and deferment conditions may change when original loans are consolidated. The financial aid administrator should remind the student during exit counseling to look at the differences in loan terms and conditions when considering loan consolidation. [[The chart "Loan Limits for subsidized and unsubsidized Stafford Loans, and for PLUS Loans" on page 10-52 is currently unavailable for viewing. Please reference your paper handbook for additional information.]] PROGRAM DIFFERENCES The following differences between Stafford, unsubsidized Stafford, and PLUS loans should also be noted: Family contribution For a subsidized Stafford Loan, the applicants expected family contribution (EFC), as determined by an approved need analysis system, plus other estimated student aid awarded must be subtracted from the cost of attendance at his or her school. If the students remaining need is less than the subsidized Stafford Loan maximum, the students subsidized Stafford Loan must not exceed that lesser amount. In contrast, income and EFC do not have to be considered when determining the amount of a PLUS or unsubsidized Stafford Loan (although other estimated student aid awarded is considered). As with all SFA Programs, the PLUS or unsubsidized Stafford Loan that is added to other student aid must not exceed the cost of attendance. Beginning of repayment period The repayment period for a Stafford Loan (subsidized or unsubsidized) begins on the day after the expiration of the six-month grace period that begins when the borrower leaves school. The repayment period for a PLUS or Consolidation Loan begins on the day the loan is disbursed. In the SLS Program repealed July 1, 1994, the borrower may delay repayment for a period consistent with the grace period in the Stafford Loan Program. The lender may capitalize interest during the grace period. Deferment The chart and summary and chart on the last few pages of this section provide deferment information on Stafford Loans (subsidized and unsubsidized), SLS, PLUS, and Consolidation Loans. PROVISIONS COMMON TO ALL LOANS The following apply, essentially, to all FFEL borrowers: Capitalization Capitalization is the addition of accrued interest and unpaid insurance premiums (if applicable) to a borrowers loan principal. The interest accruing during the period from the date of first disbursement of the loan to the beginning of the borrowers enrollment period, and during the period from the date the first loan payment was due until it was made, may be capitalized on the date repayment is scheduled to begin. Interest may be capitalized quarterly and again when repayment begins or resumes - during an in-school or grace period (if capitalization is authorized in the promissory note or approved by the borrower), - during approved deferment periods (for example, during deferment of principal for an SLS, PLUS, or unsubsidized Stafford Loan), or - during an approved forbearance period (such as one following a required medical or dental internship). If a borrower has agreed to pay interest during a deferment or forbearance period or during an in-school grace period but fails to resolve a payment delinquency, the lender also may, after notifying the borrower, capitalize the delinquent interest and all interest accruing for the remainder of the period of deferment or forbearance. The borrower should understand that capitalization of interest increases the principal balance of the loan. General forbearance provisions If a borrower (or endorser) is willing but financially unable to make the required payments on an FFEL because of poor health or other unanticipated personal problems, he or she may request the lender to grant forbearance. Forbearance means permitting the temporary cessation of payments, allowing an extension of time for making payments, or temporarily accepting smaller payments than were previously scheduled. The lender may grant forbearance of principal, interest, or both. Forbearance usually requires a WRITTEN AGREEMENT between borrower and lender. When forbearance is granted, the borrower is always responsible for repayment of accrued interest charges. While lenders do not in most cases have to grant forbearance, they are encouraged to do so if such action would likely prevent the borrower from defaulting. If two persons are jointly liable for repayment (are co-makers) of a PLUS or Consolidation Loan, the lender may grant forbearance only if BOTH persons are unable to make the required payments. A lender may grant forbearance so that a borrower or endorser is better able to resume payment on a loan after default. Such a forbearance agreement requires a new signed repayment obligation. Administrative forbearance Administrative forbearance does not require agreement from the borrower and may be granted by the lender only under specified conditions authorized by law or by the Department in regulations. Upon notifying the borrower, a lender may grant forbearance for payments of interest and principal that are overdue - when a deferment is granted and the lender later learns that the borrower did not qualify for the deferment, - at the beginning of a deferment period, - from the time the borrower entered repayment until the first payment was due, - during a period of national military mobilization such as Bosnia and Operation Desert Storm, and - during a period prior to a borrowers filing of bankruptcy. The Higher Education Amendments of 1992 permit a lender to grant administrative forbearance - during a period not to exceed 60 days after a lender learns of a borrowers death or total and permanent disability, as long as documentation verifying those conditions is received; - for a period of delinquency at the time a loan is sold or transferred, as long as the borrower or endorser is less than 60 days delinquent on the loan at the time of sale or transfer; or - for periods necessary to determine a borrowers eligibility for loan discharge because of past attendance at a school that later closed or because of false certification of loan eligibility; or, for periods when the Department must determine a borrowers or endorsers eligibility for bankruptcy. - for a period of delinquency that may remain after a borrower ends a period of deferment or mandatory forbearance until the next due date is established. Mandatory forbearance The law specifies that a lender MUST grant mandatory forbearance of both principal and interest (if requested) to FFEL borrowers in certain circumstances. The documentation necessary to apply for a forbearance is described in section 682.211(i)(3) of the FFEL regulations. - If a borrower serving in a medical or dental internship or residency program has already received the maximum two-year internship deferment, a forbearance must be granted. Forbearance in this instance must be cessation of all payments unless the borrower requests forbearance as an extension of time for making payments or requests a temporary reduction in payments. The forbearance is renewable at 12-month intervals while the borrower remains in the internship/residency program. The borrower must request forbearance in writing for each 12-month period. The following four categories also apply to endorsers: - If a borrowers monthly student loan payments are collectively equal to or greater than 20% of the borrower or endorsers total monthly income, a forbearance must be granted in yearly increments for periods of time that collectively do not exceed three years. - If a borrower is serving in a national service position for which he or she received a national service education award under the National and Community Service Trust Act of 1993, a forbearance must be granted; the forbearance is renewable in yearly increments during the time the borrower serves in this capacity. - If a borrower is eligible for forgiveness of a loan (under the Federal Stafford Loan Forgiveness Demonstration Program) because of public service under the terms explained in section 682.215(b) of the FFEL regulations (IF THE PROGRAM IS FUNDED). The length of time for which a forbearance may be granted is the same as that for borrowers serving in national service positions. - If a borrower is eligible for partial repayment of a loan under the Student Loan Repayment Programs administered by the Department of Defense under 10 U.S.C. 2171, a forbearance must be granted. Mandatory administrative forbearance FFEL program regulations specify that a lender must grant a mandatory administrative forbearance to FFEL borrowers in certain circumstances. (Please refer also to the next section, "New Administrative Forbearance Conditions.") - For up to three years when the effect of a variable interest rate change causes the extension of the maximum repayment term (under a standard or graduated repayment schedule), forbearance must be granted. - For up to five years when an income-sensitive repayment schedule causes the extension of the maximum repayment term. - For exceptional circumstances (such as a local or national emergency or a military mobilization), a forbearance must be granted. Borrowers subject to a military mobilization must provide supporting documentation as proof. [[NEW]] A December 7, 1995 "Dear Guaranty Agency Director" memo from the Departments Policy Development Division stated that administrative forbearance MUST be granted to members of the U.S. armed forces who are involved in the Bosnian military mobilizations. This forbearance will end on December 1, 1996 and, in accordance with section 682.211(j)(2)(i), all normal loan collection activities will resume on January 1, 1997. - The geographical area in which the borrower resides has been designated a state or federal disaster area. A borrower in this situation is not required to submit a request for forbearance or to submit supporting documentation. For example, victims of Hurricanes Marilyn and Opal were granted administrative forbearance. Loan cancellation If an FFEL borrower dies or becomes totally and permanently disabled, the borrowers obligation to repay the loan is canceled and the loan holder is not permitted to collect the loan from an endorser or from the borrowers estate. Certification of total and permanent disability from a qualified physician is required for loan cancellation. A Federal PLUS Loan borrowers debt will be cancelled if the student for whom the parent borrowed the PLUS Loan died (on or after July 23, 1992). An endorser of a loan canceled because of death or total disability is not obligated to repay the loan. However, if parents borrow jointly as co-makers under the PLUS program or if a couple consolidates a loan jointly, the death or total disability of one parent or spouse does not relieve the other of responsibility for repaying the loan. If both borrowers have a condition (not necessarily the same one) under which they can qualify for loan cancellation, both individuals loans may be canceled. There are some defaulted loans on which the Department or the appropriate guaranty agency has totally ceased collection activity after several unsuccessful attempts to collect these loans (such loans were formerly referred to as "written off"). If a borrower of such a loan wishes to borrow again under the FFEL Programs, the borrower must reaffirm the previous loan amount. In addition, the borrower must make "satisfactory repayment arrangements" on the defaulted debt. Please see page 10-64 for an explanation of this term. [[Definition of reaffirmation]] Reaffirmation means legal acknowledgement of the loan, which may require the borrower to - sign a new promissory note or repayment schedule for a previously canceled loan or - make a payment on the loan. Please note that when loans are reaffirmed, they count toward the borrowers aggregate loan limits. [[Bankruptcy discharge]] A borrower may also have his or her loan discharged in bankruptcy. However, please note that, as stated in the September 1995 "Dear Colleague" letter GEN-95-40, a federal student loan or federal grant overpayment is not dischargeable in bankruptcy unless such a debt has been outstanding for at least 7 years, excluding any periods of deferment or forbearance ("suspended repayment"); or the bankruptcy court has determined that repayment of this debt would cause an undue hardship to the debtor and his or her dependents. A borrower whose FFEL was previously discharged in bankruptcy is no longer required to reaffirm his or her loan obligation. The Bankruptcy Reform Act of 1994, enacted October 22, 1994, relieves a borrower from having to reaffirm this debt because it prohibits a lender from discriminating, on the basis of past bankruptcy filing or discharge, against a borrower applying for a student loan. However, past bankruptcy can be included as a factor in determining the future creditworthiness of a loan applicant. As noted in the September 1995 DCL GEN-95-40 mentioned previously, an applicant for federal student financial assistance who has included a defaulted federal student loan or grant overpayment that is NON-dischargeable in his or her bankruptcy schedules will be considered ineligible for further federal student aid until he or she resolves the default or overpayment status. Such a borrower can negotiate a satisfactory repayment arrangement with the holder of the debt. The holder can set the terms of the satisfactory repayment arrangement. However, if a default or overpayment occurred prior to the borrowers bankruptcy filing and such debts were discharged in the bankruptcy, the applicant is eligible for further federal student aid and does not have to establish satisfactory repayment arrangements because the debt no longer exists. In addition to no longer requiring reaffirmation from those whose loans were discharged in bankruptcy, the Department no longer requires reaffirmation from a second category of borrowers: those whose debts were previously canceled due to a determination of permanent and total disability. However, a borrower whose loan debt was cancelled due to total and permanent disability, and who later applies for a FFEL, must - provide a physicians certification that the borrower is able to engage in "substantial gainful activity" such as working or attending school, and - sign a statement affirming that the new loan for which the borrower is applying cannot be canceled in the future based on present impairment (unless the borrowers condition substantially deteriorates). Other loan cancellation provisions [[Closed school and false certification discharge provisions]] A student borrowers obligation to repay a Stafford or SLS loan or a parent borrowers obligation to repay a PLUS received on or after January 1, 1986 will be canceled if the borrower was unable to complete his or her program of study because the school closed or if the borrower withdrew from the school not more than 90 days before the school closed. This 90-day period may be extended on a case-by- case basis if deemed appropriate by the Secretary. Also, the borrowers obligation to repay may be canceled if the borrowers loan eligibility was falsely certified by the school. If the school falsely certified that a student had the ability to benefit from its training or signed the borrowers name without borrower authorization on the loan application or promissory note, the loan may be discharged under this provision. The first condition for cancellation is based on the schools false certification of the students eligibility to borrow; the second condition for cancellation is false certification based on unauthorized signature. A September 1995 Dear Colleague Letter (GEN-95-42) provided additional clarification on loan discharges based on improper determination that a student had the ability to benefit from a schools training (a false certification issue, as indicated previously). In the case of a borrower requesting a discharge because the school signed the borrowers name on the loan application or promissory note, the borrower must state that the signature on either of those documents was not his or her own. The borrower also must provide five different specimens of his or her signature, two of which must be no earlier or later than one year before or after the date of the contested signature. (These signature specimens are also required under the condition described in the next paragraph, unauthorized signature for electronic funds transfer.) Under false certification based on unauthorized signature on a loan check or for an electronic funds transfer, the borrower must certify that he or she did not endorse the loan check or sign the authorization for an electronic funds transfer of loan proceeds to the school (and application of those funds to the borrowers school account), and that he or she did not authorize the school to do so. The borrower must state that he or she did not receive the proceeds of the contested disbursement either through actual delivery of the loan funds or by a credit to the schools account. Interest and collection fees, as well as loan principal, will be discharged if cancellation is granted. The Department will attempt to collect from the school the loan amount discharged, including any refund owed the student. If a borrowers defaulted loans are discharged under these provisions, the borrower (if otherwise eligible) regains eligibility for SFA funds. In addition, any adverse credit history will be deleted from credit-reporting agencies records. The period of study the student was unable to complete because of a schools closing will not be counted in calculating the students eligibility for additional student financial assistance. The Department published a Final Rule dated April 29, 1994 that clarified the eligibility criteria and application procedures for a closed-school or false-certification discharge. Subregulatory guidance was provided in a September 1994 "Dear Colleague" letter (94-L-166). [[NEW]] As stated in the December 1, 1995 FFEL Final Rule effective July 1, 1996, if payments on the borrowers student loan account are received after the lender is notified by the guaranty agency of a discharge (on the basis of total and permanent disability, death, bankruptcy, false certification, or school closing), all of these payments must be returned to the sender of the payments. At the same time, the lender must notify the borrower that there is no further loan obligation. Loan forgiveness A loan forgiveness demonstration program that would repay a portion of a Stafford Loan for borrowers employed as teachers, nurses, or in community service was enacted into law as part of the 1992 amendments to the Higher Education Act. However, the program is not yet funded. If and when it does become funded, a Federal Register notice will be published to notify the public. The Department published regulations setting forth guidance for implementation of this program which would repay a portion of Stafford Loans made to eligible borrowers who 1) teach full time or who are employed full time as nurses in areas where there is a shortage of qualified professionals in those fields, or who 2) volunteer for certain kinds of community service. According to the regulations, an eligible borrower is one who had no outstanding debt on a FFEL as of October 1, 1989. A borrower who is in default on a FFEL, and has not made satisfactory arrangements to repay it, is not eligible. To qualify for loan forgiveness based on teaching, the borrower must teach in a teacher shortage area that meets the requirements for Federal Perkins Loan cancellation, and be teaching a subject for which there is a shortage of teachers, as defined by the state. The borrower must certify for the Department that he or she meets these requirements. For more information, the borrower should contact his or her lender or guarantor. Repayment by the Department of Defense Currently, if a student borrower decides to serve as an enlisted person in certain specialties in the U.S. Army, the Army Reserves, the Army National Guard, or the Air National Guard, then the Department of Defense (as an enlistment incentive) will repay a portion of his or her loan. For more information, the student should contact his or her local Army or Air National Guard recruiting office. This is a recruitment program and does not pertain to an individuals prior service. Loan repayment under this program is made directly to the lender and is not considered financial aid. Such repayment is also considered as student income when loan eligibility is calculated. Delinquency and default Most borrowers repay their loans on time, but some do fall behind on their payments for a variety of reasons. The financial aid administrator should advise students to maintain contact with the lender or lender servicer to avoid delinquency and default if they have repayment problems. When a scheduled payment on a Stafford, SLS, or PLUS Loan is not made on time, the loan becomes delinquent. The lender is required to repeatedly attempt to contact the borrower by phone and letter, to use skip-tracing techniques to locate the borrower if his or her whereabouts become unknown, and to request the guaranty agencys assistance to resolve repayment problems with delinquent borrowers to prevent defaults. If a borrower is late in making a payment, the lender may require the borrower to pay a late charge. The borrower may also be required to pay collection costs, such as attorneys fees and court costs, if required in the borrowers promissory note. See the FFEL Program regulations, Section 682.411, for more on the loan collection efforts required of lenders on delinquent accounts. [[Definition of default]] For loans that entered delinquency on or after April 7, 1986, default is the failure to make payments when due if that failure continues for a period of 180 days (for a loan repayable in monthly installments), and 240 days (for less frequent installments). Consequences of default If the borrowers delinquency persists, the lender must accelerate the loan; that is, the lender must demand--using a "final demand" letter-- the entire balance of the loan in one payment. The lender must also file a default claim with the guaranty agency on a seriously delinquent account that is more than 180 days delinquent (or 240 days delinquent for a loan repayable in installments less frequent than monthly). The guaranty agency reviews the lenders collection efforts before paying the lenders default claim. If the guaranty agency pays the default claim, the agency must continue collection efforts. Before reporting the default to a national credit bureau or assessing collection costs, the guaranty agency will provide the borrower with a written notice of its proposed actions, an opportunity to enter into a repayment agreement, and an opportunity for an administrative review of the status of the loan. Once a guaranty agency notifies a credit bureau of a borrowers default, the credit bureau may provide inquirers with that information for up to seven years from the date the loan is first reported as a default; for up to seven years from the date the guaranty agency pays the default claim; or, for a borrower who enters repayment after default and again allows the loan to default, up to seven years from the date the loan enters default the second time. Collection efforts by the guaranty agency include a series of letters and phone calls to persuade the borrower to enter repayment on the defaulted loan and may also include garnishing up to 10% of the defaulters disposable pay, withholding ("offsetting") part or all of a defaulters federal or state income tax refund, and filing suit against the borrower. Such enforcement procedures were stated in the April 29, 1994 FFEL Final Rule. Concerning wage garnishment as an enforcement measure, each guaranty agencys procedures are subject to approval by the Department. Wage garnishment provisions are described in the Higher Education Act under Section 488A. If the defaulter is sued, wage garnishment may be included in the courts ruling. The Higher Education Technical Amendments of 1991 (P.L. 102-26) provided for continuation of garnishment, offset action, or a lawsuit regardless of any federal or state statutes of limitation that might otherwise have applied to such collection efforts. The Higher Education Amendments of 1992 permanently abolished statutes of limitation that might otherwise have applied. The abolition applies to all pending cases and outstanding debts, as well as to current cases. A student with a defaulted loan is rendered ineligible (for all SFA funds) at the time the borrowers default is reported to a national credit bureau (60 days after payment of the lenders default claim). Even if a defaulted borrowers debt has been determined to be totally uncollectible and was closed out (written off) by reporting the principal amount to the Internal Revenue Service as taxable income, the borrower is still considered to be in default and is ineligible for federal student aid. If a compromise agreement has been reached in which the borrower makes an agreement with the guaranty agency to settle the debt for less than the total amount due, the borrower may be eligible for additional federal student aid once the compromised amount of the debt is paid. If the borrower chooses to reaffirm his or her defaulted loan obligation and makes satisfactory payment arrangements to repay the debt (six on-time, reasonable, and affordable consecutive voluntary monthly payments), he or she may regain eligibility for SFA Programs. This provision is also described in the next section, "Reinstatement of eligibility after default." [[SAR notes defaulted ED loans]] If a borrower is in default on an SFA loan held by the Department of Education or by a guaranty agency and applies for federal student aid, the Student Aid Report (SAR) received will indicate that the borrower is in default and thus not eligible for aid under the SFA Programs. If the borrower has made satisfactory repayment arrangements to repay the loan, the SAR will indicate that the borrower is eligible but will include a warning that if scheduled payments are not made on the loan, future federal student aid will be denied. The financial aid administrator may reconcile the Student Aid Report with official paperwork from the lender which states that the default has been satisfied. This documentation must be kept in the students file. The financial aid administrator may then determine the students eligibility for a loan. Once the borrower allows a loan to default (once payment of a lenders default claim by the guaranty agency occurs), his or her opportunity to obtain a deferment on the repayment of the loan is lost, and he or she will not be able to receive any federal financial aid until the obligation is discharged or satisfactory payment arrangements to repay the loan have been made with the lender or guarantor. A lender or guarantor may grant forbearance to a borrower whose loan is delinquent or in default. As noted above, even after a borrower makes satisfactory repayment arrangements to repay the defaulted loan in order to regain eligibility for Title IV student assistance, the borrower must continue to make scheduled payments on the defaulted loan. If the borrower is unable to do so while attending school, he or she should request forbearance on the loan. As indicated previously, if a loan obligation has been discharged in bankruptcy after the borrower has defaulted, the loan is no longer considered to be in default, and the borrower is eligible for further federal student aid. Reinstatement of eligibility after default [[Definition of "satisfactory repayment arrangement"]] The law provides for reinstatement of eligibility for all SFA programs for a borrower with a defaulted loan (whether or not the loan has been repurchased) after the borrower has made six consecutive, voluntary, on-time, full monthly payments. This is known as a "satisfactory repayment arrangement." As explained on page 10-46 of Section 5, "Loan Refinancing and Consolidation:" for purposes of consolidating a defaulted loan, only three of these payments are required under a satisfactory repayment arrangement. This particular provision became effective July 1, 1995. A borrower in default may agree to repay the consolidation loan under the income-sensitive repayment plan instead of making the three payments required under a satisfactory repayment arrangement. This provision, published in the December 1, 1995 FFEL Final Rule, is effective July 1, 1996. Defaulted borrowers who have made six payments as described above must be informed by guaranty agencies of the possibility of loan rehabilitation (after six more payments are made by the borrower). A borrower is given the opportunity to reinstate his or her defaulted loan only once. Reinstatement of eligibility does not bring the loan out of default, and the borrower is not eligible for deferment. A June 28, 1994 FFEL Final Rule provided guidance on these topics. [[NEW]] An upcoming "Dear Colleague" letter to be sent to schools will clarify the status of borrowers who regain eligibility after default. Under FFEL, effective November 13, 1995, if the student regains eligibility during an enrollment period (if the sixth payment under a satisfactory repayment arrangement is made after the start of an enrollment period, for example), the student regains eligibility for the entire academic year in which he or she regained eligibility status. Loan rehabilitation A Loan Rehabilitation Program is available to borrowers who have defaulted on a FFEL and who meet certain conditions. The law requires a guaranty agency to provide a loan rehabilitation program that will allow a defaulter the opportunity to make 12 "reasonable and affordable" consecutive monthly payments on a defaulted FFEL. The Department expects each guaranty agency to determine what constitutes a reasonable and affordable payment amount on a case- by-case basis, after examining the borrowers financial information. The agency may not require a set minimum monthly repayment amount. A guaranty agency is required to document its determination of the appropriate payment amount only if the payment is less than $50. Each borrower must receive a written statement specifying what the reasonable and affordable payment amount is as determined by the agency, and must be granted an opportunity to object to the terms. After the borrower makes 12 consecutive monthly payments on the defaulted loan (which may include the six consecutive monthly payments necessary to regain Title IV eligibility), the guaranty agency (or the Department, if the Department is holding the loan) will decide if the borrower is a good candidate for loan rehabilitation and, if so, will try to sell the loan to a lender. A borrower who has been in repayment for more than 12 months at the time he or she requests rehabilitation is immediately eligible for consideration, if those payments were determined to be reasonable and affordable. Payments secured from a borrower on an involuntary basis, through means such as wage garnishment, cannot be counted towards the borrowers required 12 consecutive monthly payments. Once eligible for rehabilitation, the debtor must continue to make payments while the guaranty agency transfers the loan to a lender. Because of loan processing procedures, the borrower may have to send in more than 12 payments before the loan is rehabilitated. A borrower who wishes to rehabilitate a loan on which a court judgment has been secured must sign a new promissory note prior to the sale of the loan to an eligible lender. Guaranty agencies must inform borrowers of the consequences of loan rehabilitation. For example, a borrower must be informed that the monthly payment amount on the loan usually increases after rehabilitation. Once the loan is rehabilitated, it is no longer in default and the borrower regains eligibility for any remaining deferment benefits. The holder of the rehabilitated loan must promptly notify at least one credit bureau of the loans rehabilitated status. The notification of credit bureaus is an important benefit to borrowers under this program because the borrowers record of default is removed from the borrowers credit history. A borrower with questions about loan rehabilitation should contact the agency holding the defaulted loan. [[The chart "Federal Family Education Loan Program Deferment Provisions" on page 10-66 is currently unavailable for viewing. Please reference your paper handbook for additional information.]] Federal Family Education Loan Deferment Provisions THIS CHART IS TO BE USED FOR REFERENCE ONLY. REFER TO DCL GEN-92-21, APPENDIX C AND PART G OF THE HIGHER EDUCATION ACT IF YOU HAVE ANY QUESTIONS REGARDING A PARTICULAR BORROWERS ELIGIBILITY FOR DEFERMENT. PLEASE NOTE THAT THESE ARE FOOTNOTES TO THE CHART, "FEDERAL FAMILY EDUCATION LOAN PROGRAM DEFERMENT PROVISIONS." 1. Includes student Federal PLUS borrowers and Federal Consolidation Loans made prior to 11/1/83 according to Section 439(o) of Pub. L. 89-329. 2. A borrower who, on the date he or she signs the promissory note, has no outstanding balance on (1) a Federal Stafford, Federal SLS, or Federal PLUS loan made before 7/1/87 for a period of enrollment beginning before 7/1/87 or (2) a Consolidation Loan that repaid a loan made before 7/1/87 for a period of enrollment beginning before 7/1/87. 3. A new borrower who, on the date he or she applies for a loan, has no outstanding balance on a Federal Stafford (formerly GSL), unsubsidized Stafford, Federal SLS, Federal PLUS or Federal Consolidation Loan AND whose first disbursement of the loan is made on or after 7/1/93. 4. Consolidation Loans made on or after 7/1/93 to borrowers who have no outstanding FFEL Program loans other than FFEL to be consolidated. 5. A Federal Stafford (formerly GSL), unsubsidized Stafford, or Federal SLS borrower or a Federal PLUS parent borrower, whose first loan was made or disbursed between 7/1/87 and 6/30/93, is eligible for deferment while engaged in at least half-time study at a participating school IF the borrower obtains a Stafford or SLS Loan for that period of enrollment. If a new borrower under these loan programs receives a first disbursement on or after 7/1/93, he or she is not required to borrow loans to qualify for the deferment. 6. Deferment approval for a new borrower enrolled in a graduate or postgraduate, fellowship-supported program (e.g. a Fulbright Fellowship) will extend for the duration of the fellowship period. 7. Public Law 102-26 authorized, for the period of April 9, 1991 to September 30, 1997, special Federal Stafford Loan deferment and grace period provisions for reservists called up for active duty service in connection with Operation Desert Shield and Operation Desert Storm. These benefits are: - A military deferment for the duration of service in connection with Operation Desert Shield or Operation Desert Storm, even if the length of the deferment exceeds the maximum deferment authorized in sections 428(b)(1)(M)(ii) or 427(a)(2)(C)(ii); - A six-month post-deferment grace period following an Operation Desert Shield or Operation Desert Storm military deferment; and - A one-time six-month post-deferment grace period following an in-school deferment for a borrower who received a military deferment and who later becomes eligible for an in-school deferment. 8. Periods of service in an eligible internship program (See 34 CFR Section 682.210[g]); or serving in an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health-care facility that offers postgraduate training. Lenders are now required to grant forbearance to medical interns and residents who have expended their two-year residency deferments before they have completed their intern and residency requirements. 9. A mother who has preschool-age children, who is entering or reentering the work force, and who is being paid no more than $1 above the minimum wage. 10. A borrower who is seeking, but who is unable to find, full-time employment. 11. A borrower is considered to have an economic hardship if the borrower - is receiving payment under a federal or state public assistance program; - is working full time but earning an amount that does not exceed the greater of + the federal minimum wage, or + an amount equal to 100% of the poverty line for a family of two as determined according to section 673(2) of the Community Service Block Grant Act; or - meets other regulatory criteria which take into account the borrowers debt-to-income ratio as a primary factor. Specifically, the borrower may qualify if + he or she is working full time and has a federal educational debt burden (including defaulted loans) that is at least 20% of the borrowers total monthly gross income; this income is based on full- or part- time employment and revenue received from all other sources. The borrowers income, minus the education debt burden, must be less than 220% of the total monthly gross amount associated with minimum wage rate work or earnings equal to 100% of the poverty line for a family of two. + he or she is not working full time and has a total monthly gross income that does not exceed twice the amount under "b" above, and, after deducting the borrowers monthly education loan payments, the remaining amount of the borrowers income does not exceed the amount under "b" above. - has been granted an economic hardship deferment under either the Direct Loan Program or the Federal Perkins Loan Program for the same period of time for which the FFEL economic hardship deferment is requested. 12. Period for which the borrower is pregnant, caring for his or her newborn child, or caring for his or her adopted child (immediately following adoption). The borrower may neither be attending school nor be gainfully employed and must have been enrolled at least half time at a participating school at some time during the six months preceding the period of parental leave. 13. Parent borrowers of Federal PLUS loans first made and disbursed prior to July 1, 1993 are also eligible for deferment during periods when a student for whom the parent borrowed a Federal PLUS Loan is dependent and MEETS ONE OF THE FOLLOWING CONDITIONS for deferral: in-school status (full- and half-time), graduate fellowship, or rehabilitation training. (Note: If the son or daughter is a HALF-TIME student, he or she must have first borrowed a Federal Stafford Loan after July 1, 1987 but before July 1, 1993 and be receiving a Federal Stafford, unsubsidized Stafford, or Federal SLS Loan for the period of enrollment.) |