Federal Student Loans Made Under the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers

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Federal Student Loans Made Under the

Federal Family Education Loan Program and

the William D. Ford Federal Direct Loan

Program: Terms and Conditions for Borrowers

(name redacted)

Specialist in Education Policy

June 22, 2015

Congressional Research Service

7-....

www.crs.gov

R40122

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Summary

The William D. Ford Federal Direct Loan (DL) program, authorized under Title IV, Part D of the

Higher Education Act of 1965 (HEA), as amended, is the primary federal student loan program

administered by the U.S. Department of Education (ED). The program makes available loans to

undergraduate and graduate students and the parents of dependent undergraduate students to help

them finance their postsecondary education expenses. Four types of loans are offered: Subsidized

Stafford Loans for undergraduate students; Unsubsidized Stafford Loans for undergraduate and

graduate students; PLUS Loans for graduate students and the parents of dependent undergraduate

students; and Consolidation Loans through which borrowers may combine multiple loans into a

single loan. For FY2016, ED estimates that 20.4 million loans (not including Consolidation

Loans) totaling $109.2 billion will be made to students and their parents through the DL program.

Federal Family Education Loan (FFEL) program loans are no longer being made; however,

outstanding FFEL program loans are due to continue being repaid over the coming years.

FFEL and DL program loans are low-interest loans, with maximum interest rates for each type of

loan established by statute. Subsidized Stafford Loans are unique in that they are only available to

undergraduate students demonstrating financial need. With certain exceptions, the federal

government pays the interest that accrues on Subsidized Stafford Loans while the borrower is

enrolled in school on at least a half-time basis, during a six-month grace period thereafter, and

during periods of authorized deferment. Unsubsidized Stafford Loans and PLUS Loans are

available to borrowers irrespective of their financial need; and borrowers are responsible for

paying all the interest that accrues on these loans. FFEL and DL program loans have terms and

conditions that may be more favorable to borrowers than private and other nonfederal loans.

These beneficial terms and conditions include interest rates that are often lower than rates that

might be obtained from other lenders, opportunities for repayment relief through deferment and

forbearance, loan consolidation, and several loan forgiveness programs.

This report discusses major provisions of federal student loans made available through the DL

program and previously made through the FFEL program. It focuses on provisions related to

borrower eligibility, loan terms and conditions, borrower repayment relief, and loan default and

its consequences for borrowers. These topics are principally discussed with regard to loans

currently being made through the DL program, or made in the recent past through either program.

The report also provides detailed historical information on annual and aggregate borrowing

limits, loan fees, and student loan interest rates.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Contents

Introduction...................................................................................................................................... 1

FFEL and DL Program Loan Types........................................................................................... 3

Stafford Loans and PLUS Loans ..................................................................................................... 5

Eligibility Requirements ............................................................................................................ 5

In General ............................................................................................................................ 5

PLUS Loans ........................................................................................................................ 5

Factors That Affect Eligibility to Borrow ........................................................................... 6

Loan Limits ............................................................................................................................... 9

Annual Loan Limits ............................................................................................................ 9

Aggregate Loan Limits........................................................................................................ 9

Interest Rates ........................................................................................................................... 11

Stafford Loans ................................................................................................................... 11

PLUS Loans ...................................................................................................................... 12

Borrower Fees ......................................................................................................................... 13

Impact of Sequestration on Borrower Fees ....................................................................... 14

Consolidation Loans ...................................................................................................................... 15

Eligibility Requirements .......................................................................................................... 15

Interest Rates ........................................................................................................................... 16

Loan Consolidation During the Grace Period ................................................................... 16

Loan Consolidation and Borrower Benefits ............................................................................ 16

Student Loan Discounts and Repayment Incentives ...................................................................... 17

Loan Discounts Under the FFEL Program ........................................................................ 17

Repayment Incentives Under the DL Program.................................................................. 18

Loan Repayment ............................................................................................................................ 19

In General ................................................................................................................................ 19

Beginning of Repayment ................................................................................................... 19

Prepayment ........................................................................................................................ 20

Repayment Plans ..................................................................................................................... 20

Standard Repayment Plan ................................................................................................. 21

Graduated Repayment Plan ............................................................................................... 22

Extended Repayment Plan ................................................................................................ 23

Income-Based Repayment Plan ........................................................................................ 23

Income-Contingent Repayment Plan................................................................................. 25

Pay As You Earn (PAYE) Repayment Plan ....................................................................... 26

Income-Sensitive Repayment Plan.................................................................................... 27

Alternative Repayment Plans ............................................................................................ 27

Borrower Repayment Relief .......................................................................................................... 28

Deferments .............................................................................................................................. 28

In-School Deferment ......................................................................................................... 29

Graduate Fellowship Deferment ....................................................................................... 29

Rehabilitation Training Program Deferment ..................................................................... 29

Unemployment Deferment ................................................................................................ 29

Economic Hardship Deferment ......................................................................................... 30

Military Service Deferment ............................................................................................... 30

Post-Active Duty Student Deferment ................................................................................ 30

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Forbearance ............................................................................................................................. 30

Mandatory Forbearance..................................................................................................... 31

Mandatory Administrative Forbearance ............................................................................ 31

Interest Rate Benefits for Active Duty Servicemembers ......................................................... 31

Servicemembers Civil Relief Act (SCRA) ........................................................................ 32

No Accrual of Interest on DL Program Loans for Certain Active

Duty Servicemembers .................................................................................................... 32

Loan Default and its Consequences for Borrowers ....................................................................... 32

Consequences of Default for Borrowers ................................................................................. 32

Report to Consumer Reporting Agencies .......................................................................... 33

Offset of Tax Refund ......................................................................................................... 33

Offset of Social Security Benefits ..................................................................................... 33

Wage Garnishment ............................................................................................................ 33

Ineligibility for Federal Student Aid ................................................................................. 33

Civil Lawsuit ..................................................................................................................... 34

Loan Rehabilitation ....................................................................................................................... 34

Loan Discharge and Forgiveness ................................................................................................... 34

Loan Discharge ........................................................................................................................ 34

Death or Disability ............................................................................................................ 34

Bankruptcy ........................................................................................................................ 35

Other.................................................................................................................................. 35

Loan Forgiveness..................................................................................................................... 35

Loan Forgiveness for Teachers .......................................................................................... 36

DL Program Loan Forgiveness for Public Service Employees ......................................... 36

Loan Forgiveness for Service in Areas of National Need ................................................. 37

Loan Repayment for Civil Legal Assistance Attorneys .................................................... 37

Tables

Table 1. Annual and Aggregate Loan Limits for

Borrowers of Stafford Loans and PLUS Loans, by Dependency Status and Grade Level ......... 10

Table 2. DL program Student Loan Interest Rates ......................................................................... 13

Table 3. Repayment Periods for Consolidation Loans Repaid According to the Standard,

Graduated, and Income-Sensitive Repayment Plans .................................................................. 22

Table B-1. Annual Loan Limits for Borrowers of Stafford Loans and PLUS Loans,

by Dependency Status and Grade Level ..................................................................................... 40

Table B-2. History of Annual Loan Limits for Stafford Loans and PLUS Loans, by

Borrower Type ............................................................................................................................ 42

Table B-3. History of Aggregate Loan Limits for Stafford Loans and PLUS Loans, by

Borrower Type ............................................................................................................................ 49

Table B-4. History of Stafford Loan Fixed Interest Rates and Variable Interest Rate

Formulas ..................................................................................................................................... 53

Table B-5. Stafford Loan Interest Rates in Effect, by Borrower Cohort: 1992-1993 to

2014-2015 ................................................................................................................................... 55

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Table B-6. History of PLUS Loan Fixed Interest Rates and

Variable Interest Rate Formulas.................................................................................................. 60

Table B-7. PLUS Loan Interest Rates in Effect, by Borrower Cohort: 1992-1993 to 20142015 ............................................................................................................................................ 61

Table B-8. History of Borrower Fees on Stafford Loans and PLUS Loans ................................... 63

Table B-9. History of Consolidation Loan Interest Rate Formulas ............................................... 65

Appendixes

Appendix A. Glossary of Financial Terms ..................................................................................... 39

Appendix B. Detailed Tables on Selected Characteristics of FFEL and DL Program Loans ........ 40

Contacts

Author Contact Information........................................................................................................... 67

Acknowledgments ......................................................................................................................... 67

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Introduction

The William D. Ford Federal Direct Loan (DL) program—authorized under Title IV, Part D of the

Higher Education Act of 1965 (HEA), as amended, and administered by the U.S. Department of

Education (ED)—is the primary source of federal student loans.1 Several types of loans are

offered through the DL program: Subsidized Stafford Loans for undergraduate students;

Unsubsidized Stafford Loans for undergraduate and graduate students; PLUS Loans for graduate

students and parents of dependent undergraduate students; and Consolidation Loans through

which borrowers may combine their loans into a single loan payable over a longer term, which

varies according to the combined loan balance. For many years, essentially the same set of loans

was also available through the Federal Family Education Loan (FFEL) program, authorized under

Title IV, Part B of the HEA; and the majority of loans made were FFEL program loans. The

SAFRA Act terminated the authority to make new FFEL program loans, effective July 1, 2010.2

Both the FFEL and DL programs are descendants of the Guaranteed Student Loan (GSL)

program, which was originally enacted under Title IV of the HEA to enhance access to

postsecondary education for students from low- and middle-income families by providing them

access to low-interest student loans. Under the FFEL program, loans were originated by private

sector and state-based lenders and were funded with nonfederal capital. The federal government

guaranteed lenders against loss through borrower default, death, permanent disability, or, in

limited instances, bankruptcy. The federal government also entered into agreements to provide

participating lenders a variety of incentives designed to ensure that nonfederal capital would

consistently be available to support FFEL program student loans.3 FFEL program loans are

serviced by private sector and state-based lenders; and state and nonprofit guaranty agencies

receive federal funds to play the lead role in administering the federal loan guarantee. While no

new loans are being made through the FFEL program, outstanding FFEL program loans are due

to be repaid over the coming years.

Authorization for the DL program was enacted under the Student Loan Reform Act of 1993, part

of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).4 The program was established

with the goals of streamlining the student loan delivery system and achieving cost savings. When

enacted, the program was originally intended to gradually expand and replace the FFEL program;

however, provisions calling for a “phase-in” of the DL program were repealed under the Higher

Education Amendments of 1998 (P.L. 105-244). For the nearly two decades that both the FFEL

and DL programs were in operation, IHEs were able to participate in the program of their choice.

There is a smaller, separate federal student loan program—the Federal Perkins Loan program—that is also authorized

by the Higher Education Act, but it will not be discussed in this report. For more information on Perkins Loans, see

CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act, by (name reda

cted) and (name redacted).

For additional information on changes made to the FFEL and DL programs by the SAFRA Act, see CRS Report

R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation, coordinated by (name redac

ted).

One such incentive is the “special allowance payment,” a market-indexed loan subsidy payment that is made by the

government and is designed to compensate lenders for the difference between the statutorily set interest rate charged to

borrowers and a different statutorily set lender interest rate.

A Federal Direct Loan Demonstration Program was enacted under the Education Amendments of 1992 (P.L. 102325); however, prior to being fully implemented, the demonstration program was succeeded by the Federal Direct

Student Loan program that was enacted under P.L. 103-66.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

The DL program uses a different administrative structure and draws on a different source of

capital than was used in the FFEL program. Under the DL program, the federal government

essentially serves as the banker—it provides the loans to students and their families using federal

capital (i.e., funds from the U.S. Treasury), and it owns the loans. Schools that participate in the

DL program may serve as direct loan originators or the loans may be originated by a contractor

working for ED. Federal contractors hired by ED service DL program loans.

The DL program is the largest federal program that provides direct aid to support students’

postsecondary educational pursuits. In FY2016, ED estimates that 20.4 million new DL program

Stafford Loans and PLUS Loans, averaging $5,342 each and totaling $109.2 billion, will be made

to undergraduate and graduate students, and the parents of undergraduate dependent students; and

it estimates that 503,000 Consolidation loans, averaging $55,244 and totaling $27.8 billion, will

also be made.5

In the recent years, numerous changes have been made to the terms and conditions of DL

program loans. The College Cost Reduction and Access Act of 2007 (CCRAA; P.L. 110-84)6

incrementally lowered, from 6.8% to 3.4%, the fixed interest rates charged to undergraduate

borrowers of Subsidized Stafford Loans made during the four award years spanning July 1, 2008,

to June 30, 2012, and established the income-based repayment (IBR) plan. The Ensuring

Continued Access to Student Loans Act of 2008 (ECASLA; P.L. 110-227)7 increased the amounts

students may borrow in Unsubsidized Stafford Loans. The Higher Education Opportunity Act

(HEOA; P.L. 110-315)8 reauthorized the HEA and made a variety of changes to loan terms and

conditions. The SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010

(HCERA; P.L. 111-152),9 terminated the authority to make new loans under the FFEL program

after June 30, 2010. The Budget Control Act of 2011 (BCA; P.L. 112-25) eliminated the

availability of Subsidized Stafford Loans to graduate and professional students for periods of

instruction beginning on or after July 1, 2012; and terminated the availability of certain

repayment incentives for loans made on or after July 1, 2012. The Moving Ahead for Progress in

the 21st Century Act (MAP-21; P.L. 112-141) extended the 3.4% interest rate to apply to

Subsidized Stafford Loans made from July 1, 2012, to June 30, 2013. Most recently, the

Bipartisan Student Loan Certainty Act of 2013 (P.L. 113-28) established a new market-indexed,

fixed interest rate structure for DL program loans made on or after July 1, 2013.10

Department of Education, FY2016 Justification of Appropriation Estimates to the Congress, Volume II, “Student

Loans Overview,” February 2015, http://www2.ed.gov/about/overview/budget/budget16/justifications/rsloverview.pdf. (Hereinafter cited as ED, FY2015 Justification of Appropriation Estimates to the Congress, “Student

Loans Overview.”)

For additional information on changes made to the FFEL and DL programs under the CCRAA, see CRS Report

RL34077, Student Loans, Student Aid, and FY2008 Budget Reconciliation, by (name redacted), (name redacted), and

(name redacted).

For additional information on changes made to the FFEL and DL programs under the ECASLA, see CRS Report

RL34452, The Ensuring Continued Access to Student Loans Act of 2008, by (name redacted).

For additional information on changes made to the FFEL and DL programs under the HEOA, see CRS Report

RL34654, The Higher Education Opportunity Act: Reauthorization of the Higher Education Act, by (name redacted)

et al.

For additional information on changes made to the FFEL and DL programs under the SAFRA Act, see CRS Report

R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation, coordinated by (name redac

ted).

For additional information on changes made to DL program loans under the Bipartisan Student Loan Certainty Act of

2013, see CRS Report R43094, An Examination of Student Loan Interest Rate Proposals in the 113th Congress, by

(name redacted).

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

This report discusses major provisions of federal student loans made available through the DL

program and previously made through the FFEL program. The primary emphasis is placed on

discussing provisions related to borrower eligibility, loan terms and conditions, borrower

repayment relief, and loan default and its consequences for borrowers. These topics are

principally discussed with regard to loans currently being made through the DL program, or made

in the recent past through either program. Historical information on certain prior terms and

conditions is also presented in instances where there remains substantial interest in those aspects

of loans. Following a brief review of loan types in the introduction, the next section of this report

reviews eligibility requirements, loan limits, interest rates, and allowable fees for these loans.

This is followed by a comparable section on Consolidation Loans. The remainder of the report

examines various terms and conditions of FFEL and DL program loans that are applicable to all

loan types. These include student loan discounts and incentives, loan repayment, repayment

relief, loan default, loan rehabilitation, loan discharge, and loan forgiveness. A glossary of

selected financial terms is included in Appendix A.

FFEL and DL Program Loan Types

The following types of federally sponsored student loans are available through the DL program

and, until June 30, 2010, were available through the FFEL program: Subsidized Stafford Loans,

Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans. (Loans made under the DL

program are officially referred to as Federal Direct Stafford Loans; Federal Direct Unsubsidized

Stafford Loans; Federal Direct PLUS Loans; and Federal Direct Consolidation Loans.)11 A

common feature of all of these loans is that the federal government (as either the guarantor or

lender) assumes the risk for losses that may occur through borrower default, and pays for the

discharge of loans in cases of borrower death, disability, and other limited instances. Another

common feature shared by these loans is that, for each type of loan, maximum interest rates and

fees that may be charged to borrowers are established by statute.

Subsidized Stafford Loans

These loans are need-based loans and, since July 1, 2012, are available only to undergraduate

students.12 To qualify for a Subsidized Stafford Loan, a student must establish financial need.

With certain exceptions, the federal government “subsidizes” these loans by paying the interest

that accrues on the loans while the borrower is enrolled in an eligible program on at least a halftime basis, during grace periods,13 and during periods of authorized deferment.14 Subsidized

For purposes of simplicity, in this report where Subsidized Stafford Loans and Unsubsidized Stafford Loans share

the same characteristics, they will be referred to jointly as “Stafford Loans”; and in instances where loans made under

the FFEL program and those made under the DL program share the same characteristics, the “Federal Direct” identifier

will be omitted.

Subsidized Stafford Loans were available to graduate and professional students for periods of instruction beginning

prior to July 1, 2012.

A grace period is a six-month period beginning immediately after a student first ceases to be enrolled in school on at

least a half-time basis. During the grace period, borrowers are not required to begin repaying their loans. According to

amendments made by P.L. 112-74, there will no interest subsidy during the grace period on Subsidized Stafford Loans

disbursed between July 1, 2012, and June 30, 2014.

Deferment periods (discussed later in this report) are periods during which borrowers are able to suspend loan

repayment (e.g., if they are pursuing additional postsecondary studies, are performing qualifying military service, or are

experiencing an economic hardship).

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Stafford Loans for which the first disbursement is made on or after July 1, 2006, are fixed interest

rate loans. The interest rate applicable to Subsidized Stafford Loans depends on the type of

student borrowing the loan and the date on which the first disbursement of the loan is made.

Unsubsidized Stafford Loans

These loans are non-need-based loans and are available to undergraduate, graduate, and

professional students. The federal government does not pay the interest on these loans while the

borrower is in school, nor during deferment and grace periods. Unsubsidized Stafford Loans for

which the first disbursement is made on or after July 1, 2006, are fixed interest rate loans.

PLUS Loans

These loans are non-need-based loans and are available to parents of dependent undergraduate

students and to graduate and professional students. The federal government does not pay the

interest on PLUS Loans while the student on whose behalf the loan is made is in school, nor

during deferment and grace periods. PLUS Loans for which the first disbursement is made on or

after July 1, 2006, are fixed interest rate loans.

Consolidation Loans

These loans allow borrowers with existing federal student loans to combine their loan obligations

into a single loan and to extend their repayment period. The Consolidation Loans currently being

disbursed are fixed rate loans for which the interest rate is based on the weighted average interest

rate of the loans being consolidated, rounded up to the nearest higher one-eighth of 1%.

Borrowers can qualify for Consolidation Loans regardless of financial need.

Special Direct Consolidation Loans

Special Direct Consolidation Loans were available during the period from January 17, 2012,

through June 30, 2012, to borrowers who had both one or more student loans made through the

FFEL program and held by a commercial lender, and one or more loans made through either the

DL program or the FFEL program and held by ED. Eligible borrowers were afforded the

opportunity to consolidate their commercially held FFEL program loans into a Special Direct

Consolidation Loan, and in doing so simplify the repayment of their loans by having them all

serviced by a single entity. A number of special repayment incentives were available to borrowers

who consolidated their loans under this program.15

Additional information on Special Direct Consolidation Loans is presented below in the section on Consolidation

Loans. Also, see U.S. Department of Education, Federal Student Aid, “Special Direct Consolidation Loan

Information—Updated Information in Preparation for January 17, 2012 Start,” December 28, 2011,

http://www.ifap.ed.gov/eannouncements/122811SpecialDCLInfoUpdatedInfoinPrepfor011712.html.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Stafford Loans and PLUS Loans

This section discusses borrower eligibility requirements, loan limits, interest rates, and allowable

fees for Subsidized Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans.

Eligibility Requirements

In General

In general, to be eligible for any new loan under the DL program, a student borrower must meet

certain eligibility requirements. These include (1) being enrolled on at least a half-time basis as a

regular student in an eligible program at a participating eligible IHE or in a preparatory program

necessary for enrollment in an eligible program (for up to one year), or in a teacher certification

program; (2) not being incarcerated; (3) being a U.S. citizen or national, U.S. permanent resident,

or other eligible noncitizen; (4) maintaining satisfactory academic progress as defined by the

school; (5) neither being in default on a federal student loan nor owing a refund on a grant or loan

made under Title IV without having made arrangements for repayment;16 (6) having on file at the

institution attended a statement of educational purpose stating that the loan will be used solely for

educational expenses; and (7) meeting applicable Selective Service registration requirements.

PLUS Loans

PLUS Loans may be borrowed by one or both parents of a dependent undergraduate student to

help finance the postsecondary education of a child who meets the basic eligibility criteria cited

above. Parent borrowers must also meet the same citizenship and residency requirements as

student borrowers; and may not be in default on a federal student loan nor owe a refund on a

grant or loan made under Title IV without having made arrangements for repayment. For

purposes of borrowing a PLUS Loan for a dependent student, eligible parents include biological

parents, adoptive parents, and—if their income and assets are taken into account in determining a

student’s expected family contribution (EFC)—stepparents. Legal guardians may not borrow

PLUS Loans as parent borrowers.

An individual’s creditworthiness is taken into account in determining eligibility to borrow PLUS

Loans. At least one credit report must be obtained on all applicants for PLUS Loans, and criteria

for determining creditworthiness are specified in regulations. Individuals with adverse credit

histories may not obtain PLUS Loans unless they either obtain an endorser who does not have an

adverse credit history or they demonstrate that extenuating circumstances exist. Under regulations

currently in effect, an applicant is considered to have an adverse credit history if the applicant has

one or more debts totaling more than $2,085 (to be adjusted for inflation) that are 90 days or more

delinquent, have been placed in collection, or have been charged off by the creditor as a loss or if,

within the past five years, the applicant “has been the subject of a default determination,

bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off of a debt

Title IV of the HEA authorizes most federal student aid programs, including the FFEL and DL programs. Students

who default on loans made under the FFEL, DL, or Federal Perkins Loan programs may have their eligibility for Title

IV aid restored through rehabilitation provisions that may vary by program. Reinstatement is only available once.

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

under Title IV.” In either case, to be eligible to borrow a PLUS Loan, applicants with adverse

credit histories must also complete loan counseling to be offered by ED.17

Dependent undergraduate students whose parents are unable to obtain a PLUS Loan due to an

adverse credit history are eligible to borrow increased Unsubsidized Stafford Loan amounts

(discussed below).

Factors That Affect Eligibility to Borrow

A student’s dependency status and grade level, demonstration of financial need, and the cost of

attendance (COA)18 of the school attended affect eligibility to borrow particular types of loans

and the amount that may be borrowed. These factors are briefly discussed below.

Dependency Status and Grade Level

A student’s dependency status and grade level determine the types of loans available to be

borrowed and limit the amount that may be borrowed. Dependency status is determined by a

student’s responses to questions on the Free Application for Federal Student Aid (FAFSA), which

is completed and submitted to ED by students applying for federal student aid. A student is

deemed to be independent of his parents’ support if the student

•

is 24 years of age or older by December 31 of the award year;

•

is an orphan, in foster care, or a ward of the court, at any time when the

individual is 13 years of age or older;

•

is an emancipated minor or is in legal guardianship as determined by a court of

competent jurisdiction in the individual’s state of legal residence;

•

is a veteran of the Armed Forces of the United States or is currently serving on

active duty in the Armed Forces for other than training purposes;

•

is a graduate or professional student;

•

is a married individual;

•

has legal dependents other than a spouse;

•

is an unaccompanied youth who is homeless, or self-supporting and at risk of

being homeless; or

•

is a student for whom a financial aid administrator makes a documented

determination of independence by reason of other unusual circumstances or

based upon a documented determination of independence that was previously

made by another financial aid administrator in the same award year.

Dependency status and grade level are important because they determine the type of borrowing

available to students and their families, which in turn affects the borrowing limits (discussed

34 C.F.R. §685.200.

Cost of attendance is defined at HEA, §472. It generally includes tuition and fees, an allowance for books, supplies

and transportation, room and board, and other expenses related to school attendance.

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

below) available to them. Of particular importance with regard to undergraduate students is the

fact that PLUS Loans—the loans with the most flexible borrowing limits—are only available to

the parents of dependent students. At the same time, undergraduate independent students are

extended higher personal borrowing limits than dependent students.19 The operating assumption

is that the postsecondary education expenses of dependent students will be financed by students

and their parents, whereas independent students will be financing their expenses without parental

assistance. The types of loans available to undergraduate students and their families align with

this assumption.

Dependency status also determines which set of income and assets is included in need analysis

calculations (discussed below). Need analysis calculations for a dependent student are based on

the income and assets of both the student and the student’s parents,20 whereas need analysis

calculations for an independent student are based on the income and assets of the student (and if

applicable, the student’s spouse).

Grade level is based on student progression according to the academic standards of the school the

student attends. For undergraduate students, progression to a higher grade level for purposes of

awarding Stafford Loans does not necessarily correspond to the start of a new academic year. For

instance, a student who continues to make satisfactory academic progress, but does not progress

to the next grade level could receive Stafford Loans more than once as a first-year student. Once

the student accrues enough credits to progress to the next higher grade level, the student would

become eligible for the higher borrowing limits available to second-year students. To be eligible

to borrow Stafford Loans or PLUS Loans as a graduate student, an individual must be enrolled in

a program above the baccalaureate level or one that leads to a first professional degree, must have

completed at least the equivalent of three years of full-time study at an IHE, and must not be

concurrently receiving Title IV aid as an undergraduate student.21

Graduate and professional students, all of whom are independent, are extended the highest

personal borrowing limits of any students. While they are no longer eligible to borrow Subsidized

Stafford Loans, graduate and professional students are eligible to borrow Unsubsidized Stafford

Loans and PLUS Loans (provided that they do not have an adverse credit history).

Amendments made by MAP-21 establish new limits on eligibility to borrow Subsidized Stafford

Loans for individuals who are new borrowers on or after July 1, 2013. These individuals’

eligibility to borrow Subsidized Stafford Loans is limited to a period not to exceed 150% of the

published length of their academic program.

Dependent undergraduates may be eligible to borrow Stafford Loans up to the larger combined Stafford Loan limits

available to independent undergraduate students (displayed in Table 1) in instances where a financial aid administrator

determines that their parent(s) is unable to borrow PLUS Loans due to certain exceptional circumstances. Exceptional

circumstances may apply in instances of a student whose parent is unable to qualify to borrow PLUS Loans due to an

adverse credit history, whose parent’s only income is from public assistance or disability benefits, whose parent is

incarcerated, whose parent’s whereabouts are unknown, or whose parent is not a U.S. citizen or permanent resident.

Parental income and assets can be defined in a variety of ways in cases where a student’s parents are not married to

each other. See the Free Application for Federal Student Aid (FAFSA) for additional information.

34 C.F.R. §682.201.

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Federal Need Analysis and Award Rules

While dependency status and grade level determine the types of loans and loan limits that

generally may be made available to students, federal student aid need analysis procedures

determine specific amounts that undergraduate students may borrow in need-based Subsidized

Stafford Loans, up to annual loan limits (described below). Additional award rules are used to

determine the amounts that may be borrowed in non-need-based Unsubsidized Stafford Loans

and PLUS Loans.

Subsidized Stafford Loans. Applicants seeking to borrow Subsidized Stafford Loans must

undergo a “need test” through which the expected family contribution to be made by the student

and the student’s family toward paying college expenses is determined based on the financial

resources available to the student. According to federal student aid need analysis procedures, the

student’s EFC is calculated and subtracted from the estimated COA of the institution the student

attends to determine the amount of need-based financial aid that an applicant is eligible to

receive. Additional calculations are then performed to determine the composition of the student’s

federal student aid package. For instance, undergraduate students must receive a determination of

their eligibility to receive a Federal Pell Grant (a form of need-based aid available only to

undergraduates) prior to being certified by their school as being eligible to borrow a Stafford

Loan. This is designed to first provide maximum grant aid to needy students before they incur

student loan debt.

Separate calculations are performed to determine the mix of Subsidized Stafford Loan and

Unsubsidized Stafford Loan aid that an applicant is eligible to receive. The maximum Subsidized

Stafford Loan amount a student is eligible to borrow is determined by summing the student’s EFC

and estimated financial assistance from other sources (EFA), and then subtracting this amount

from the estimated COA. Subsidized Stafford Loan borrowing is capped by applicable annual

loan limits. The calculation for determining Subsidized Stafford Loan eligibility is shown below:

Subsidized Stafford Loan eligibility =

min[(COA-(EFC + EFA)), Subsidized Stafford Loan limit]

In general, for purposes of federal student aid need analysis, a student’s EFA is comprised of all

scholarships, grants, loans, or other assistance known to the institution at the time the

determination of the student’s need is made. The EFA generally includes assistance made

available through other federal student aid programs, and national service educational awards

provided under Title I of the National and Community Service Act of 1990, but excludes all

veterans’ education benefits. However, for purposes of determining eligibility for Subsidized

Stafford Loans, national service education awards are excluded from the EFA. The result of the

above calculation is the amount which may be borrowed through a Subsidized Stafford Loan.

Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are non-need-based loans. Students

are eligible to borrow Unsubsidized Stafford Loans irrespective of their EFC in amounts up to the

annual total Stafford Loan limit, less any amount borrowed through a Subsidized Stafford Loan.

Specifically, the amount students may borrow in Unsubsidized Stafford Loans is limited to the

lesser of (1) the result of subtracting the student’s EFA (including any amount borrowed through a

Subsidized Stafford Loan) from COA, or (2) the result of subtracting the amount borrowed

through a Subsidized Stafford Loan from the annual total Stafford Loan limit. This calculation is

shown below:

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Unsubsidized Stafford Loan eligibility =

min[(COA-EFA),(total Stafford Loan Limit-Subsidized Stafford Loan amount)]

PLUS Loans. Like Unsubsidized Stafford Loans, PLUS Loans are non-need-based loans.

Graduate and professional students and parents of dependent undergraduate students may borrow

PLUS Loans irrespective of their EFC. The amount that may be borrowed in PLUS Loans is

limited to the result of subtracting the EFA (including any amount borrowed through Stafford

Loans) of the student on whose behalf the loan is being made, from COA. The calculation for

determining PLUS Loan eligibility is shown below:

PLUS Loan eligibility = COA-EFA

For dependent undergraduate students, the total PLUS Loan eligibility amount may be borrowed

by one parent, or it may be divided among more than one parent (including noncustodial parents)

and borrowed separately. Parent borrowers are not required to complete a FAFSA to be eligible to

borrow parent PLUS Loans; however, the student on whose behalf the loan is made must have

completed a FAFSA. Graduate and professional students are required to complete a FAFSA as a

condition for becoming eligible to borrow PLUS Loans.

Loan Limits

Annual Loan Limits

Separate annual borrowing limits apply to the amount that students may borrow through

Subsidized Stafford Loans and the total amount that students may borrow through Subsidized

Stafford Loans and Unsubsidized Stafford Loans, combined. There is no specified limit to the

amount that may be borrowed through PLUS Loans. Annual loan limits apply to the maximum

principal amount that may be borrowed; and any fees that the borrower is required to pay

(described below) are included in the amount subject to these limits. Borrowing limits for

Stafford Loans vary by borrower dependency status and grade level.

Borrowing limits for students enrolled for less than one year are prorated based on the fraction of

the academic year for which they are enrolled. An “academic year” is defined in statute as a

minimum of 30 weeks of instruction for courses of study measured in credit hours; or 26 weeks

for courses of study measured in clock hours and during which a full-time student is expected to

complete a minimum of 24 semester or trimester hours, 36 quarter hours, or 900 clock hours.

Aggregate Loan Limits

Limits are also placed on the total amount of outstanding Stafford Loan debt (i.e., unpaid

principal) that undergraduate, graduate, and professional students may accrue. For each borrower

type, one limit applies to the total amount that may be borrowed in Subsidized Stafford Loans and

another limit applies to the total amount that may be borrowed in Subsidized Stafford Loans and

Unsubsidized Stafford Loans, combined. No aggregate limits are placed on PLUS Loans.

Annual and aggregate loan limits applicable to most borrowers, by borrower dependency status

and grade level, are presented in Table 1 for Subsidized Stafford Loans, total Stafford Loans (i.e.,

Subsidized Stafford Loans and Unsubsidized Stafford Loans, combined), and PLUS Loans. As

described above, the amount that may be borrowed through Subsidized Stafford Loans is also

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

limited to the amount of a student’s financial need as determined by need analysis procedures;

and the amounts that may be borrowed through total Stafford Loans and PLUS Loans are limited

to the difference between the student’s cost of attendance and estimated financial assistance.22

Table 1. Annual and Aggregate Loan Limits for

Borrowers of Stafford Loans and PLUS Loans,

by Dependency Status and Grade Level

Subsidized

Stafford Loans

($)

Total Subsidized &

Unsubsidized

Stafford Loans

($)

PLUS

Loans

($)

1st year

3,500

5,500

n.a.

2nd year

4,500

6,500

n.a.

3rd year and above

5,500

7,500

n.a.

23,000

31,000

n.a.

1st year

3,500

9,500

n.a.

2nd year

4,500

10,500

n.a.

3rd year and above

5,500

12,500

n.a.

23,000

57,500

n.a.

20,500

Up to COA-EFA

65,000d

138,500

Not limitede

n.a.

Up to COA-EFA

n.a.

Not limitede

Borrower

Dependency Status

and Grade Level

Dependent Undergraduate

Annual loan limits

Aggregate loan limitsa

All

Independent Undergraduateb

Annual loan limits

Aggregate loan limitsa

All

Independent Graduate and Professional

Annual loan limits

In general

Aggregate loan limitsc

In general

Parents of Dependent Undergraduate Students

Annual loan limits

All borrowers

Aggregate loan limits

All borrowers

Sources: HEA, §§428 and 428H; 34 C.F.R. §682.204; and Department of Education, Office of Postsecondary

Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08.

In addition, recipients of TEACH Grants who fail to meet the requirements of the program may be required to repay

the amount of their TEACH Grant award in the form of an Unsubsidized Stafford Loan. For such individuals, this

Unsubsidized Stafford Loan amount is determined separately from otherwise applicable annual borrowing limits.

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Notes: “n.a.” means not applicable.

Accrued interest and other charges that have not been capitalized do not count toward aggregate loan

limits. Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits

for Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the

Consolidation Loan.

These loan limits also apply to dependent undergraduate students whose parents are unable to obtain PLUS

Loans.

Accrued interest and other charges that have not been capitalized do not count toward aggregate loan

limits. Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits

for Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the

Consolidation Loan. Loan limits for graduate and professional students include amounts borrowed for

undergraduate loans.

The aggregate loan limit for Subsidized Stafford Loans to graduate and professional students applies to loans

borrowed for programs of instruction beginning before July 1, 2012.

There is no statutory borrowing limit for PLUS Loans; however, borrowers must be credit-worthy.

A comprehensive listing of currently applicable annual and aggregate loan limits for all types of

borrowers (including borrowers with special circumstances), by dependency status and grade

level is presented in Table B-1 (see Appendix B). Historical listings of annual and aggregate loan

limits are presented in Table B-2 and Table B-3, respectively (see Appendix B).

Interest Rates

Stafford Loans

The interest rates applicable to Stafford Loans are established by statute.23 Applicable interest

rates have changed numerous times throughout the history of the federal student loan programs,

including changes between fixed interest rates and variable interest rate formulas. This section

discusses the interest rates that are applicable to the majority of loans currently in repayment,

loans that are currently being disbursed, and loans to be disbursed in future years.

Stafford Loans disbursed on or after October 1, 1992, and before July 1, 2006, are variable rate

loans, on which rates adjust annually.24 The formula used to calculate the variable interest rate for

these loans, many of which are still outstanding, is determined by statute and stays in effect from

the time the loan is disbursed through the life of the loan (provided that the loan is not

consolidated into a fixed-rate Consolidation Loan).25 The rates for these Stafford Loans are

determined every June 1, and become effective July 1 for the following 12-month period. The

variable rate is calculated based upon the bond equivalent rate of the 91-day Treasury bill, plus a

The statutorily specified rates are maximum rates and are the rates generally charged to borrowers. However, when

loans were being made through the FFEL program some lenders may have voluntarily made loans with lower interest

rates.

For all Stafford Loans first disbursed on or after July 1, 1994, the applicable interest rate, and whether the rate is

fixed or variable, depends on the date the first disbursement of a borrower’s loan is made. Previously, applicable

interest rates depended largely on whether a borrower had outstanding loans at the time of borrowing an additional

loan.

If a variable rate loan is consolidated into a new Consolidation Loan, the interest rate becomes fixed. At present, the

interest rate on Consolidation Loans is the weighted average of the interest rates in effect on the underlying loans, at the

time of consolidation, rounded up to the nearest higher one-eighth of 1%, and capped at 8.25%. Previously, other rate

setting formulas applied to Consolidation Loans (see Table B-9 in Appendix B).

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

premium which differs depending on whether the borrower is in school, or in repayment.26 For

loans made from July 1, 1998, through June 30, 2006, the borrower interest rate is based on the

91-day Treasury bill plus 1.7 percentage points for borrowers who are in school; and the 91-day

Treasury bill plus 2.3 percentage points for borrowers who are in repayment.27 The maximum

interest rate that may apply to Stafford Loans disbursed during this period is capped at 8.25%.

All Stafford Loans first disbursed on or after July 1, 2006, and before July 1, 2013, have

statutorily specified fixed rates. A fixed rate of 6.8% applies to all Stafford Loans made during

this period, with the exception of Subsidized Stafford Loans made to undergraduate students on

or after July 1, 2006, and before July 1, 2013, which have lower rates.

All Stafford Loans first disbursed on or after July 1, 2013, have market-indexed fixed rates. The

interest rate on Stafford Loans to undergraduate students is the 10-year Treasury note rate plus

2.05 percentage points, with a cap of 8.25%. The interest rate on Stafford Loans to graduate and

professional students is the 10-year Treasury note rate plus 3.6 percentage points, with a cap of

9.5%.

PLUS Loans

PLUS Loans disbursed from the time of their introduction in 1981, through June 30, 1987, are

fixed interest rate loans. Those disbursed on or after July 1, 1987, and before July 1, 2006, are

variable rate loans, on which rates adjust annually. The formula used to calculate the variable

interest rate for these PLUS Loans is specified in statute and stays in effect from the time the loan

is disbursed through the life of the loan (provided that the loan is not consolidated into a fixedrate Consolidation Loan). Interest rates on these PLUS Loans are determined every June 1, and

become effective July 1 for the following 12-month period.28 The interest rate formula for “new”

PLUS loans that were disbursed from July 1, 1998, through June 30, 2006, is the bond equivalent

rate of the 91-day Treasury bill plus a premium of 3.1 percentage points, capped at 9%.

All PLUS Loans first disbursed on or after July 1, 2006, and before July 1, 2013, have statutorily

specified fixed rates. Those made under the DL program have a fixed interest rate of 7.9%, while

those made under the FFEL program before July 1, 2010, have a fixed interest rate of 8.5%. In the

107th Congress, a fixed interest rate of 7.9% had been established prospectively for PLUS loans

disbursed on or after July 1, 2006, under both the FFEL and DL programs.29 Under the Higher

Education Reconciliation Act (HERA),30 the interest rate for PLUS Loans made under the FFEL

Interest rates are adjusted annually based on the bond equivalent rate of the 91-day Treasury bill at the final auction

held prior to June 1.

A differential rate is provided for those in school and in repayment because loan servicing costs are lower during the

in-school period, when no payments are required.

For PLUS Loans with a Treasury bill index, rates are adjusted annually based on the bond equivalent rate of the

Treasury bill at the final auction held prior to June 1. For loans based on the one-year constant maturity Treasury yield,

the rates are adjusted annually based on the weekly average one-year constant maturity Treasury yield, as published by

the Board of Governors of the Federal Reserve System for the last calendar week ending before June 26.

This provision was enacted under P.L. 107-139.

The HERA was enacted as Title VIII, Subtitle A of P.L. 109-171, the Deficit Reduction Act of 2005. For additional

information on student loan provisions enacted under the HERA, see CRS Report RS22308, Student Loans and FY2006

Budget Reconciliation, by (name redacted).

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

program—but not those made under the DL program—was increased to 8.5% before the 7.9%

interest rate would have gone into effect.31

All PLUS Loans first disbursed on or after July 1, 2013, have market-indexed fixed rates. The

interest rate on PLUS Loans is the 10-year Treasury note rate plus 4.6 percentage points, with a

cap of 10.5%.

Interest rates applicable to DL program loans made during award year32 (AY) 2015-2016 are

presented below in Table 2. A history of Stafford Loan interest rates and interest rate formulas

that have been in effect since the initial GSL program was launched in 1965 is presented in Table

B-4 (see Appendix B). A history of the actual interest rates in effect on fixed rate and variable

rate Stafford Loans, by borrower cohort, for the period from 1992-1993 onward is presented in

Table B-5 (see Appendix B). A history of PLUS Loan interest rates and interest rate formulas is

presented in Table B-6 (see Appendix B). The actual interest rates in effect on fixed rate and

variable rate PLUS Loans, by borrower cohort, for the period from 1992-1993 onward are

presented in Table B-7 (see Appendix B).

Table 2. DL program Student Loan Interest Rates

AY2015-2016

Fixed Interest Rate in Effect

Disbursement Period

Subsidized

Stafford Loans

(%)

Unsubsidized

Stafford Loans

(%)

PLUS Loans

(%)

Undergraduate students

4.29

n.a.

Graduate and professional students

n.a.

5.84

6.84

Parents of undergraduate dependent students

n.a.

6.84

July 1, 2015-June 30, 2016

Source: HEA §§427A, 428, and 455(b); (20 U.S.C. §§1077a, 1078 and 1087e(b)).

Note: “n.a.” means not applicable.

Borrower Fees

In addition to being responsible for repaying loan principal and interest, borrowers of DL

program Stafford Loans and PLUS Loans are responsible for paying a loan origination fee. When

loans were being made through the FFEL program, borrowers were responsible for paying a loan

origination fee and a default fee (at one time, this fee had been referred to as a loan insurance

fee). Borrower fees help offset federal subsidy costs by passing along some of the costs to

borrowers.

It is generally accepted that a drafting error led to the differential interest rates in the final reconciliation measure,

and that an 8.5% rate was intended for both programs. See “Bill Would Repeal Loan Provision,” Chronicle of Higher

Education, June 23, 2006, for details.

For HEA, Title IV federal student aid programs, an award year begins July 1 and runs through June 30 of the

following calendar year.

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

The HEA specifies a loan origination fee of 1% for all DL program Stafford Loans disbursed on

or after July 1, 2010; and a loan origination fee of 4% for all DL program PLUS Loans. ED does

not charge a loan origination fee on DL program Consolidation Loans. Loan origination fees are

calculated as a proportion of the loan principal borrowed and are deducted proportionately from

each disbursement of loan proceeds to the borrower. (The principal amount borrowed is often

referred to as the gross disbursement amount; and the amount the borrower actually receives to be

applied toward education expenses, after the deduction of borrower fees, is often referred to as

the net disbursement amount.)

Higher borrower fees were charged on loans that were disbursed before July 1, 2010. Under the

FFEL program, on Stafford Loans and PLUS Loans for which the first disbursement was made on

or after July 1, 1994, and before July 1, 2006, the origination fee was limited to not more than 3%

of the loan amount. And, during that period guaranty agencies could assess a loan insurance

premium of not more than 1% on Stafford Loans and PLUS Loans. In the DL program, borrowers

were required to pay a 4% origination fee to the federal government from the beginning of the

program until August 15, 1999, when ED reduced the origination fees on Stafford Loans to 3%.33

Changes to borrower fees were enacted under the HERA for both FFEL and DL program loans.

Under the FFEL program, all loans disbursed on or after July 1, 2006, were subject to a default

fee of up to 1%, which replaced a 1% insurance premium. The origination fee on FFEL program

Stafford Loans was reduced to 2% on loans for which the first disbursement was made on or after

July 1, 2006, and before July 1, 2007. For subsequent years, the origination fee was incrementally

reduced by 0.5 percentage point per year and, had lending under the FFEL program not ceased,

would have been phased out for loans first disbursed on or after July 1, 2010. The origination fee

for FFEL program PLUS Loans remained at 3%.

The HERA also established in statute specific origination fees for DL program loans. For DL

program Stafford Loans, a 3% origination fee was specified for Stafford Loans for which the first

disbursement was made on or after July 1, 2006, and before July 1, 2007. The DL program

Stafford Loan origination fee was reduced by 0.5 percentage points each subsequent year, until it

reached the amount of 1% for Stafford Loans disbursed on or after July 1, 2010. The origination

fee for PLUS Loans remained at 4%. A history of borrower fees on Stafford Loans and PLUS

Loans is presented in Table B-8 (see Appendix B).

Impact of Sequestration on Borrower Fees

During periods when a budget sequestration order applicable to direct spending programs is in

effect, special rules apply to the origination fees on DL program loans.34 In instances where the

first disbursement of a DL program Stafford Loan or PLUS Loan is made while a sequestration

order is in effect, the loan origination fee is required to be increased by the uniform percentage

sequestration amount applicable to nondefense, mandatory spending programs. ED has

announced revised loan origination fees that depend on the period during which the first

See U.S. Department of Education, Office of Federal Student Aid, Direct Loan Bulletin, “Reduction in the Loan

Origination Fee for Direct Loan Borrowers,” DLB 99-36, June 16, 1999, at http://www.ifap.ed.gov/dlbulletins/

attachments/dlb9936a.pdf. Some controversy surrounded the Secretary of Education’s authority to make this reduction.

See Education Daily, June 18, 1999, p. 3.

For additional information on how budget sequestration affects federal student loans, see CRS Report R42050,

Budget “Sequestration” and Selected Program Exemptions and Special Rules, coordinated by (name redacted).

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

disbursement of a loan is made. Accordingly, with respect to loans for which the first

disbursement is made on or after October, 1, 2014, and before October 1, 2015, a fee of 1.073%

applies to Subsidized Stafford Loans and Unsubsidized Stafford Loans, and a fee of 4.292%

applies to PLUS Loans; and with respect to loans for which the first disbursement is made on or

after October, 1, 2015, and before October 1, 2016, a fee of 1.068% applies to Subsidized

Stafford Loans and Unsubsidized Stafford Loans, and a fee of 4.272% applies to PLUS Loans.35

Consolidation Loans

Consolidation Loans enable borrowers to simplify the repayment of their federal student loans by

combining multiple loans into a single loan. Depending on the amount owed, loan consolidation

may also provide borrowers the opportunity to repay their loans over an extended period of time,

which reduces the monthly payment amount (although it increases the total amount that must be

paid due to the longer period over which interest accrues). In addition, with Consolidation Loans

currently being made through the DL program, borrowers are afforded the opportunity to lock in a

fixed interest rate on their student loans, based on the weighted average of the interest rates in

effect on the loans being consolidated, rounded up to the nearest higher one-eighth of 1%. ED

does not assess origination fees on Consolidation Loans.

Eligibility Requirements

In general, to be eligible to obtain a Consolidation Loan under the DL program, a borrower must

have an outstanding principal balance on at least one loan made under either the FFEL or DL

programs that is eligible for inclusion in a Consolidation Loan (described below). A

Consolidation Loan must be comprised of at least one eligible FFEL or DL program loan, and

may contain other types of federal student loans. The types of FFEL and DL program loans

eligible for inclusion in a Consolidation Loan are Subsidized Stafford Loans, Unsubsidized

Stafford Loans, PLUS Loans, and in certain instances Consolidation Loans (discussed below).

Certain other types of federal student loans made outside of the FFEL and DL programs are also

eligible for inclusion in Consolidation Loans. These loan types (some of which are no longer

being disbursed) are Federal Perkins Loans; Guaranteed Student Loans; Federal Insured Student

Loans; National Direct Student Loans; National Defense Student Loans; Supplemental Loans for

Students (SLS); Auxiliary Loans to Assist Students (ALAS); Health Education Assistance Loans

(HEAL); Health Professions Student Loans (HPSL); Loans for Disadvantaged Students (LDS);

and Nursing Loans.

In general, an applicant for a Consolidation Loan must be either (1) in repayment status, (2) in the

grace period before entering repayment, or (3) in default, but have made satisfactory repayment

arrangements for their loans, or have agreed to repay according to the income-based repayment

(IBR) plan or the income-contingent repayment (ICR) plan. For a borrower with a defaulted loan,

making “satisfactory repayment arrangements” for purposes of obtaining a Consolidation Loan

means that the defaulted borrower has made at least three consecutive voluntary full monthly

payments within 15 days of the due date. However, a borrower who is in default and who is

subject to a court judgment or wage garnishment is not eligible to obtain a Consolidation Loan.

U.S. Department of Education, Dear Colleague Letter GEN-15-07, “FY 2016 Sequester Required Changes to the

Title IV Student Aid Programs,” April 23, 2015.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

In general, a set of loans may be consolidated only once. However, in select circumstances a

Consolidation Loan may be “reconsolidated.” Loans made to borrowers within 180 days prior to

or after the date of obtaining a Consolidation Loan may be added to the Consolidation Loan.

Borrowers of existing Consolidation Loans who have other eligible loans that have not been

consolidated, or who subsequently obtain other eligible loans, may consolidate those loans with

their existing Consolidation Loans for purposes of obtaining new Consolidation Loans.

Borrowers of existing FFEL program Consolidation Loans whose loans have been referred to a

guaranty agency for default aversion assistance may reconsolidate into the DL program for

purposes of repaying according to the ICR or IBR plans. Finally, borrowers of existing FFEL

program Consolidation Loans may reconsolidate into the DL program for the purposes of

applying for loan forgiveness through Loan Forgiveness for Public Service Employees program

under the DL program, or for receiving the no accrual of interest for active duty servicemembers

benefit available to borrowers of DL program loans.

Interest Rates

At present, interest rates on Consolidation Loans are determined by taking the weighted average

of the interest rates on the loans being consolidated, and rounding the result up to the nearest

higher one-eighth of 1%. The Bipartisan Student Loan Certainty Act of 2013 removed the 8.25%

cap on interest rates that had previously applied. A history of the interest rate formulas for

Consolidation Loans that have been in effect over the course of the FFEL and DL programs is

presented in Table B-9 (see Appendix B).

Loan Consolidation During the Grace Period

Borrowers are able to consolidate their loans while in the six-month grace period after ceasing to

be enrolled on at least a half-time basis. Consolidating during the grace period provides

borrowers of variable-rate Stafford Loans (which were disbursed between October 1, 1992, and

June 30, 2006) the opportunity to use the grace period interest rate (which is 0.6 percentage points

lower than the repayment rate) in the “weighted average calculations” used to determine the fixed

interest rate for the Consolidation Loan.

Loan Consolidation and Borrower Benefits

Borrowers of Consolidation Loans must be provided with a disclosure of whether consolidation

of their FFEL or DL program loans would result in the loss of any loan benefits, including loan

forgiveness, cancellation, or deferment; and that the consolidation of a Perkins Loan will result in

a loss of the in-school deferment benefit and loan cancellation benefits.

Borrowers who consolidate Subsidized Stafford Loans with other types of unsubsidized loans

retain the interest subsidies applicable to Subsidized Stafford Loans on the portion of the

Consolidation Loan represented by Subsidized Stafford Loans. For borrowers of these loans, the

Secretary of Education (the Secretary) pays the interest that accrues while they are in school, and

during grace deferment periods. This benefit has always been afforded to borrowers of DL

program Consolidation Loans, and was extended to borrowers of FFEL program Consolidation

Loans under the Emergency Student Loan Consolidation Act of 1997 (part of P.L. 105-78, the

Departments of Labor, Health and Human Services, and Education, and Related Agencies

Appropriations Act for 1998).

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Student Loan Discounts and Repayment Incentives

As described above, the maximum interest rates and fees that may be paid by borrowers of FFEL

and DL program loans are established by statutory and regulatory provisions. In the FFEL

program, the lender was required to pay the origination fee to the federal government; and the

lender could choose whether or not to pass the entire fee on to the borrower, within certain

limitations.36 The default fee (which defrays federal default costs) was paid to the guaranty

agency for the guarantor’s locally held federal reserve fund. If the default fee was paid by the

borrower, it was required to have been deducted proportionally from the proceeds of the loan

prior to payment to the borrower. The default fee also could have been paid by other nonfederal

sources (e.g., by the lender or the guarantor).

Lenders in the FFEL program often used to compete for borrowers by offering different packages

of interest rate and fee discounts. To attract borrowers, lenders might have paid origination fees or

default fees without passing on the cost to students. Similarly, to attract loan business, guaranty

agencies might have opted to pay the default fee. The practice of waiving fees may have started

as the FFEL loan industry began experiencing competition from the DL program, although

lenders also competed with each other for business.

Under the DL program, until June 30, 2012, the Secretary was authorized to offer a variety of

interest rate reductions to borrowers as a means of encouraging on-time repayment.37 Any such

reductions made under the DL program were required to be cost neutral to the government.

Amendments made by the BCA, curtailed the authority of the Secretary to offer all but one type

of repayment incentive on loans made under the DL program after June 30, 2012—a 0.25

percentage point interest rate reduction for repaying by electronic debit account (EDA)

repayment. This section briefly describes examples of the types of loan discounts and interest

rebates that were once commonly offered to borrowers of FFEL and DL program loans.38

Loan Discounts Under the FFEL Program

FFEL program lenders had broad discretion in whether to offer loan discounts and in how they

structured these benefits. While relatively few loan discounts were made available in the final

years of FFEL program lending, in past years a wide variety of student loan discounts were

typically offered by lenders—for example, fees being paid on behalf of a borrower, and

reductions in interest rates. Some benefits were structured such that they may only be realized if

the borrower successfully makes a specified number of consecutive on-time payments (e.g., 12,

24, or 36). Benefits that are not provided until well into the repayment period, however, might not

be beneficial to borrowers who desire to pay off their loans early or who consolidate their loans,

as in such instances, these benefits may be lost. Some of the most common types of loan

discounts that were offered by FFEL program lenders are described below.39

FFEL lenders that charge an origination fee must generally assess the same fee to all borrowers. An exception to this

rule is that a lender may assess a lesser origination fee for a borrower whose EFC is equal to or less than the maximum

qualifying EFC for a Pell Grant. See 34 C.F.R. §682.202(c).

HEA, §455(b)(8); 34 C.F.R. §685.211(b).

The student loan discounts and repayment incentives described in this section were permitted to be made available to

borrowers, but were not required to have been provided.

For additional examples of student loan discounts offered by lenders, see FinAid.org, “Student Loan Discounts,” at

(continued...)

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Origination Fee and/or Default Fee Paid by Lender

Sometimes, lenders would pay the loan origination fee on behalf of borrowers; and sometimes

either lenders or guaranty agencies would also pay the 1% default fee. This allowed borrowers to

apply a greater percentage (up to 100%) of the amount borrowed toward their education

expenses. Otherwise, as described above, when borrowers were required to pay origination and

default fees on their loans, their net disbursement, or the amount of loan proceeds that could be

applied toward education expenses, was less than their gross disbursement, or the total amount

borrowed which must be repaid.

Interest Rate Reductions

Some lenders offered interest rate reductions to borrowers for reaching certain milestones. For

example, a lender may have offered to provide a borrower an interest rate reduction at graduation,

or an interest rate reduction after making a specified number of consecutive on-time payments

(e.g., a one percentage point reduction after making a certain number of on-time payments).

Interest rate reductions were also offered to borrowers for signing up for EDA repayment,

whereby loan payments are automatically deducted from their checking or savings account (e.g.,

a 0.25 percentage point interest rate reduction for EDA repayment).

Principal Balance Reductions

Some lenders offered principal balance reductions or account credits to borrowers for reaching

certain milestones. For example, a principal balance reduction of a certain amount (e.g., 1%)

might be granted upon graduation or upon entering repayment. Some lenders also offered

principal balance reductions upon the borrower making a series consecutive of on-time payments

(e.g., 1% after 12, 24, and 36 on-time payments).

Forgiveness of Last Several Payments

Some lenders offered to forgive the last several payments on a borrower’s loan (e.g., the last six

payments).40 This type of benefit may have been structured so that it only applied to payments

115 through 120 of a 120-payment schedule. (Thus, borrowers who consolidate or repay their

loans in less than 115 payments would not realize this benefit.)

Repayment Incentives Under the DL Program

Two repayment incentive programs were once offered to borrowers of Stafford Loans and PLUS

Loans made under the DL program: (1) an up-front interest rebate; and (2) an interest rate

(...continued)

http://www.finaid.org/loans/studentloandiscounts.phtml; and Greentree Gazette, “Online Student Loan Buying Guide,”

at http://studentloanlistings.com/.

The discharge of student loan indebtedness, such as through the forgiveness of loan payments or principal balance

reductions, generally results in the amount forgiven or repaid being considered taxable income under the Internal

Revenue Code (IRC). For additional information on this topic, see “Exclusion of Income Attributable to the Discharge

of Certain Student Loan Debt and NHSC Educational Loan Repayments,” pp. 661-664 in S.Prt. 111-58, Tax

Expenditures: Compendium of Background Material on Individual Provisions, 2010.

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reduction for EDA repayment. Borrowers could take advantage of either or both. However, the

only repayment incentive that may be offered on loans first disbursed on or after July 1, 2012, is

the interest rate reduction for EDA repayment.

Up-Front Interest Rebate

Borrowers of Stafford Loans made under the DL program on or after July 1, 2010, and before

July 1, 2012, paid an origination fee of 1.0% and received a 0.5% up-front interest rebate.

Borrowers of PLUS Loans made before July 1, 2012, paid an origination fee of 4% and received

an up-front interest rebate of 1.5%. The rebate was equal to a percentage of the principal loan

amount borrowed and it was applied by increasing the borrower’s loan proceeds, or the

borrower’s net disbursement.41 To retain the interest rebate amount, the borrower must make the

first 12 monthly payments on time. If not all of the first 12 monthly payments are made on time,

the rebate amount is added back to the borrower’s loan principal, increasing the loan amount that

must be repaid.

Interest Rate Reduction for EDA Repayment

Borrowers may opt to make payments on their student loans using EDA repayment. Under this

option, student loan payments are automatically deducted from a borrower’s checking or savings

account. This option helps ensure that borrowers make their student loan payments on time.

While repaying under the EDA repayment option, borrowers receive a 0.25 percentage point

interest rate reduction on their student loans. The interest rate reduction for EDA repayment does

not apply during in-school, grace, deferment, or forbearance periods.

Loan Repayment

In General

Beginning of Repayment

The repayment period for Stafford Loans begins six months and one day after the borrower first

ceases to be enrolled on at least a half-time basis in an eligible program. (This six-month period is

commonly referred to as the six-month grace period.)42 The repayment period for PLUS Loans

and Consolidation Loans begins the day the loan is fully disbursed. The repayment period for

Stafford Loans, PLUS Loans, and Consolidation Loans excludes any periods of authorized

deferment and forbearance (described below). The first payment on Stafford Loans, PLUS Loans,

and Consolidation Loans is due no later than 60 days after the beginning of the repayment period.

For details on the DL up-front interest rebate, see U.S. Department of Education, Direct Loan Bulletin (DLB) 01-19,

“Implementing Up-front Interest Rebate in Disbursement Calculations,” June 2001, at http://www.ifap.ed.gov/

dlbulletins/dlb0119.html.

The six-month grace period excludes any period of up to three years during which a borrower who is a member of a

reserve component of the Armed Forces is called or ordered to active duty for a period of more than 30 days, as well as

any additional period necessary for such a borrower to resume enrollment at the next available regular enrollment

period.

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For a borrower who is exiting a period of deferment or forbearance, the first or next subsequent

payment is due no later than 60 days after the end of the deferment or forbearance period.

Treatment of Interest Before Entering Repayment

For borrowers of Subsidized Stafford Loans, with certain exceptions, the federal government pays

the interest that accrues while the borrower is enrolled in school on at least a half-time basis,

during a six-month grace period thereafter, and during periods of authorized deferment (discussed

below). Recent changes to the DL program, however, curtail the interest subsidy for some

borrowers of Subsidized Stafford Loans. Due to amendments made by the FY2012 Consolidated

Appropriations Act, interest is not subsidized during the six-month grace period on Subsidized

Stafford Loans disbursed between July 1, 2012, and June 30, 2014. Also, due to amendments

made by MAP-21, the period during which interest will be subsidized on Subsidized Stafford

Loans is limited to 150% of the published length of the borrower’s academic program for

individuals who are new borrowers on or after July 1, 2013.

In contrast to Subsidized Stafford Loans, with Unsubsidized Stafford Loans and PLUS Loans,

borrowers are responsible for paying all of the interest that accrues on their loans. Borrowers of

Unsubsidized Stafford Loans and PLUS Loans may pay the interest that accrues on their loans

prior to entering repayment, while they are enrolled in school and during the six-month grace

period, on either a monthly or quarterly basis. Otherwise, this interest is capitalized, or added to

the loan principal.

Prepayment

Borrowers of FFEL and DL program loans may repay their loans ahead of schedule and may not

be assessed a penalty for doing so. In both the FFEL and DL programs, if a borrower makes a

prepayment that equals or exceeds the monthly payment amount the prepayment is applied to

future installments and the next payment due date is advanced or postponed, unless the borrower

requests otherwise.43 For example, if a borrower makes a large lump sum payment, the standard

practice is for the amount that exceeds the monthly payment amount to be applied to future

payments on a month-by-month basis until the full prepayment amount has been applied.

Alternatively, a borrower may request that the extra payment amount be applied to the principal

balance, resulting in a shortening of the remaining payment period.

Repayment Plans

Borrowers of FFEL and DL program loans are given the opportunity to choose from among a

selection of repayment plan options for the repayment of their loans. The particular repayment

plans available to a borrower depends on the types of loans borrowed and the programs under

which the loans were made. The availability of certain repayment plans to an individual also may

depend upon the date of becoming a new borrower or of entering repayment.

Borrowers of both FFEL and DL program loans may repay according to the standard repayment

plan, the graduated repayment plan, the extended repayment plan, or the income-based repayment

34 C.F.R. §§682.209(b)(2) and 685.211(a).

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(IBR) plan44 options. Borrowers of FFEL program loans may also repay according to the incomesensitive repayment (ISR) plan, whereas borrowers of DL program loans may also repay

according to the income-contingent repayment (ICR) plan, the Pay As You Earn (PAYE)

repayment plan, or alternative repayment plans. (However, parent borrowers of PLUS Loans and

borrowers of Consolidation Loans containing PLUS Loans made to parent borrowers are not

eligible to repay according to the IBR plan or the PAYE repayment plan.)

Prior to the enactment of the HERA, there were many differences between the repayment plans

available to borrowers of FFEL program loans and the corresponding repayment plans available

to borrowers of DL program loans.45 The repayment plans that are available both to borrowers of

FFEL program loans and borrowers of DL program loans—standard repayment, graduated

repayment, extended repayment, and IBR—are now aligned to be consistent across both loan

programs.

If a borrower fails to select a repayment plan, the borrower is provided a standard repayment

plan. Borrowers of FFEL program loans may switch to another repayment plan once annually;

and borrowers of DL program loans may switch plans at any time.46 No repayment plan may

require a borrower to repay a loan in less than five years, unless the borrower specifically

requests a shorter period. Under the standard, graduated, extended, and income-sensitive

repayment plans, payment amounts may not be less than the interest due.47

Under the FFEL program, to the extent practicable, all of a borrower’s loans held by a particular

lender must be combined into a single account and repaid according to the same repayment plan.

Under the DL program, all of a borrower’s DL program loans must be repaid according to the

same repayment plan; except that a borrower of PLUS Loans may repay those loans under a

different repayment plan than used to repay the borrower’s other loans. The repayment plans

available to borrowers of FFEL and DL program loans are discussed below.

Standard Repayment Plan

Repayment according to a standard repayment plan presents a borrower with a predictable

monthly payment amount. According to the standard repayment plan, borrowers of Subsidized

Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans make fixed monthly payments of

no less than $50,48 for a period of up to 10 years.49 For loans with variable interest rates, the loan

holder may annually adjust either the monthly payment amount or the length of the repayment

period. If the repayment amount remains the same on a variable rate loan, and the change in the

The IBR plan became available to borrowers July 1, 2009.

Changes enacted under the HERA to the repayment plans for DL program loans became effective September 10,

2007. For additional information on these changes and the characteristics of pre-HERA repayment plans for DL

program loans, see U.S. Department of Education, Direct Loan Bulletin, “New Direct Loan Repayment Plans and

Changes in the Treatment of Consolidated PLUS Loans and Federal Perkins Loans,” DLB-07-16, July 31, 2007, at

http://www.ifap.ed.gov/dlbulletins/DLB0716.html.

The Secretary may require a borrower who has defaulted on an FFEL or DL program loan to repay according to the

ICR plan or the IBR plan.

Income-contingent repayment, income-based repayment, and alternative repayment plans permit negative

amortization (see glossary for definition).

The last payment may be for less than $50.

Under the standard repayment plan, a repayment period of up to 10 years also applies to DL program Consolidation

Loans for borrowers who entered repayment before July 1, 2006.

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interest rate would result in a borrower being unable to complete repayment within the 10-year

maximum, the loan holder must provide administrative forbearance for a maximum of three years

(effectively extending the repayment period).

For borrowers of Consolidation Loans, a minimum monthly payment of $50 applies, however,

longer repayment periods may be applicable depending on the borrower’s outstanding loan

balance at the time of entering repayment.50 The repayment period on a Consolidation Loan is

based on the combined balances of the Consolidation Loan and all other federal student loans

owed by the borrower. (However, for purposes of determining the repayment period, the balance

of other federal student loans may not exceed the balance of the Consolidation Loan.) Repayment

periods for Consolidation Loans repaid according to the standard repayment plan are shown in

Table 3. (The repayment periods shown also apply to the graduated and income-sensitive

repayment plans.)

Table 3. Repayment Periods for Consolidation Loans Repaid According to the

Standard, Graduated, and Income-Sensitive Repayment Plans

Combined Loan Balance at Repayment

Maximum Repayment Period

Less than $7,500

10 years

$7,500, but less than $10,000

12 years

$10,000, but less than $20,000

15 years

$20,000, but less than $40,000

20 years

$40,000, but less than $60,000

25 years

$60,000 or more

30 years

Source: HEA, §§428C(c)(2) and 451.

Graduated Repayment Plan

Repayment according to a graduated repayment plan is structured so that a borrower’s monthly

payment amount changes over the course of the repayment period. In general, payments will

increase over time, consistent with the assumption that a borrower’s income will generally

increase over the duration of the repayment period. Thus, when repaying according to a graduated

repayment plan, a borrower makes smaller payments at first, and larger payments later on. The

range of monthly payment amounts is limited so that no payment may be more than three times

the amount of any other.51 This is to avoid offering very low initial payment amounts and

excessively high ending payment levels which could contribute to borrower default. For Stafford

Loans and PLUS Loans, monthly payments may be no less than the greater of $50, or the interest

that accrues between payments; and repayment must occur within 10 years. For loans with

variable interest rates, the loan holder may annually adjust either the monthly payment amount or

the length of the repayment period. In a manner similar to the standard repayment plan, if the

repayment amount remains the same on a variable rate loan, and the change in the interest rate

The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program

Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. The 10-year repayment period applies

to borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay

according to the standard repayment plan.

See 34 C.F.R §§682.209(a)(7)(ii) and 685.209.

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would result in a borrower being unable to complete repayment within the 10-year maximum, the

loan holder must provide administrative forbearance for a maximum of three years.

For Consolidation Loans repaid according to a graduated repayment plan, monthly payment

amounts may be adjusted over a period of time ranging from 10 to 30 years, depending on the

borrower’s outstanding loan balance at the time of entering repayment.52 Similar to the standard

repayment plan, determination of the repayment period is based on the combined balances of the

Consolidation Loan and all other federal student loans owed by the borrower. Repayment periods

for Consolidation Loans repaid according to the graduated repayment plan are shown in Table 3.

Extended Repayment Plan

Repayment according to an extended repayment plan affords borrowers with larger total loan

balances the opportunity to make lower monthly payments over a longer repayment period.

Extended repayment plans are available to individuals who are new borrowers on or after October

7, 1998; and who, after that date, accumulate an outstanding loan balance totaling more than

$30,000 under either the FFEL program or the DL program.53 Borrowers of Stafford Loans, PLUS

Loans, and Consolidation Loans repaying according to the extended repayment plan must make

fixed or graduated monthly payments of at least $50; and the repayment period may not exceed

25 years.

Income-Based Repayment Plan

The IBR plan is designed to present borrowers the opportunity to make monthly payment

amounts based on the relationship between their student loan debt and their incomes. It affords

borrowers who experience prolonged periods of low income the prospect of debt forgiveness. A

borrower must be experiencing a “partial financial hardship” (described below) in order to qualify

to repay according to the IBR plan. There are two versions of the IBR plan. One is available to all

individuals who became new borrowers before July 1, 2014, while the other is available only to

individuals who became new borrowers of DL program loans on or after July 1, 2014.

Original IBR plan

The original IBR plan is available to borrowers of FFEL and DL program loans (except parent

borrowers of PLUS Loans, and borrowers of Consolidation Loans that are used to repay PLUS

Loans made to parent borrowers) during any period in which they demonstrate having a partial

financial hardship. Borrowers are determined to have a partial financial hardship if their total

annual payments on eligible FFEL and DL program loans, as calculated according to a standard

10-year repayment period based on the greater of the amount owed at the time the borrower

initially entered repayment or the amount owed at the time the borrower elects to repay according

The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program

Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. A 10-year repayment period applies to

borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay according

to the standard repayment plan.

Prior to September 10, 2007, a different extended repayment plan was available to all borrowers of DL program

loans. Under this prior version of the extended repayment plan, the repayment period ranged from 12 to 30 years,

depending on the borrower’s student loan debt.

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to the IBR plan, are greater than 15% of the amount by which their AGI exceeds 150% of the

poverty line.

For example, based on the 2015 HHS Poverty Guidelines, 150% of the poverty line for a family

of one in the 48 contiguous states and the District of Columbia is $17,655.54 Thus, a single

borrower with an adjusted gross income of $40,000 would have a partial financial hardship if his

annual student loan payments were greater than $3,352, or $279 per month. ($3,352 is 15% of the

result of subtracting $17,655 from $40,000.)

While repaying according to the IBR plan, monthly amounts due on borrowers’ loans may range

from $0, for borrowers with incomes at or below 150% of the poverty line, to a maximum of onetwelfth of 15% of any amount by which their AGI exceeds 150% of the poverty line. If borrowers

repaying according to the IBR plan no longer demonstrate a partial financial hardship or no

longer desire to repay according to the IBR plan, then their maximum required monthly payment

amounts may not exceed the “initial” monthly amount due, as calculated according to a standard

10-year repayment period based on their loan balance at the time of their election to begin

repaying according to the IBR plan. Accordingly, repayment periods for such borrowers may

exceed 10 years.

For a married borrower who files a joint federal income tax return, the payment amounts under

the IBR plan are based on the applicable borrower’s student loan debt and both spouses’

combined AGI. However, for a married borrower who files a separate federal income tax return,

the payment amount under the IBR plan is based solely on that individual’s student loan debt and

AGI. Since July 1, 2010, married borrowers have been able to elect to repay their loans jointly

according to the IBR plan based on their combined loan balances and combined AGI. For married

borrowers repaying jointly according to the IBR plan, individual payment amounts will be

determined in proportion to the amount owed by each borrower.

Payments made by borrowers repaying under the IBR plan must first be credited to interest due

on the loan, then to any fees, and then to principal. If a borrower’s required payment is not

sufficient to cover the interest that accrues on a subsidized Stafford Loan (or the subsidized

portion of a Consolidation Loan), the interest not covered is paid by the Secretary for a period not

to exceed three years.55 Any unpaid interest that accrues on an unsubsidized loan,56 or on a

Subsidized Stafford Loan after the three-year period, is capitalized (i.e., added to the principal

balance of the loan) at the time a borrower no longer demonstrates a partial hardship or elects to

no longer repay according to the IBR plan. If a borrower’s required monthly payment is not

sufficient to repay the amount of principal due, then the payment of any principal due will be

postponed until the borrower no longer has a partial financial hardship or leaves the IBR plan.

Borrowers who at any time participate in the IBR plan become eligible to have any balance on

their eligible loan or loans that remains after 25 years (or a period equivalent to 25 years of

For additional information on poverty guidelines, see U.S. Department of Health and Human Services, Assistance

Secretary for Planning and Evaluation, HHS Poverty Guidelines, 2015,” http://aspe.hhs.gov/poverty/15poverty.cfm

(hereinafter referred to as HHS Poverty Guidelines, 2014). In 2015, for a family of one, the HHS poverty guideline is

$11,770; for a family of two it is $15,930; for a family of three it is $20,090; and for a family of four it is $24,250.

Periods during which a borrower receives a deferment for economic hardship are excluded from this three-year

period.

Unsubsidized loans include Unsubsidized Stafford Loans, PLUS Loans, and portions of Consolidation Loans

attributable to the repayment of loans other than Subsidized Stafford Loans.

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payments) in repayment or economic hardship deferment forgiven by the Secretary if, during that

25-year period, they

•

made reduced monthly payments according to the IBR plan while experiencing a

partial financial hardship;

•

made recalculated monthly payments after leaving the IBR plan, or upon no

longer having a partial financial hardship;

•

made monthly payments on all outstanding FFEL and DL program loans in

repayment (other than parent PLUS Loans) under a repayment plan other than

IBR of not less than the amount required under the standard repayment plan,

based on a 10-year repayment period;

•

made payments under an income-contingent plan (e.g., ICR, PAYE); or

•

received an economic hardship deferment.

IBR plan for New Borrowers On or After July 1, 2014

The SAFRA Act amends two aspects of the IBR plan for individuals who, on or after July 1,

2014, are new borrowers of DL program loans. First, the thresholds used in determining whether

borrowers have a partial financial hardship and in determining their maximum monthly payment

amounts while they have a partial financial hardship are reduced from 15% to 10% of the portion

of their AGI that exceeds 150% of the poverty line applicable to their family size. Second, the

period over which borrowers repaying according to the IBR plan must remain in repayment status

or economic hardship deferment before having the remainder of their federal student loan balance

forgiven is reduced from 25 years to 20 years.

While repaying according to the New IBR plan, monthly amounts due on borrowers’ loans may

range from $0, for borrowers with incomes at or below 150% of the poverty line, to a maximum

of one-twelfth of 10% of any amount by which their AGI exceeds 150% of the poverty line. Thus,

following the example used above, based on the 2015 HHS Poverty Guidelines, under the New

IBR plan, a single borrower with an adjusted gross income of $40,000 would have a partial

financial hardship if his annual student loan payments were greater than $2,235, or $186 per

month. ($2,235 is 10% of the result of subtracting $17,655 from $40,000.)

Income-Contingent Repayment Plan

Repayment according to the ICR plan also affords borrowers the opportunity to make loan

payment amounts based on the relationship between their student loan debt and their income; and

the prospect of debt forgiveness for those who experience prolonged periods with low incomes.

The ICR plan is available to borrowers of Stafford Loans, graduate and professional student

borrowers of PLUS Loans, and most borrowers of Consolidation Loans. Parent borrowers of

PLUS Loans are not eligible to repay according to the ICR plan.

Under the ICR plan, annual payments (which are divided by 12 for the monthly amount) are

adjusted annually based on the borrower’s outstanding loan balance at the time of entering

repayment, adjusted gross income (AGI), and family size according to criteria established by the

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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Secretary in regulations.57 Consistent with these criteria, payment amounts are the lesser of

(1) the amount calculated according to a 12-year repayment period, multiplied by an income

percentage factor that corresponds to the borrower’s AGI;58 or (2) 20% of the amount by which

the borrower’s AGI exceeds the poverty line.59 Monthly payment amounts may range from $0 for

borrowers with incomes at or below the poverty line to amounts more than sufficient to repay the

loan in 12 years for borrowers with high incomes. Thus, a borrower at the poverty level or below

would not be required to make any payment. For borrowers whose monthly payment amount is

greater than $0, but less than $5, a $5 minimum monthly payment is required.

Under the ICR plan formula, it is possible that a borrower’s monthly payment amount may be

less than the accrued interest on his loan. When this happens, the unpaid interest is capitalized.

(This is also referred to as negative amortization.) The rules for the ICR plan specify that

capitalization of unpaid interest may not result in the balance of the loan exceeding 110% of the

original principal amount. If this occurs, any additional interest that accrues will not be

capitalized, but must still be paid by the borrower.

The ICR plan has a maximum repayment period of 25 years. If after 25 years of repaying

according to the ICR plan (not including time in deferment or forbearance) a borrower still has a

loan balance, the remaining unpaid balance of the loan will be discharged or forgiven.

Pay As You Earn (PAYE) Repayment Plan

The PAYE repayment plan became available December 21, 2012, to individuals who are new

borrowers on or after October 1, 2007; and who either receive a disbursement on a DL program

loan on or after October 1, 2011, or receive a DL program Consolidation Loan based on an

application received by ED on or after October 1, 2011. The PAYE plan is substantially similar to

the IBR plan that is available to individuals who are new borrowers on or after July 1, 2014

(described above). Borrowers may repay FFEL and DL program loans according to the PAYE

plan except for PLUS Loans made to parent borrowers and Consolidation Loans used to repay

such loans.

Borrowers must have a partial financial hardship to qualify to repay according to the PAYE plan.

This means that their total annual payments on eligible FFEL and DL program loans are greater

than 10% of the amount by which their AGI exceeds 150% of the poverty line, as calculated

according to a standard 10-year repayment period based on the greater of the amount owed at the

time the borrower initially entered repayment or the amount owed at the time the borrower elects

to repay according to the PAYE plan.

While repaying according to the PAYE plan, monthly amounts due on borrowers’ loans may

range from $0, for borrowers with incomes at or below 150% of the poverty line, to a maximum

34 C.F.R. §685.209. A special characteristic of the ICR plan is that two married borrowers of DL program loans may

repay their loans jointly based on their combined loan balances. Payment amounts are credited to each borrower’s

account in proportion to their outstanding loan balance.

Income percentage factors range from 50.52% to 200%, depending on income and income tax filing status. See U.S.

Department of Education, Office of Federal Student Aid, “Annual Updates to the Income Contingent Repayment (ICR)

Plan Formula for 2013—William D. Ford Federal Direct Loan Program,” 78 Federal Register, 33395-33398,

http://www.ifap.ed.gov/fregisters/attachments/FR060413.pdf.

HHS Poverty Guidelines, 2013.

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of one-twelfth of 10% of any amount by which their AGI exceeds 150% of the poverty line.

Borrowers who have a loan balance remaining after 20 years of repayment according to the PAYE

plan may have the remaining loan balance forgiven.

Income-Sensitive Repayment Plan

Under an income-sensitive repayment plan, monthly payment amounts are adjusted annually

according to the borrower’s income. Income-sensitive repayment plans are available only to

borrowers of FFEL program loans. For Stafford Loans and PLUS Loans, monthly payments may

be no less than the greater of $50, or the interest that accrues between payments; and repayment

must occur within 10 years. Similar to the graduated repayment plan, no payment may be more

than three times the amount of any other. However, if a borrower’s income is too low to make

payments in amounts to repay the loan within 10 years, the loan holder must provide

administrative forbearance for a period of up to five years. For variable interest rate loans, the

loan holder may annually adjust either the monthly payment amount or the length of the

repayment period. In addition, if the repayment amount remains the same on a variable rate loan,

and the change in the interest rate would result in a borrower being unable to complete repayment

within the 10-year maximum, the loan holder must provide administrative forbearance for a

maximum of five years.

For Consolidation Loans repaid according to an income-sensitive repayment plan, monthly

payment amounts may be adjusted based on changes in a borrower’s income over a period of time

that may range from 10 to 30 years, depending on the borrower’s outstanding loan balance at the

time of entering repayment.60 Similar to the standard repayment plan, determination of the length

of the repayment period is based on the combined balances of the Consolidation Loan and all

other federal student loans owed by the borrower. Repayment periods for Consolidation Loans

repaid according to the income-sensitive repayment plan are shown in Table 3.

Alternative Repayment Plans

The Secretary may establish alternative repayment plans for borrowers of DL program loans who

demonstrate that they are unable to repay according to other available repayment plans due to

exceptional circumstances. If the Secretary agrees to permit a borrower to repay according to an

alternative repayment plan, the Secretary notifies the borrower in writing of the terms of the plan,

and the borrower may either accept those terms or select one of the other available repayment

plans discussed above. Under an alternative repayment plan, the borrower may be provided up to

30 years to repay, not including periods of deferment and forbearance. There is a minimum

payment amount of $5 and payments cannot vary by more than three times the amount of the

smallest payment. Alternative repayment plans may permit a borrower to make monthly

payments for less than the amount of the accrued interest on the loan, with any unpaid interest

being capitalized. Capitalization of unpaid interest may not result in the balance of the loan

exceeding 110% of the original principal amount. If this occurs, any additional interest that

accrues must be paid by the borrower. Four different alternative repayment plans are currently

offered:

The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program

Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. The 10-year repayment period applies

to borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay

according to the standard repayment plan.

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1. Alternative Fixed Payment,

2. Alternative Fixed Term,

3. Alternative Graduated, and

4. Alternative Negative Amortization.

Borrower Repayment Relief

Several forms of repayment relief are available to borrowers of loans made under the FFEL and

DL programs who may be experiencing difficulty in making payments on their student loans.

These benefits are broadly categorized as deferments, forbearance, and interest rate benefits for

active duty servicemembers.

Deferment and forbearance are the primary means through which borrowers may be temporarily

relieved of their obligation to make scheduled loan payments. Periods during which borrowers are

in deferment or forbearance are generally excluded from the repayment period. (Exceptions apply

with respect to the IBR and PAYE plans, for which periods in economic hardship deferment are

included in the total repayment period, after which borrowers become eligible for loan

forgiveness.) In addition, interest rate benefits may be available to certain categories of active

duty servicemembers. Deferments, forbearance, and interest rate benefits may help borrowers

avoid defaulting on their loans, as well as help prevent student loan debt and the accrual of

interest and fees from inhibiting their pursuit of further studies. These forms of borrower

repayment relief are described below.

Deferments

A deferment is the temporary cessation of a borrower’s obligation to repay loan principal and

interest, usually limited by law to a specific period of time, and contingent upon the borrower

meeting certain conditions. Deferments enable borrowers to suspend loan repayment while they,

or the individual on whose behalf the loan was made (for parent borrowers of PLUS Loans), are

pursuing additional postsecondary education, during periods of unemployment or economic

hardship, and during certain periods of military service.

In general, deferments are borrower-specific—that is, once a borrower has received a deferment

for the period specified in law (if limited), the borrower is not eligible to receive an additional

deferment for the same condition, even if subsequently borrowing additional loans. Because of

frequent amendments, the types of deferment for which borrowers are eligible can vary according

to when the loan is disbursed, the type of loan, and whether the borrower has an outstanding

balance on other loans. The Higher Education Amendments of 1992 (P.L. 102-325) made major

changes to deferments by consolidating the terms according to which borrowers may qualify. In

general, until July 1, 1993, one set of conditions for deferments applied.61 Beginning July 1, 1993,

Borrowers with outstanding loan balances prior to July 1, 1993 remain eligible to defer repayment of their loans—

including loans borrowed after that date—under a broader set of criteria than are available to individuals who first

borrowed after that date. For instance, they may defer loans during periods of service in the U.S. Armed Forces, the

Peace Corps, VISTA, or the Public Health Service; while serving as a medical intern or resident; or while teaching in

shortage areas. Eligibility criteria for deferments for borrowers with outstanding loan balances prior to July 1, 1993 are

specified in regulations codified at 34 C.F.R. §682.210.

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new conditions became applicable to new borrowers, who prior to that date had no outstanding

balance on FFEL or DL program loans. Subsequently, additional types of deferments with

different effective dates have been made available. Finally, some types of deferments have

recently been made available to borrowers irrespective of when they became a new borrower.

For Subsidized Stafford loans (and the portion of Consolidation Loans attributable to the

repayment of Subsidized Stafford Loans), the federal government pays the interest that accrues

during the deferment period. For all other loans, the borrower is responsible for the payment of

accrued interest—either by making such payments monthly or quarterly, or by having the interest

added to their principal balance (i.e., capitalized) at the end of period of deferment.

The following types of deferments are available to borrowers of loans currently being disbursed.

In-School Deferment

Borrowers are eligible for an in-school deferment for any period during which they are pursuing

at least a half-time course of study as determined by the eligible institution attended.

In-School and Grace Period Deferment for PLUS Loans

Parent borrowers of PLUS Loans for which the first disbursement is made on or after July 1,

2008, are eligible for a deferment for any period during which the student on whose behalf the

loan was made would qualify for an in-school deferment. Also, parent borrowers and graduate

and professional student borrowers of PLUS Loans first disbursed on or after July 1, 2008, are

eligible for a deferment during the six-month grace period after the student on whose behalf the

loan was made first ceases to be enrolled on at least a half-time basis.

Graduate Fellowship Deferment

This deferment is available to borrowers while pursuing a course of study pursuant to a graduate

fellowship program approved by the Secretary. Graduate fellowship deferments are not available

to borrowers who are serving in medical residency or internship programs, except for residency

programs in dentistry.

Rehabilitation Training Program Deferment

This deferment is available to borrowers while pursuing a course of study pursuant to a

rehabilitation training program for disabled individuals approved by the Secretary.

Unemployment Deferment

This type of deferment is available to borrowers who are unemployed, as evidenced by receipt of

unemployment benefits, or their inability to secure employment after registering with a public or

private employment agency. Borrowers are not required to have been previously employed to

qualify for an unemployment deferment. A borrower may receive an unemployment deferment

for a maximum cumulative period of three years. This may include one or more episodes of

unemployment.

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Economic Hardship Deferment

This type of deferment is available to borrowers of loans made under the FFEL and DL

program if

•

the borrower has been granted an economic hardship deferment under the FFEL,

DL, or Perkins Loan program for the same period of time for which the borrower

requests an economic hardship deferment;

•

the borrower is receiving payments under a federal or state public assistance

program (e.g., Temporary Assistance for Needy Families, Supplemental Security

Income, Food Stamps, or state general public assistance);

•

the borrower is working full-time and has a monthly income that does not exceed

the greater of (1) the minimum wage rate, or (2) an amount equal to 150% of the

poverty line applicable to the borrower’s family size (as calculated on a monthly

basis); or

•

the borrower is serving as a volunteer in the Peace Corps.

A borrower may receive an economic hardship deferment for periods of up to one year at a time,

for a maximum cumulative period of three years.

Military Service Deferment

This type of deferment is available to all borrowers who are serving on active duty, or performing

qualifying National Guard duty, during a war or other military operation or national emergency.

The deferment is available for the period of qualifying service and for 180 days following the

demobilization date for such service.

Post-Active Duty Student Deferment

This type of deferment is available to borrowers of FFEL and DL program loans who are

members of the National Guard or other reserve component of the Armed Forces (or a member in

retired status) and who are called or ordered to active duty while enrolled in an eligible

institution, or within six months of being enrolled. The deferment is limited to borrowers who

were serving on active duty on October 1, 2007, or who began active duty service after that date.

Eligible borrowers may receive a post-active duty service deferment for the 13-month period

following the conclusion of active duty service (or until re-enrollment). If a borrower qualifies for

both the military service deferment and the post-active duty student deferment, the 180-day postdemobilization period and the 13-month post-active duty service period apply concurrently.

Forbearance

Forbearance is the practice under which lenders grant borrowers temporary relief from their

obligation to repay because the borrower is willing but unable to meet regular payment

obligations. A lender may provide forbearance by temporarily relieving a borrower from making

payments, by extending the time for making payments, or by temporarily accepting payments in

reduced amounts. Forbearance is usually used to prevent a loan from defaulting, but holders of

defaulted loans may also use forbearance during collection on a defaulted loan.

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Unlike deferment periods, during which the interest that accrues on Subsidized Stafford Loans is

paid by the federal government, during periods of forbearance borrowers are liable for all the

interest that accrues on their loans. Any interest that accrues during forbearance is capitalized at

the end of the forbearance period. Also, unlike deferments, forbearance is typically granted at the

option of the loan holder as opposed to being mandated, although in certain instances mandatory

forbearance is required.

Borrowers must apply for forbearance, although they are not required to request forbearance in

writing. For certain types of forbearance, borrowers must provide supporting documentation.

Forbearance is usually granted in 12-month intervals, and borrowers must reapply each year.

Maximum time limits depend on the type of forbearance granted. No adverse credit information

may be provided to a consumer reporting agency solely because the borrower has been granted

forbearance.

Mandatory Forbearance

Lenders are required to provide forbearance to borrowers in certain circumstances. Mandatory

forbearance is available to borrowers

•

who are medical or dental interns or residents and who do not or no longer

qualify for a deferment, for the duration of their internship or residency;

•

whose total federal student loan payments equal or exceed 20% of their monthly

income, for up to three years;

•

who are serving in a national service position for which the borrower receives an

AmeriCorps national service educational award;

•

whose federal student loan interest is being paid under a Department of Defense

Armed Forces Student Loan Repayment program;

•

who are teachers who would qualify for loan repayment under the FFEL and DL

Teacher Loan Forgiveness programs, for up to five years of required service; and

•

who are members of the National Guard who qualify for a post-active duty

student deferment, but do not qualify for a military service deferment or other

deferment, and are engaged in active state duty service for 30 or more

consecutive days.

Mandatory Administrative Forbearance

Administrative forbearance is available to borrowers under limited conditions as authorized by

the Secretary. As discussed earlier, administrative forbearance is available to borrowers for up to

three years if changes to variable interest rates preclude a borrower’s ability to repay the loan in

10 years under the standard or graduated repayment plans, and for up to five years if a borrower’s

income precludes the ability to repay in 10 years under the income-sensitive repayment plan.

Interest Rate Benefits for Active Duty Servicemembers

In certain instances, active duty servicemembers may be eligible for interest rate benefits on their

FFEL and DL program loans.

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Servicemembers Civil Relief Act (SCRA)

Section 207 of the SCRA provides that for individuals who borrow loans after August 14, 2008,

and who later enter military service, the interest rate on those loans must be capped at 6% for the

duration of their military service.62 Creditors must forgive interest above the rate of 6% and may

not accelerate repayment of the loans.

If loans on which the interest rate has been reduced to 6% under the SCRA are included in a

Consolidation Loan, the 6% interest rate is required to be used as the applicable rate on those

loans for purposes of determining the weighted average interest rate of the Consolidation Loan.63

No Accrual of Interest on DL Program Loans for Certain Active

Duty Servicemembers

For DL program loans first disbursed on or after October 1, 2008 (including Direct Consolidation

Loans used to repay the portion of FFEL program loans first disbursed on or after October 1,

2008), interest will not accrue during any period of up to 60 months while the borrower is serving

on active duty or performing qualifying National Guard duty in an area of hostilities during a war

or national emergency.

Loan Default and its Consequences for Borrowers

As defined for purposes of the FFEL and DL programs, a defaulted loan is one on which the

borrower has failed to make a required payment when due, or on which the borrower has

otherwise violated the terms of the promissory note for 270 days (or 330 days if the loan is

repayable in installments less frequent than monthly) if it is reasonable to conclude that the

borrower no longer intends to repay the obligation.64

Defaulted student loans are a significant problem both for the federal government and for

borrowers. Losses due to defaults constitute a major cost component in the federal student loan

programs. From the borrower’s perspective, defaulting on a student loan can ruin credit and

otherwise present a major obstacle to future economic well-being. The consequences of default

for borrowers are discussed below.

Consequences of Default for Borrowers

When a loan goes into default, the borrower effectively loses certain rights and privileges

associated with the loan (e.g., deferments and loan forgiveness). In addition, the agency in charge

of collections (i.e., the FFEL guaranty agency or the DL contractor) can demand payment in full

of all principal and interest due, as well as payment of collection costs.65 There is no statute of

For additional information on the SCRA, see CRS Report RL34575, The Servicemembers Civil Relief Act (SCRA):

An Explanation, by (name redacted).

Email communication between the author and the U.S. Department of Education, Office of Legislation and

Congressional Affairs, June 11, 2015.

34 C.F.R. §§682.200; and 685.102.

With the enactment of the Bipartisan Budget Act of 2013, P.L. 113-67, borrowers may be charged up to a maximum

(continued...)

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limitations on student loan collections. All borrowers must be informed of the consequences of

default as part of entrance counseling they receive when initially borrowing their loans. In

addition, as part of its due diligence requirements, the agency in charge of collecting on a

defaulted loan must apprise the defaulter of some of the major consequences of defaults. This

section summarizes elements of the law designed to improve collections of defaulted loans.

Report to Consumer Reporting Agencies

By law, loan holders and the agencies in charge of collection are required to enter into agreements

with national consumer reporting agencies to exchange information relating to student borrowers.

Such agreements require the guaranty agency to report a loan default and the status of collections

on that note. Consumer reporting agencies are authorized to report information on the status of a

defaulter’s account for seven years from the date the default claim is paid or, if the borrower

reenters repayment after defaulting and subsequently defaults, for seven years from the date of

the subsequent default.

Offset of Tax Refund

Defaulters are liable for any federal tax refund due them to be attached by the Internal Revenue

Service (IRS) as repayment on their student loan. A number of states also attach refunds due on

state income taxes to collect student loans.

Offset of Social Security Benefits

Social Security benefits are subject to being offset by up to the lesser of 15% of the monthly

benefit amount, or by the amount that the monthly benefit exceeds $750.66

Wage Garnishment

Notwithstanding any state law to the contrary, guaranty agencies, or the Secretary in the case of

loans held by ED, may garnish up to 15% of a defaulter’s disposable pay to repay a defaulted

student loan. “Disposable pay” is defined as that part of compensation remaining after deducting

amounts required by law to be withheld. Defaulters must be given written notice of the intent to

garnish and have rights to examine the debt record, have a hearing concerning the existence and

amount of the debt or repayment terms, and to establish a repayment schedule before garnishment

begins. In the past, garnishment has particularly been used as a tool against defaulters who are

federal employees.

Ineligibility for Federal Student Aid

Students who have defaulted on a FFEL or DL program loan are ineligible for federal student aid

under Title IV. Student loan defaulters who make six consecutive monthly payments on their

(...continued)

of 16.0% of the outstanding principal balance and interest amount for collection costs.

31 C.F.R. §285.4(e).

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defaulted FFEL and DL loans may have their Title IV eligibility restored, but an individual

borrower may benefit from this provision only once.

Civil Lawsuit

The ultimate tool used to collect on a defaulted student loan is litigation under which the agency

in charge of collection sues the defaulter to compel repayment of the loan. Such civil suits are

required to be instituted under the due diligence regulations unless the note is assigned to ED for

collection through the IRS offset program, the lawsuit costs would exceed those of the likely

recovery, or the borrower does not have the funds to satisfy the judgment on the debt or a large

portion of it.

Loan Rehabilitation

Loan rehabilitation offers student loan defaulters an opportunity to have their loan reinstated as an

active loan and to have their borrower benefits and privileges restored. If, during a period of 10

consecutive months, a borrower who has defaulted on a loan makes nine monthly payments

within 20 days of the due date according to a payment plan agreed to by the borrower and

guaranty agency (or the Secretary), the loan may be sold to another lender, or (in the case of DL

loans) reinstated. At this point, the loan is considered rehabilitated and the borrower again

becomes eligible for full borrower privileges, such as deferments and loan forgiveness. In

implementing these provisions, the guarantor or ED must require a monthly payment that is

“reasonable and affordable” based on the borrower’s financial circumstances. Borrowers whose

defaulted loans are assigned to ED are offered the opportunity to obtain DL program

Consolidation Loans.

Loan Discharge and Forgiveness

Loan Discharge

In accordance with the terms and conditions of loans made under the FFEL and DL programs, in

certain circumstances borrowers may have all or a portion of their debt discharged or repaid by

the federal government. These are described below.

Death or Disability

Liability for FFEL and DL program loans is discharged in the case of borrowers who die, who

become permanently and totally disabled, or who are unable to engage in any substantial gainful

activity due to a physical or mental impairment that can be expected to result in death or that has

lasted continuously or can be expected to last continuously for 60 months. Borrowers who have

been determined by the Secretary of Veterans Affairs to be unemployable due to a serviceconnected condition shall be considered permanently and totally disabled for purposes of student

loan discharge.

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Bankruptcy

In most instances, federal student loans may not be discharged through personal bankruptcy

actions brought under either Chapter 7 or Chapter 13 of the bankruptcy code.67 However, if after

filing for bankruptcy, a borrower successfully petitions a bankruptcy court and the court finds that

repayment constitutes an undue hardship on the borrower and his dependents, federal student

loans may be discharged in bankruptcy.68

Other

A borrower’s liability for a loan (including any interest and collection fees owed by the borrower)

may be discharged under any of the following circumstances if the borrower received the loan on

or after January 1, 1986. Loans may be discharged if the student borrower (or the student on

whose behalf a parent borrowed) was unable to complete an educational program because the

school closed. Any period of the student’s attendance at the institution at which the student was

unable to complete the course of study because of closure is not counted against the total period

of the student’s eligibility for additional student aid. Borrowers are eligible for loan discharge if

the school falsely certified the student’s eligibility to borrow, including loans falsely certified as a

result of identity theft. All or a portion of a borrower’s loan liability may be discharged if an

institution fails to refund the appropriate amount of loan proceeds to a lender or to the Secretary

on behalf of a borrower. In addition, Title IV eligibility is restored for borrowers who may have

defaulted on a loan discharged under any of the above circumstances. Finally, the Third Higher

Education Extension Act of 2006 (P.L. 109-292) authorized the discharge of the outstanding

balance of loans made to individuals who were the spouses or parents69 of individuals who died

or became permanently and totally disabled as a result of the September 11, 2001, terrorist

attacks.

Loan Forgiveness

The HEA authorizes several programs through which borrowers may have some portion of their

FFEL or DL program loans forgiven, cancelled, or repaid as an incentive for entering certain

occupations or professions, or for performing certain types of public service. Some loan

forgiveness provisions are entitlements to qualified borrowers, meaning that mandatory funding is

provided for loan forgiveness. Other loan forgiveness and repayment programs are discretionary

and subject to the availability of funds made available in annual appropriations acts. In addition,

borrowers may also be eligible to have their loans repaid through other non-HEA programs. Loan

forgiveness and repayment programs authorized under Title IV, Parts B and D of the HEA are

described below.70

See 11 U.S.C. §§523 and 1328.

For additional information on federal student loans and bankruptcy, see U.S. Department of Education, Federal

Student Aid Ombudsman, “Bankruptcy,” at http://www.ombudsman.ed.gov/bankruptcy.html.

Parents were eligible for the discharge of PLUS Loans borrowed on behalf of a child who was a victim of the

September 11, 2001, terrorist attacks, and Consolidation Loans used to repay such loans.

A more comprehensive review of loan forgiveness programs is presented in CRS Report R43571, Federal Student

Loan Forgiveness and Loan Repayment Programs, coordinated by (name redacted).

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Loan Forgiveness for Teachers

Loan forgiveness for teachers is authorized for borrowers of FFEL and DL program Stafford

Loans.71 Under the program, new borrowers, who had no outstanding balance on Title IV loans

on or after October 1, 1998,72 may be granted loan forgiveness after having served as a full-time

teacher for five consecutive73 complete school years in certain low-income schools or locations.74

At least one of these school years must be after the 1997-1998 school year. Forbearance is

available to borrowers during their five years of qualifying teaching service. Teacher loan

forgiveness is an entitlement available to qualified borrowers. Two levels of loan forgiveness are

available.

In General

Up to $5,000 in loan forgiveness is available to Stafford Loan borrowers who have been

employed for five consecutive complete school years as a full-time teacher in certain low-income

schools or locations. Borrowers whose five-year period of service began on or after October 30,

2004, must be highly qualified teachers, as defined in the Elementary and Secondary Education

Act (ESEA), Section 9101.

Mathematics, Science, and Special Education Teachers

Up to $17,500 in loan forgiveness is available to Stafford Loan borrowers who meet the general

requirements described above and whose teaching service is as a full-time teacher of mathematics

or science in a secondary school; or as a special education teacher.

DL Program Loan Forgiveness for Public Service Employees

Loan forgiveness for public service employees is available to borrowers of DL program loans

who are employed full-time in certain public service jobs for 10 years during the repayment of

their loans.75 To qualify for loan forgiveness, borrowers must make 120 monthly payments on or

after October 2, 2007, according to the ICR plan, the IBR plan, or either of the standard,

graduated, or extended repayment plans in amounts equal to or greater than the monthly amount

due as calculated according to a standard 10-year repayment period, while concurrently being

employed full-time in public service jobs. After having made 120 qualifying payments, a

borrower’s remaining loan balance will be forgiven. Loan forgiveness for public service

Loan forgiveness for teachers was enacted under the Higher Education Amendments of 1998 (P.L. 105-244).

Thus, an individual with an outstanding loan balance on a Title IV loan before October 1, 1998 is ineligible for this

program, unless the loan balance is paid in full before again borrowing under the FFEL or DL program.

Breaks in service are authorized for borrowers who return to school to pursue additional education related to the

qualifying teaching service, who have a condition covered under the Family and Medical Leave Act of 1993, or who

are called or ordered to active duty for more than 30 days in a reserve component of the Armed Forces.

These schools are defined as low-income for purposes of loan cancellation under the Federal Perkins Loan program.

A Teacher Loan Forgiveness Low Income Directory is available at https://www.tcli.ed.gov/CBSWebApp/tcli/

TCLIPubSchoolSearch.jsp.

Loan forgiveness for public service employees was enacted under the CCRAA and was amended under the HEOA.

For additional information on the program see CRS Report RS22762, Loan Forgiveness for Public Service Employees

Under the William D. Ford Direct Loan Program, by (name redacted).

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employees is available to new and existing borrowers of DL program loans and is an entitlement

to qualified borrowers.

For purposes of the program, a public service job is defined as a full-time job in emergency

management, government (excluding service as a Member of Congress), military service, public

safety, law enforcement, public health (including nurses, nurse practitioners, and health care

practitioners), public education, social work in a public child or family service agency, public

interest law services (including prosecution or public defense or legal advocacy in low-income

communities at a nonprofit organization), early childhood education, public service for

individuals with disabilities, public service for the elderly, public library sciences, school-based

library sciences and other school-based services, or at an organization that is described in Section

501(c)(3) of the IRC and exempt from taxation under Section 501(a); or teaching as a full-time

faculty member at a Tribal College or University as defined in Section 316(b) of the HEA and

other faculty teaching in high-needs areas, as determined by the Secretary.

Loan Forgiveness for Service in Areas of National Need

Under this program, borrowers of FFEL or DL program loans who are employed full-time in an

occupation specified as an area of national need may qualify to have a portion of their outstanding

loan balance forgiven by the Secretary. Up to $2,000 in FFEL or DL program student loan debt

may be forgiven for each school, academic, or calendar year of full-time employment in an area

of national need completed on or after August 14, 2008. A maximum of $10,000 may be forgiven

for five years of service. Specified areas of national need are early childhood educators; nurses;

foreign language specialists; librarians; certain highly qualified teachers; child welfare workers;

speech-language pathologists and audiologists; school counselors; certain public sector

employees; nutrition professionals; medical specialists; mental health professionals; dentists;

employees in science, technology, engineering, and mathematics (STEM) fields; physical

therapists; superintendents, principals, and other (school) administrators; occupational therapists;

and allied health professionals. PLUS Loans obtained by parent borrowers on behalf of a

dependent student and Consolidation Loans used to repay such loans are not eligible to be

forgiven under the program. The program is authorized to be funded annually at such sums as

may be necessary and, subject to the appropriation of funds, will be available to borrowers on a

first come, first served basis.76

Loan Repayment for Civil Legal Assistance Attorneys

Under this program, borrowers of federal student loans may qualify to have a portion of the

outstanding balance of their loans repaid if they enter into agreements with the Secretary to serve

as a full-time civil legal defense attorney for a period of not less than three years. In return for

their service, the Secretary will assume the obligation to make payments of up to $6,000 per year,

and up to $40,000 in the aggregate, on federal student loans made under FFEL, DL, and Perkins

Loan programs. Loan repayment made available under the program may not be used to repay a

PLUS Loan obtained by a parent borrower on behalf of a dependent student, nor the portion of a

Consolidation Loan used to repay such a loan. The program is authorized to be funded annually at

The Loan Forgiveness for Service in Areas of National need program was enacted under the HEOA. The program is

established at §428K of the HEA and replaces the Loan Forgiveness for Child Care Providers program, which has been

repealed.

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such sums as may be necessary through FY2014. Subject to the appropriation of funds, loan

repayment will be available to borrowers on a first come, first served basis.77

The Loan Repayment for Civil Legal Assistance Attorneys program was enacted under the HEOA.

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Appendix A. Glossary of Financial Terms

Amortization: To provide for the gradual reduction and ultimate elimination of a debt through

periodic payments sufficient in size to cover interest due and reduce the amount of principal owed

over a specified repayment period.

Bond Equivalent Rate: The interest rate on Treasury bills is commonly reported on a “bank

discount basis,” a measure that is calculated based upon the face value of a Treasury bill at

maturity (as opposed to the purchase price). The bond equivalent rate is the interest payment

determined as a percentage of purchase price.

Capitalizing Interest: To add accumulating interest to the loan principal thereby increasing the

total amount of the loan on which interest is charged. Capitalization of accrued interest would

typically occur at one or more intervals when a borrower is not required to make regular interest

payments.

Interest: A charge for borrowed money, generally a percent of the amount borrowed.

Negative Amortization: When required payments on a loan are not sufficient in size to cover

accrued interest and unpaid interest is added to loan principal—increasing the borrower’s debt (a

scenario that can occur under income-contingent repayment).

Principal: The amount of money borrowed.

91-day Treasury bill: A short-term promissory note issued by the U.S. Treasury, secured by the

full faith and credit of the United States. Treasury bills are issued by the federal government as a

means of financing deficits and managing cash flows and are generally viewed as risk-free

investments. A 91-day Treasury bill has a maturity of 13 weeks, and the rate for 91-day Treasury

bills is determined when the Treasury auctions the 91-day Treasury bill, typically on the first

business day of the week.

Variable Interest: Rate of interest on a loan that is tied to an index (such as the 91-day Treasury

bill), and adjusted periodically in accordance with changes in the index.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Appendix B. Detailed Tables on Selected

Characteristics of FFEL and DL Program Loans

Table B-1. Annual Loan Limits for Borrowers of Stafford Loans and PLUS Loans,

by Dependency Status and Grade Level

Subsidized

Stafford Loans

($)

Total Subsidized

& Unsubsidized

Stafford Loans

($)

PLUS Loans

($)

1st year

3,500

5,500

n.a.

2nd year

4,500

6,500

n.a.

3rd year and above

5,500

7,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

n.a.

Preparatory coursework for graduate or

professional programa

5,500

n.a.

Teacher certificationa

5,500

n.a.

23,000

31,000

n.a.

1st year

3,500

9,500

n.a.

2nd year

4,500

10,500

n.a.

3rd year and above

5,500

12,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

8,625

n.a.

Preparatory coursework for graduate or

professional programa

5,500

12,500

n.a.

Teacher certificationa

5,500

12,500

n.a.

23,000

57,500

n.a.

Borrower

Dependency Status and

Grade Level

Dependent Undergraduate

Annual loan limits

Aggregate loan limitsbc

In general

Independent Undergraduated

Annual loan limits

Aggregate loan limitsbc

In general

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loans

($)

Total Subsidized

& Unsubsidized

Stafford Loans

($)

PLUS Loans

($)

In general

n.a.

20,500

Up to COA-EFCe

Health professions programsf

n.a.

40,500 to 47,167

Up to COA-EFAe

Health professions programsg

n.a.

33,000 to 37,167

Up to COA-EFAe

In general

65,500i

138,500

Not limitede

Health professions programs

65,500i

224,000

Not limitede

n.a.

Up to COA-EFCe

n.a.

Not limitede

Borrower

Dependency Status and

Grade Level

Graduate and Professional

Annual loan limits

Aggregate loan limitsbch

Parents of Dependent Undergraduate Students

Annual loan limits

All

Aggregate loan limitsbc

In general

Sources: HEA, §§428 and 428H; 34 C.F.R. §682.204; and Department of Education, Office of Postsecondary

Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08.

Notes: “n.a.” means not applicable.

For individuals who have obtained a baccalaureate degree.

Accrued interest and other charges that have not been capitalized do not count toward aggregate loan

limits.

Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits for

Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the

Consolidation Loan.

These loan limits also apply to dependent undergraduate students whose parents are unable to obtain PLUS

Loans.

There is no statutory borrowing limit for PLUS Loans; however, borrowers must be credit-worthy and all

aid combined may not exceed COA.

Students enrolled in programs in the following disciplines are eligible to borrow an additional $20,000 more

than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an

additional $26,667 for programs with 12-month academic years: Doctor of Allopathic Medicine, Doctor of

Osteopathic Medicine, Doctor of Dentistry, Doctor of Veterinary Medicine, Doctor of Optometry, Doctor

of Podiatric Medicine; and effective May 1, 2005, Doctor of Naturopathic Medicine, and Doctor of

Naturopathy. (Amounts are prorated for 10- and 11-month programs.)

Students enrolled in programs in the following disciplines are eligible to borrow an additional $12,500 more

than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an

additional $16,667 for programs with 12-month academic years: Doctor of Pharmacy, Graduate in Public

Health, Doctor of Chiropractic, Doctoral Degree in Clinical Psychology, Masters or Doctoral Degree in

Health Administration. (Amounts are prorated for 10- and 11-month programs.)

Aggregate loan limits for graduate and professional students include amounts borrowed for undergraduate

loans.

The aggregate loan limit for Subsidized Stafford Loans to graduate and professional students applies to loans

borrowed for programs of instruction beginning before July 1, 2012.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Table B-2. History of Annual Loan Limits for Stafford Loans and PLUS Loans,

by Borrower Type

Borrower Type and Class Level or Program

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

1,000

n.a.

1,000

n.a.

1,500

n.a.

2,500

n.a.

2,500

n.a.

2,500

n.a.

2,500

n.a.

2,500

n.a.

5,000

n.a.

2,500

n.a.

3,000

n.a.

Nov. 8, 1965-Feb. 28, 1973

Dependent undergraduate studentsb

In general

Independent undergraduate studentsb

In general

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Mar. 1, 1973-Sep. 30, 1976

Dependent undergraduate students

In general

Independent undergraduate students

In general

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Oct. 1, 1976-Sep. 30, 1980

Dependent undergraduate students

In general

Independent undergraduate students

In general

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Oct. 1, 1980-Sep. 30, 1981c

Dependent undergraduate students

In general

Independent undergraduate students

In general

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

5,000

n.a.

3,000

2,500

n.a.

2,500

n.a.

5,000

n.a.

3,000

1st two years

2,625

n.a.

3rd year and above

4,000

n.a.

1st two years

2,625

n.a.

3rd year and above

4,000

n.a.

7,500

n.a.

4,000

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

7,500

n.a.

Borrower Type and Class Level or Program

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Oct. 1, 1981-Dec. 31, 1986c

Dependent undergraduate students

In general

Independent undergraduate students

In general

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Jan. 1, 1987-Sep. 30, 1992d

Dependent undergraduate students

Independent undergraduate students

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

Oct. 1, 1992-Sep. 30, 1993

Dependent undergraduate students

Independent undergraduate students

Graduate and professional students

In general

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

n.a.

Up to COA-EFA

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

8,500

n.a.

Up to COA-EFA

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

1st year

2,625

6,625

n.a.

2nd year

3,500

7,500

n.a.

3rd year and above

5,500

10,500

n.a.

In general

8,500

18,500

n.a.

Health professions programsg

8,500

38,500 to 45,167

n.a.

Health professions programsh

8,500

31,000 to 35,167

n.a.

Up to COA-EFA

1st year

2,625

n.a.

2nd year

3,500

n.a.

3rd year and above

5,500

n.a.

Borrower Type and Class Level or Program

Parents of dependent undergraduate students

In general

Oct. 1, 1993-June 30, 1994de

Dependent undergraduate students

Independent undergraduate students

Graduate and professional students

In general

Parents of dependent undergraduate students

In general

July 1, 1994-Oct. 1, 1998f

Dependent undergraduate students

Independent undergraduate students

Graduate and professional students

Parents of dependent undergraduate students

In general

Oct. 1, 1998-Jun. 30, 2007

Dependent undergraduate students

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

Preparatory coursework for undergraduate

degree or certificate program

2,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

n.a.

Teacher certification

5,500

n.a.

1st year

2,625

6,625

n.a.

2nd year

3,500

7,500

n.a.

3rd year and above

5,500

10,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

6,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

10,500

n.a.

Teacher certification

5,500

10,500

n.a.

In general

8,500

18,500

n.a.

Health professions programsg

8,500

38,500 to 45,167

n.a.

Health professions programsh

8,500

31,000 to 35,167

n.a.

Up to COA-EFA

1st year

3,500

n.a.

2nd year

4,500

n.a.

3rd year and above

5,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

n.a.

Teacher certification

5,500

n.a.

1st year

3,500

7,500

n.a.

2nd year

4,500

8,500

n.a.

3rd year and above

5,500

10,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

6,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

10,500

n.a.

Borrower Type and Class Level or Program

Independent undergraduate students

Graduate and professional students

Parents of dependent undergraduate students

In general

Jul. 1, 2007-Jun. 30, 2008

Dependent undergraduate students

Independent undergraduate students

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

5,500

10,500

n.a.

In general

8,500

20,500

Up to COA-EFA

Health professions programsg

8,500

40,500 to 47,167

Up to COA-EFA

Health professions programsh

8,500

33,000 to 37,167

Up to COA-EFA

n.a.

Up to COA-EFA

1st year

3,500

5,500

n.a.

2nd year

4,500

6,500

n.a.

3rd year and above

5,500

7,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

n.a.

Teacher certification

5,500

n.a.

1st year

3,500

9,500

n.a.

2nd year

4,500

10,500

n.a.

3rd year and above

5,500

12,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

8,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

12,500

n.a.

Teacher certification

5,500

12,500

n.a.

In general

8,500

20,500

Up to COA-EFA

Health professions programsg

8,500

40,500 to 47,167

Up to COA-EFA

Health professions programsh

8,500

33,000 to 37,167

Up to COA-EFA

n.a.

Up to COA-EFA

1st year

3,500

5,500

n.a.

2nd year

4,500

6,500

n.a.

3rd year and above

5,500

7,500

n.a.

Borrower Type and Class Level or Program

Teacher certification

Graduate and professional students

Parents of dependent undergraduate students

In general

July 1, 2008-June 30, 2012

Dependent undergraduate students

Independent undergraduate students

Graduate and professional students

Parents of dependent undergraduate students

In general

On or after July 1, 2012

Dependent undergraduate students

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

Subsidized

Stafford Loansa

($)

Total Subsidized

& Unsubsidized

Stafford Loansa

($)

PLUS Loans

($)

Preparatory coursework for undergraduate

degree or certificate program

2,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

n.a.

Teacher certification

5,500

n.a.

1st year

3,500

9,500

n.a.

2nd year

4,500

10,500

n.a.

3rd year and above

5,500

12,500

n.a.

Preparatory coursework for undergraduate

degree or certificate program

2,625

8,625

n.a.

Preparatory coursework for graduate or

professional program

5,500

12,500

n.a.

Teacher certification

5,500

12,500

n.a.

In general

n.a.

20,500

Up to COA-EFA

Health professions programsg

n.a.

40,500 to 47,167

Up to COA-EFA

Health professions programsh

n.a.

33,000 to 37,167

Up to COA-EFA

n.a.

Up to COA-EFA

Borrower Type and Class Level or Program

Independent undergraduate students

Graduate and professional students

Parents of dependent undergraduate

students

In general

Source: HEA, §§428, 428A, 428B, and 428H; P.L. 89-329; P.L. 90-575; P.L. 92-318; P.L. 92-391; P.L. 94-482; P.L.

95-566; P.L. 96-374; P.L. 97-35; P.L. 99-498; P.L. 100-297; P.L. 102-325; P.L. 102-325; P.L. 103-66; P.L. 103-208;

P.L. 105-244; P.L. 109-171; P.L. 110-227; P.L. 112-25; Department of Education, Office of Postsecondary

Education, Dear Colleague Letters GEN-96-14; GEN-97-14, GEN-05-09, and GEN-08-08; 45 C.F.R. §177.14(a)(3)

(1967 edition).

Notes: “n.a.” means not applicable

Subsidized Stafford Loans were referred to as Guaranteed Student Loans until July 1, 1988. Prior to

November 1, 1978, interest subsidies on Guaranteed Student Loans were available only borrowers whose

family income was below specified income ceilings. Effective November 1, 1978, income ceilings on

Guaranteed Student Loans were removed. In addition, since the enactment of the HEA in 1965, federal

student loans have been authorized under a parallel loan program, the Federally Insured Student Loan (FISL)

program. FISL program loans are not currently being made; however, during many periods throughout the

history of the program, FISL loan limits paralleled those for GSLs and Stafford Loans.

Undergraduate students first became categorized as either dependent or independent students effective

October 1, 1980.

For the period from January 1, 1981, to December 31, 1986, federal student loans were also available to

independent undergraduate and graduate and professional students under a separate loan program called

the Auxiliary Loans to Assist Students (ALAS) program. The annual loan limit for ALAS program loans was

$2,500. This loan limit was separate from the limit on Guaranteed Student Loans.

From the period from January 1, 1987, to June 30, 1994, federal student loans were also available under a

separate loan program called the Supplemental Loans for Students (SLS) program. During the period from

January 1, 1987, to June 30, 1993, the annual loan limit for SLS program loans was $4,000.

Congressional Research Service

Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions

For SLS program loans, during the period from July 1, 1993, until June 30, 1994, annual loan limits were

$4,000 for undergraduate students in their first or second year of studies, $5,000 for undergraduate

students in their third or higher year of studies, and $10,000 for graduate and professional students. The

SLS program was repealed effective June 30, 1994.

In accordance with authority provided the Secretary under P.L. 104-134, effective July 1, 1996, increased

Unsubsidized Stafford Loan borrowing limits were extended to students who became unable to borrow

under the Health Education Assistance Loan (HEAL) program.

Students enrolled in programs in the following disciplines are eligible to borrow an additional $20,000 more

than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an

additional $26,667 for programs with 12-month academic years: Doctor of Allopathic Medicine, Doctor of

Osteopathic Medicine, Doctor of Dentistry, Doctor of Veterinary Medic

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