# 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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URL: https://www.frixlaw.com/law-library/documents/crs%3AR40122

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** June 22, 2015
- **Citation:** R40122

## Text

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.

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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

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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.
1
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).
2
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).
3
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.
4
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.

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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
5
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.”)
6
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).
7
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).
8
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.
9
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).
10
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).

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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
11
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.
12
Subsidized Stafford Loans were available to graduate and professional students for periods of instruction beginning
prior to July 1, 2012.
13
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.
14
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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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

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.

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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

16
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
17

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.
18

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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.

19
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.
20
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.
21
34 C.F.R. §682.201.

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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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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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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.

n.a.

20,500

Up to COA-EFA

65,000d

138,500

Not limitede

n.a.

n.a.

Up to COA-EFA

n.a.

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.
22
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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Notes: “n.a.” means not applicable.
a.

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.

b.

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

c.

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.

d.

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.

e.

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
23

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.
24
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.
25
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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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

26

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.
27
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.
28
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.
29
This provision was enacted under P.L. 107-139.
30
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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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

4.29

n.a.

Graduate and professional students

n.a.

5.84

6.84

Parents of undergraduate dependent students

n.a.

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.

31
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.
32
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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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
33

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.
34
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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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.
35

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.

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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).

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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
36
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).
37
HEA, §455(b)(8); 34 C.F.R. §685.211(b).
38
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.
39
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/.
40
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.
41
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.
42
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
43

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
44

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.
46
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.
47
Income-contingent repayment, income-based repayment, and alternative repayment plans permit negative
amortization (see glossary for definition).
48
The last payment may be for less than $50.
49
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.
45

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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
50
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.
51
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
52
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.
53
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
54

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.
55
Periods during which a borrower receives a deferment for economic hardship are excluded from this three-year
period.
56
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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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
57

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.
58
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.
59
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:
60

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,
61

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR40122. Public record. Not legal advice.