34 C.F.R. Subpart B—Terms of Loans
Title 34 - Education
Source: 52 FR 45754, Dec. 1, 1987, unless otherwise noted.
(a) Promissory note. (1) An institution may use only the promissory note that the Secretary provides. The institution may make only nonsubstantive changes, such as changes to the type style or font, or the addition of items such as the borrower's driver's license number, to this note. (2)(i) The institution shall print the note on one page, front and back; or (ii) The institution may print the note on more than one page if— (A) The note requires the signature of the borrower on each page; or (B) Each page of the note contains both the total number of pages in the complete note as well as the number of each page, e.g., page 1 of 4, page 2 of 4, etc. (iii) The promissory note must state the exact amount of the minimum monthly repayment amount if the institution chooses the option under §674.33(b). (b) Provisions of the promissory note—(1) Interest. The promissory note must state that— (i) The rate of interest on the loan is 5 percent per annum on the unpaid balance; and (ii) No interest shall accrue before the repayment period begins, during certain deferment periods as provided by this subpart, or during the grace period following those deferments. (2) Repayment. (i) Except as otherwise provided in §674.32, the promissory note must state that the repayment period— (A) For NDSLs made on or after October 1, 1980, begins 6 months after the borrower ceases to be at least a half-time regular student at an institution of higher education or a comparable institution outside the U.S. approved for this purpose by the Secretary, and normally ends 10 years later; (B) For NDSLs made before October 1, 1980 and Federal Perkins Loans, begins 9 months after the borrower ceases to be at least a half-time regular student at an institution of higher education or a comparable institution outside the U.S. approved for this purpose by the Secretary, and normally ends 10 years later; (C) For purposes of establishing the beginning of the repayment period for NDSL or Perkins loans, the 6- and 9-month grace periods referenced in paragraph (b)(2)(i) of this section exclude any period during which a borrower who is a member of a reserve component of the Armed Forces named in section 10101 of Title 10, United States Code is called or ordered to active duty for a period of more than 30 days. Any single excluded period may not exceed three years and includes the time necessary for the borrower to resume enrollment at the next available regular enrollment period. Any Direct or Perkins loan borrower who is in a grace period when called or ordered to active duty as specified in this paragraph is entitled to a new 6- or 9-month grace period upon completion of the excluded period. (D) May begin earlier at the borrower's request; and (E) May vary because of minimum monthly repayments (see §674.33(b)), extensions of repayment (see §674.33(c)), forbearance (see §674.33(d)), or deferments (see §§674.34, 674.35, and 674.36); (ii) The promissory note must state that the borrower shall repay the loan— (A) In equal quarterly, bimonthly, or monthly amounts, as the institution chooses; or (B) In graduated installments if the borrower requests a graduated repayment schedule, the institution submits the schedule to the Secretary for approval, and the Secretary approves it. (3) Cancellation. The promissory note must state that the unpaid principal, interest, collection costs, and either penalty or late charges on the loan are canceled upon the death or permanent and total disability of the borrower. (4) Prepayment. The promissory note must state that— (i) The borrower may prepay all or part of the loan at any time without penalty; (ii) The institution shall use amounts repaid during the academic year in which the loan was made to reduce the original loan amount and not consider these amounts to be prepayments; (iii) If the borrower repays amounts during the academic year in which the loan was made and the initial grace period ended, only those amounts in excess of the amount due for any repayment period shall be treated as prepayments; and (iv) If, in an academic year other than that described in paragraph (b)(4)(iii) of this section, a borrower repays more than the amount due for any repayment period, the institution shall use the excess to prepay the principal unless the borrower designates it as an advance payment of the next regular installment. (5) Late charge. (i) An institution shall state in the promissory note that the institution will assess a late charge if the borrower does not— (A) Repay all or part of a scheduled repayment when due; or (B) File a timely request for cancellation or deferment with the institution. This request must include sufficient evidence to enable the institution to determine whether the borrower is entitled to a cancellation or deferment. (ii)(A) The amount of the late charge on a Federal Perkins Loan or an NDSL Loan made to cover the cost of attendance for a period of enrollment that began on or after January 1, 1986 must be determined in accordance with §674.43(b) (2), (3) and (4). (B) The amount of the late or penalty charge on an NDSL made for periods of enrollment that began before January 1, 1986 may be— (1) For each overdue payment on a loan payable in monthly installments, a maximum monthly charge of $1 for the first month and $2 for each additional month. (2) For each overdue payment on a loan payable in bimonthly installments, a maximum bimonthly charge of $3. (3) For each overdue payment on a loan payable in quarterly installments, a maximum charge per quarter of $6. (See appendix E of this part) (iii) The institution may— (A) Add either the penalty or late charge to the principal the day after the scheduled repayment was due; or (B) Include it with the next scheduled repayment after the borrower receives notice of the late charge. (6) Security and endorsement. The promissory note must state that the loan shall be made without security and endorsement. (7) Assignment. The promissory note must state that a note may only be assigned to— (i) The United States or an institution approved by the Secretary; or (ii) An institution to which the borrower has transferred if that institution is participating in the Federal Perkins Loan program. (8) Acceleration. The promissory note must state that an institution may demand immediate repayment of the entire loan, including any late charges, collection costs and accrued interest, if the borrower does not— (i) Make a scheduled repayment on time; or (ii) File cancellation or deferment form(s) with the institution on time. (9) Cost of collection. The promissory note must state that the borrower shall pay all attorney's fees and other loan collection costs and charges. (10) Disclosure of information. The promissory note must state that— (i) The institution must disclose to at least one national credit bureau the amount of the loan made to the borrower, along with other relevant information. (ii) If the borrower defaults on the loan, the institution shall disclose that the borrower has defaulted on the loan, along with other relevant information, to the same national credit bureau to which it originally reported the loan; and (iii) If the borrower defaults on the loan and the loan is assigned to the Secretary for collection, the Secretary may disclose to a national credit bureau that the borrower has defaulted on the loan, along with other relevant information. (Authority: 20 U.S.C. 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32345, July 21, 1992; 59 FR 61408, 61415, Nov. 30, 1994; 60 FR 61814, Dec. 1, 1995; 62 FR 50848, Sept. 26, 1997; 64 FR 58309, Oct. 28, 1999] (a) The promissory note used with regard to loans to borrowers enrolled on a less than half-time basis must state that the repayment period begins— (1) On the date of the next scheduled installment payment on any outstanding loan to the borrower; or (2) If the borrower has no outstanding loan, at the earlier of— (i) Nine months from the date the loan was made, or (ii) The end of a nine-month period that includes the date the loan was made and began on the date the borrower ceased to be enrolled as at least a half-time regular student at an institution of higher education or comparable institution outside the U.S. approved for this purpose by the Secretary. (b) The note must otherwise conform to the provisions of §674.31. (Authority: 20 U.S.C. 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992] (a) Repayment Plan. (1) The institution shall establish a repayment plan before the student ceases to be at least a half-time regular student. (2) If the last scheduled payment would be $25 or less the institution may combine it with the next-to-last repayment. (3) If the installment payment for all loans made to a borrower by an institution is not a multiple of $5, the institution may round that payment to the next highest dollar amount that is a multiple of $5. (4) The institution shall apply any payment on a loan in the following order: (i) Collection costs. (ii) Late charges. (iii) Accrued interest. (iv) Principal. (b) Minimum monthly repayment—(1) Minimum monthly repayment option. (i) An institution may require a borrower to pay a minimum monthly repayment if— (A) The promissory note includes a minimum monthly repayment provision specifying the amount of the minimum monthly repayment; and (B) The monthly repayment of principal and interest for a 10-year repayment period is less than the minimum monthly repayment; or (ii) An institution may require a borrower to pay a minimum monthly repayment if the borrower has received loans with different interest rates at the same institution and the total monthly repayment would otherwise be less than the minimum monthly repayment. (2) Minimum monthly repayment of loans from more than one institution. If a borrower has received loans from more than one institution and has notified the institution that he or she wants the minimum monthly payment determination to be based on payments due to other institutions, the following rules apply: (i) If the total of the monthly repayments is equal to at least the minimum monthly repayment, no institution may exercise a minimum monthly repayment option. (ii) If only one institution exercises the minimum monthly repayment option when the monthly repayment would otherwise be less than the minimum repayment option, that institution receives the difference between the minimum monthly repayment and the repayment owed to the other institution. (iii) If each institution exercises the minimum repayment option, the minimum monthly repayment must be divided among the institutions in proportion to the amount of principal advanced by each institution. (3) Minimum monthly repayment of both Defense and NDSL or Federal Perkins loans from one or more institutions. If the borrower has notified the institution that he or she wants the minimum monthly payment determination to be based on payments due to other institutions, and if the total monthly repayment is less than $30 and the monthly repayment on a Defense loan is less than $15 a month, the amount attributed to the Defense loan may not exceed $15 a month. (4) Minimum monthly repayment of loans with differing grace periods and deferments. If the borrower has received loans with different grace periods and deferments, the institution shall treat each note separately, and the borrower shall pay the applicable minimum monthly payment for a loan that is not in the grace or deferment period. (5) Hardship. The institution may reduce the borrower's scheduled repayments for a period of not more than one year at a time if— (i) It determines that the borrower is unable to make the scheduled repayments due to hardship (see §674.33(c)); and (ii) The borrower's scheduled repayment is the minimum monthly repayment described in paragraph (b) of this section. (6) Minimum monthly repayment rates. For the purposes of this section, the minimum monthly repayment rate is— (i) $15 for a Defense loan; (ii) $30 for an NDSL Loan or for a Federal Perkins loan made before October 1, 1992, or for a Federal Perkins loan made on or after October 1, 1992, to a borrower who, on the date the loan is made, has an outstanding balance of principal or interest owing on any loan made under this part; or (iii) $40 for a Federal Perkins loan made on or after October 1, 1992, to a borrower who, on the date the loan is made, has no outstanding balance of principal or interest owing on any loan made under this part. (7) The institution shall determine the minimum repayment amount under paragraph (b) of this section for loans with repayment installment intervals greater than one month by multiplying the amounts in paragraph (b) of this section by the number of months in the installment interval. (c) Extension of repayment period—(1) Hardship. The institution may extend a borrower's repayment period due to prolonged illness or unemployment. (2) Low-income individual. (i) For Federal Perkins loans and NDSLs made on or after October 1, 1980, the institution may extend the borrower's repayment period up to 10 additional years beyond the 10-year maximum repayment period if the institution determines during the course of the repayment period that the borrower is a “low-income individual.” The borrower qualifies for an extension of the repayment period on the basis of low-income status only during the period in which the borrower meets the criteria described in paragraph (c)(2)(i) (A) or (B) of this section. The term low-income individual means the following: (A) For an unmarried borrower without dependents, an individual whose total income for the preceding calendar year did not exceed 45 percent of the Income Protection Allowance for the current award year for a family of four with one in college. (B) For a borrower with a family that includes the borrower and any spouse or legal dependents, an individual whose total family income for the preceding calendar year did not exceed 125 percent of the Income Protection Allowance for the current award year for a family with one in college and equal in size to that of the borrower's family. (ii) The institution shall use the Income Protection Allowance published annually in accordance with section 478 of the HEA in making this determination. (iii) The institution shall review the borrower's status annually to determine whether the borrower continues to qualify for an extended repayment period based on his or her status as a “low-income individual.” (iv) Upon determining that a borrower ceases to qualify for an extended repayment period under this section, the institution shall amend the borrower's repayment schedule. The term of the amended repayment schedule may not exceed the number of months remaining on the original repayment schedule, provided that the institution may not include the time elapsed during any extension of the repayment period granted under this section in determining the number of months remaining on the original repayment schedule. (3) Interest continues to accrue during any extension of a repayment period. (d) Forbearance. (1) Forbearance means the temporary cessation of payments, allowing an extension of time for making payments, or temporarily accepting smaller payments than previously were scheduled. (2) Upon receipt of a written request and supporting documentation, the institution shall grant the borrower forbearance of principal and, unless otherwise indicated by the borrower, interest renewable at intervals of up to 12 months for periods that collectively do not exceed three years. (3) The terms of forbearance must be agreed upon, in writing, by the borrower and the institution. (4) In granting a forbearance under this section, an institution shall grant a temporary cessation of payments, unless the borrower chooses another form of forbearance subject to paragraph (d)(1) of this section. (5) An institution shall grant forbearance if— (i) The amount of the payments the borrower is obligated to make on title IV loans each month (or a proportional share if the payments are due less frequently than monthly) is collectively equal to or greater than 20 percent of the borrower's total monthly gross income; (ii) The institution determines that the borrower should qualify for the forbearance due to poor health or for other acceptable reasons; or (iii) The Secretary authorizes a period of forbearance due to a national military mobilization or other national emergency. (6) Before granting a forbearance to a borrower under paragraph (d)(5)(i) of this section, the institution shall require the borrower to submit at least the following documentation: (i) Evidence showing the amount of the most recent total monthly gross income received by the borrower; and (ii) Evidence showing the amount of the monthly payments owed by the borrower for the most recent month for the borrower's title IV loans. (7) Interest accrues during any period of forbearance. (8) The institution may not include the periods of forbearance described in this paragraph in determining the 10-year repayment period. (e) Compromise of repayment. (1) An institution may compromise on the repayment of a defaulted loan if— (i) The institution has fully complied with all due diligence requirements specified in subpart C of this part; and (ii) The student borrower pays in a single lump-sum payment— (A) 90 percent of the outstanding principal balance on the loan under this part; (B) The interest due on the loan; and (C) Any collection fees due on the loan. (2) The Federal share of the compromise repayment must bear the same relation to the institution's share of the compromise repayment as the Federal capital contribution to the institution's loan Fund under this part bears to the institution's capital contribution to the Fund. (f)(1) Incentive repayment program. An institution may establish the following repayment incentives: (i) A reduction of no more than one percent of the interest rate on a loan on which the borrower has made 48 consecutive, monthly repayments. (ii) A discount of no more than five percent on the balance owed on a loan which the borrower pays in full prior to the end of the repayment period. (iii) With the Secretary's approval, any other incentive the institution determines will reduce defaults and replenish its Fund. (2) Limitation on the use of funds. (i) The institution must reimburse its Fund, on at least a quarterly basis, for money lost to its Fund that otherwise would have been paid by the borrower as a result of establishing a repayment incentive under paragraphs (f)(1)(i), (ii) and (iii) of this section. (ii) An institution may not use Federal funds, including Federal funds from the student loan fund, or institutional funds from the student loan fund to pay for any repayment incentive authorized by this section. (g) Closed school discharge—(1) General. (i) The holder of an NDSL or a Federal Perkins Loan discharges the borrower's (and any endorser's) obligation to repay the loan if the borrower did not complete the program of study for which the loan was made because the school at which the borrower was enrolled closed. (ii) For the purposes of this section— (A) A school's closure date is the date that the school ceases to provide educational instruction in all programs, as determined by the Secretary; (B) “School” means a school's main campus or any location or branch of the main campus; and (C) The “holder” means the Secretary or the school that holds the loan. (2) Relief pursuant to discharge. (i) Discharge under this section relieves the borrower of any past or present obligation to repay the loan and any accrued interest or collection costs with respect to the loan. (ii) The discharge of a loan under this section qualifies the borrower for reimbursement of amounts paid voluntarily or through enforced collection on the loan. (iii) A borrower who has defaulted on a loan discharged under this section is not considered to have been in default on the loan after discharge, and such a borrower is eligible to receive assistance under programs authorized by title IV of the HEA. (iv) The Secretary or the school, if the school holds the loan, reports the discharge of a loan under this section to all credit bureaus to which the status of the loan was previously reported. (3) Determination of borrower qualification for discharge by the Secretary. The Secretary may discharge the borrower's obligation to repay an NDSL or Federal Perkins Loan without an application if the Secretary determines that— (i) The borrower qualified for and received a discharge on a loan pursuant to 34 CFR 682.402(d) (Federal Family Education Loan Program) or 34 CFR 685.213 (Federal Direct Loan Program), and was unable to receive a discharge on an NDSL or Federal Perkins Loan because the Secretary lacked the statutory authority to discharge the loan; or (ii) Based on information in the Secretary's possession, the borrower qualifies for a discharge. (4) Borrower qualification for discharge. Except as provided in paragraph (g)(3) of this section, in order to qualify for discharge of an NDSL or Federal Perkins Loan, a borrower must submit to the holder of the loan a written request and sworn statement, and the factual assertions in the statement must be true. The statement need not be notarized but must be made by the borrower under penalty of perjury. In the statement the borrower must— (i) State that the borrower— (A) Received the proceeds of a loan to attend a school; (B) Did not complete the program of study at that school because the school closed while the student was enrolled, or the student withdrew from the school not more than 90 days before the school closed (or longer in exceptional circumstances); and (C) Did not complete and is not in the process of completing the program of study through a teachout at another school as defined in 34 CFR 602.2 and administered in accordance with 34 CFR 602.207(b)(6), by transferring academic credit earned at the closed school to another school, or by any other comparable means; (ii) State whether the borrower has made a claim with respect to the school's closing with any third party, such as the holder of a performance bond or a tuition recovery program, and, if so, the amount of any payment received by the borrower or credited to the borrower's loan obligation; and (iii) State that the borrower— (A) Agrees to provide to the holder of the loan upon request other documentation reasonably available to the borrower that demonstrates that the borrower meets the qualifications for discharge under this section; and (B) Agrees to cooperate with the Secretary in enforcement actions in accordance with paragraph (g)(6) of this section and to transfer any right to recovery against a third party to the Secretary in accordance with paragraph (g)(7) of this section. (5) Fraudulently obtained loans. A borrower who secured a loan through fraudulent means, as determined by the ruling of a court or an administrative tribunal of competent jurisdiction, is ineligible for a discharge under this section. (6) Cooperation by borrower in enforcement actions. (i) In order to obtain a discharge under this section, a borrower must cooperate with the Secretary in any judicial or administrative proceeding brought by the Secretary to recover amounts discharged or to take other enforcement action with respect to the conduct on which the discharge was based. At the request of the Secretary and upon the Secretary's tendering to the borrower the fees and costs that are customarily provided in litigation to reimburse witnesses, the borrower must— (A) Provide testimony regarding any representation made by the borrower to support a request for discharge; (B) Provide any documents reasonably available to the borrower with respect to those representations; and (C) If required by the Secretary, provide a sworn statement regarding those documents and representations. (ii) The holder denies the request for a discharge or revokes the discharge of a borrower who— (A) Fails to provide the testimony, documents, or a sworn statement required under paragraph (g)(6)(i) of this section; or (B) Provides testimony, documents, or a sworn statement that does not support the material representations made by the borrower to obtain the discharge. (7) Transfer to the Secretary of borrower's right of recovery against third parties. (i) In the case of a loan held by the Secretary, upon discharge under this section, the borrower is deemed to have assigned to and relinquished in favor of the Secretary any right to a loan refund (up to the amount discharged) that the borrower may have by contract or applicable law with respect to the loan or the enrollment agreement for the program for which the loan was received, against the school, its principals, its affiliates and their successors, its sureties, and any private fund, including the portion of a public fund that represents funds received from a private party. (ii) The provisions of this section apply notwithstanding any provision of State law that would otherwise restrict transfer of those rights by the borrower, limit or prevent a transferee from exercising those rights, or establish procedures or a scheme of distribution that would prejudice the Secretary's ability to recover on those rights. (iii) Nothing in this section limits or forecloses the borrower's right to pursue legal and equitable relief regarding disputes arising from matters unrelated to the discharged NDSL or Federal Perkins Loan. (8) Discharge procedures. (i) After confirming the date of a school's closure, the holder of the loan identifies any NDSL or Federal Perkins Loan borrower who appears to have been enrolled at the school on the school closure date or to have withdrawn not more than 90 days prior to the closure date. (ii) If the borrower's current address is known, the holder of the loan mails the borrower a discharge application and an explanation of the qualifications and procedures for obtaining a discharge. The holder of the loan also promptly suspends any efforts to collect from the borrower on any affected loan. The holder of the loan may continue to receive borrower payments. (iii) In the case of a loan held by the Secretary, if the borrower's current address is unknown, the Secretary attempts to locate the borrower and determine the borrower's potential eligibility for a discharge under this section by consulting with representatives of the closed school or representatives of the closed school's third-party billing and collection servicers, the school's licensing agency, the school accrediting agency, and other appropriate parties. If the Secretary learns the new address of a borrower, the Secretary mails to the borrower a discharge application and explanation and suspends collection, as described in paragraph (g)(8)(ii) of this section. (iv) In the case of a loan held by a school, if the borrower's current address is unknown, the school attempts to locate the borrower and determine the borrower's potential eligibility for a discharge under this section by taking steps required to locate the borrower under §674.44. (v) If the borrower fails to submit the written request and sworn statement described in paragraph (g)(4) of this section within 60 days of the holder of the loan's mailing the discharge application, the holder of the loan resumes collection and grants forbearance of principal and interest for the period during which collection activity was suspended. (vi) If the holder of the loan determines that a borrower who requests a discharge meets the qualifications for a discharge, the holder of the loan notifies the borrower in writing of that determination. (vii) In the case of a loan held by the Secretary, if the Secretary determines that a borrower who requests a discharge does not meet the qualifications for a discharge, the Secretary notifies that borrower, in writing, of that determination and the reasons for the determination. (viii) In the case of a loan held by a school, if the school determines that a borrower who requests a discharge does not meet the qualifications for discharge, the school submits that determination and all supporting materials to the Secretary for approval. The Secretary reviews the materials, makes an independent determination, and notifies the borrower in writing of the determination and the reasons for the determination. (ix) In the case of a loan held by a school and discharged by either the school or the Secretary, the school must reimburse its Fund for the entire amount of any outstanding principal and interest on the loan, and any collection costs charged to the Fund as a result of collection efforts on a discharged loan. The school must also reimburse the borrower for any amount of principal, interest, late charges or collection costs the borrower paid on a loan discharged under this section. (Authority: 20 U.S.C. 425 and 1087dd, sec. 137(d) of Pub. L. 92–318) [52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992; 57 FR 60706, Dec. 21, 1992; 59 FR 61409, Nov. 30, 1994; 60 FR 61814, Dec. 1, 1995; 62 FR 50848, Sept. 26, 1997; 64 FR 58309, Oct. 28, 1999; 67 FR 67076, Nov. 1, 2002]
Link to an amendment published at 71 FR 45697, Aug. 9, 2006. (a) The borrower may defer making a scheduled installment repayment on a Federal Perkins loan, an NDSL, or a Defense loan, regardless of contrary provisions of the borrower's promissory note and regardless of the date the loan was made, during periods described in this section. (b)(1) The borrower need not repay principal, and interest does not accrue, during a period after the commencement or resumption of the repayment period on a loan, when the borrower is— (i) Enrolled and in attendance as a regular student in at least a half-time course of study at an eligible institution; (ii) Enrolled and in attendance as a regular student in a course of study that is part of a graduate fellowship program approved by the Secretary; (iii) Engaged in graduate or post-graduate fellowship-supported study (such as a Fulbright grant) outside the United States; or (iv) Enrolled in a course of study that is part of a rehabilitation training program for disabled individuals approved by the Secretary as described in paragraph (g) of this section. (2) No borrower is eligible for a deferment under paragraph (b)(1) of this section while serving in a medical internship or residency program, except for a residency program in dentistry. (3) The institution of higher education at which the borrower is enrolled does not need to be participating in the Federal Perkins Loan program for the borrower to qualify for a deferment. (4) If a borrower is attending an institution of higher education as at least a half-time regular student for a full academic year and intends to enroll as at least a half-time regular student in the next academic year, the borrower is entitled to a deferment for 12 months. (5) If an institution no longer qualifies as an institution of higher education, the borrower's deferment ends on the date the institution ceases to qualify. (c) The borrower of a Federal Perkins loan, an NDSL, or a Defense loan need not repay principal, and interest does not accrue, for any period during which the borrower is engaged in service described in §§674.53, 674.54, 674.55, 674.56, 674.57, 674.58, 674.59, and 674.60. (d) The borrower need not repay principal, and interest does not accrue, for any period not to exceed 3 years during which the borrower is seeking and unable to find full-time employment. (e) The borrower need not repay principal, and interest does not accrue, for periods of up to one year at a time (except that a deferment under paragraph (e)(6) of this section may be granted for the lesser of the borrower's full term of service in the Peace Corps or the borrower's remaining period of economic hardship deferment eligibility) that, collectively, do not exceed 3 years, during which the borrower is suffering an economic hardship, if the borrower provides documentation satisfactory to the institution showing that the borrower is within any of the categories described in paragraphs (e)(1) through (e)(6) of this section. (1) Has been granted an economic hardship deferment under either the FDSL or FFEL programs for the period of time for which the borrower has requested an economic hardship deferment for his or her Federal Perkins loan. (2) Is receiving payment under a Federal or state public assistance program, such as Aid to Families with Dependent Children, Supplemental Security Income, Food Stamps, or state general public assistance. (3) Is working full-time and earning a total monthly gross income that does not exceed the greater of— (i) The monthly earnings of an individual earning the minimum wage described in section 6 of the Fair Labor Standards Act of 1938; or (ii) An amount equal to 100 percent of the poverty line for a family of two, as determined in accordance with section 673(2) of the Community Service Block Grant Act. (4) Is not receiving total monthly gross income that exceeds twice the amount specified in paragraph (e)(3) of this section and, after deducting an amount equal to the borrower's monthly payments on Federal postsecondary education loans, as determined under paragraph (e)(10) of this section, the remaining amount of that income does not exceed the amount specified in paragraph (e)(3) of this section; (5) Is working full-time and has a Federal education debt burden as determined under paragraph (e)(10) of this section that equals or exceeds 20 percent of the borrower's total monthly gross income, and the borrower's income minus such burden is less than 220 percent of the amount calculated under paragraph (3) of this section. (6) Is serving as a volunteer in the Peace Corps. (7) For a deferment granted under paragraph (e)(4) or (e)(5) of this section, the institution shall require the borrower to submit at least the following documentation to qualify for an initial period of deferment— (i) Evidence showing the amount of the borrower's most recent total monthly gross income, as defined in section 674.2; and (ii) Evidence that would enable the institution to determine the amount of the monthly payments that would have been owed by the borrower during the deferment period to other entities for Federal postsecondary education loans in accordance with paragraph (e)(9) of this section. (8) To qualify for a subsequent period of deferment that begins less than one year after the end of a period of deferment under paragraphs (e)(3), (e)(4), or (e)(5) of this section, the institution shall require the borrower to submit a copy of the borrower's Federal income tax return if the borrower filed a tax return within eight months prior to the date the deferment is requested. (9) For purposes of paragraphs (e)(3) and (e)(5) of this section, a borrower is considered to be working full-time if the borrower is expected to be employed for at least three consecutive months at 30 hours per week. (10) In determining a borrower's Federal education debt burden under paragraphs (e)(4) and (e)(5) of this section, the institution shall— (i) If the Federal postsecondary education loan is scheduled to be repaid in 10 years or less, use the actual monthly payment amount (or a proportional share if the payments are due less frequently than monthly); or (ii) If the Federal postsecondary education loan is scheduled to be repaid in more than 10 years, use a monthly payment amount (or a proportional share if the payments are due less frequently than monthly) that would have been due on the loan if the loan had been scheduled to be repaid in 10 years. (f) To qualify for a deferment for study as part of a graduate fellowship program pursuant to paragraph (b)(1)(ii) of this section, a borrower must provide the institution certification that the borrower has been accepted for or is engaged in full-time study in the institution's graduate fellowship program. (g) To qualify for a deferment for study in a rehabilitation training program, pursuant to paragraph (b)(1)(iv) of this section, the borrower must be receiving, or be scheduled to receive, services under a program designed to rehabilitate disabled individuals and must provide the institution with the following documentation: (1) A certification from the rehabilitation agency that the borrower is either receiving or scheduled to receive rehabilitation training services from the agency. (2) A certification from the rehabilitation agency that the rehabilitation program— (i) Is licensed, approved, certified, or otherwise recognized by one of the following entities as providing rehabilitation training to disabled individuals— (A) A State agency with responsibility for vocational rehabilitation programs; (B) A State agency with responsibility for drug abuse treatment programs; (C) A State agency with responsibility for mental health services programs; (D) A State agency with responsibility for alcohol abuse treatment programs; or (E) The Department of Veterans Affairs; and (ii) Provides or will provide the borrower with rehabilitation services under a written plan that— (A) Is individualized to meet the borrower's needs; (B) Specifies the date on which the services to the borrower are expected to end; and (C) Is structured in a way that requires a substantial commitment by the borrower to his or her rehabilitation. The Secretary considers a substantial commitment by the borrower to be a commitment of time and effort that would normally prevent an individual from engaging in full-time employment either because of the number of hours that must be devoted to rehabilitation or because of the nature of the rehabilitation. (h) The institution may not include the deferment periods described in paragraphs (b), (c), (d), (e), (f), and (g) of this section and the period described in paragraph (i) of this section in determining the 10-year repayment period. (i) The borrower need not pay principal and interest does not accrue until six months after completion of any period during which the borrower is in deferment under paragraphs (b), (c), (d), (e), (f), and (g) of this section. (Authority: 20 U.S.C. 1087dd) [59 FR 61410, Nov. 30, 1994, as amended at 60 FR 61815, Dec. 1, 1995; 62 FR 50848, Sept. 26, 1997; 64 FR 57531, Oct. 25, 1999; 64 FR 58311, Oct. 28, 1999; 67 FR 67076, Nov. 1, 2002] (a) The borrower may defer repayment on a Federal Perkins Loan made before July 1, 1993, during the periods described in this section. (b)(1) The borrower need not repay principal, and interest does not accrue, during a period after the commencement or resumption of the repayment period on a loan, when the borrower is at least a half-time regular student at— (i) An institution of higher education; or (ii) A comparable institution outside the U.S. approved by the Secretary for this purpose. (2) The institution of higher education does not need to be participating in the Federal Perkins Loan program for the borrower to qualify for a deferment. (3) If a borrower is attending as at least a half-time regular student for a full academic year and intends to enroll as at least a half-time regular student in the next academic year, the borrower is entitled to deferment for 12 months. (4) If an institution no longer qualifies as an institution of higher education, the borrower's deferment ends on the date the institution ceases to qualify. (c) The borrower need not repay principal, and interest does not accrue, for any period not to exceed 3 years during which the borrower is— (1) A member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard or an officer in the Commissioned Corps of the U.S. Public Health Service (see §674.59); (2) On full-time active duty as a member of the National Oceanic and Atmospheric Administration Corps; (3) A Peace Corps volunteer (see §674.60); (4) A volunteer under the Domestic Volunteer Service Act of 1973 (ACTION programs) (see §674.60); (5) A full-time volunteer in service which the Secretary has determined is comparable to service in the Peace Corps or under the Domestic Volunteer Service Act of 1973 (ACTION programs). The Secretary considers that a borrower is providing comparable service if he or she satisfies the following five criteria: (i) The borrower serves in an organization that is exempt from taxation under the provisions of section 501(c)(3) of the Internal Revenue Code of 1954. (ii) The borrower provides service to low-income persons and their communities to assist them in eliminating poverty and poverty-related human, social, and environmental conditions. (iii) The borrower does not receive compensation that exceeds the rate prescribed under section 6 of the Fair Labor Standards Act of 1938 (the Federal minimum wage), except that the tax-exempt organization may provide health, retirement, and other fringe benefits to the volunteer that are substantially equivalent to the benefits offered to other employees of the organization. (iv) The borrower, as part of his or her duties, does not give religious instruction, conduct worship service, engage in religious proselytizing, or engage in fundraising to support religious activities. (v) The borrower has agreed to serve on a full-time basis for a term of at least one year. (6) Temporarily totally disabled, as established by an affidavit of a qualified physician, or unable to secure gainful employment because the borrower is providing care, such as continuous nursing or other similar services, required by a dependent who is so disabled. As used in this paragraph— (i) “Temporarily totally disabled”, with regard to the borrower, means the inability by virtue of an injury or illness to attend an eligible institution or to be gainfully employed during a reasonable period of recovery; and (ii) “Temporarily totally disabled”, with regard to a disabled spouse or other dependent of a borrower, means requiring continuous nursing or other services from the borrower for a period of at least three months because of illness or injury. (d)(1) The borrower need not repay principal, and interest does not accrue, for a period not to exceed two years during which time the borrower is serving an eligible internship. (2) An eligible internship is one which— (i) Requires the borrower to hold at least a baccalaureate degree before beginning the internship; and (ii)(A) A State licensing agency requires an individual to complete as a prerequisite for certification for professional practice or service; or (B) Is a part of an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training. (3) To qualify for an internship deferment as provided in paragraph (d)(2)(ii)(A) of this section, the borrower must provide the institution with the following certifications: (i) A statement from an official of the appropriate State licensing agency that successful completion of the internship program is a prerequisite for its certification of the individual for professional service or practice. (ii) A statement from the organization with which the borrower is undertaking the internship program certifying— (A) That a baccalaureate degree must be attained in order to be admitted into the internship program; (B) That the borrower has been accepted into its internship program; and (C) The anticipated dates on which the borrower will begin and complete the program. (4) To qualify for an internship deferment as provided in paragraph (d)(2)(ii)(B) of this section, the borrower must provide the institution with a statement from an authorized official of the internship program certifying that— (i) A baccalaureate degree must be attained in order to be admitted into the internship program; (ii) The borrower has been accepted into its internship program; and (iii) The internship or residency program in which the borrower has been accepted leads to a degree or certificate awarded by an institution of higher education, a hospital or a health-care facility that offers postgraduate training. (e) The borrower need not repay principal, and interest does not accrue, for a period not in excess of six months— (1) During which the borrower is— (i) Pregnant, caring for a newborn baby, or caring for a child immediately after placement of the child through adoption; and (ii) Not attending an eligible institution of higher education or gainfully employed; and (2) That begins not later than six months after a period in which the borrower was at least a half-time regular student at an eligible institution. (f) The borrower need not repay principal, and interest does not accrue, for a period not in excess of one year during which the borrower— (1) Is a mother of preschool age children; (2) Has just entered or reentered the work force; and (3) Is being compensated at a rate which is not more than $1.00 over the minimum hourly wage established by section 6 of the Fair Labor Standards Act of 1938. (g) An institution may defer payments of principal and interest, but interest shall continue to accrue, if the institution determines this is necessary to avoid hardship to the borrower (see §674.33(c)). (h) The institution may not include the deferment periods described in paragraphs (b), (c), (d), (e), (f), and (g) of this section and the period described in paragraph (i) of this section when determining the 10-year repayment period. (i) The borrower need not repay principal, and interest does not accrue, until six months after completion of any period during which the borrower is in deferment under paragraphs (b), (c), (d), (e), and (f) of this section. (Authority: 20 U.S.C. 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32345, July 21, 1992; 59 FR 1652, Jan. 12, 1994. Redesignated and amended at 59 FR 61410, 61411, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58315, Oct. 28, 1999] (a) The borrower may defer repayment on an NDSL Loan made on or after October 1, 1980, but before July 1, 1993, during the periods described in this section. (b)(1) The borrower need not repay principal, and interest does not accrue, during a period after the commencement or resumption of the repayment period on a loan, when the borrower is at least a half-time regular student at— (i) An institution of higher education; or (ii) A comparable institution outside the U.S. approved by the Secretary for this purpose. (2) The institution of higher education does not need to be participating in the Federal Perkins Loan program for the borrower to qualify for a deferment. (3) If a borrower is attending as at least a half-time regular student for a full academic year and intends to enroll as at least a half-time regular student in the next academic year, the borrower is entitled to deferment for 12 months. (4) If an institution no longer qualifies as an institution of higher education, the borrower's deferment ends on the date the institution ceases to qualify. (c) The borrower need not repay principal, and interest does not accrue, for a period of up to 3 years during which time the borrower is— (1) A member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard or an officer in the Commissioned Corps of the U.S. Public Health Service (see §674.59); (2) A Peace Corps volunteer (see §674.60); (3) A volunteer under the Domestic Volunteer Service Act of 1973 (ACTION programs) (see §674.60). (4) A full-time volunteer in service which the Secretary has determined is comparable to service in the Peace Corps or under the Domestic Volunteer Service Act of 1973 (ACTION programs). The Secretary considers that a borrower is providing comparable service if he or she satisfies the following five criteria: (i) The borrower serves in an organization that is exempt from taxation under the provisions of section 501(c)(3) of the Internal Revenue Code of 1954. (ii) The borrower provides service to low-income persons and their communities to assist them in eliminating proverty and poverty-related human, social, and environmental conditions. (iii) The borrower does not receive compensation that exceeds the rate prescribed under section 6 of the Fair Labor Standards Act of 1938 (the Federal minimum wage), except that the tax-exempt organization may provide health, retirement, and other fringe benefits to the volunteer that are substantially equivalent to the benefits offered to other employees of the organization. (iv) The borrower, as part of his or her duties, does not give religious instruction, conduct worship service, engage in religious proselytizing, or engage in fundraising to support religious activities. (v) The borrower has agreed to serve on a full-time basis for a term of at least one year. (5)(i) Temporarily totally disabled, as established by an affidavit of a qualified physician, or unable to secure gainful employment because the borrower is providing care, such as continuous nursing or other similar services, required by a spouse who is so disabled. (ii) “Temporarily totally disabled” with regard to the borrower, means the inability by virtue of an injury or illness to attend an eligible institution or to be gainfully employed during a reasonable period of recovery; and (iii) “Temporarily totally disabled” with regard to a disabled spouse, means requiring continuous nursing or other services from the borrower for a period of at least three months because of illness or injury. (d)(1) The borrower need not repay principal, and interest does not accrue, for a period not to exceed two years during which time the borrower is serving an eligible internship. (2) An eligible internship is an internship— (i) That requires the borrower to hold at least a bachelor's degree before beginning the internship program; and (ii) That the State licensing agency requires the borrower to complete before certifying the individual for professional practice or service. (3) To qualify for an internship deferment, the borrower shall provide to the institution the following certifications: (i) A statement from an official of the appropriate State licensing agency that the internship program meets the provisions of paragraph (d)(2) of this section; and (ii) A statement from the organization with which the borrower is undertaking the internship program certifying— (A) The acceptance of the borrower into its internship program; and (B) The anticipated dates on which the borrower will begin and complete the program. (e) An institution may defer payments of principal and interest, but interest shall continue to accrue, if the institution determines this is necessary to avoid hardship to the borrower (see §674.33)(c)). (f) The institution shall not include the deferment periods described in paragraphs (b), (c), (d), and (e) of this section and the period described in paragraph (g) of this section when determining the 10-year repayment period. (g) No repayment of principal or interest begins until six months after completion of any period during which the borrower is in deferment under paragraphs (b), (c), and (d) of this section. (Authority: 20 U.S.C. 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32345, July 21, 1992; 59 FR 1652, Jan. 12, 1994. Redesignated and amended at 59 FR 61410, 61411, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58315, Oct. 28, 1999] (a) A borrower may defer repayment— (1) On an NDSL made before October 1, 1980 during the periods described in paragraphs (b) through (e) of this section; and (2) On a Defense loan, during the periods described in paragraphs (b) through (f) of this section. (b)(1) A borrower need not repay principal, and interest does not accrue, during a period after the commencement or resumption of the repayment period on a loan, when the borrower is at least a half-time regular student at— (i) An institution of higher education; or (ii) A comparable institution outside the U.S. approved by the Secretary for this purpose. (2) The institution of higher education does not need to be participating in the Perkins Loan program for the borrower to qualify for a deferment. (3) If a borrower is attending as at least a half-time regular student for a full academic year and intends to enroll as at least half-time regular student in the next academic year, the borrower is entitled to deferment for 12 months. (4) If an institution no longer qualifies as an institution of higher education, the borrower's deferment ends on the date the institution ceases to qualify. (c) A borrower need not repay principal, and interest does not accrue for a period of up to 3 years during which time the borrower is— (1) A member of the U.S. Army, Navy, Air Force, Marines or Coast Guard (see §674.59); (2) A Peace Corps volunteer (see §674.60); or (3) A volunteer under the Domestic Volunteer Service Act of 1973 (ACTION programs) (see §674.60). (d) The institution shall exclude the deferment periods described in paragraphs (b), (c), and (e) of this section when determining the 10-year repayment period. (e) An institution may permit the borrower to defer payments of principal and interest, but interest shall continue to accrue, if the institution determines this is necessary to avoid hardship to the borrower (see §674.33(c)). (f) The institution may permit the borrower to defer payment of principal and interest, but interest shall continue to accrue, on a Defense loan for a total of 3 years after the commencement or resumption of the repayment period on a loan, during which he or she is attending an institution of higher education as a less-than-half-time regular student. (Authority: 20 U.S.C. 425, 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992; 59 FR 1652, Jan. 12, 1994. Redesignated at 59 FR 61410, Nov. 30, 1994, as amended at 62 FR 50848, Sept. 26, 1997; 64 FR 58315, Oct. 28, 1999] (a)(1) Except as provided in paragraph (a)(2) of this section, a borrower must request the deferment and provide the institution with all information and documents required by the institution by the date that the institution establishes. (2) In the case of an in school deferment, the institution may grant the deferment based on student enrollment information showing that a borrower is enrolled as a regular student on at least a half-time basis, if the institution notifies the borrower of the deferment and of the borrower's option to cancel the deferment and continue paying on the loan. (3) If the borrower fails to meet the requirements of paragraph (a) (1) of this section, the institution may declare the loan to be in default, and may accelerate the loan. (b)(1) The institution may grant a deferment to a borrower after it has declared a loan to be a default. (2) As a condition for a deferment under this paragraph, the institution— (i) Shall require the borrower to execute a written repayment agreement on the loan; and (ii) May require the borrower to pay immediately some or all of the amounts previously scheduled to be repaid before the date on which the institution determined that the borrower had demonstrated that grounds for a deferment existed, plus late charges and collection costs. (c) If the information supplied by the borrower demonstrates that for some or all of the period for which a deferment is requested, the borrower had retained in-school status or was within the initial grace period on the loan, the institution shall— (1) Redetermine the date on which the borrower was required to commence repayment on the loan; (2) Deduct from the loan balance any interest accrued and late charges added before the date on which the repayment period commenced, as determined in paragraph (c)(1) of this section; and (3) Treat in accordance with paragraph (b) of this section, the request for deferment for any remaining portion of the period for which deferment was requested. (d) The institution must determine the continued eligibility of a borrower for a deferment at least annually, except that a borrower engaged in service described in §§674.34(e)(6), 674.35(c)(3), 674.36(c)(2), 674.37(c)(2), and §674.60(a)(1) must be granted a deferment for the lesser of the borrower's full term of service in the Peace Corps, or the borrower's remaining period of eligibility for a deferment under §674.34(e), not to exceed 3 years. (Authority: 20 U.S.C. 425, 1087dd) [52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988. Redesignated and amended at 59 FR 61410, 61411, Nov. 30, 1994; 64 FR 57531, Oct. 25, 1999; 64 FR 58315, Oct. 28, 1999]
Link to an amendment published at 71 FR 45698, Aug. 9, 2006. (a) Each institution must establish a loan rehabilitation program for all borrowers for the purpose of rehabilitating defaulted loans made under this part, except for loans for which a judgment has been secured. The institution's loan rehabilitation program must provide that— (1) A defaulted borrower is notified of the option and consequences of rehabilitating a loan; and (2) A loan is rehabilitated if the borrower makes an on-time, monthly payment, as determined by the institution, each month for twelve consecutive months and the borrower requests rehabilitation. (b) Within 30 days of receiving the borrower's last on-time, consecutive, monthly payment, the institution must— (1) Return the borrower to regular repayment status; (2) Treat the first payment made under the 12 consecutive payments as the first payment under the 10-year repayment maximum; and (3) Instruct any credit bureau to which the default was reported to remove the default from the borrower's credit history. (c) Collection costs on a rehabilitated loan— (1) If charged to the borrower, may not exceed 24 percent of the unpaid principal and accrued interest as of the date following application of the twelfth payment; (2) That exceed the amounts specified in paragraph (c)(1) of this section, may be charged to an institution's Fund until July 1, 2002 in accordance with §674.47(e)(5); and (3) Are not restricted to 24 percent in the event the borrower defaults on the rehabilitated loan. (d) After rehabilitating a defaulted loan and returning to regular repayment status, the borrower regains the balance of the benefits and privileges of the promissory note as applied prior to the borrower's default on the loan. Nothing in this paragraph prohibits an institution from offering the borrower flexible repayment options following the borrower's return to regular repayment status on a rehabilitated loan. (e) The borrower may rehabilitate a defaulted loan only one time. [64 FR 58311, Oct. 28, 1999, as amended at 65 FR 65614, Nov. 1, 2000; 67 FR 67077, Nov. 1, 2002] (a) An institution may not exercise the minimum monthly repayment provisions on a note when the borrower has received a partial cancellation for the period covered by a postponement. (b) If a borrower has received Defense, NDSL, and Perkins loans and only one can be cancelled, the amount due on the uncancelled loan is the amount established in §674.31(b) (2), loan repayment terms; §674.33(b), minimum repayment rates; or §674.33(c), extension of repayment period. (Authority: 20 U.S.C. 425 and 1087dd, 1087ee) [52 FR 45754, Dec. 1, 1987. Redesignated at 59 FR 61410, Nov. 30, 1994]
Title 34: Education
PART 674—FEDERAL PERKINS LOAN PROGRAM
Subpart B—Terms of Loans
§ 674.31 Promissory note.
§ 674.32 Special terms: loans to less than half-time student borrowers.
§ 674.33 Repayment.
§ 674.34 Deferment of repayment—Federal Perkins loans, NDSLs and Defense loans.
§ 674.35 Deferment of repayment—Federal Perkins loans made before July 1, 1993.
§ 674.36 Deferment of repayment—NDSLs made on or after October 1, 1980, but before July 1, 1993.
§ 674.37 Deferment of repayment—NDSLs made before October 1, 1980 and Defense loans.
§ 674.38 Deferment procedures.
§ 674.39 Loan rehabilitation.
§ 674.40 Treatment of loan repayments where cancellation, loan repayments, and minimum monthly repayments apply.
