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Issue Paper #12

Proposed Regulatory Language

Loans Group

Issue: Modification of Direct Loan Program Regulations

Statutory Cite: HEA Part D

Regulatory Cite: 34 CFR Part 685

Summary of Change:

The proposed regulations incorporate provisions from 34 CFR 682 that are currently cross-referenced in 

34 CFR 685, update provisions that are no longer consistent with current procedures used in 

administering the Direct Loan Program, and make technical and conforming changes.

Change:

See “Proposed Regulatory Language for Issue Paper 12, Loans Group.”
Subpart A – Purpose and Scope

§685.100

The William D. Ford Federal Direct Loan Program

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PROPOSED REGULATORY LANGUAGE FOR 

ISSUE PAPER 12, LOANS GROUP

Subpart A—Purpose and Scope

§ 685.100 The William D. Ford Federal Direct 

Loan Program.

(a) Under the William D. Ford Federal Direct 

Loan (Direct Loan) Program (formerly known as 

the Federal Direct Student Loan Program), the 

Secretary makes loans to enable a student or 

parent to pay the costs of the student's 

attendance at a postsecondary school. This part 

governs the Federal Direct Stafford/Ford Loan 

Program, the Federal Direct Unsubsidized 

Stafford/Ford Loan Program, the Federal Direct 

PLUS Program, and the Federal Direct 

Consolidation Loan Program. The Secretary 

makes loans under the following program 

components:

(1) Federal Direct Stafford/Ford Loan 

Program (formerly known as the Federal Direct 

Stafford Loan Program), which provides loans to 

undergraduate, graduate, and professional 

students. Loans made under this program are 

referred to as Direct Subsidized Loans. The 

Secretary subsidizes the interest while the 

borrower is in an in-school, grace, or deferment 

period. Graduate and professional students are 

not eligible to receive Direct Subsidized Loans

for any period of enrollment beginning on or 

after July 1, 2012.

(2) Federal Direct Unsubsidized 

Stafford/Ford Loan Program (formerly known as 

the Federal Direct Unsubsidized Stafford Loan 

Program), which provides loans to 

undergraduate, graduate and professional 

students. Loans made under this program are 

referred to as Direct Unsubsidized Loans. The 

borrower is responsible for the interest that 

accrues during any period.

(3) Federal Direct PLUS Program, which 

provides loans to parents of dependent 

students and to graduate or professional 

students. Loans made under this program are 

referred to as Direct PLUS Loans. The borrower 

is responsible for the interest that accrues 

during any period.

(4) Federal Direct Consolidation Loan 

Program, which provides loans to borrowers to 

consolidate certain Federal educational loans.

Loans made under this program are referred to 

as Direct Consolidation Loans.

(b) The Secretary makes a Direct Subsidized 

Loan, a Direct Unsubsidized Loan, or a Direct 

PLUS Loan only to a student or a parent of a 

student enrolled in a school that has been 

selected by the Secretary to participates in the 

Direct Loan Program.

(c) The Secretary makes a Direct 

Consolidation Loan only to— a borrower who is 

consolidating at least one loan made under the 

Direct Loan Program or the Federal Family 

Education Loan (FFEL) Program.

(1) A borrower with a loan made under the 

Direct Loan Program; or

(2) A borrower with a loan made under the 

Federal Family Education Loan Program who—

(i) Is not able to obtain a Federal 

Consolidation Loan;

(ii) Is not able to obtain a Federal 

Consolidation Loan with income-sensitive 

repayment terms that are satisfactory to the 

borrower; or

(iii) Has a Federal Consolidation Loan that 

has been submitted by the lender to the 

guaranty agency for default aversion, and 
Subpart A – Purpose and Scope

§685.100

The William D. Ford Federal Direct Loan Program

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wishes to consolidate the Federal Consolidation 

Loan into the Direct Loan Program for the 

purpose of obtaining an income contingent 

repayment plan.
Subpart A – Purpose and Scope

§685.101

Participation in the Direct Loan Program

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§ 685.101 Participation in the Direct Loan Program.

(a)(1) Colleges, universities, graduate and professional schools, vocational schools, and proprietary 

schools selected by the Secretary may participate in the Direct Loan Program. Participation in the Direct 

Loan Program enables an eligible student or parent to obtain a loan to pay for the student's cost of 

attendance at the school.

(2) The Secretary may permit a school to participate in both the Federal Family Education Loan 

(FFEL) Program, as defined in 34 CFR part 600, and the Direct Loan Program. A school permitted to 

participate in both the FFEL Program and the Direct Loan Program may certify loan applications under 

the FFEL Program according to the terms of its agreement with the Secretary.

(b)(1) An eligible undergraduate student who is enrolled at a school participating in the Direct Loan 

Program may borrow under the Federal Direct Stafford/Ford Loan and Federal Direct Unsubsidized 

Stafford/Ford Loan Programs. 

(2) An eligible graduate or professional student enrolled at a school participating in the Direct Loan 

Program may borrow under the Federal Direct Stafford/Ford Loan, Federal Direct Unsubsidized 

Stafford/Ford Loan, and Federal Direct PLUS Programs, except that a graduate or professional student 

may not borrow under the Federal Direct Stafford/Ford Loan Program for any period of enrollment 

beginning on or after July 1, 2012. 

(3) An eligible parent of an eligible dependent student enrolled at a school participating in the Direct 

Loan Program may borrow under the Federal Direct PLUS Program.
Subpart A—Purpose and Scope

§685.102

Definitions

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§ 685.102 Definitions.

(a)(1) The definitions of the following terms used in this part are set forth in subpart A of the 

Student Assistance General Provisions, 34 CFR part 668:

Academic Competitiveness Grant (ACG) Program

Academic year

Campus-based programs

Dependent student

Disburse

Eligible program

Eligible student

Enrolled

Expected family contribution (EFC)

Federal Consolidation Loan Program

Federal Direct Student Loan Program (Direct Loan Program)

Federal Pell Grant Program

Federal Perkins Loan Program

Federal PLUS Program

Federal Supplemental Educational Opportunity Grant Program

Federal Work-Study Program

Full-time student

Graduate or professional student

Half-time student

Independent student

Leveraging Educational Assistance Partnership Program

National Science and Mathematics Access to Retain Talent Grant (National SMART Grant) Program
Subpart A—Purpose and Scope

§685.102

Definitions

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One-third of an academic year

Parent

Payment period

State

Teacher Education Assistance for College and Higher Education (TEACH) Grant Program

TEACH Grant

Two-thirds of an academic year

Undergraduate student

U.S. citizen or national

(2) The following definitions are set forth in the regulations for Institutional Eligibility under the 

Higher Education Act of 1965, as amended, 34 CFR part 600:

Accredited

Clock hour

Credit hour

Educational program

Eligible institution

Federal Family Education Loan (FFEL) Program

Foreign Institution

Institution of higher education

Nationally recognized accrediting agency or association

Preaccredited

Program of study by correspondence

Secretary

(3) The following definitions are set forth in the regulations for the Federal Family Education Loan 

(FFEL) Program, 34 CFR part 682:
Subpart A—Purpose and Scope

§685.102

Definitions

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Act

Endorser

Federal Insured Student Loan (FISL) Program

Federal Stafford Loan Program

Guaranty agency

Holder

Legal guardian

Lender

Totally and permanently disabled

(b) The following definitions also apply to this part:

Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et seq.

Alternative originator: An entity under contract with the Secretary that originates Direct Loans to 

students and parents of students who attend a Direct Loan Program school that does not originate 

loans.

Consortium: For purposes of this part, a consortium is a group of two or more schools that interacts 

with the Secretary in the same manner as other schools, except that the electronic communication 

between the Secretary and the schools is channeled through a single point. Each school in a consortium 

shall sign a Direct Loan Program participation agreement with the Secretary and be responsible for the 

information it supplies through the consortium.

Default: The failure of a borrower and endorser, if any, to make an installment payment when due, 

or to meet other terms of the promissory note, if the Secretary finds it reasonable to conclude that the 

borrower and endorser, if any, no longer intend to honor the obligation to repay, provided that this 

failure persists for 270 days.

Endorser: An individual who signs a promissory note and agrees to repay the loan in the event that 

the borrower does not.

Estimated financial assistance. (1) The estimated amount of assistance for a period of enrollment 

that a student (or a parent on behalf of a student) will receive from Federal, State, institutional, or other 

sources, such as scholarships, grants, net earnings from need-based employment, or loans, including but 

not limited to—
Subpart A—Purpose and Scope

§685.102

Definitions

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(i) Except as provided in paragraph (2)(iii) of this definition, national service education awards or 

post-service benefits under title I of the National and Community Service Act of 1990 (AmeriCorps).

(ii) Except as provided in paragraph (2)(vii) of this definition, veterans' education benefits;

(iii) Any educational benefits paid because of enrollment in a postsecondary education institution, or 

to cover postsecondary education expenses;

(iv) Fellowships or assistantships, except non-need-based employment portions of such awards;

(v) Insurance programs for the student's education; and

(vi) The estimated amount of other Federal student financial aid, including but not limited to a 

Federal Pell Grant, Academic Competitiveness Grant, National SMART Grant, campus-based aid, and the 

gross amount (including fees) of subsidized and unsubsidized Federal Stafford Loans, orDirect

sSubsidized and uUnsubsidized Direct Stafford Loans, and Federal PLUS or Direct PLUS Loans.

(2) Estimated financial assistance does not include—

(i) Those amounts used to replace the expected family contribution (EFC), including the amounts of 

any TEACH Grants, unsubsidized Federal Stafford Loans or Direct Stafford Unsubsidized Loans, Federal 

PLUS or Direct PLUS Loans, and non-federal non-need-based loans, including private, state-sponsored, 

and institutional loans. However, if the sum of the amounts received that are being used to replace the 

student's EFC exceed the EFC, the excess amount must be treated as estimated financial assistance;

(ii) Federal Perkins loan and Federal Work-Study funds that the student has declined;

(iii) For the purpose of determining eligibility for a Direct Subsidized Loan, national service education 

awards or post-service benefits under title I of the National and Community Service Act of 1990 

(AmeriCorps);

(iv) Any portion of the estimated financial assistance described in paragraph (1) of this definition 

that is included in the calculation of the student's EFC;

(v) Non-need-based employment earnings;

(vi) Assistance not received under a title IV, HEA program, if that assistance is designated to offset all 

or a portion of a specific amount of the cost of attendance and that component is excluded from the 

cost of attendance as well. If that assistance is excluded from either estimated financial assistance or 

cost of attendance, it must be excluded from both;

(vii) Federal veterans' education benefits paid under—

(A) Chapter 103 of title 10, United States Code (Senior Reserve Officers' Training Corps);
Subpart A—Purpose and Scope

§685.102

Definitions

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(B) Chapter 106A of title 10, United States Code (Educational Assistance for Persons Enlisting for 

Active Duty);

(C) Chapter 1606 of title 10, United States Code (Selected Reserve Educational Assistance Program);

(D) Chapter 1607 of title 10, United States Code (Educational Assistance Program for Reserve 

Component Members Supporting Contingency Operations and Certain Other Operations);

(E) Chapter 30 of title 38, United States Code (All-Volunteer Force Educational Assistance Program, 

also known as the “Montgomery GI Bill—active duty”);

(F) Chapter 31 of title 38, United States Code (Training and Rehabilitation for Veterans with ServiceConnected Disabilities);

(G) Chapter 32 of title 38, United States Code (Post-Vietnam Era Veterans' Educational Assistance 

Program);

(H) Chapter 33 of title 38, United States Code (Post 9/11 Educational Assistance);

(I) Chapter 35 of title 38, United States Code (Survivors' and Dependents' Educational Assistance 

Program);

(J) Section 903 of the Department of Defense Authorization Act, 1981 (10 U.S.C. 2141 note) 

(Educational Assistance Pilot Program);

(K) Section 156(b) of the “Joint Resolution making further continuing appropriations and providing 

for productive employment for the fiscal year 1983, and for other purposes” (42 U.S.C. 402 note) 

(Restored Entitlement Program for Survivors, also known as “Quayle benefits”);

(L) The provisions of chapter 3 of title 37, United States Code, related to subsistence allowances for 

members of the Reserve Officers Training Corps; and

(M) Any program that the Secretary may determine is covered by section 480(c)(2) of the HEA; and

(viii) Iraq and Afghanistan Service Grants made under section 420R of the HEA.

Federal Direct Consolidation Loan Program: (1) A loan program authorized by title IV, part D of the 

Act that provides loans to borrowers who consolidate certain Federal educational loan(s), and one of the 

components of the Direct Loan Program. Loans made under this program are referred to as Direct 

Consolidation Loans.

(2) The term “Direct Subsidized Consolidation Loan” refers to the portion of a Direct Consolidation 

Loan attributable to certain subsidized title IV education loans that were repaid by the consolidation 

loan. Interest is not charged to the borrower during deferment periods, or, for a borrower whose 

consolidation application was received before July 1, 2006, during in-school and grace periods.
Subpart A—Purpose and Scope

§685.102

Definitions

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(3) The term “Direct Unsubsidized Consolidation Loan” refers to the portion of a Direct 

Consolidation Loan attributable to unsubsidized title IV education loans, certain subsidized title IV 

education loans, and certain other Federal education loans that were repaid by the consolidation loan. 

The borrower is responsible for the interest that accrues during any period.

(4) In the case of a Direct Consolidation Loan that entered repayment prior to July 1, 2006, Tthe 

term “Direct PLUS Consolidation Loan” refers to the portion of a Direct Consolidation Loan attributable 

to Direct PLUS Loans, Direct PLUS Consolidation Loans, Federal PLUS Loans, and Parent Loans for 

Undergraduate Students that were repaid by the consolidation loan. The borrower is responsible for the 

interest that accrues during any period.

Federal Direct PLUS Program: A loan program authorized by title IV, Part D of the Act that is one of 

the components of the Federal Direct Loan Program. The Federal Direct PLUS Program provides loans to 

parents of dependent students attending schools that participate in the Direct Loan Program. The 

Federal Direct PLUS Program also provides loans to graduate or professional students attending schools 

that participate in the Direct Loan Program. The borrower is responsible for the interest that accrues 

during any period. Loans made under this program are referred to as Direct PLUS Loans.

Federal Direct Stafford/Ford Loan Program: A loan program authorized by title IV, part D of the Act

that provides loans to undergraduate, graduate, and professional students attending Direct Loan 

Program schools, and one of the components of the Direct Loan Program. The Secretary subsidizes the 

interest while the borrower is in an in-school, grace, or deferment period. Loans made under this 

program are referred to as Direct Subsidized Loans. Graduate and professional students are not eligible 

to receive Direct Subsidized Loans for any period of enrollment beginning on or after July 1, 2012.

Federal Direct Unsubsidized Stafford/Ford Loan Program: A loan program authorized by title IV, part 

D of the Act that provides loans to undergraduate, graduate, and professional students attending Direct 

Loan Program schools, and one of the components of the Direct Loan Program. The borrower is 

responsible for the interest that accrues during any period. Loans made under this program are referred 

to as Direct Unsubsidized Loans.

Federal Insured Student Loan Program: The loan program authorized by title IV-B of the Act under 

which the Secretary directly insures lenders against losses.

Federal Stafford Loan Program: The loan program authorized by Title IV-B of the Act which 

encouraged the making of subsidized and unsubsidized loans to undergraduate, graduate, and 

professional students and is one of the Federal Family Education Loan programs.

Grace period: A six-month period that begins on the day after a Direct Subsidized Loan borrower,

Program Direct Unsubsidized Loan borrower, or, in some cases, a borrower of a Direct Consolidation 

Loan made before July 1, 2006 ceases to be enrolled as at least a half-time student at an eligible 

institution and ends on the day before the repayment period begins.
Subpart A—Purpose and Scope

§685.102

Definitions

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Guaranty agency: A State or private nonprofit organization that has an agreement with the 

Secretary under which it will administer a loan guarantee program under the Act.

Holder: The entity that owns a loan. For a FFEL Program loan, the term “holder” refers to an eligible 

lender owning a FFEL Program loan, including a Federal or State agency or an organization or 

corporation acting on behalf of such an agency and acting as a conservator, liquidator, or receiver of an 

eligible lender.

Interest rate: The annual interest rate that is charged on a loan, under title IV, part D of the Act.

Lender: As used in this part, the term “lender” has the meaning as defined in section 435(d)(5) of the 

Act for purposes of the FFEL program. 

Loan fee: A fee, payable by the borrower, that is used to help defray the costs of the Direct Loan 

Program.

Master Promissory Note (MPN): (1) A promissory note under which the borrower may receive loans 

for a single academic year or multiple academic years.

(2) For MPNs processed by the Secretary before July 1, 2003, loans may no longer be made under an 

MPN after the earliest of—

(i) The date the Secretary or the school receives the borrower's written notice that no further loans 

may be disbursed;

(ii) One year after the date of the borrower's first anticipated disbursement if no disbursement is 

made during that twelve-month period; or

(iii) Ten years after the date of the first anticipated disbursement, except that a remaining portion of 

a loan may be disbursed after this date.

(3) For MPNs processed by the Secretary on or after July 1, 2003, loans may no longer be made 

under an MPN after the earliest of—

(i) The date the Secretary or the school receives the borrower's written notice that no further loans 

may be made;

(ii) One year after the date the borrower signed the MPN or the date the Secretary receives the 

MPN, if no disbursements are made under that MPN; or

(iii) Ten years after the date the borrower signed the MPN or the date the Secretary receives the 

MPN, except that a remaining portion of a loan may be disbursed after this date.

Nationwide consumer reporting agency: A consumer reporting agency as defined in 15 U.S.C. 1681a.

Formatted: Indent: First line: 0.25"

Formatted: Font: Not Italic
Subpart A—Purpose and Scope

§685.102

Definitions

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Payment data: An electronic record that is provided to the Secretary by an institution showing 

student disbursement information.

Period of enrollment: The period for which a Direct Subsidized, Direct Unsubsidized, or Direct PLUS 

Loan is intended. The period of enrollment must coincide with one or more bona fide academic terms 

established by the school for which institutional charges are generally assessed (e.g., a semester, 

trimester, or quarter in weeks of instructional time; an academic year; or the length of the program of 

study in weeks of instructional time). The period of enrollment is also referred to as the loan period.

Satisfactory repayment arrangement. (1) For the purpose of regaining eligibility under section 

428F(b) of the HEA, the making of six consecutive, voluntary, on-time, full monthly payments on a 

defaulted loan. A borrower may only obtain the benefit of this paragraph with respect to renewed 

eligibility once. [SEE ALSO ISSUE PAPER #17 FOR PROPOSED NEW PARAGRAPH (4.)]

(2) For the purpose of consolidating a defaulted loan under 34 CFR 685.220(d)(1)(ii)(C) –

(i), tThe making of three consecutive, voluntary, on-time, full monthly payments on a defaulted loan

prior to consolidation.; or

(ii) Agreeing to repay the Direct Consolidation Loan under the income contingent repayment plan 

described in §685.209 or the income-based repayment plan described in §685.221.

(3) For the purpose of paragraph (2)(i) of this definition, Tthe required monthly payment amount 

may not be more than is reasonable and affordable based on the borrower's total financial 

circumstances. “On-time” means a payment made within 15 days of the scheduled due date, and 

voluntary payments are those payments made directly by the borrower and do not include payments 

obtained by Federal offset, garnishment, or income or asset execution.

School origination option 1: In general, under this option the school performs the following 

functions: creates a loan origination record, transmits the record to the Servicer, prepares the 

promissory note, obtains a completed and signed promissory note from a borrower, transmits the 

promissory note to the Servicer, receives the funds electronically, disburses a loan to a borrower, 

creates a disbursement record, transmits the disbursement record to the Servicer, and reconciles on a 

monthly basis. The Servicer initiates the drawdown of funds for schools participating in school 

origination option 1. The Secretary may modify the functions performed by a particular school.

School origination option 2: In general, under this option the school performs the following 

functions: creates a loan origination record, transmits the record to the Servicer, prepares the 

promissory note, obtains a completed and signed promissory note from a borrower, transmits the 

promissory note to the Servicer, determines funding needs, initiates the drawdown of funds, receives 

the funds electronically, disburses a loan to a borrower, creates a disbursement record, transmits the 

disbursement record to the Servicer, and reconciles on a monthly basis. The Secretary may modify the 

functions performed by a particular school.
Subpart A—Purpose and Scope

§685.102

Definitions

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Servicer: An entity that has contracted with the Secretary to act as the Secretary's agent in providing 

services relating to the origination or servicing of Direct Loans.

Standard origination: In general, under this option the school performs the following functions: 

creates a loan origination record, transmits the record to the Servicer, receives funds electronically, 

disburses funds, creates a disbursement record, transmits the disbursement record to the Servicer, and 

reconciles on a monthly basis. The Servicer prepares the promissory note, obtains a completed and 

signed promissory note from a borrower, and initiates the drawdown of funds for schools participating 

in standard origination. The Secretary may modify the functions performed by a particular school.

Substantial gainful activity: A level of work performed for pay or profit that involves doing significant 

physical or mental activities, or a combination of both.

Totally and permanently disabled: The condition of an individual who—

(1) Is unable to engage in any substantial gainful activity by reason of any medically determinable 

physical or mental impairment that—

(i) Can be expected to result in death;

(ii) Has lasted for a continuous period of not less than 60 months; or

(iii) Can be expected to last for a continuous period of not less than 60 months; or

(2) Has been determined by the Secretary of Veterans Affairs to be unemployable due to a serviceconnected disability.
Subpart A—Purpose and Scope

§685.103

Applicability of subparts

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§ 685.103 Applicability of subparts.

(a) Subpart A contains general provisions 

regarding the purpose and scope of the Direct 

Loan Program.

(b) Subpart B contains provisions regarding 

borrowers in the Direct Loan Program.

(c) Subpart C contains certain requirements 

regarding schools in the Direct Loan Program.

(d) Subpart D contains provisions regarding 

school eligibility for participation and 

origination in the Direct Loan Program.
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

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Subpart B—Borrower Provisions

§ 685.200 Borrower eligibility.

(a) Student Direct Subsidized or Direct 

Unsubsidized borrower. (1) A student is eligible 

to receive a Direct Subsidized Loan, a Direct 

Unsubsidized Loan, or a combination of these 

loans, if the student meets the following 

requirements:

(i) The student is enrolled, or accepted for 

enrollment, on at least a half-time basis in a 

school that participates in the Direct Loan 

Program.

(ii) The student meets the requirements for 

an eligible student under 34 CFR part 668.

(iii) In the case of an undergraduate student 

who seeks a Direct Subsidized Loan or a Direct 

Unsubsidized Loan at a school that participates 

in the Federal Pell Grant Program, the student 

has received a determination of Federal Pell 

Grant eligibility for the period of enrollment for 

which the loan is sought.

(iv) In the case of a borrower whose 

previous loan or TEACH Grant service obligation 

was cancelled discharged due to total and 

permanent disability, the student—

(A) In the case of a borrower whose prior 

loan under title IV of the Act or TEACH Grant 

service obligation was discharged after a final 

determination of total and permanent 

disability, the borrower—

(1) Obtains a certification from a physician 

that the borrower is able to engage in 

substantial gainful activity;

(2) Signs a statement acknowledging that 

neither the new Direct Loan the borrower 

receives nor any previously discharged loan on 

which the borrower is required to resume 

payment in accordance with paragraph 

(a)(1)(iv)(A)(3) of this section cannot be 

discharged in the future on the basis of any 

impairment present when the new loan is 

made, unless that impairment substantially 

deteriorates; and

(3) If the borrower receives a new Direct 

Loan, other than a Direct Consolidation Loan, 

within three years of the date that any previous 

title IV loan or TEACH Grant service obligation 

was discharged due to a total and permanent 

disability in accordance with §685.213(b)(4), 34 

CFR 674.61(b)(3)(i), 34 CFR 682.402(c), or 34 

CFR 686.42(b) based on a discharge request 

received on or after July 1, 2010, resumes 

repayment on the previously discharged loan in 

accordance with §685.213(b)(3)(ii)(A), 34 CFR 

674.61(b)(5), or 34 CFR 682.402(c)(5), or 

acknowledges that he or she is once again 

subject to the terms of the TEACH Grant 

agreement to serve before receiving the new 

loan.

(B) In the case of a borrower whose prior 

loan under title IV of the Act was conditionally 

discharged after an initial determination that 

the borrower was totally and permanently 

disabled based on a discharge request received 

prior to July 1, 2010—

(1) The suspension of collection activity on 

the prior loan has been lifted;

(2) The borrower complies with the 

requirements in paragraphs (a)(1)(iv)(A)(1) and 

(2) of this section;

(3) The borrower signs a statement 

acknowledging that neither the new Direct Loan 

the borrower receives nor the loan that has 

been conditionally discharged prior to a final 

determination of total and permanent disability 

Formatted: Not Highlight
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

MEETING 2

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cannot be discharged in the future on the basis 

of any impairment present when the borrower 

applied for a total and permanent disability 

discharge or when the new loan is made, unless 

that impairment substantially deteriorates; and

(4) The borrower signs a statement 

acknowledging that the suspension of collection 

activity on the prior loan will be lifted.

(v) In the case of a student who was 

enrolled in a program of study prior to July 1, 

2012 and who seeks a loan but does not have a 

certificate of graduation from a school 

providing secondary education or the 

recognized equivalent of such a certificate, the 

student meets the requirements under 34 CFR 

668.32(e)(2), (3), or (4) or (5).

(2)(i) A Direct Subsidized Loan borrower 

must demonstrate financial need in accordance 

with title IV, part F of the Act.

(ii) The Secretary considers a member of a 

religious order, group, community, society, 

agency, or other organization who is pursuing a 

course of study at an institution of higher 

education to have no financial need if that 

organization—

(A) Has as its primary objective the 

promotion of ideals and beliefs regarding a 

Supreme Being;

(B) Requires its members to forego 

monetary or other support substantially beyond 

the support it provides; and

(C)(1) Directs the member to pursue the 

course of study; or

(2) Provides subsistence support to its 

members.

(b) Student PLUS borrower. (1) The student 

is enrolled, or accepted for enrollment, on at 

least a half-time basis in a school that 

participates in the Direct Loan Program.

(2) The student meets the requirements for 

an eligible student under 34 CFR part 668.

(3) The student meets the requirements of 

paragraphs (a)(1)(iv) and (a)(1)(v) of this 

section, if applicable.

(4) The student has received a 

determination of his or her annual loan 

maximum eligibility under the Federal Direct 

Stafford/Ford Loan Program and the Federal 

Direct Unsubsidized Stafford/Ford Loan 

Program or under the Federal Subsidized and 

Unsubsidized Stafford Loan Program, as 

applicable; and

(5) The student meets the requirements of 

paragraph (c)(1)(vii) of this section.

(c) Parent PLUS borrower. (1) A parent is 

eligible to receive a Direct PLUS Loan if the 

parent meets the following requirements:

(i) The parent is borrowing to pay for the 

educational costs of a dependent 

undergraduate student who meets the 

requirements for an eligible student under 34 

CFR part 668.

(ii) The parent provides his or her and the 

student's social security number.

(iii) The parent meets the requirements 

pertaining to citizenship and residency that 

apply to the student under 34 CFR 668.33.

(iv) The parent meets the requirements 

concerning defaults and overpayments that 

apply to the student in 34 CFR 668.32(g).
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

MEETING 2

FEBRUARY 13-17, 2012

17

(v) The parent complies with the 

requirements for submission of a Statement of 

Educational Purpose that apply to the student 

under 34 CFR part 668, except for the 

completion of a Statement of Selective Service 

Registration Status.

(vi) The parent meets the requirements that 

apply to a student under paragraph (a)(1)(iv) of 

this section.

(vii)(A) The parent—

(1) Does not have an adverse credit history;

(2) Has an adverse credit history but has 

obtained an endorser who does not have an 

adverse credit history; or

(3) Has an adverse credit history but 

documents to the satisfaction of the Secretary 

that extenuating circumstances exist.

(B) For purposes of paragraph (c)(1)(vii)(A) 

of this section, an adverse credit history means 

that as of the date of the credit report, the 

applicant—

(1) Is 90 or more days delinquent on any 

debt; or

(2) Has been the subject of a default 

determination, bankruptcy discharge, 

foreclosure, repossession, tax lien, wage 

garnishment, or write-off of a debt under title 

IV of the Act during the five years preceding the 

date of the credit report.

(C) For the purposes of paragraph 

(c)(1)(vii)(A) of this section, the Secretary does 

not consider the absence of a credit history as 

an adverse credit history and does not deny a 

Direct PLUS loan on that basis.

(D) For the purposes of paragraph 

(c)(1)(vii)(A)(iii) of this section, the Secretary 

may determine that extenuating circumstances 

exist based on documentation that may include, 

but is not limited to, an updated credit report, a 

statement from the creditor that the borrower 

has made satisfactory arrangements to repay 

the debt, or a satisfactory statement from the

borrower explaining any delinquencies with 

outstanding balances of less than $500.

(2) For purposes of paragraph (c)(1) of this 

section, a “parent” includes the individuals 

described in the definition of “parent” in 34 CFR 

668.2 and the spouse of a parent who

remarried, if that spouse's income and assets 

would have been taken into account when 

calculating a dependent student's expected 

family contribution.

(3) Has completed repayment of any title IV, 

HEA program assistance obtained by fraud, if 

the parent has been convicted of, or has pled 

nolo contendere or guilty to, a crime involving 

fraud in obtaining title IV, HEA program 

assistance.

(d) Defaulted FFEL Program and Direct Loan 

borrowers. Except as noted in 

§685.220(d)(1)(ii)(D)(C), in the case of a student 

or parent borrower who is currently in default 

on an FFEL Program or a Direct Loan Program 

Loan, the borrower shall must make satisfactory 

repayment arrangements, as described in 

paragraph (2) of the definition of that term 

under §685.102(b), on the defaulted loan.

(e) Use of loan proceeds to replace expected 

family contribution. The amount of a Direct 

Unsubsidized Loan, a Direct PLUS loan, or a nonfederal non-need based loan, including a 

private, state-sponsored, or institution loan, 

obtained for a loan period may be used to 
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

MEETING 2

FEBRUARY 13-17, 2012

18

replace the expected family contribution for 

that loan period.
Subpart B—Borrower Provisions

§685.201

Obtaining a loan

MEETING 2

FEBRUARY 13-17, 2012

19

§ 685.201 Obtaining a loan.

(a) Application for a Direct Subsidized Loan 

or a Direct Unsubsidized Loan. (1) To obtain a 

Direct Subsidized Loan or a Direct Unsubsidized 

Loan, a student must complete a Free 

Application for Federal Student Aid and submit 

it in accordance with instructions in the 

application.

(2) If the student is eligible for a Direct 

Subsidized Loan or a Direct Unsubsidized Loan, 

the Secretary or the school in which the student 

is enrolled must perform specific functions. 

Unless a school's agreement withAs determined 

by the Secretary specifies otherwise, the school 

must perform some or all of the following 

functions:

(i) A school participating under school 

origination option 2 must cCreate a loan 

origination record, and transmit the record to 

the Secretary;

(ii) eEnsure that the loan is supported by a 

completed Master Promissory Note (MPN) and, 

if applicable, transmit the MPN to the 

Secretary;

(iii) dDraw down funds or receive funds 

from the Secretary, and disburse the funds to 

the student.

(ii) A school participating under school 

origination option 1 must create a loan 

origination record, ensure that the loan is 

supported by a completed MPN, and transmit 

the record and MPN (if required) to the 

Servicer. The Servicer initiates the drawdown of 

funds. The school must disburse the funds to 

the student.

(iii) If the student is attending a school 

participating under standard origination, the 

school must create a loan origination record 

and transmit the record to the alternative 

originator, which either confirms that a 

completed MPN supports the loan or prepares 

an MPN and sends it to the student. The 

Servicer receives the completed MPN from the 

student (if required) and initiates the drawdown 

of funds. The school must disburse the funds to 

the student.

(b) Application for a Direct PLUS Loan. (1) 

For a parent to obtain a Direct PLUS Loan, the 

parent must complete the Direct PLUS Loan 

MPN and submit it to the school at which the 

student is enrolled.

(2) For a graduate or professional student 

to apply for a Direct PLUS Loan, the student 

must complete a Free Application for Federal 

Student Aid and submit it in accordance with 

instructions in the application. The graduate or 

professional student must also complete the 

Direct PLUS Loan MPN and submit it to the 

school.

(3) For either a parent or student PLUS 

borrower, as applicable, the school must 

complete its portion of the PLUS MPN and, if 

applicable, submit it to the ServicerSecretary. , 

The Secretary which makes a determination as 

to whether the parent or graduate or 

professional student has an adverse credit 

history. Unless a school's agreement withAs 

determined by the Secretary specifies 

otherwise, the school must perform some or all 

of the following functions described in 

paragraph (a)(2) of this section.: A school 

participating under school origination option 2 

must draw down funds and disburse the funds. 

For a school participating under school 

origination option 1 or standard origination, the 

Servicer initiates the drawdown of funds, and 

the school disburses the funds.
Subpart B—Borrower Provisions

§685.201

Obtaining a loan

MEETING 2

FEBRUARY 13-17, 2012

20

(c) Application for a Direct Consolidation 

Loan. (1) To obtain a Direct Consolidation Loan, 

the applicant must complete the application 

and promissory note and submit it to the 

ServicerSecretary. The application and 

promissory note sets forth the terms and 

conditions of the Direct Consolidation Loan and 

informs the applicant how to contact the 

ServicerSecretary. The Servicer Secretary

answers questions regarding the process of 

applying for a Direct Consolidation Loan and 

provides information about the terms and 

conditions of both Direct Consolidation Loans 

and the types of loans that may be 

consolidated.

(2) Once the applicant has submitted the 

completed application and promissory note to 

the ServicerSecretary, the Secretary makes the 

Direct Consolidation Loan under the procedures 

specified in §685.220.
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

MEETING 2

FEBRUARY 13-17, 2012

21

§ 685.202 Charges for which Direct Loan 

Program borrowers are responsible.

(a) Interest —(1) Interest rate for Direct 

Subsidized Loans and Direct Unsubsidized Loans. 

(i) Loans first disbursed before July 1, 1995. 

During all periods, the interest rate during any 

twelve-month period beginning on July 1 and 

ending on June 30 is determined on the June 1 

immediately preceding that period. The interest 

rate is equal to the bond equivalent rate of 91-

day Treasury bills auctioned at the final auction 

held prior to that June 1 plus 3.1 percentage 

points, but does not exceed 8.25 percent.

(ii) Loans first disbursed on or after July 1, 

1995 and before July 1, 1998. (A) During the inschool, grace, and deferment periods. The 

interest rate during any twelve-month period 

beginning on July 1 and ending on June 30 is 

determined on the June 1 immediately 

preceding that period. The interest rate is equal 

to the bond equivalent rate of 91-day Treasury 

bills auctioned at the final auction held prior to 

that June 1 plus 2.5 percentage points, but does 

not exceed 8.25 percent.

(B) During all other periods. The interest 

rate during any twelve-month period beginning 

on July 1 and ending on June 30 is determined 

on the June 1 immediately preceding that 

period. The interest rate is equal to the bond 

equivalent rate of 91-day Treasury bills 

auctioned at the final auction held prior to that 

June 1 plus 3.1 percentage points, but does not 

exceed 8.25 percent.

(iii) Loans first disbursed on or after July 1, 

1998 and before July 1, 2006. (A) During the inschool, grace, and deferment periods. The 

interest rate during any twelve-month period 

beginning on July 1 and ending on June 30 is 

determined on the June 1 immediately 

preceding that period. The interest rate is equal 

to the bond equivalent rate of 91-day Treasury 

bills auctioned at the final auction held prior to 

that June 1 plus 1.7 percentage points, but does 

not exceed 8.25 percent.

(B) During all other periods. The interest 

rate during any twelve-month period beginning 

on July 1 and ending on June 30 is determined 

on the June 1 immediately preceding that 

period. The interest rate is equal to the bond 

equivalent rate of 91-day Treasury bills 

auctioned at the final auction held prior to that 

June 1 plus 2.3 percentage points, but does not 

exceed 8.25 percent.

(iv) Loans first disbursed on or after July 1, 

2006. Except as provided in paragraph (a)(1)(v) 

of this section for Direct Subsidized Loans made 

to undergraduate students, Tthe interest rate is 

6.8 percent.

(v) For a Direct sSubsidized Stafford lLoan 

made to an undergraduate student for which 

the first disbursement is made on or after:

(A) July 1, 2006 and before July 1, 2008, or 

on or after July 1, 2012, the interest rate is 6.8 

percent on the unpaid principal balance of the 

loan.

(B) July 1, 2008 and before July 1, 2009, the 

interest rate is 6 percent on the unpaid 

principal balance of the loan.

(C) July 1, 2009 and before July 1, 2010, the 

interest rate is 5.6 percent on the unpaid 

principal balance of the loan.

(D) July 1, 2010 and before July 1, 2011, the 

interest rate is 4.5 percent on the unpaid 

principal balance of the loan.
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

MEETING 2

FEBRUARY 13-17, 2012

22

(E) July 1, 2011 and before July 1, 2012, the 

interest rate is 3.4 percent on the unpaid 

balance of the loan.

(2) Interest rate for Direct PLUS Loans. (i) 

Loans first disbursed before July 1, 1998. (A) 

Interest rates for periods ending before July 1, 

2001. During all periods, the interest rate during 

any twelve-month period beginning on July 1 

and ending on June 30 is determined on the 

June 1 preceding that period. The interest rate 

is equal to the bond equivalent rate of 52-week 

Treasury bills auctioned at the final auction held 

prior to that June 1 plus 3.1 percentage points, 

but does not exceed 9 percent.

(B) Interest rates for periods beginning on or 

after July 1, 2001. During all periods, the 

interest rate during any twelve-month period 

beginning on July 1 and ending on June 30 is 

determined on the June 26 preceding that 

period. The interest rate is equal to the weekly 

average 1-year constant maturity Treasury 

yield, as published by the Board of Governors of 

the Federal Reserve System, for the last 

calendar week ending on or before that June 26 

plus 3.1 percentage points, but does not exceed 

9 percent.

(ii) Loans first disbursed on or after July 1, 

1998 and before July 1, 2006. During all periods, 

the interest rate during any twelve-month 

period beginning on July 1 and ending on June 

30 is determined on the June 1 preceding that 

period. The interest rate is equal to the bond 

equivalent rate of 91-day Treasury bills 

auctioned at the final auction held prior to that 

June 1 plus 3.1 percentage points, but does not 

exceed 9 percent.

(iii) Loans first disbursed on or after July 1, 

2006. The interest rate is 7.9 percent.

(3) Interest rate of Direct Consolidation 

Loans —(i) Interest rate for Direct Subsidized 

Consolidation Loans and Direct Unsubsidized 

Consolidation Loans. (A) Loans first disbursed 

before July 1, 1995. The interest rate is the rate 

established for Direct Subsidized Loans and 

Direct Unsubsidized Loans in paragraph (a)(1)(i) 

of this section.

(B) Loans first disbursed on or after July 1, 

1995 and before July 1, 1998. The interest rate 

is the rate established for Direct Subsidized 

Loans and Direct Unsubsidized Loans in 

paragraph (a)(1)(ii) of this section.

(C) Loans for which the first disbursement is 

made on or after July 1, 1998 and prior to 

October 1, 1998, and loans for which the 

disbursement is made on or after October 1, 

1998 for which the consolidation application 

was received by the Secretary before October 1, 

1998. The interest rate is the rate established 

for Direct Subsidized Loans and Direct 

Unsubsidized Loans in paragraph (a)(1)(iii) of 

this section.

(D) Loans for which the consolidation 

application is received by the Secretary on or 

after October 1, 1998 and before February 1, 

1999. During all periods, the interest rate during 

any twelve-month period beginning on July 1 

and ending on June 30 is determined on the 

June 1 immediately preceding that period. The 

interest rate is equal to the bond equivalent 

rate of 91-day Treasury bills auctioned at the 

final auction held prior to that June 1 plus 2.3 

percentage points, but does not exceed 8.25 

percent.

(E) Loans for which the consolidation 

application is received by the Secretary on or 

after February 1, 1999. During all periods, the 

interest rate is based on the weighted average 
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

MEETING 2

FEBRUARY 13-17, 2012

23

of the interest rates on the loans being 

consolidated, rounded to the nearest higher 

one-eighth of one percent, but does not exceed 

8.25 percent.

(ii) Interest rate for Direct PLUS 

Consolidation Loans. (A) Loans first disbursed 

before July 1, 1998. The interest rate is the rate 

established for Direct PLUS Loans in paragraph 

(a)(2)(i) of this section.

(B) Loans for which the first disbursement is 

made on or after July 1, 1998 and prior to 

October 1, 1998, and loans for which the 

disbursement is made on or after October 1, 

1998 for which the consolidation application 

was received by the Secretary before October 1, 

1998. The interest rate is the rate established 

for Direct PLUS Loans in paragraph (a)(2)(ii) of 

this section.

(C) Loans for which the consolidation 

application is received by the Secretary on or 

after October 1, 1998 and before February 1, 

1999. During all periods, the interest rate during 

any twelve-month period beginning on July 1 

and ending on June 30 is determined on the 

June 1 immediately preceding that period. The 

interest rate is equal to the bond equivalent 

rate of 91-day Treasury bills auctioned at the 

final auction held prior to that June 1 plus 2.3 

percentage points, but does not exceed 8.25 

percent.

(D) Loans for which the consolidation 

application is received by the Secretary on or 

after February 1, 1999. During all periods, the 

interest rate is based on the weighted average 

of the interest rates on the loans being 

consolidated, rounded to the nearest higher 

one-eighth of one percent, but does not exceed 

8.25 percent.

(4) Applicability of the Servicemembers Civil 

Relief Act (50 U.S.C. 527, App. sec. 207). 

Notwithstanding paragraphs (a)(1) through (3) 

of this section, effective August 14, 2008, upon 

the Secretary's receipt of a borrower's written 

request and a copy of the borrower's military 

orders, the maximum interest rate, as defined 

in 50 U.S.C. 527, App. section 207(d), on Direct 

Loan Program loans made prior to the borrower 

entering active duty status is 6 percent while 

the borrower is on active duty military service.

(b) Capitalization. (1) The Secretary may 

add unpaid accrued interest to the borrower's 

unpaid principal balance. This increase in the 

principal balance of a loan is called 

“capitalization.”

(2) For a Direct Unsubsidized Loan or a 

Direct Unsubsidized Consolidation Loan that 

qualifies for a grace period under the 

regulations that were in effect for consolidation 

applications received before July 1, 2006, or for 

a Direct PLUS Loan, the Secretary may capitalize 

the unpaid interest that accrues on the loan 

when the borrower enters repayment.

(3) Notwithstanding §685.208(l)(5) and 

§685.209(d)(3), for a Direct Loan not eligible for 

interest subsidies during periods of deferment, 

and for all Direct Loans during periods of 

forbearance, the Secretary capitalizes the 

unpaid interest that has accrued on the loan 

upon the expiration of the deferment or 

forbearance.

(4) Except as provided in paragraph (b)(3) of 

this section and in §685.208(l)(5), and 

§685.209(d)(3), the Secretary annually 

capitalizes unpaid interest when the borrower is 

paying under the alternative repayment plan or 

the income contingent repayment plans

described in §685.209(b) and the borrower's 

Formatted: Not Highlight
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

MEETING 2

FEBRUARY 13-17, 2012

24

scheduled payments do not cover the interest 

that has accrued on the loan.

(5) The Secretary may capitalize unpaid 

interest when the borrower defaults on the 

loan.

(c) Loan fee for Direct Subsidized, Direct 

Unsubsidized, and Direct PLUS Loans. The 

Secretary—

(1)(i) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed prior to 

February 8, 2006, charges a borrower a loan fee 

not to exceed 4 percent of the principal amount 

of the loan;

(ii) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or after 

February 8, 2006, but before July 1, 2007, 

charges a borrower a loan fee not to exceed 3 

percent of the principal amount of the loan;

(iii) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or after 

July 1, 2007, but before July 1, 2008, charges a 

borrower a loan fee not to exceed 2.5 percent 

of the principal amount of the loan;

(iv) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or after 

July 1, 2008, but before July 1, 2009, charges 

the borrower a loan fee not to exceed 2 percent 

of the principal amount of the loan;

(v) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or after 

July 1, 2009, but before July 1, 2010, charges 

the borrower a loan fee not to exceed 1.5 

percent of the principal amount of the loan;

(vi) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or after 

July 1, 2010, charges the borrower a loan fee 

not to exceed 1 percent of the principal amount 

of the loan; and

(vii) Charges a borrower a loan fee of four 

percent of the principal amount of the loan on a 

Direct PLUS loan.

(2) Deducts the loan fee from the proceeds 

of the loan;

(3) In the case of a loan disbursed in 

multiple installments, deducts a pro rated 

portion of the fee from each disbursement; and

(4) Applies to a borrower's loan balance the 

portion of the loan fee previously deducted 

from the loan that is attributable to any portion 

of the loan that is—

(i) Repaid or returned within 120 days of 

disbursement, unless—

(A) The borrower has no Direct Loans in 

repayment status and has requested, in writing, 

that the repaid or returned funds be used for a 

different purpose; or

(B) The borrower has a Direct Loan in 

repayment status, in which case the payment is 

applied in accordance with §685.211(a) unless 

the borrower has requested, in writing, that the 

repaid or returned funds be applied as a 

cancellation of all or part of the loan; or

(ii) Returned by a school in order to comply 

with the Act or with applicable regulations.

(d) Late charge. (1) The Secretary may 

require the borrower to pay a late charge of up 

to six cents for each dollar of each installment 

or portion thereof that is late under the 

circumstances described in paragraph (d)(2) of 

this section.
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

MEETING 2

FEBRUARY 13-17, 2012

25

(2) The late charge may be assessed if the 

borrower fails to pay all or a portion of a 

required installment payment within 30 days 

after it is due.

(e)(1) Collection charges before default. 

Notwithstanding any provision of State law, the 

Secretary may require that the borrower or any 

endorser pay costs incurred by the Secretary or 

the Secretary's agents in collecting installments 

not paid when due. These charges do not 

include routine collection costs associated with 

preparing letters or notices or with making 

personal contacts with the borrower ( e.g., local 

and long-distance telephone calls).

(2) Collection charges after default. If a 

borrower defaults on a Direct Loan, the 

Secretary assesses collection costs on the basis 

of 34 CFR 30.60.
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

26

§ 685.203 Loan limits.

(a) Direct Subsidized Loans. (1) In the case 

of an undergraduate student who has not 

successfully completed the first year of a 

program of undergraduate education, the total 

amount the student may borrow for any 

academic year of study under the Federal Direct 

Stafford/FordSubsidized Loan Program in 

combination with the Federal Stafford Loan 

Program may not exceed the following:

(i) $2,625, or, for a loan disbursed on or 

after July 1, 2007, $3,500, for a program of 

study of at least a full academic year in length.

(ii) For a one-year program of study with 

less than a full academic year remaining, the 

amount that is the same ratio to $2,625, or, for 

a loan disbursed on or after July 1, 2007, 

$3,500, as the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(iii) For a program of study that is less than 

a full academic year in length, the amount that 

is the same ratio to $2,625, or, for a loan 

disbursed on or after July 1, 2007, $3,500, as 

the lesser of the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

(2) In the case of an undergraduate student 

who has successfully completed the first year of 

an undergraduate program but has not 

successfully completed the second year of an 

undergraduate program, the total amount the 

student may borrow for any academic year of 

study under the Federal Direct 

Stafford/FordSubsidized Loan Program in 

combination with the Federal Stafford Loan 

Program may not exceed the following:

(i) $3,500, or, for a loan disbursed on or 

after July 1, 2007, $4,500, for a program of 

study of at least a full academic year in length.

(ii) For a program of study with less than a 

full academic year remaining, an amount that is 

the same ratio to $3,500, or, for a loan 

disbursed on or after July 1, 2007, $4,500, as 

the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(3) In the case of an undergraduate student 

who has successfully completed the first and 

second years of a program of study of 

undergraduate education but has not 

successfully completed the remainder of the 

program, the total amount the student may 

borrow for any academic year of study under 

the Federal Direct Stafford/FordSubsidized Loan 

Program in combination with the Federal 

Stafford Loan Program may not exceed the 

following:

(i) $5,500 for a program of study of at least 

an academic year in length.

(ii) For a program of study with less than a 

full academic year remaining, an amount that is 

the same ratio to $5,500 as the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(4) In the case of a student who has an 

associate or baccalaureate degree which is 

required for admission into a program and who 

is not a graduate or professional student, the 
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

27

total amount the student may borrow for any 

academic year of study may not exceed the 

amounts in paragraph (a)(3) of this section.

(5) In the case of a graduate or professional 

student, the total amount the student may 

borrow for any academic year of study under 

the Federal Direct Stafford/FordSubsidized Loan 

Program in combination with the Federal 

Stafford Loan Program may not exceed $8,500.

(6) In the case of a student enrolled for no 

longer than one consecutive 12-month period 

in a course of study necessary for enrollment in 

a program leading to a degree or a certificate, 

the total amount the student may borrow for 

any academic year of study under the Federal 

Direct Stafford/FordSubsidized Loan Program in 

combination with the Federal Stafford Loan 

Program may not exceed the following:

(i) $2,625 for coursework necessary for 

enrollment in an undergraduate degree or 

certificate program.

(ii) $5,500 for coursework necessary for 

enrollment in a graduate or professional degree 

or certification program for a student who has 

obtained a baccalaureate degree.

(7) In the case of a student who has 

obtained a baccalaureate degree and is enrolled 

or accepted for enrollment in coursework 

necessary for a professional credential or 

certification from a State that is required for 

employment as a teacher in an elementary or 

secondary school in that State, the total amount 

the student may borrow for any academic year 

of study under the Federal Direct 

Stafford/FordSubsidized Loan Program in 

combination with the Federal Stafford Loan 

Program may not exceed $5,500.

(8) Except as provided in paragraph (a)(4) of 

this section, an undergraduate student who is 

enrolled in a program that is one academic year 

or less in length may not borrow an amount for 

any academic year of study that exceeds the 

amounts in paragraph (a)(1) of this section.

(9) Except as provided in paragraph (a)(4) of 

this section—

(i) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has not 

successfully completed the first year of that 

program may not borrow an amount for any 

academic year of study that exceeds the 

amounts in paragraph (a)(1) of this section.

(ii) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has 

successfully completed the first year of that 

program, but has not successfully completed 

the second year of the program, may not 

borrow an amount for any academic year of 

study that exceeds the amounts in paragraph 

(a)(2) of this section.

(b) Direct Unsubsidized Loans. (1) In the 

case of a dependent undergraduate student, —

(i) For a loan first disbursed before July 1, 

2008, the total amount a student may borrow 

for any period of study under the Federal Direct 

Unsubsidized Loan Program and the Federal 

Unsubsidized Stafford Loan Program is the same 

as the amount determined under paragraph (a) 

of this section, less any amount received under 

the Federal Direct Stafford/Ford Loan Program 

or the Federal Stafford Loan Program.

(ii) Eexcept as provided in paragraph (c)(3) 

of this section, for a loan first disbursed on or 

after July 1, 2008, the total amount a student 
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

28

may borrow for any period of study under the 

Federal Direct Unsubsidized Stafford/Ford Loan 

Program in combination with the Federal 

Unsubsidized Stafford Loan Program is the same 

as the amount determined under paragraph (a) 

of this section, less any amount received under 

the Federal Direct Stafford/FordSubsidized Loan 

Program or the Federal Stafford Loan Program, 

plus—

(A)(i) $2,000, for a program of study of at 

least a full academic year in length.

(B)(ii) For a program of study that is one 

academic year or more in length with less than 

a full academic year remaining, the amount that 

is the same ratio to $2,000 as the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(C)(iii) For a program of study that is less 

than a full academic year in length, the amount 

that is the same ratio to $2,000 as the lesser of 

the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

(2) In the case of an independent 

undergraduate student, a graduate or 

professional student, or certain dependent 

undergraduate students under the conditions 

specified in paragraph (c)(1)(ii) of this section, 

except as provided in paragraph (c)(3) of this 

section, the total amount the student may 

borrow for any period of enrollment under the 

Federal Direct Unsubsidized Stafford/Ford Loan

Program and Federal Unsubsidized Stafford 

Loan programs may not exceed the amounts 

determined under paragraph (a) of this section 

less any amount received under the Federal 

Direct Stafford/FordSubsidized Loan Program or 

the Federal Stafford Loan Program, in 

combination with the amounts determined 

under paragraph (c) of this section.

(c) Additional eligibility for Direct 

Unsubsidized Loans. (1)(i) An independent 

undergraduate student, graduate or 

professional student, and certain dependent 

undergraduate students may borrow amounts 

under the Federal Direct Unsubsidized Loan 

Program in addition to any amount borrowed 

under paragraph (b) of this section, except as 

provided in paragraph (c)(3) for certain 

dependent undergraduate students.

(ii) In order for a dependent undergraduate 

student to receive this additional loan amount, 

the financial aid administrator must determine 

that the student's parent likely will be 

precluded by exceptional circumstances from 

borrowing under the Federal Direct PLUS Loan 

Program or the Federal PLUS Program and the 

student's family is otherwise unable to provide 

the student's expected family contribution. The 

financial aid administrator shallmust base the 

determination on a review of the family 

financial information provided by the student 

and consideration of the student's debt burden 

and shallmust document the determination in 

the school's file.

(iii) “Exceptional circumstances” under 

paragraph (c)(1)(ii) of this section include but 

are not limited to circumstances in which the 

student's parent receives only public assistance 

or disability benefits, the parent is incarcerated, 

the parent has an adverse credit history, or the 

parent's whereabouts are unknown. A parent's 

refusal to borrow a Federal PLUS Loan or Direct 
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

29

PLUS Loan does not constitute “exceptional 

circumstances.”

(2) The additional amount that a student 

described in paragraph (c)(1)(i) of this section 

may borrow under the Federal Direct 

Unsubsidized Stafford/Ford Loan Program and 

the Federal Unsubsidized Stafford Loan 

Program for any academic year of study may 

not exceed the following:

(i) In the case of a student who has not 

successfully completed the first year of a 

program of undergraduate education—

(A) $4,000, or, for a loan first disbursed on 

or after July 1, 2008, $6,000, for a program of 

study of at least a full academic year in length.

(B) For a one-year program of study with 

less than a full academic year remaining, the 

amount that is the same ratio to $4,000, or, for 

a loan first disbursed on or after July 1, 2008, 

$6,000, as the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(C) For a program of study that is less than a 

full academic year in length, an amount that is 

the same ratio to $4,000, or, for a loan first 

disbursed on or after July 1, 2008, $6,000, as 

the lesser of the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

(ii) In the case of a student who has 

completed the first year of a program of 

undergraduate education but has not 

successfully completed the second year of a 

program of undergraduate education—

(A) $4,000, or, for a loan first disbursed on 

or after July 1, 2008, $6,000, for a program of 

study of at least a full academic year in length.

(B) For a program of study with less than a 

full academic year remaining, an amount that is 

the same ratio to $4,000, or, for a loan first 

disbursed on or after July 1, 2008, $6,000, as 

the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(iii) In the case of a student who has 

successfully completed the second year of a 

program of undergraduate education but has 

not completed the remainder of the program of 

study—

(A) $5,000, or, for a loan first disbursed on 

or after July 1, 2008, $7,000, for a program of 

study of at least a full academic year in length.

(B) For a program of study with less than a 

full academic year remaining, an amount that is 

the same ratio to $5,000, or, for a loan first 

disbursed on or after July 1, 2008, $7,000, as 

the—

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter or clock hours in 

academic year

(iv) In the case of a student who has an 

associate or baccalaureate degree which is 

required for admission into a program and who 

is not a graduate or professional student, the 

total amount the student may borrow for any 

academic year of study may not exceed the 

amounts in paragraph (c)(2)(iii) of this section.
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

30

(v) In the case of a graduate or professional 

student, $10,000, or, for a loan disbursed on or 

after July 1, 2007, $12,000.

(vi) In the case of a student enrolled for no 

longer than one consecutive 12-month period 

in a course of study necessary for enrollment in 

a program leading to a degree or a certificate—

(A) $4,000, or, for a loan first disbursed on 

or after July 1, 2008, $6,000, for coursework 

necessary for enrollment in an undergraduate 

degree or certificate program.

(B) $5,000, or, for a loan disbursed on or 

after July 1, 2007, $7,000, for coursework 

necessary for enrollment in a graduate or 

professional degree or certification program for 

a student who has obtained a baccalaureate 

degree.

(vii) In the case of a student who has 

obtained a baccalaureate degree and is enrolled 

or accepted for enrollment in coursework 

necessary for a professional credential or 

certification from a State that is required for 

employment as a teacher in an elementary or 

secondary school in that State, $5,000, or, for a 

loan disbursed on or after July 1, 2007, $7,000.

(viii) Except as provided in paragraph 

(c)(2)(iv) of this section, an undergraduate 

student who is enrolled in a program that is one 

academic year or less in length may not borrow 

an amount for any academic year of study that 

exceeds the amounts in paragraph (c)(2)(i) of 

this section.

(ix) Except as provided in paragraph 

(c)(2)(iv) of this section—

(A) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has not 

successfully completed the first year of that 

program may not borrow an amount for any 

academic year of study that exceeds the 

amounts in paragraph (c)(2)(i) of this section.

(B) An undergraduate student who is 

enrolled in a program that is more than one 

academic year in length and who has 

successfully completed the first year of that 

program, but has not successfully completed 

the second year of the program, may not 

borrow an amount for any academic year of 

study that exceeds the amounts in paragraph 

(c)(2)(ii) of this section.

(3) A dependent undergraduate student 

who qualifies for additional Direct Unsubsidized 

Loan amounts under this section in accordance 

with paragraph (c)(1)(ii) is not eligible to receive 

the additional Direct Unsubsidized Loan 

amounts provided under paragraph (b)(1)(ii) of 

this section.

(d) Federal Direct Stafford/Ford Loan 

Program and Federal Stafford Loan Program 

aAggregate limits for subsidized loans. The 

aggregate unpaid principal amount of all Direct 

Subsidized Loans and Subsidized Federal 

Stafford Loans made to a student but excluding 

the amount of capitalized interest may not 

exceed the following:

(1) $23,000 in the case of any student who 

has not successfully completed a program of 

study at the undergraduate level.

(2) $65,500 in the case of a graduate or 

professional student, including loans for 

undergraduate study.

(e) Aggregate limits for unsubsidized loans. 

The total amount of Direct Unsubsidized Loans, 

Unsubsidized Federal Unsubsidized Stafford 

Loans, and Federal SLS Loans, but excluding the 
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

31

amount of capitalized interest, may not exceed 

the following:

(1) For a dependent undergraduate student, 

$23,000, or, effective July 1, 2008, $31,000, 

minus any Direct Subsidized Loan and 

Subsidized Federal Stafford Loan amounts, 

unless the student qualifies under paragraph (c) 

of this section for additional eligibility or 

qualified for that additional eligibility under the 

Federal SLS Program.

(2) For an independent undergraduate or a 

dependent undergraduate who qualifies for 

additional eligibility under paragraph (c) of this 

section or qualified for this additional eligibility 

under the Federal SLS Program, $46,000, or, 

effective July 1, 2008, $57,500, minus any Direct 

Subsidized Loan and Subsidized Federal Stafford 

Loan amounts.

(3) For a graduate or professional student, 

$138,500 including any loans for undergraduate 

study, minus any Direct Subsidized Loan, 

Subsidized Federal Stafford Loan, and Federal 

SLS Program loan amounts.

(f) Direct PLUS Loans annual limit. The total 

amount of all Direct PLUS Loans that a parent or 

parents may borrow on behalf of each 

dependent student, or that a graduate or 

professional student may borrow, for any 

academic year of study may not exceed the cost 

of attendance minus other estimated financial 

assistance for the student.

(g) Direct PLUS Loans aggregate limit. The 

total amount of all Direct PLUS Loans that a 

parent or parents may borrow on behalf of each 

dependent student, or that a graduate or 

professional student may borrow, for 

enrollment in an eligible program of study may 

not exceed the student's cost of attendance 

minus other estimated financial assistance for 

that student for the entire period of enrollment.

(h) Loan limit period. The annual loan limits 

apply to an academic year, as defined in 34 CFR 

668.3.

(i) Treatment of Direct Consolidation Loans 

and Federal Consolidation Loans. The 

percentage of the outstanding balance on 

Direct Consolidation Loans or Federal 

Consolidation Loans counted against a 

borrower's aggregate loan limits is calculated as 

follows:

(1) For Direct Subsidized Loans, the 

percentage equals the percentage of the 

original amount of the Direct Consolidation 

Loan or Federal Consolidation Loan attributable 

to the Direct Subsidized and Subsidized Federal 

Stafford Loans.

(2) For Direct Unsubsidized Loans, the 

percentage equals the percentage of the 

original amount of the Direct Consolidation 

Loan or Federal Consolidation Loan attributable 

to the Direct Unsubsidized, Federal SLS, and 

Unsubsidized Federal Unsubsidized Stafford 

Loans.

(j) Maximum loan amounts. In no case may 

a Direct Subsidized, Direct Unsubsidized, or 

Direct PLUS Loan amount exceed the student's 

estimated cost of attendance for the period of 

enrollment for which the loan is intended, 

less—

(1) The student's estimated financial 

assistance for that period; and

(2) In the case of a Direct Subsidized Loan, 

the borrower's expected family contribution for 

that period.
Subpart B—Borrower Provisions

§685.203

Loan limits

MEETING 2

FEBRUARY 13-17, 2012

32

(k) Any TEACH Grants that have been 

converted to Direct Unsubsidized Loans are not 

counted against any annual or aggregate loan 

limits under this section.
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

33

§ 685.204 Deferment.

(a) General. (1) A Direct Subsidized Loan or 

Direct Subsidized Consolidation Loan borrower 

whose loan is eligible for interest subsidies and 

who meets the requirements described in 

paragraphs (b), (d), and (e), (f), (g), (h), (i), and 

(j) of this section is eligible for a deferment 

during which periodic installments of principal 

and interest need not be paid.

(2) A Direct Unsubsidized Loan, Direct 

Unsubsidized Consolidation Loan, Direct PLUS 

Loan, or Direct PLUS Consolidation Loan

borrower whose loan is not eligible for interest 

subsidies and who meets the requirements 

described in paragraphs (b) and (e)through (j) of 

this section is eligible for a deferment during 

which periodic installments of principal need 

not be paid but interest does accrue and is 

capitalized or paid by the borrower. The 

Secretary will provide information, including an 

example, to assist the borrower in 

understanding the impact of capitalization of 

accrued, unpaid interest on the borrower’s loan 

principal and on the total amount of interest to 

be paid over the life of the loan.

(3) A borrower whose loan is in default is 

not eligible for a deferment, unless the 

borrower has made payment arrangements 

satisfactory to the Secretary.

(4)(i) To receive a deferment, except as 

provided for in-school deferments under 

paragraphs (b)(2)(ii) through (iv) of this section, 

the borrower must request the deferment and, 

except as provided in paragraph (a)(5)(i) of this 

section, provide the Secretary with all 

information and documents required to 

establish eligibility for the deferment. 

(ii) In the case of a military service 

deferment under paragraph (h) of this section, a 

borrower's representative may request the 

deferment and provide the required 

information and documents on behalf of the 

borrower. If the Secretary grants a military 

service deferment based on a request from a 

borrower's representative, the Secretary 

notifies the borrower that the deferment has 

been granted and that the borrower has the 

option to cancel the deferment and continue to 

make payments on the loan. The Secretary may 

also notify the borrower's representative of the 

outcome of the deferment request.

(5)(i) After receiving a borrower's written or 

verbal request, the Secretary may grant a 

graduate fellowship deferment under 

paragraph (d), a rehabilitation training 

deferment under paragraph (e), an 

unemployment deferment under paragraph (f),

an economic hardship deferment under 

paragraph (g), a military service deferment 

under paragraph (h), or a post-active duty 

student deferment under paragraph (i) of this 

section if the Secretary confirms that the 

borrower has received a deferment on a FFEL 

Program loan for the same reason and during 

the same time period.

(ii) The Secretary relies in good faith on the 

information obtained under paragraph (a)(5)(i)

of this section when determining a borrower's 

eligibility for a deferment, unless the Secretary, 

as of the date of the determination, has 

information indicating that the borrower does 

not qualify for the deferment. The Secretary 

resolves any discrepant information before 

granting a deferment under paragraph (a)(5)(i)

of this section.

(iii) If the Secretary grants a deferment 

under paragraph (a)(5)(i) of this section, the 

Secretary notifies the borrower that the 

deferment has been granted and that the 
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

34

borrower has the option to cancel the 

deferment and continue to make payments on 

the loan.

(b) In-school deferment. Except as provided 

in paragraphs (d) and (g) of this section, a(1)(i) A

Direct Loan borrower is eligible for a deferment 

during any period during which the borrower 

meets any of the following requirements:

(1)(i) The borrower—

(A) Isis carrying at least one-half the normal 

full-time work load for the course of study that 

the borrower is pursuing, as determined by the 

eligible school the borrower is attending; and

(B) Is pursuing a course of study pursuant to 

a graduate fellowship program approved by the 

Secretary; or

(C) Is pursuing a rehabilitation training 

program, approved by the Secretary, for 

individuals with disabilities; and

(ii) The borrower is not serving in a medical 

internship or residency program, except for a 

residency program in dentistry.

(2)(iii)(A) For the purpose of paragraph 

(b)(1)(i)(A) of this section, the Secretary 

processes a deferment when—

(1)(i) The borrower submits a request to the 

Secretary along with documentation verifying 

the borrower's eligibility;

(2)(ii) The Secretary receives information 

from the borrower's school indicating that the 

borrower is eligible to receive a new loan;

(3)(iii) The Secretary receives student status 

information from the borrower's school, either 

directly or indirectly, indicating that the 

borrower is enrolled on at least a half-time 

basis; or

(4)(iv) The Secretary confirms a borrower's 

half-time enrollment status through the use of 

the National Student Loan Data System if 

requested to do so by the school the borrower 

is attending.

(B)(1)(3)(i) Upon notification by the 

Secretary that a deferment has been granted 

based on paragraph (b)(2)(ii), (iii) or 

(iv)(1)(iii)(A)(2), (3), or (4) of this section, the 

borrower has the option to cancel the 

deferment and continue paying on the loan.

(2)(ii) If the borrower elects to cancel the 

deferment and continue paying on the loan, the 

borrower has the option to make the principal 

and interest payments that were deferred. If 

the borrower does not make the payments, the 

Secretary applies a deferment for the period in 

which payments were not made and capitalizes 

the interest. The Secretary will provide 

information, including an example, to assist the 

borrower in understanding the impact of 

capitalization of accrued, unpaid interest on the 

borrower's loan principal and on the total 

amount of interest to be paid over the life of 

the loan.

(c) In-school deferments for Direct PLUS 

Loan borrowers with loans first disbursed on or 

after July 1, 2008. (1)(i) A student Direct PLUS 

Loan borrower is eligible for a deferment on a 

Direct PLUS Loan first disbursed on or after July 

1, 2008 during the 6-month period that begins 

on the day after the student ceases to be 

enrolled on at least a half-time basis at an 

eligible institution.

(ii) If the Secretary grants an in-school 

deferment to a student Direct PLUS Loan 

borrower in accordance with §685.204(b)(2)(ii), 
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

35

(iii), or (iv), the deferment period for a Direct 

PLUS loan first disbursed on or after July 1, 2008 

includes the 6-month post-enrollment period 

described in paragraph (c)(1)(i) of this section. 

(2) A parent Direct PLUS Loan borrower is 

eligible for a deferment on a Direct PLUS Loan 

first disbursed on or after July 1, 2008—

(i) Upon the request of the borrower, 

during the period when the student on whose 

behalf the loan was obtained is enrolled at an 

eligible institution on at least a half-time basis; 

and

(ii) Upon the request of the borrower, 

during the 6-month period that begins on the 

later of the day after the student on whose 

behalf the loan was obtained ceases to be 

enrolled on at least a half-time basis or, if the 

parent borrower is also a student, the day after 

the parent borrower ceases to be enrolled on at 

least a half-time basis.

(d) Graduate fellowship deferment. (1) A 

Direct Loan borrower is eligible for a deferment 

during any period in which the borrower is 

pursuing a course of study pursuant to an 

eligible graduate fellowship program in 

accordance with paragraph (d)(2) of this section

(2)(i) To qualify for a deferment under 

paragraph (d)(1) of this section, a borrower 

must—

(A) Hold at least a baccalaureate degree 

conferred by an institution of higher education; 

(B) Have been accepted or recommended 

by an institution of higher education for 

acceptance on a full-time basis into an eligible 

graduate fellowship program, as defined in 

paragraph (d)(2)(ii) of this section; and

(C) Not be serving in a medical internship or 

residency program, except for a residency 

program in dentistry.

(ii) An eligible graduate fellowship program 

is a fellowship program that—

(A) Provides sufficient financial support to 

graduate fellows to allow for full-time study for 

at least six months;

(B) Requires a written statement from each 

applicant explaining the applicant's objectives 

before the award of that financial support;

(C) Requires a graduate fellow to submit 

periodic reports, projects, or evidence of the 

fellow's progress; and

(D) In the case of a course of study at a 

foreign university, accepts the course of study 

for completion of the fellowship program.

(e) Rehabilitation training program 

deferment. (1) A Direct Loan borrower is 

eligible for a deferment during any period in 

which the borrower –

(i) Is pursuing an eligible rehabilitation 

training program for individuals with disabilities 

in accordance with paragraph (e)(2) of this 

section; and

(ii) Is not serving in a medical internship or 

residency program, except for a residency 

program in dentistry.

(2) For purposes of paragraph (e)(1) of this 

section, an eligible rehabilitation training 

program for disabled individuals is a program 

that—

(i) Is licensed, approved, certified, or 

otherwise recognized as providing rehabilitation 

training to disabled individuals by—
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

36

(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 program;

(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 normally 

would 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. For the purpose of this 

paragraph, full-time employment involves at 

least 30 hours of work per week and is expected 

to last at least three months.

(f) Unemployment deferment. (2)(i) The 

borrower is seeking and unable to find full-time 

employment.

(ii) For purposes of paragraph (b)(2)(i) of 

this section, the Secretary determines whether 

a borrower is eligible for a deferment due to 

the inability to find full-time employment using 

the standards and procedures set forth in 34 

CFR 682.210(h) with references to the lender 

understood to mean the Secretary. (1) A Direct 

Loan borrower is eligible for a deferment during 

periods that, collectively, do not exceed 3 years 

in which the borrower is seeking and unable to 

find full-time employment. 

(2) A borrower qualifies for an 

unemployment deferment by –

(i) Providing evidence of eligibility for 

unemployment benefits to the Secretary; or

(ii) Providing to the Secretary a written 

certification, or an equivalent as approved by 

the Secretary, that—

(A) The borrower has registered with a 

public or private employment agency, if one is 

available to the borrower within a 50-mile 

radius of the borrower's current address; and

(B) For all requests beyond the initial 

request, the borrower has made at least six 

diligent attempts during the preceding 6-month 

period to secure full-time employment.

(3) For purposes of obtaining an 

unemployment deferment under paragraph 

(f)(2)(ii) of this section, the following rules 

apply:

(i) A borrower may qualify for an 

unemployment deferment whether or not the 

borrower has been previously employed.

(ii) An unemployment deferment is not 

justified if the borrower refuses to seek or 

accept employment in kinds of positions or at 

salary and responsibility levels for which the 

borrower feels overqualified by virtue of 

education or previous experience.
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

37

(iii) Full-time employment involves at least 

30 hours of work a week and is expected to last 

at least three months.

(iv) The initial period of unemployment 

deferment may be granted for a period of 

unemployment beginning up to 6 months 

before the date the Secretary receives the 

borrower's request, and may be granted for up 

to 6 months after that date.

(4) The Secretary does not grant an 

unemployment deferment beyond the date that 

is 6 months after the date the borrower 

provides evidence of the borrower's eligibility 

for unemployment insurance benefits under 

paragraph (f)(2)(i) of this section or the date the 

borrower provides the written certification, or 

an approved equivalent, under paragraph 

(f)(2)(ii) of this section. 

(g) Economic hardship deferment. (3)(i) The 

borrower has experienced or will experience an 

economic hardship.

(ii) For purposes of paragraph (b)(3)(i) of 

this section, the Secretary determines whether 

a borrower is eligible for a deferment due to an 

economic hardship using the standards and 

procedures set forth in 34 CFR 682.210(s)(6) 

with references to the lender understood to 

mean the Secretary. (1)(i) A Direct Loan 

borrower is eligible for a deferment during 

periods that, collectively, do not exceed 3 years 

in which the borrower has experienced or will 

experience an economic hardship in accordance 

with paragraph (g)(2) of this section.

(ii) An economic hardship deferment is 

granted for periods of up to one year at a time, 

except that a borrower who receives a 

deferment under paragraph (g)(2)(iv) of this 

section may receive an economic hardship 

deferment 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 under the 3-year 

maximum.

(2) A borrower qualifies for an economic 

hardship deferment if the borrower –

(i) Has been granted an economic hardship 

deferment under either the FFEL or Federal 

Perkins Loan Programs for the period of time 

for which the borrower has requested an 

economic hardship deferment for his or her 

Direct Loan.

(ii) 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.

(iii) Is working full-time (as defined in 

paragraph (g)(3)(iii) of this section) and has a 

monthly income (as defined in paragraph 

(g)(3)(iv) of this section) that does not exceed 

the greater of (as calculated on a monthly 

basis)—

(A) The minimum wage rate described in 

section 6 of the Fair Labor Standards Act of 

1938; or

(B) An amount equal to 150 percent of the 

poverty guideline applicable to the borrower's 

family size (as defined in paragraph (g)(3)(v) of 

this section) as published annually by the 

Department of Health and Human Services 

pursuant to 42 U.S.C. 9902(2). If a borrower is 

not a resident of a State identified in the 

poverty guidelines, the poverty guideline to be 

used for the borrower is the poverty guideline 

(for the relevant family size) used for the 48 

contiguous States; or
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

38

(iv) Is serving as a volunteer in the Peace 

Corps.

(3) The following rules apply to a deferment 

granted under paragraph (g)(2)(iii) of this 

section:

(i) For an initial period of deferment, the 

Secretary requires the borrower to submit 

evidence showing the amount of the borrower's 

monthly income.

(ii) To qualify for a subsequent period of 

deferment that begins less than one year after 

the end of a period of deferment under 

paragraph (g)(2)(iii) of this section, the 

Secretary requires the borrower to submit 

evidence showing the amount of the borrower's 

monthly income or a copy of the borrower's 

most recently filed Federal income tax return.

(iii) 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.

(iv) A borrower's monthly income is the 

gross amount of income received by the 

borrower from employment and from other 

sources, or one-twelfth of the borrower's 

adjusted gross income, as recorded on the 

borrower's most recently filed Federal income 

tax return.

(v) Family size means the number that is 

determined by counting the borrower, the 

borrower's spouse, and the borrower's children, 

including unborn children who will be born 

during the period covered by the deferment, if 

the children receive more than half their 

support from the borrower. A borrower's family 

size includes other individuals if, at the time the 

borrower requests the economic hardship 

deferment, the other individuals—

(A) Live with the borrower; and

(B) Receive more than half their support 

from the borrower and will continue to receive 

this support from the borrower for the year the 

borrower certifies family size. Support includes 

money, gifts, loans, housing, food, clothes, car, 

medical and dental care, and payment of 

college costs.

(c) No deferment under paragraphs (b) (2) 

or (3) of this section may exceed three years.

(d) If, at the time of application for a 

borrower's first Direct Loan, a borrower has an 

outstanding balance of principal or interest 

owing on any FFEL Program loan that was 

made, insured, or guaranteed prior to July 1, 

1993, the borrower is eligible for a deferment 

during—

(1) The periods described in paragraphs (b) 

and (e) of this section; and

(2) The periods described in 34 CFR 

682.210(b), including those periods that apply 

to a “new borrower” as that term is defined in 

34 CFR 682.210(b)(7).

(e)(h) Military service deferment. (1)A 

Direct Loan borrower is eligible for who 

receives a Direct Loan Program loan, may 

receive a military service deferment for such 

loan forduring any period during in which the 

borrower is—

(i) Serving on active duty during a war or 

other military operation or national emergency, 

as defined in paragraph (h)(5) of this section; or

(ii) Performing qualifying National Guard 

duty during a war or other military operation or 

national emergency, as defined in paragraph 

(h)(5) of this section.
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

39

(2) For a borrower whose active duty 

service includes October 1, 2007, or begins on 

or after that date, the deferment period ends 

180 days after the demobilization date for each 

period of the service described in paragraphs 

(e)(h)(1)(i) and (e)(h)(1)(ii) of this section.

(3) Without supporting documentation, the 

military service deferment will be granted to an 

otherwise eligible borrower for a period not to 

exceed 12 months from the date of the 

qualifying eligible service based on a request 

from the borrower or the borrower's 

representative.

(4) The provisions of paragraph (h) of this 

section do not authorize the refunding of any 

payments made by or on behalf of a borrower 

during a period for which the borrower 

qualified for a military service deferment.

(5) As used in paragraph (h) of this section –

(3)(i) Serving on active duty during a war or 

other military operation or national emergency 

means service by an individual who is—

(i)(A) A Reserve of an Armed Force ordered 

to active duty under 10 U.S.C. 12301(a), 

12301(g), 12302, 12304, or 12306;

(ii)(B) A retired member of an Armed Force 

ordered to active duty under 10 U.S.C. 688 for 

service in connection with a war or other 

military operation or national emergency, 

regardless of the location at which such active 

duty service is performed; or

(iii)(C) Any other member of an Armed 

Force on active duty in connection with such 

emergency or subsequent actions or conditions 

who has been assigned to a duty station at a 

location other than the location at which the 

member is normally assigned.

(4)(ii) Qualifying National Guard duty during 

a war or other operation or national emergency 

means service as a member of the National 

Guard on full-time National Guard duty, as 

defined in 10 U.S.C. 101(d)(5) under a call to 

active service authorized by the President or 

the Secretary of Defense for a period of more 

than 30 consecutive days under 32 U.S.C. 502(f) 

in connection with a war, other military 

operation, or national emergency declared by 

the President and supported by Federal funds.

(5) These provisions do not authorize the 

refunding of any payments made by or on 

behalf of a borrower during a period for which 

the borrower qualified for a military service 

deferment.

(6) As used in this paragraph—

(i)(iii) Active duty means active duty as 

defined in 10 U.S.C. 101(d)(1) except that it 

does not include active duty for training or 

attendance at a service school;

(ii)(iv) Military operation means a 

contingency operation as defined in 10 U.S.C. 

101(a)(13); and

(iii)(v) National emergency means the 

national emergency by reason of certain 

terrorist attacks declared by the President on 

September 14, 2001, or subsequent national 

emergencies declared by the President by 

reason of terrorist attacks.

(7) Without supporting documentation, the 

military service deferment will be granted to an 

otherwise eligible borrower for a period not to 

exceed 12 months from the date of the 

qualifying eligible service based on a request 

from the borrower or the borrower's 

representative.
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

40

(f)(i) Post-active duty student deferment. (1) 

A borrower who receives a Direct Loan 

borrower Program loan is entitled to 

receiveeligible for a military active duty student 

deferment for 13 months following the 

conclusion of the borrower's active duty 

military service if—

(i) The borrower is a member of the 

National Guard or other reserve component of 

the Armed Forces of the United States or a 

member of such forces in retired status; and

(ii) The borrower was enrolled on at least a 

half-time basis in a program of instruction at an 

eligible institution at the time, or within six 

months prior to the time, the borrower was 

called to active duty.

(2) As used in paragraph (f)(i)(1) of this 

section, “Active Duty” means active duty as 

defined in section 101(d)(1) of title 10, United 

States Code, except that—

(i) Active duty includes active State duty for 

members of the National Guard under which a 

Governor activates National Guard personnel 

based on State statute or policy and the 

activities of the National Guard are paid for with 

State funds;

(ii) Active duty includes full-time National 

Guard duty under which a Governor is 

authorized, with the approval of the President 

or the U.S. Secretary of Defense, to order a 

member to State active duty and the activities 

of the National Guard are paid for with Federal 

funds;

(iii) Active duty does not include active duty 

for training or attendance at a service school; 

and

(iv) Active duty does not include 

employment in a full-time, permanent position 

in the National Guard unless the borrower 

employed in such a position is reassigned to 

active duty under paragraph (f)(i)(2)(i) of this 

section or full-time National Guard duty under 

paragraph (f)(i)(2)(ii) of this section.

(3) If the borrower returns to enrolled 

student status on at least a half-time basis 

during the grace period or the 13-month 

deferment period, the deferment expires at the 

time the borrower returns to enrolled student 

status on at least a half-time basis.

(4) If a borrower qualifies for both a military 

service deferment and a post-active duty 

student deferment, the 180-day postdemobilization deferment period and the 13-

month post-active duty student deferment 

period apply concurrently.

(j) Additional deferments for Direct Loan 

borrowers with FFEL Program loans made 

before July 1, 1993. If, at the time of application 

for a borrower's first Direct Loan, a borrower 

has an outstanding balance of principal or 

interest owing on any FFEL Program loan that 

was made, insured, or guaranteed prior to July 

1, 1993, the borrower is eligible for a deferment 

during—

(1) The periods described in paragraphs (b) 

through (i) of this section; and

(2) The periods described in 34 CFR 

682.210(b), including those periods that apply 

to a “new borrower” as that term is defined in 

34 CFR 682.210(b)(7).

(g) In-school deferments for Direct PLUS 

Loan borrowers wi th loans first disbursed on or 

after July 1, 2008. (1)(i) A student Direct PLUS 

Loan borrower is entitled to a deferment on a 
Subpart B—Borrower Provisions

§685.204

Deferment

MEETING 2

FEBRUARY 13-17, 2012

41

Direct PLUS Loan first disbursed on or after July 

1, 2008 during the 6-month period that begins 

on the day after the student ceases to be 

enrolled on at least a half-time basis at an 

eligible institution.

(ii) If the Secretary grants an in-school 

deferment to a student Direct PLUS Loan 

borrower based on §682.204(b)(1)(iii)(A)(2), (3), 

or (4), the deferment period for a Direct PLUS 

Loan first disbursed on or after July 1, 2008 

includes the 6-month post-enrollment period 

described in paragraph (g)(1)(i) of this section.

(2) Upon the request of the borrower, an 

eligible parent Direct PLUS Loan borrower will 

receive a deferment on a Direct PLUS Loan first 

disbursed on or after July 1, 2008—

(i) During the period when the student on 

whose behalf the loan was obtained is enrolled 

at an eligible institution on at least a half-time 

basis; and

(ii) During the 6-month period that begins 

on the later of the day after the student on 

whose behalf the loan was obtained ceases to 

be enrolled on at least a half-time basis or, if 

the parent borrower is also a student, the day

after the parent borrower ceases to be enrolled 

on at least a half-time basis.

(h) A borrower whose loan is in default is 

not eligible for a deferment, unless the 

borrower has made payment arrangements 

satisfactory to the Secretary.

(i)(1) To receive a deferment, except as 

provided under paragraph (b)(1)(i)(A) of this 

section, the borrower must request the 

deferment and provide the Secretary with all 

information and documents required to 

establish eligibility for the deferment. In the 

case of a deferment under paragraph (e)(1) of 

this section, a borrower's representative may 

request the deferment and provide the 

required information and documents on behalf 

of the borrower.

(2) After receiving a borrower's written or 

verbal request, the Secretary may grant a 

deferment under paragraphs (b)(1)(i)(B), 

(b)(1)(i)(C), (b)(2)(i), (b)(3)(i), (e)(1), and (f)(1) of 

this section if the Secretary confirms that the 

borrower has received a deferment on a Perkins 

or FFEL Loan for the same reason and the same 

time period.

(3) The Secretary relies in good faith on the 

information obtained under paragraph (i)(2) of 

this section when determining a borrower's 

eligibility for a deferment, unless the Secretary, 

as of the date of the determination, has 

information indicating that the borrower does 

not qualify for the deferment. The Secretary 

resolves any discrepant information before 

granting a deferment under paragraph (i)(2) of 

this section.

(4) If the Secretary grants a deferment 

under paragraph (i)(2) of this section, the 

Secretary notifies the borrower that the 

deferment has been granted and that the 

borrower has the option to cancel the 

deferment and continue to make payments on 

the loan.

(5) If the Secretary grants a military service 

deferment based on a request from a 

borrower's representative, the Secretary 

notifies the borrower that the deferment has 

been granted and that the borrower has the 

option to cancel the deferment and continue to 

make payments on the loan. The Secretary may 

also notify the borrower's representative of the 

outcome of the deferment request.
Subpart B—Borrower Provisions

§685.205

Forbearance

MEETING 2

FEBRUARY 13-17, 2012

42

§ 685.205 Forbearance. [SEE ISSUE PAPERS 

#4, #5 AND #6 FOR ADDITIONAL PROPOSED 

CHANGES IN THIS SECTION: NEW (a)(8), NEW

(a)(9), AND AMENDED (b)(2).]

(a) General. “Forbearance” means 

permitting the temporary cessation of 

payments, allowing an extension of time for 

making payments, or temporarily accepting 

smaller payments than previously scheduled. 

The borrower has the option to choose the 

form of forbearance. Except as provided in 

paragraph (b)(9) of this section, if payments of 

interest are forborne, they are capitalized. The 

Secretary grants forbearance if the borrower or 

endorser intends to repay the loan but requests 

forbearance and provides sufficient 

documentation to support this request, and—

(1) The Secretary determines that, due to 

poor health or other acceptable reasons, the 

borrower or endorser is currently unable to 

make scheduled payments;

(2) The borrower's payments of principal 

are deferred under §685.204 and the Secretary 

does not subsidize the interest benefits on 

behalf of the borrower;

(3) The borrower is in a medical or dental 

internship or residency that must be 

successfully completed before the borrower 

may begin professional practice or service, or 

the borrower is serving in a medical or dental 

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;

(4) The borrower is serving in a national 

service position for which the borrower is 

receiving a national service education award 

under title I of the National and Community 

Service Act of 1990; or

(5) The borrower—

(i) Is performing the type of service that 

would qualify the borrower for loan forgiveness 

under the requirements of the teacher loan 

forgiveness program in §685.217; and

(ii) Is required, by the Secretary, before a 

forbearance is granted under §685.205(a)(5)(i) 

to—

(A) Submit documentation for the period of 

the annual forbearance request showing the 

beginning and ending dates that the borrower is 

expected to perform, for that year, the type of 

service described in §685.217(c); and

(B) Certify the borrower's intent to satisfy 

the requirements of §685.217(c).

(6) For not more than three years during 

which the borrower or endorser—

(i) Is currently obligated to make payments 

on loans under title IV of the Act; and

(ii) The sum of these payments each month 

(or a proportional share if the payments are due 

less frequently than monthly) is equal to or 

greater than 20 percent of the borrower's or 

endorser's total monthly gross income.

(7) The borrower is a member of the 

National Guard who qualifies for a post-active 

duty student deferment, but does not qualify 

for a military service or other deferment, and is 

engaged in active State duty for a period of 

more than 30 consecutive days, beginning—

(i) On the day after the grace period expires 

for a Direct Subsidized Loan or Direct 

Unsubsidized Loan that has not entered 

repayment; or
Subpart B—Borrower Provisions

§685.205

Forbearance

MEETING 2

FEBRUARY 13-17, 2012

43

(ii) On the day after the borrower ceases 

enrollment on at least a half-time basis, for a 

Direct Loan in repayment.

(b) Administrative forbearance. In certain 

circumstances, the Secretary grants 

forbearance without requiring documentation 

from the borrower. These circumstances 

include but are not limited to—

(1) A properly granted period of deferment 

for which the Secretary learns the borrower did 

not qualify;

(2) The period for which payments are 

overdue at the beginning of an authorized 

deferment period;

(3) The period beginning when the 

borrower entered repayment without the 

Secretary's knowledge until the first payment 

due date was established;

(4) The period prior to a borrower's filing of 

a bankruptcy petition;

(5) A period after the Secretary receives 

reliable information indicating that the 

borrower (or the student in the case of a Direct 

PLUS Loan obtained by a parent borrower) has 

died, or the borrower has become totally and 

permanently disabled, until the Secretary 

receives documentation of death or total and 

permanent disability;

(6) Periods necessary for the Secretary to 

determine the borrower's eligibility for 

discharge—

(i) Under §685.214;

(ii) Under §685.215;

(iii) Under §685.216;

(iv) Under §685.217; or

(v) Due to the borrower's or endorser's (if 

applicable) bankruptcy;

(7) A period of up to three years in cases 

where the effect of a variable interest rate on a 

fixed-amount or graduated repayment schedule 

causes the extension of the maximum 

repayment term;

(8) A period during which the Secretary has 

authorized forbearance due to a national 

military mobilization or other local or national 

emergency;

(9) A period of up to 60 days necessary for 

the Secretary to collect and process 

documentation supporting the borrower's 

request for a deferment, forbearance, change in 

repayment plan, or consolidation loan. Interest 

that accrues during this period is not 

capitalized; or

(10) For Direct PLUS Loans first disbursed 

before July 1, 2008, to align repayment with a 

borrower's Direct PLUS Loans that were first 

disbursed on or after July 1, 2008, or with Direct 

Subsidized Loans or Direct Unsubsidized Loans 

that have a grace period in accordance with 

§685.207(b) or (c). The Secretary notifies the 

borrower that the borrower has the option to 

cancel the forbearance and continue paying on 

the loan.

(c) Period of forbearance. (1) The Secretary 

grants forbearance for a period of up to one 

year.

(2) The forbearance is renewable, upon 

request of the borrower, for the duration of the 

period in which the borrower meets the 

condition required for the forbearance.
Subpart B—Borrower Provisions

§685.205

Forbearance

MEETING 2

FEBRUARY 13-17, 2012

44
Subpart B—Borrower Provisions

§685.206

Borrower responsibilities and defenses

MEETING 2

FEBRUARY 13-17, 2012

45

§ 685.206 Borrower responsibilities and 

defenses.

(a) The borrower shallmust give the school 

the following information as part of the 

origination process for a Direct Subsidized, 

Direct Unsubsidized, or Direct PLUS Loan:

(1) A statement, as described in 34 CFR part 

668, that the loan will be used for the cost of 

the student's attendance.

(2) Information demonstrating that the 

borrower is eligible for the loan.

(3) Information concerning the outstanding 

FFEL Program and Direct Loan Program loans of 

the borrower and, for a parent borrower, of the 

student, including any Federal Consolidation 

Loan or Direct Consolidation Loan.

(4) A statement authorizing the school to 

release to the Secretary information relevant to 

the student's eligibility to borrow or to have a 

parent borrow on the student's behalf (e.g., the 

student's enrollment status, financial 

assistance, and employment records).

(b)(1) The borrower shallmust promptly 

notify the Secretary of any change of name, 

address, student status to less than half-time, 

employer, or employer's address; and

(2) The borrower shallmust promptly notify 

the school of any change in address during 

enrollment.

(c) Borrower defenses. (1) In any proceeding 

to collect on a Direct Loan, the borrower may 

assert as a defense against repayment, any act 

or omission of the school attended by the 

student that would give rise to a cause of action 

against the school under applicable State law. 

These proceedings include, but are not limited 

to, the following:

(i) Tax refund offset proceedings under 34 

CFR 30.33.

(ii) Wage garnishment proceedings under 

section 488A of the Act.

(iii) Salary offset proceedings for Federal 

employees under 34 CFR part 31.

(iv) Credit bureauConsumer reporting 

agency reporting proceedings under 31 U.S.C. 

3711(f).

(2) If the borrower's defense against 

repayment is successful, the Secretary notifies 

the borrower that the borrower is relieved of 

the obligation to repay all or part of the loan 

and associated costs and fees that the borrower 

would otherwise be obligated to pay. The 

Secretary affords the borrower such further 

relief as the Secretary determines is appropriate 

under the circumstances. Further relief may 

include, but is not limited to, the following:

(i) Reimbursing the borrower for amounts 

paid toward the loan voluntarily or through 

enforced collection.

(ii) Determining that the borrower is not in 

default on the loan and is eligible to receive 

assistance under title IV of the Act.

(iii) Updating reports to credit 

bureausconsumer reporting agencies to which 

the Secretary previously made adverse credit 

reports with regard to the borrower's Direct 

Loan.

(3) The Secretary may initiate an 

appropriate proceeding to require the school 

whose act or omission resulted in the 

borrower's successful defense against 
Subpart B—Borrower Provisions

§685.206

Borrower responsibilities and defenses

MEETING 2

FEBRUARY 13-17, 2012

46

repayment of a Direct Loan to pay to the 

Secretary the amount of the loan to which the 

defense applies. However, the Secretary does 

not initiate such a proceeding after the period 

for the retention of records described in 

§685.309(c) unless the school received actual 

notice of the claim during that period.
Subpart B—Borrower Provisions

§685.207

Obligation to repay

MEETING 2

FEBRUARY 13-17, 2012

47

§ 685.207 Obligation to repay.

(a) Obligation of repayment in general. (1) A 

borrower is obligated to repay the full amount 

of a Direct Loan, including the principal balance, 

fees, any collection costs charged under 

§685.202(e), and any interest not subsidized by 

the Secretary, unless the borrower is relieved of 

the obligation to repay as provided in this part.

(2) The borrower's repayment of a Direct 

Loan may also be subject to the deferment 

provisions in §685.204, the forbearance 

provisions in §685.205, and the discharge 

provisions in §685.212,and the loan forgiveness 

provisions in §§685.217 and 685.219.

(b) Direct Subsidized Loan repayment. (1) 

During the period in which a borrower is 

enrolled at an eligible school on at least a halftime basis, the borrower is in an “in-school” 

period and is not required to make payments 

on a Direct Subsidized Loan unless—

(i) The loan entered repayment before the 

in-school period began; and

(ii) The borrower has not been granted a 

deferment under §685.204.

(2)(i) When a borrower ceases to be 

enrolled at an eligible school on at least a halftime basis, a six-month grace period begins, 

unless the grace period has been previously 

exhausted.

(ii)(A) Any borrower who is a member of a 

reserve component of the Armed Forces named 

in section 10101 of title 10, United States Code 

and is called or ordered to active duty for a 

period of more than 30 days is entitled to have 

the active duty period excluded from the sixmonth grace period. The excluded period 

includes the time necessary for the borrower to 

resume enrollment at the next available regular 

enrollment period. Any single excluded period 

may not exceed 3 years.

(B) Any borrower who is in a grace period 

when called or ordered to active duty as 

specified in paragraph (b)(2)(ii)(A) of this 

section is entitled to a full six-month grace 

period upon completion of the excluded period.

(iii) During a grace period, the borrower is 

not required to make any principal payments on 

a Direct Subsidized Loan.

(3) A borrower is not obligated to pay 

interest on a Direct Subsidized Loan for inschool or grace periods unless the borrower is 

required to make payments on the loan during 

those periods under paragraph (b)(1) of this 

section.

(4) The repayment period for a Direct 

Subsidized Loan begins the day after the grace 

period ends. A borrower is obligated to repay 

the loan under paragraph (a) of this section 

during the repayment period.

(c) Direct Unsubsidized Loan repayment. (1) 

During the period in which a borrower is 

enrolled at an eligible school on at least a halftime basis, the borrower is in an “in-school” 

period and is not required to make payments of 

principal on a Direct Unsubsidized Loan 

unless—

(i) The loan entered repayment before the 

in-school period began; and

(ii) The borrower has not been granted a 

deferment under §685.204.

(2)(i) When a borrower ceases to be 

enrolled at an eligible school on at least a halftime basis, a six-month grace period begins, 
Subpart B—Borrower Provisions

§685.207

Obligation to repay

MEETING 2

FEBRUARY 13-17, 2012

48

unless the grace period has been previously 

exhausted.

(ii)(A) Any borrower who is a member of a 

reserve component of the Armed Forces named 

in section 10101 of title 10, United States Code 

and is called or ordered to active duty for a 

period of more than 30 days is entitled to have 

the active duty period excluded from the sixmonth grace period. The excluded period 

includes the time necessary for the borrower to 

resume enrollment at the next available regular 

enrollment period. Any single excluded period 

may not exceed 3 years.

(B) Any borrower who is in a grace period 

when called or ordered to active duty as 

specified in paragraph (c)(2)(ii)(A) of this section 

is entitled to a full six-month grace period upon 

completion of the excluded period.

(iii) During a grace period, the borrower is 

not required to make any principal payments on 

a Direct Unsubsidized Loan.

(3) A borrower is responsible for the 

interest that accrues on a Direct Unsubsidized 

Loan during in-school and grace periods. 

Interest begins to accrue on the day the first 

installment is disbursed. Interest that accrues 

may be capitalized or paid by the borrower.

(4) The repayment period for a Direct 

Unsubsidized Loan begins the day after the 

grace period ends. A borrower is obligated to 

repay the loan under paragraph (a) of this 

section during the repayment period.

(d) Direct PLUS Loan repayment. The 

repayment period for a Direct PLUS Loan begins 

on the day the loan is fully disbursed. Interest 

begins to accrue on the day the first installment 

is disbursed. A borrower is obligated to repay 

the loan under paragraph (a) of this section 

during the repayment period.

(e) Direct Consolidation Loan repayment. (1) 

Except as provided in paragraphs (e)(2) and 

(e)(3) of this section, the repayment period for 

a Direct Consolidation Loan begins and interest 

begins to accrue on the day the loan is made. 

The borrower is obligated to repay the loan 

under paragraph (a) of this section during the 

repayment period.

(2) In the case of a borrower whose 

consolidation application was received before 

July 1, 2006, a borrower who obtains a Direct 

Subsidized Consolidation Loan during an inschool period will be subject to the repayment 

provisions in paragraph (b) of this section.

(3) In the case of a borrower whose 

consolidation application was received before 

July 1, 2006, a borrower who obtains a Direct 

Unsubsidized Consolidation Loan during an inschool period will be subject to the repayment 

provisions in paragraph (c) of this section.

(f) Determining the date on which the grace 

period begins for a borrower in a 

correspondence program. For a borrower of a 

Direct Subsidized or Direct Unsubsidized Loan 

who is a correspondence student, the grace 

period specified in paragraphs (b)(2) and (c)(2) 

of this section begins on the earliest of—

(1) The day after the borrower completes 

the program;

(2) The day after withdrawal as determined 

pursuant to 34 CFR 668.22; or

(3) 60 days following the last day for 

completing the program as established by the 

school.
Subpart B—Borrower Provisions

§685.207

Obligation to repay

MEETING 2

FEBRUARY 13-17, 2012

49
Subpart B—Borrower Provisions

§685.208

Repayment plans

MEETING 2

FEBRUARY 13-17, 2012

50

§ 685.208 Repayment plans.

(a) General. (1) Borrowers who entered 

repayment before July 1, 2006. (i) A borrower 

may repay a Direct Subsidized Loan, a Direct 

Unsubsidized Loan, a Direct Subsidized 

Consolidation Loan, or a Direct Unsubsidized 

Consolidation Loan under –

(A) tThe standard repayment plan in 

accordance with paragraph (b) of this section;

(B), tThe extended repayment plan in 

accordance with paragraph (d) of this section;

(C), tThe graduated repayment plan in 

accordance with paragraph (f) of this section;

(D), tThe income contingent repayment 

plan in accordance with paragraph (k)(2) of this 

section;, or 

(E) tThe income-based repayment plan, in 

accordance with paragraphs (b), (d), (f), (k), and

(m) of this section, respectively.

(ii) A borrower may repay a Direct PLUS 

Loan or a Direct PLUS Consolidation Loan under 

–

(A) tThe standard repayment plan in 

accordance with paragraph (b) of this section;

(B), tThe extended repayment plan in 

accordance with paragraph (d) of this section,;

or 

(C) tThe graduated repayment plan, in 

accordance with paragraphs (b), (d), and (f) of 

this section, respectively.

(2) Borrowers entering repayment on or 

after July 1, 2006. (i) A borrower may repay a 

Direct Subsidized Loan, or a Direct Unsubsidized 

Loan, or a Direct PLUS Loan that was made to a 

graduate or professional student borrower may 

be repaid under –

(A) tThe standard repayment plan in 

accordance with paragraph (b) of this section;

(B), tThe extended repayment plan in 

accordance with paragraph (e) of this section,;

(C) tThe graduated repayment plan in 

accordance with paragraph (g) of this section,;

(D) tThe income contingent repayment 

plans in accordance with paragraph (k) of this 

section, or 

(E) tThe income-based repayment plan, in 

accordance with paragraphs (b), (e), (g), (k), and 

(m) of this section, respectively.

(ii)(A) A Direct PLUS Loan that was made to 

a graduate or professional student borrower 

may be repaid under the standard repayment 

plan, the extended repayment plan, the 

graduated repayment plan, the incomecontingent repayment plan, or the incomebased repayment plan in accordance with 

paragraphs (b), (e), (g), (k), and (m) of this 

section, respectively.

(B) A Direct PLUS Loan that was made to a 

parent borrower may be repaid under –

(A) tThe standard repayment plan in 

accordance with paragraph (b) of this section,;

(B) tThe extended repayment plan in 

accordance with paragraph (e) of this section,;

or 

(C) tThe graduated repayment plan, in 

accordance with paragraphs (b), (e), and (g) of 

this section, respectively.
Subpart B—Borrower Provisions

§685.208

Repayment plans

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51

(iii) A borrower may repay a Direct 

Consolidation Loan that did not repay a parent 

Direct PLUS Loan or a parent FFEL PLUS Loan 

may be repaid under –

(A) tThe standard repayment plan in 

accordance with paragraph (c) of this section,;

(B) tThe extended repayment plan in 

accordance with paragraph (e) of this section,

(C) tThe graduated repayment plan in 

accordance with paragraph (h) of this section,;

(D) tThe income contingent repayment 

plans in accordance with paragraph (k) of this 

section,; or

(E), unless the Direct Consolidation Loan 

repaid a parent Direct PLUS Loan or a parent 

Federal PLUS Loan, tThe income-based 

repayment plan, in accordance with paragraphs 

(c), (e), (h), (k), and (m) of this section, 

respectively. 

(B) A Direct Consolidation Loan that repaid 

a parent Direct PLUS Loan or a parent Federal 

PLUS Loan may not be repaid under 

(A) tThe standard repayment plan in 

accordance with paragraph (c) of this section;

(B) The extended repayment plan in 

accordance with paragraph (e) of this section;

(C) The graduated repayment plan in 

accordance with paragraph (h) of this section;

or 

(D) The income-based repayment 

planincome contingent plan in accordance with 

paragraph (k)(2) of this section.

(iv) No scheduled payment may be less than 

the amount of interest accrued on the loan 

between monthly payments, except under the 

income contingent repayment plan, the 

income-based repayment plan, or an alternative 

repayment plan.

(3) The Secretary may provide an 

alternative repayment plan in accordance with 

paragraph (l) of this section.

(4) All Direct Loans obtained by one 

borrower must be repaid together under the 

same repayment plan, except that—

(i) A borrower of a Direct PLUS Loan or a 

Direct Consolidation Loan that is not eligible for 

repayment under the income-contingent 

repayment plan or the income-based 

repayment plan may repay the Direct PLUS Loan 

or Direct Consolidation Loan separately from 

other Direct Loans obtained by the borrower; 

and

(ii) A borrower of a Direct PLUS 

Consolidation Loan that entered repayment 

before July 1, 2006, may repay the Direct PLUS 

Consolidation Loan separately from other Direct 

Loans obtained by that borrower.

(5) Except as provided in §685.209 and 

§685.221 for the income contingent or incomebased repayment plan, the repayment period 

for any of the repayment plans described in this 

section does not include periods of authorized 

deferment or forbearance.

(b) Standard repayment plan for all Direct 

Subsidized Loan, Direct Unsubsidized Loan, and 

Direct PLUS Loan borrowers, regardless of when 

they entered repayment, and for Direct 

Consolidation Loan borrowers who entered 

repayment before July 1, 2006. (1) Under this 

repayment plan, a borrower must repay a loan 

in full within ten years from the date the loan 
Subpart B—Borrower Provisions

§685.208

Repayment plans

MEETING 2

FEBRUARY 13-17, 2012

52

entered repayment by making fixed monthly 

payments.

(2) A borrower's payments under this 

repayment plan are at least $50 per month, 

except that a borrower's final payment may be 

less than $50.

(3) The number of payments or the fixed 

monthly repayment amount may be adjusted to 

reflect changes in the variable interest rate 

identified in §685.202(a).

(c) Standard repayment plan for Direct 

Consolidation Loan borrowers entering 

repayment on or after July 1, 2006.

(1) Under this repayment plan, a borrower 

must repay a loan in full by making fixed 

monthly payments over a repayment period 

that varies with the total amount of the 

borrower's student loans, as described in 

paragraph (j) of this section.

(2) A borrower's payments under this 

repayment plan are at least $50 per month, 

except that a borrower's final payment may be 

less than $50.

(d) Extended repayment plan for all Direct 

Loan borrowers who entered repayment before 

July 1, 2006.

(1) Under this repayment plan, a borrower 

must repay a loan in full by making fixed 

monthly payments within an extended period 

of time that varies with the total amount of the 

borrower's loans, as described in paragraph (i) 

of this section.

(2) A borrower makes fixed monthly 

payments of at least $50, except that a 

borrower's final payment may be less than $50.

(3) The number of payments or the fixed 

monthly repayment amount may be adjusted to 

reflect changes in the variable interest rate 

identified in §685.202(a).

(e) Extended repayment plan for all Direct 

Loan borrowers entering repayment on or after 

July 1, 2006.

(1) Under this repayment plan, a new 

borrower with more than $30,000 in 

outstanding Direct Loans accumulated on or 

after October 7, 1998 must repay either a fixed 

annual or graduated repayment amount over a 

period not to exceed 25 years from the date the 

loan entered repayment. For this repayment 

plan, a new borrower is defined as an individual 

who has no outstanding principal or interest 

balance on a Direct Loan as of October 7, 1998, 

or on the date the borrower obtains a Direct 

Loan on or after October 7, 1998.

(2) A borrower's payments under this plan 

are at least $50 per month, and will be more if 

necessary to repay the loan within the required 

time period.

(3) The number of payments or the monthly 

repayment amount may be adjusted to reflect 

changes in the variable interest rate identified 

in §685.202(a).

(f) Graduated repayment plan for all Direct 

Loan borrowers who entered repayment before 

July 1, 2006.

(1) Under this repayment plan, a borrower 

must repay a loan in full by making payments at 

two or more levels within a period of time that 

varies with the total amount of the borrower's 

loans, as described in paragraph (i) of this 

section.
Subpart B—Borrower Provisions

§685.208

Repayment plans

MEETING 2

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53

(2) The number of payments or the monthly 

repayment amount may be adjusted to reflect 

changes in the variable interest rate identified 

in §685.202(a).

(3) No scheduled payment under this 

repayment plan may be less than the amount of 

interest accrued on the loan between monthly 

payments, less than 50 percent of the payment 

amount that would be required under the 

standard repayment plan described in 

paragraph (b) of this section, or more than 150 

percent of the payment amount that would be 

required under the standard repayment plan 

described in paragraph (b) of this section.

(g) Graduated repayment plan for Direct 

Subsidized Loan, Direct Unsubsidized Loan, and 

Direct PLUS Loan borrowers entering repayment 

on or after July 1, 2006.

(1) Under this repayment plan, a borrower 

must repay a loan in full by making payments at 

two or more levels over a period of time not to 

exceed ten years from the date the loan 

entered repayment.

(2) The number of payments or the monthly 

repayment amount may be adjusted to reflect 

changes in the variable interest rate identified 

in §685.202(a).

(3) A borrower's payments under this 

repayment plan may be less than $50 per 

month. No single payment under this plan will 

be more than three times greater than any 

other payment.

(h) Graduated repayment plan for Direct 

Consolidation Loan borrowers entering 

repayment on or after July 1, 2006.

(1) Under this repayment plan, a borrower 

must repay a loan in full by making monthly 

payments that gradually increase in stages over 

the course of a repayment period that varies 

with the total amount of the borrower's student 

loans, as described in paragraph (j) of this 

section.

(2) A borrower's payments under this 

repayment plan may be less than $50 per 

month. No single payment under this plan will 

be more than three times greater than any 

other payment.

(i) Repayment period for the extended and 

graduated plans described in paragraphs (d) 

and (f) of this section, respectively. Under these 

repayment plans, if the total amount of the 

borrower's Direct Loans is—

(1) Less than $10,000, the borrower must 

repay the loans within 12 years of entering 

repayment;

(2) Greater than or equal to $10,000 but 

less than $20,000, the borrower must repay the 

loans within 15 years of entering repayment;

(3) Greater than or equal to $20,000 but 

less than $40,000, the borrower must repay the 

loans within 20 years of entering repayment;

(4) Greater than or equal to $40,000 but 

less than $60,000, the borrower must repay the 

loans within 25 years of entering repayment; 

and

(5) Greater than or equal to $60,000, the 

borrower must repay the loans within 30 years 

of entering repayment.

(j) Repayment period for the standard and 

graduated repayment plans described in 

paragraphs (c) and (h) of this section, 

respectively. Under these repayment plans, if 

the total amount of the Direct Consolidation
Subpart B—Borrower Provisions

§685.208

Repayment plans

MEETING 2

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54

Loan and the borrower's other student loans, as 

defined in §685.220(i), is—

(1) Less then $7,500, the borrower must 

repay the Consolidation Loan within 10 years of 

entering repayment;

(2) Equal to or greater than $7,500 but less 

than $10,000, the borrower must repay the 

Consolidation Loan within 12 years of entering 

repayment;

(3) Equal to or greater than $10,000 but less 

than $20,000, the borrower must repay the 

Consolidation Loan within 15 years of entering 

repayment;

(4) Equal to or greater than $20,000 but less 

than $40,000, the borrower must repay the 

Consolidation Loan within 20 years of entering 

repayment;

(5) Equal to or greater than $40,000 but less 

than $60,000, the borrower must repay the 

Consolidation Loan within 25 years of entering 

repayment; and

(6) Equal to or greater than $60,000, the 

borrower must repay the Consolidation Loan 

within 30 years of entering repayment.

(k) Income contingent repayment plans. (1) 

Under the income-contingent repayment plan 

described in §685.209(a), the required monthly 

payment for a borrower who has a partial 

financial hardship is limited to no more than 10

percent of the amount by which the borrower's 

AGI exceeds 150 percent of the poverty 

guideline applicable to the borrower's family 

size, divided by 12. The Secretary determines 

annually whether the borrower continues to 

qualify for this reduced monthly payment based 

on the amount of the borrower's eligible loans, 

AGI, and poverty guideline. 

(1)(2) Under the income contingent 

repayment plan described in §685.209(b), a 

borrower's monthly repayment amount is 

generally based on the total amount of the 

borrower's Direct Loans, family size, and 

Adjusted Gross Income (AGI) reported by the 

borrower for the most recent year for which the 

Secretary has obtained income information. The 

borrower's AGI includes the income of the 

borrower's spouse. A borrower must make

payments on a loan until the loan is repaid in 

full or until the loan has been in repayment 

through the end of the income contingent 

repayment period.

(2) (3) For the income contingent 

repayment plan described in §685.209(b), Tthe 

regulations in effect at the time a borrower 

enters repayment and selects the income 

contingent repayment plan or changes into the 

income contingent repayment plan from 

another plan govern the method for 

determining the borrower's monthly repayment 

amount for all of the borrower's Direct Loans, 

unless—

(i) The Secretary amends the regulations 

relating to a borrower's monthly repayment 

amount under the income contingent 

repayment plan; and

(ii) The borrower submits a written request 

that the amended regulations apply to the 

repayment of the borrower's Direct Loans.

(3)(4) Provisions governing the income 

contingent repayment plan are in §685.209.

(l) Alternative repayment. (1) The Secretary 

may provide an alternative repayment plan for 

a borrower who demonstrates to the 

Secretary's satisfaction that the terms and 

conditions of the repayment plans specified in 

paragraphs (b) through (h) of this section are 
Subpart B—Borrower Provisions

§685.208

Repayment plans

MEETING 2

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55

not adequate to accommodate the borrower's 

exceptional circumstances.

(2) The Secretary may require a borrower to 

provide evidence of the borrower's exceptional 

circumstances before permitting the borrower 

to repay a loan under an alternative repayment 

plan.

(3) If the Secretary agrees to permit a 

borrower to repay a loan under an alternative 

repayment plan, the Secretary notifies the 

borrower in writing of the terms of the plan. 

After the borrower receives notification of the 

terms of the plan, the borrower may accept the 

plan or choose another repayment plan.

(4) A borrower must repay a loan under an 

alternative repayment plan within 30 years of 

the date the loan entered repayment, not 

including periods of deferment and 

forbearance.

(5) If the amount of a borrower's monthly 

payment under an alternative repayment plan 

is less than the accrued interest on the loan, the 

unpaid interest is capitalized until the 

outstanding principal amount is 10 percent 

greater than the original principal amount. After 

the outstanding principal amount is 10 percent 

greater than the original principal amount, 

interest continues to accrue but is not 

capitalized. For purposes of this paragraph, the 

original principal amount is the amount owed 

by the borrower when the borrower enters 

repayment.

(m) Income-based repayment plan. (1) 

Under this repayment plan, the required 

monthly payment for a borrower who has a 

partial financial hardship is limited to no more 

than 15 percent or, for a new borrower as of 

July 1, 2014, 10 percent of the amount by which 

the borrower's AGI exceeds 150 percent of the 

poverty guideline applicable to the borrower's 

family size, divided by 12. The Secretary 

determines annually whether the borrower 

continues to qualify for this reduced monthly 

payment based on the amount of the 

borrower's eligible loans, AGI, and poverty 

guideline.

(2) The specific provisions governing the 

income-based repayment plan are in §685.221.
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

MEETING 2

FEBRUARY 13-17, 2012

56

§ 685.209 Income contingent repayment plan.

[SEE ISSUE PAPER #1 FOR PROPOSED CHANGES 

TO THIS SECTION.]
Subpart B—Borrower Provisions

§685.210

Choice of repayment plan

MEETING 2

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57

§ 685.210 Choice of repayment plan.

(a) Initial selection of a repayment plan. (1) 

Before a Direct Loan enters into repayment, the 

Secretary provides the borrower a description 

of the available repayment plans and requests 

the borrower to select one. A borrower may 

select a repayment plan before the loan enters 

repayment by notifying the Secretary of the 

borrower's selection in writing.

(2) If a borrower does not select a 

repayment plan, the Secretary designates the 

standard repayment plan described in 

§685.208(b) or (c) for the borrower, as 

applicable.

(b) Changing repayment plans. (1) A 

borrower may change repayment plans at any 

time after the loan has entered repayment by 

notifying the Secretary. However, a borrower 

who is repaying a defaulted loan under the 

income contingent repayment plan or the 

income-based repayment plan under in 

accordance with §685.211(d)(3)(ii), or who is 

repaying a Direct Consolidation Loan under the 

income contingent repayment plan or the 

income-based repayment plan in accordance 

with §685.220(d)(1)(ii)(C) may not change to 

another repayment plan unless—

(i) The borrower was required to and did 

make a payment under the income contingent 

repayment plan or income-based repayment 

plan in each of the prior three (3) months; or

(ii) The borrower was not required to make 

payments but made three reasonable and 

affordable payments in each of the prior three 

months; and

(iii) The borrower makes and the Secretary 

approves a request to change plans.

(2)(i) A borrower may not change to a 

repayment plan that has a maximum 

repayment period of less than the number of 

years the loan has already been in repayment, 

except that a borrower may change to either 

the income contingent or income-based 

repayment plan at any time.

(ii) If a borrower changes plans, the 

repayment period is the period provided under 

the borrower's new repayment plan, calculated 

from the date the loan initially entered 

repayment. However, if a borrower changes to 

the income contingent repayment plan or the 

income-based repayment plan, the repayment 

period is calculated as described in 

§685.209(c)(4) or §685.221(b)(6), respectively. Formatted: Not Highlight
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

MEETING 2

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58

§ 685.211 Miscellaneous repayment 

provisions.

(a) Payment application and prepayment. 

(1) Except as provided for the income-based 

repayment plan under §685.221(c)(1), the 

Secretary applies any payment first to any 

accrued charges and collection costs, then to 

any outstanding interest, and then to 

outstanding principal.

(2) A borrower may prepay all or part of a 

loan at any time without penalty. If a borrower 

pays any amount in excess of the amount due, 

the excess amount is a prepayment.

(3) If a prepayment equals or exceeds the 

monthly repayment amount under the 

borrower's repayment plan, the Secretary—

(i) Applies the prepaid amount according to 

paragraph (a)(1) of this section;

(ii) Advances the due date of the next 

payment unless the borrower requests 

otherwise; and

(iii) Notifies the borrower of any revised 

due date for the next payment.

(4) If a prepayment is less than the monthly 

repayment amount, the Secretary applies the 

prepayment according to paragraph (a)(1) of 

this section.

(b) Repayment incentives. To encourage ontime repayment, the Secretary may reduce the 

interest rate for a borrower who repays a loan 

under a system or on a schedule that meets 

requirements specified by the Secretary.

(c) Refunds and returns of title IV, HEA 

program funds from schools. The Secretary 

applies any refund or return of title IV, HEA 

program funds that the Secretary receives from 

a school under §668.22 against the borrower's 

outstanding principal and notifies the borrower 

of the refund or return.

(d) Default —(1) Acceleration. If a borrower 

defaults on a Direct Loan, the entire unpaid 

balance and accrued interest are immediately 

due and payable.

(2) Collection charges. If a borrower 

defaults on a Direct Loan, the Secretary 

assesses collection charges in accordance with 

§685.202(e).

(3) Collection of a defaulted loan. (i) The 

Secretary may take any action authorized by 

law to collect a defaulted Direct Loan including, 

but not limited to, filing a lawsuit against the 

borrower, reporting the default to national 

credit bureausnationwide consumer reporting 

agencies, requesting the Internal Revenue 

Service to offset the borrower's Federal income 

tax refund, and garnishing the borrower's 

wages.

(ii) If a borrower defaults on a Direct Subsidized 

Loan, a Direct Unsubsidized Loan, a Direct 

Consolidation Loan, or a student Direct PLUS 

Loan, the Secretary may designate the income 

contingent repayment plan or the incomebased repayment plan for the borrower.

(e) Ineligible borrowers. (1) The Secretary 

determines that a borrower is ineligible if, at 

the time the loan was made and without the 

school's or the Secretary's knowledge, the 

borrower (or the student on whose behalf a 

parent borrowed) provided false or erroneous 

information, has been convicted of, or has pled 

nolo contendere or guilty to, a crime involving 

fraud in obtaining title IV, HEA program funds, 

or took actions that caused the borrower or 

student—

Formatted: Not Highlight
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

MEETING 2

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59

(i) To receive a loan for which the borrower 

is wholly or partially ineligible;

(ii) To receive interest benefits for which 

the borrower was ineligible; or

(iii) To receive loan proceeds for a period of 

enrollment for which the borrower was not 

eligible.

(2) If the Secretary makes the 

determination described in paragraph (e)(1) of 

this section, the Secretary sends an ineligible 

borrower a demand letter that requires the 

borrower to repay some or all of a loan, as 

appropriate. The demand letter requires that 

within 30 days from the date the letter is 

mailed, the borrower repay any principal 

amount for which the borrower is ineligible and 

any accrued interest, including interest 

subsidized by the Secretary, through the 

previous quarter.

(3) If a borrower fails to comply with the 

demand letter described in paragraph (e)(2) of 

this section, the borrower is in default on the 

entire loan.

(4) A borrower may not consolidate a loan 

under §685.220 for which the borrower is 

wholly or partially ineligible.

(f) Rehabilitation of defaulted loans. [SEE 

ISSUE PAPER #8 FOR PROPOSED CHANGES IN

PARAGRAPH (f).]
Subpart B—Borrower Provisions

§685.212

Discharge of a loan obligation

MEETING 2

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60

§ 685.212 Discharge of a loan obligation.

(a) Death. (1) If a borrower (or a student on 

whose behalf a parent borrowed a Direct PLUS 

Loan) dies, the Secretary discharges the 

obligation of the borrower and any endorser to 

make any further payments on the loan based 

on an original or certified copy of the 

borrower's (or student's in the case of a Direct 

PLUS loan obtained by a parent borrower) 

death certificate, or an accurate and complete 

photocopy of the original or certified copy of 

the borrower's (or student's in the case of a 

Direct PLUS loan obtained by a parent 

borrower) death certificate.

(2) If an original or certified copy of the 

death certificate or an accurate and complete 

photocopy of the original or certified copy of 

the death certificate is not available, the 

Secretary discharges the loan only if other 

reliable documentation establishes, to the 

Secretary's satisfaction, that the borrower (or 

student) has died. The Secretary discharges a 

loan based on documentation other than an 

original or certified copy of the death 

certificate, or an accurate and complete 

photocopy of the original or certified copy of 

the death certificate only under exceptional 

circumstances and on a case-by-case basis.

(3) In the case of a Direct PLUS 

Consolidation Loan that repaid a Direct PLUS 

Loan or a Federal PLUS Loan obtained on behalf 

of a student who dies, the Secretary discharges 

an amount equal to the portion of the 

outstanding balance of the consolidation loan, 

as of the date of the student's death, 

attributable to that Direct PLUS Loan or Federal 

PLUS Loan.

(b) Total and permanent disability. If a 

borrower meets the requirements in 

§685.213(c), the Secretary discharges the 

obligation of the borrower and any endorser to 

make any further payments on the loan.

(c) Bankruptcy. If a borrower's obligation to 

repay a loan is discharged in bankruptcy, the 

Secretary does not require the borrower to 

make any further payments on the loan.

(d) Closed schools. If a borrower meets the 

requirements in §685.214, the Secretary 

discharges the obligation of the borrower and 

any endorser to make any further payments on 

the loan. In the case of a Direct Consolidation 

Loan, the Secretary discharges the portion of 

the consolidation loan equal to the amount of 

the discharge applicable to any loan disbursed, 

in whole or in part, on or after January 1, 1986 

that was included in the consolidation loan.

(e) False certification and unauthorized 

disbursement. If a borrower meets the 

requirements in §685.215, the Secretary 

discharges the obligation of the borrower and 

any endorser to make any further payments on 

the loan. In the case of a Direct Consolidation 

Loan, the Secretary discharges the portion of 

the consolidation loan equal to the amount of 

the discharge applicable to any loan disbursed, 

in whole or in part, on or after January 1, 1986 

that was included in the consolidation loan.

(f) Unpaid refunds. If a borrower meets the 

requirements in §685.216, the Secretary 

discharges the obligation of the borrower and 

any endorser to make any further payments on 

the amount of the loan equal to the unpaid 

refund and any accrued interest and other 

charges associated with the unpaid refund. In 

the case of a Direct Consolidation Loan, the 

Secretary discharges the portion of the 

consolidation loan equal to the amount of the 

unpaid refund owed on any loan disbursed, in 

Formatted: Not Highlight
Subpart B—Borrower Provisions

§685.212

Discharge of a loan obligation

MEETING 2

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61

whole or in part, on or after January 1, 1986 

that was included in the consolidation loan.

(g) Payments received after eligibility for 

discharge —(1) For the discharge conditions in 

paragraphs (a), (c), (d), and (e) of this section. 

Upon receipt of acceptable documentation and 

approval of the discharge request, the Secretary 

returns to the sender, or, for a discharge based 

on death, the borrower's estate, any payments 

received after the date that the eligibility 

requirements for discharge were met.

(2) For the discharge condition in paragraph 

(b) of this section. Upon making a final 

determination of eligibility for discharge based 

on total and permanent disability, the Secretary 

returns to the sender any payments received

after the date the borrower became totally and 

permanently disabled, as certified under 

§685.213(b).

(3) For the discharge condition in paragraph 

(f) of this section. Upon receipt of acceptable 

documentation and approval of the discharge 

request, the Secretary returns to the sender 

payments received in excess of the amount 

owed on the loan after applying the unpaid 

refund.

(h) Teacher loan forgiveness program. If a 

new borrower meets the requirements in 

§685.217, the Secretary repays up to $5,000, or 

up to $17,500, of the borrower's Direct 

Subsidized Loans, Direct Unsubsidized Loans, 

and, in certain cases, Direct Consolidation 

Loans.

(i) Public Service Loan Forgiveness Program. 

If a borrower meets the requirements in 

§685.219, the Secretary cancels the remaining 

principal and accrued interest of the borrower's 

eligible Direct Subsidized Loan, Direct 

Unsubsidized Loan, Direct PLUS Loan, and Direct 

Consolidation Loan.

(j) September 11 survivors discharge. If a 

borrower meets the requirements in §685.218, 

the Secretary discharges the obligation of the 

borrower and any endorser to make any further 

payments—

(1) On an eligible Direct Loan if the 

borrower qualifies as the spouse of an eligible 

public servant;

(2) On the portion of a joint Direct 

Consolidation Loan incurred on behalf of an 

eligible victim, if the borrower qualifies as the 

spouse of an eligible victim;

(3) On a Direct PLUS Loan incurred on 

behalf of an eligible victim if the borrower 

qualifies as an eligible parent; and

(4) On the portion of a Direct Consolidation 

Loan that repaid a PLUS loan incurred on behalf 

of an eligible victim, if the borrower qualifies as 

an eligible parent.
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

MEETING 2

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62

§ 685.213 Total and permanent disability 

discharge. [SEE ISSUE PAPERS #13, #14 AND 

#15 FOR PROPOSED CHANGES TO THIS 

SECTION.]
Subpart B—Borrower Provisions

§685.214

Closed school discharge

MEETING 2

FEBRUARY 13-17, 2012

63

§ 685.214 Closed school discharge. [SEE ISSUE 

PAPER #16 FOR ADDITIONAL PROPOSED 

CHANGES IN THIS SECTION.]

(a) General. (1) The Secretary discharges 

the borrower's (and any endorser's) obligation 

to repay a Direct Loan in accordance with the 

provisions of this section if the borrower (or the 

student on whose behalf a parent borrowed) 

did not complete the program of study for 

which the loan was made because the school at 

which the borrower (or student) was enrolled 

closed, as described in paragraph (c) of this 

section.

(2) For purposes of this section—

(i) A school's closure date is the date that 

the school ceases to provide educational 

instruction in all programs, as determined by 

the Secretary; and

(ii) “School” means a school's main campus 

or any location or branch of the main campus.

(b) Relief pursuant to discharge. (1) 

Discharge under this section relieves the 

borrower of any past or present obligation to 

repay the loan and any accrued charges or 

collection costs with respect to the loan.

(2) The discharge of a loan under this 

section qualifies the borrower for 

reimbursement of amounts paid voluntarily or 

through enforced collection on the loan.

(3) The Secretary does not regard a 

borrower who has defaulted on a loan 

discharged under this section as in default on 

the loan after discharge, and such a borrower is 

eligible to receive assistance under programs 

authorized by title IV of the Act.

(4) The Secretary reports the discharge of a 

loan under this section to all credit consumer 

reporting agencies to which the Secretary 

previously reported the status of the loan.

(c) Borrower qualification for discharge. In 

order to qualify for discharge of a loan under 

this section, a borrower shallmust submit to the 

Secretary 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 shallmust—

(1) State that the borrower (or the student 

on whose behalf a parent borrowed)—

(i) Received the proceeds of a loan, in whole 

or in part, on or after January 1, 1986 to attend 

a school;

(ii) 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

(iii) Did not complete the program of study 

through a teach-out at another school or by 

transferring academic credits or hours earned 

at the closed school to another school;

(2) State whether the borrower (or student) 

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 student) or 

credited to the borrower's loan obligation; and

(3) State that the borrower (or student)—
Subpart B—Borrower Provisions

§685.214

Closed school discharge

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FEBRUARY 13-17, 2012

64

(i) Agrees to provide to the Secretary upon 

request other documentation reasonably 

available to the borrower that demonstrates 

that the borrower meets the qualifications for 

discharge under this section; and

(ii) Agrees to cooperate with the Secretary 

in enforcement actions in accordance with 

paragraph (d) of this section and to transfer any 

right to recovery against a third party to the 

Secretary in accordance with paragraph (e) of 

this section.

(d) Cooperation by borrower in enforcement 

actions. (1) In order to obtain a discharge under 

this section, a borrower shallmust 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 

shallmust—

(i) Provide testimony regarding any 

representation made by the borrower to 

support a request for discharge;

(ii) Produce any documents reasonably 

available to the borrower with respect to those 

representations; and

(iii) If required by the Secretary, provide a 

sworn statement regarding those documents 

and representations.

(2) The Secretary denies the request for a 

discharge or revokes the discharge of a 

borrower who—

(i) Fails to provide the testimony, 

documents, or a sworn statement required 

under paragraph (d)(1) of this section; or

(ii) Provides testimony, documents, or a 

sworn statement that does not support the 

material representations made by the borrower 

to obtain the discharge.

(e) Transfer to the Secretary of borrower's 

right of recovery against third parties. (1) 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 (or student) 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.

(2) The provisions of this section apply 

notwithstanding any provision of State law that 

would otherwise restrict transfer of those rights 

by the borrower (or student), 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.

(3) Nothing in this section limits or 

forecloses the borrower's (or student's) right to 

pursue legal and equitable relief regarding 

disputes arising from matters unrelated to the 

discharged Direct Loan.

(f) Discharge procedures. (1) After 

confirming the date of a school's closure, the 

Secretary identifies any Direct Loan borrower 

(or student on whose behalf a parent 

borrowed) who appears to have been enrolled 
Subpart B—Borrower Provisions

§685.214

Closed school discharge

MEETING 2

FEBRUARY 13-17, 2012

65

at the school on the school closure date or to 

have withdrawn not more than 90 days prior to 

the closure date.

(2) If the borrower's current address is 

known, the Secretary mails the borrower a 

discharge application and an explanation of the 

qualifications and procedures for obtaining a 

discharge. The Secretary also promptly 

suspends any efforts to collect from the 

borrower on any affected loan. The Secretary 

may continue to receive borrower payments.

(3) If the borrower's current address is 

unknown, the Secretary attempts to locate the 

borrower and determines the borrower's 

potential eligibility for a discharge under this 

section by consulting with representatives of 

the closed school, the school's licensing agency, 

the school's 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 (f)(2) of this section.

(4) If a borrower fails to submit the written 

request and sworn statement described in 

paragraph (c) of this section within 60 days of 

the Secretary's mailing the discharge 

application, the Secretary resumes collection 

and grants forbearance of principal and interest 

for the period in which collection activity was 

suspended. The Secretary may capitalize any 

interest accrued and not paid during that 

period.

(5) If the Secretary determines that a 

borrower who requests a discharge meets the 

qualifications for a discharge, the Secretary 

notifies the borrower in writing of that 

determination.

(6) 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.
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

MEETING 2

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66

§ 685.215 Discharge for false certification of 

student eligibility or unauthorized payment.

(a) Basis for discharge —(1) False 

certification. The Secretary discharges a 

borrower's (and any endorser's) obligation to 

repay a Direct Loan in accordance with the 

provisions of this section if a school falsely 

certifies the eligibility of the borrower (or the 

student on whose behalf a parent borrowed) to 

receive the loan. The Secretary considers a 

student's eligibility to borrow to have been 

falsely certified by the school if the school—

(i) Certified the student's eligibility for a 

Direct Loan on the basis of ability to benefit 

from its training and the student did not meet 

the eligibility requirements described in 34 CFR 

part 668 and section 484(d) of the Act, as 

applicable;

(ii) Signed the borrower's name on the loan 

application or promissory note without the 

borrower's authorization; or

(iii) Certified the eligibility of a student who, 

because of a physical or mental condition, age, 

criminal record, or other reason accepted by 

the Secretary, would not meet the 

requirements for employment (in the student's 

State of residence when the loan was 

originated) in the occupation for which the 

training program supported by the loan was 

intended.

(iv) Certified the individual's eligibility for a 

Direct Loan as a result of the crime of identity 

theft committed against the individual, as that 

crime is defined in 

§682.402(e)(14)§685.215(c)(4)(ii).

(2) Unauthorized payment. The Secretary 

discharges a borrower's (and any endorser's) 

obligation to repay a Direct Loan if the school, 

without the borrower's authorization, endorsed 

the borrower's loan check or signed the 

borrower's authorization for electronic funds 

transfer, unless the proceeds of the loan were 

delivered to the student or applied to charges 

owed by the student to the school.

(b) Relief pursuant to discharge. (1) 

Discharge for false certification under 

paragraph (a)(1) of this section relieves the 

borrower of any past or present obligation to 

repay the loan and any accrued charges and 

collection costs with respect to the loan.

(2) Discharge for unauthorized payment 

under paragraph (a)(2) of this section relieves 

the borrower of the obligation to repay the 

amount of the payment discharged.

(3) The discharge under this section 

qualifies the borrower for reimbursement of 

amounts paid voluntarily or through enforced 

collection on the discharged loan or payment.

(4) The Secretary does not regard a 

borrower who has defaulted on a loan 

discharged under this section as in default on 

the loan after discharge, and such a borrower is 

eligible to receive assistance under programs 

authorized by title IV of the Act.

(5) The Secretary reports the discharge 

under this section to all credit consumer

reporting agencies to which the Secretary 

previously reported the status of the loan.

(c) Borrower qualification for discharge. In 

order to qualify for discharge under this section, 

the borrower shallmust submit to the Secretary 

a written request and a 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 
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

MEETING 2

FEBRUARY 13-17, 2012

67

shallmust meet the requirements in paragraphs 

(c) (1) through (6) of this section.

(1) Ability to benefit. In the case of a 

borrower requesting a discharge based on 

defective testing of the student's ability to 

benefit, the borrower shallmust state that the 

borrower (or the student on whose behalf a 

parent borrowed)—

(i) Received a disbursement of a loan, in 

whole or in part, on or after January 1, 1986 to 

attend a school; and

(ii) Received a Direct Loan at that school on 

the basis of an ability to benefit from the 

school's training and did not meet the eligibility 

requirements described in 34 CFR part 668 and 

section 484(d) of the Act, as applicable;

(2) Unauthorized loan. In the case of a 

borrower requesting a discharge because the 

school signed the borrower's name on the loan 

application or promissory note without the 

borrower's authorization, the borrower 

shallmust—

(i) State that he or she did not sign the 

document in question or authorize the school to 

do so; and

(ii) Provide five different specimens of his or 

her signature, two of which must be within one 

year before or after the date of the contested 

signature.

(3) Unauthorized payment. In the case of a 

borrower requesting a discharge because the 

school, without the borrower's authorization, 

endorsed the borrower's loan check or signed 

the borrower's authorization for electronic 

funds transfer, the borrower shallmust—

(i) State that he or she did not endorse the 

loan check or sign the authorization for 

electronic funds transfer or authorize the school 

to do so;

(ii) Provide five different specimens of his or 

her signature, two of which must be within one 

year before or after the date of the contested 

signature;

(iii) State that the proceeds of the contested 

disbursement were not delivered to the student 

or applied to charges owed by the student to 

the school.

(4) Identity theft. (i) In the case of an 

individual whose eligibility to borrow was 

falsely certified because he or she was a victim 

of the crime of identity theft and is requesting a 

discharge, the individual shallmust—

(i)(A) Certify that the individual did not sign 

the promissory note, or that any other means of 

identification used to obtain the loan was used 

without the authorization of the individual 

claiming relief;

(ii)(B) Certify that the individual did not 

receive or benefit from the proceeds of the loan 

with knowledge that the loan had been made 

without the authorization of the individual;

(iii)(C) Provide a copy of a local, State, or 

Federal court verdict or judgment that 

conclusively determines that the individual who 

is named as the borrower of the loan was the 

victim of a crime of identity theft; and

(iv)(D) If the judicial determination of the 

crime does not expressly state that the loan was 

obtained as a result of the crime of identity 

theft, provide—
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

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68

(A)(1) Authentic specimens of the signature 

of the individual, as provided in paragraph 

(c)(2)(ii), or of other means of identification of 

the individual, as applicable, corresponding to 

the means of identification falsely used to 

obtain the loan; and

(B)(2) A statement of facts that 

demonstrate, to the satisfaction of the 

Secretary, that eligibility for the loan in question 

was falsely certified as a result of the crime of 

identity theft committed against that individual.

(ii)(A) For purposes of this section, identify 

theft is defined as the unauthorized use of the 

identifying information of another individual 

that is punishable under 18 U.S.C. 1028, 1029, 

or 1030, or substantially comparable State or 

local law.

(B) Identifying information includes, but is 

not limited to—

(1) Name, Social Security number, date of 

birth, official State or government issued 

driver's license or identification number, alien 

registration number, government passport 

number, and employer or taxpayer 

identification number;

(2) Unique biometric data, such as 

fingerprints, voiceprint, retina or iris image, or 

unique physical representation;

(3) Unique electronic identification number, 

address, or routing code; or

(4) Telecommunication identifying 

information or access device (as defined in 18 

U.S.C. 1029(e)).

(5) Claim to third party. The borrower 

shallmust state whether the borrower (or 

student) has made a claim with respect to the 

school's false certification or unauthorized 

payment 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 student) 

or credited to the borrower's loan obligation.

(6) Cooperation with Secretary. The 

borrower shallmust state that the borrower (or 

student)—

(i) Agrees to provide to the Secretary upon 

request other documentation reasonably 

available to the borrower that demonstrates 

that the borrower meets the qualifications for 

discharge under this section; and

(ii) Agrees to cooperate with the Secretary 

in enforcement actions as described in 

§685.214(d) and to transfer any right to 

recovery against a third party to the Secretary 

as described in §685.214(e).

(7) Discharge without an application. The 

Secretary may discharge a loan under this 

section without an application from the 

borrower if the Secretary determines, based on 

information in the Secretary's possession, that 

the borrower qualifies for a discharge.

(d) Discharge procedures. (1) If the 

Secretary determines that a borrower's Direct 

Loan may be eligible for a discharge under this 

section, the Secretary mails the borrower a 

disclosure application and an explanation of the 

qualifications and procedures for obtaining a 

discharge. The Secretary also promptly 

suspends any efforts to collect from the 

borrower on any affected loan. The Secretary 

may continue to receive borrower payments.

(2) If the borrower fails to submit the 

written request and sworn statement described 

in paragraph (c) of this section within 60 days of 
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

MEETING 2

FEBRUARY 13-17, 2012

69

the Secretary's mailing the disclosure 

application, the Secretary resumes collection 

and grants forbearance of principal and interest 

for the period in which collection activity was 

suspended. The Secretary may capitalize any 

interest accrued and not paid during that 

period.

(3) If the borrower submits the written 

request and sworn statement described in 

paragraph (c) of the section, the Secretary 

determines whether to grant a request for 

discharge under this section by reviewing the 

request and sworn statement in light of 

information available from the Secretary's 

records and from other sources, including 

guaranty agencies, State authorities, and 

cognizant accrediting associations.

(4) If the Secretary determines that the 

borrower meets the applicable requirements 

for a discharge under paragraph (c) of this 

section, the Secretary notifies the borrower in 

writing of that determination.

(5) If the Secretary determines that the 

borrower does not qualify for a discharge, the 

Secretary notifies the borrower in writing of 

that determination and the reasons for the 

determination.
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

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70

§ 685.216 Unpaid refund discharge.

(a)(1) Unpaid refunds in closed school 

situations. In the case of a school that has 

closed, the Secretary discharges a former or 

current borrower's (and any endorser's) 

obligation to repay that portion of a Direct Loan 

equal to the refund that should have been 

made by the school under applicable law and 

regulations, including this section. Any accrued 

interest and other charges associated with the 

unpaid refund are also discharged.

(2) Unpaid refunds in open school 

situations. (i) In the case of a school that is 

open, the Secretary discharges a former or 

current borrower's (and any endorser's) 

obligation to repay that portion of a Direct Loan 

equal to the refund that should have been 

made by the school under applicable law and 

regulations, including this section, if—

(A) The borrower (or the student on whose 

behalf a parent borrowed) is not attending the 

school that owes the refund;

(B) The borrower has been unable to 

resolve the unpaid refund with the school; and

(C) The Secretary is unable to resolve the 

unpaid refund with the school within 120 days 

from the date the borrower submits a complete 

application in accordance with paragraph (c)(1) 

of this section regarding the unpaid refund. Any 

accrued interest and other charges associated 

with the unpaid refund are also discharged.

(ii) For the purpose of paragraph (a)(2)(i)(C) 

of this section, within 60 days of the date 

notified by the Secretary, the school must 

submit to the Secretary documentation 

demonstrating that the refund was made by the 

school or that the refund was not required to 

be made by the school.

(b) Relief to borrower following discharge. 

(1) If the borrower receives a discharge of a 

portion of a loan under this section, the 

borrower is reimbursed for any amounts paid in 

excess of the remaining balance of the loan 

(including accrued interest and other charges) 

owed by the borrower at the time of discharge.

(2) The Secretary reports the discharge of a 

portion of a loan under this section to all 

creditconsumer reporting agencies to which the 

Secretary previously reported the status of the 

loan.

(c) Borrower qualification for discharge. (1) 

Except as provided in paragraph (c)(2) of this 

section, to receive a discharge of a portion of a 

loan under this section, a borrower must submit 

a written application to the Secretary. The 

application requests the information required 

to calculate the amount of the discharge and 

requires the borrower to sign a statement 

swearing to the accuracy of the information in 

the application. 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 (or the student 

on whose behalf a parent borrowed)—

(A) Received the proceeds of a loan, in 

whole or in part, on or after January 1, 1986 to 

attend a school;

(B) Did not attend, withdrew, or was 

terminated from the school within a timeframe 

that entitled the borrower to a refund; and

(C) Did not receive the benefit of a refund 

to which the borrower was entitled either from 

the school or from a third party, such as the 

holder of a performance bond or a tuition 

recovery program;
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

MEETING 2

FEBRUARY 13-17, 2012

71

(ii) State whether the borrower (or student) 

has any other application for discharge pending 

for this loan; and

(iii) State that the borrower (or student)—

(A) Agrees to provide to the Secretary 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 as described in 

§685.214(d) and to transfer any right to 

recovery against a third party to the Secretary 

as described in §685.214(e).

(2) The Secretary may discharge a portion of 

a loan under this section without an application 

if the Secretary determines, based on 

information in the Secretary's possession, that 

the borrower qualifies for a discharge.

(d) Determination of amount eligible for 

discharge. (1) The Secretary determines the 

amount eligible for discharge based on 

information showing the refund amount or by 

applying the appropriate refund formula to 

information that the borrower provides or that 

is otherwise available to the Secretary. For 

purposes of this section, all unpaid refunds are 

considered to be attributed to loan proceeds.

(2) If the information in paragraph (d)(1) of 

this section is not available, the Secretary uses 

the following formulas to determine the 

amount eligible for discharge:

(i) In the case of a student who fails to 

attend or whose withdrawal or termination 

date is before October 7, 2000 and who 

completes less than 60 percent of the loan 

period, the Secretary discharges the lesser of 

the institutional charges unearned or the loan 

amount. The Secretary determines the amount 

of the institutional charges unearned by—

(A) Calculating the ratio of the amount of 

time remaining in the loan period after the 

student's last day of attendance to the actual 

length of the loan period; and

(B) Multiplying the resulting factor by the 

institutional charges assessed the student for 

the loan period.

(ii) In the case of a student who fails to 

attend or whose withdrawal or termination 

date is on or after October 7, 2000 and who 

completes less than 60 percent of the loan 

period, the Secretary discharges the loan 

amount unearned. The Secretary determines 

the loan amount unearned by—

(A) Calculating the ratio of the amount of 

time remaining in the loan period after the 

student's last day of attendance to the actual 

length of the loan period; and

(B) Multiplying the resulting factor by the 

total amount of title IV grants and loans 

received by the student, or, if unknown, the 

loan amount.

(iii) In the case of a student who completes 

60 percent or more of the loan period, the 

Secretary does not discharge any amount 

because a student who completes 60 percent or 

more of the loan period is not entitled to a 

refund.

(e) Discharge procedures. (1) Except as 

provided in paragraph (c)(2) of this section, if 

the Secretary learns that a school did not make 

a refund of loan proceeds owed under 

applicable law and regulations, the Secretary 

sends the borrower a discharge application and 
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

MEETING 2

FEBRUARY 13-17, 2012

72

an explanation of the qualifications and 

procedures for obtaining a discharge. The 

Secretary also promptly suspends any efforts to 

collect from the borrower on any affected loan. 

The Secretary may continue to receive 

borrower payments.

(2) If a borrower who is sent a discharge 

application fails to submit the application within 

60 days of the Secretary's sending the discharge 

application, the Secretary resumes collection 

and grants forbearance of principal and interest 

for the period in which collection activity was 

suspended. The Secretary may capitalize any 

interest accrued and not paid during that 

period.

(3) If a borrower qualifies for a discharge, 

the Secretary notifies the borrower in writing. 

The Secretary resumes collection and grants 

forbearance of principal and interest on the 

portion of the loan not discharged for the 

period in which collection activity was 

suspended. The Secretary may capitalize any 

interest accrued and not paid during that 

period.

(4) If a borrower does not qualify for a 

discharge, the Secretary notifies the borrower 

in writing of the reasons for the determination. 

The Secretary resumes collection and grants 

forbearance of principal and interest for the 

period in which collection activity was 

suspended. The Secretary may capitalize any 

interest accrued and not paid during that 

period.
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

MEETING 2

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73

§ 685.217 Teacher loan forgiveness program.

(a) General. (1) The teacher loan 

forgiveness program is intended to encourage 

individuals to enter and continue in the 

teaching profession. For new borrowers, the 

Secretary repays the amount specified in this 

paragraph (a) on the borrower's subsidized and 

unsubsidized Federal Stafford Loans, Direct 

Subsidized Loans, Direct Unsubsidized Loans, 

Subsidized and Unsubsidized Federal Stafford 

Loans, and in certain cases, Federal Direct

Consolidation Loans or Direct Federal

Consolidation Loans. The forgiveness program is 

only available to a borrower who has no 

outstanding loan balance under the Direct Loan 

FFEL Program or the Direct LoanFFEL Program 

on October 1, 1998 or who has no outstanding 

loan balance on the date he or she obtains a 

loan after October 1, 1998.

(2)(i) The borrower must have been 

employed at an eligible elementary or 

secondary school that serves low-income 

families or by an educational service agency 

that serves low-income families as a full-time 

teacher for five consecutive complete academic 

years. The required five years of teaching may 

include any combination of qualifying teaching 

service at an eligible elementary or secondary 

school or for an eligible educational service 

agency.

(ii) Teaching at an eligible elementary or 

secondary school may be counted toward the 

required five consecutive complete academic 

years only if at least one year of teaching was 

after the 1997–1998 academic year.

(iii) Teaching atfor an eligible educational 

service agency may be counted toward the 

required five consecutive complete academic 

years only if the consecutive five-year period 

includes qualifying service atfor an eligible 

educational service agency performed after the 

2007–2008 academic year.

(3) All borrowers eligible for teacher loan 

forgiveness may receive loan forgiveness of up 

to a combined total of $5,000 on the borrower's 

eligible FFEL and Direct Loan and FFEL Program 

loans.

(4) A borrower may receive loan forgiveness 

of up to a combined total of $17,500 on the 

borrower's eligible FFEL and Direct Loan and 

FFEL Program loans if the borrower was 

employed for five consecutive years—

(i) At an eligible secondary school as a 

highly qualified mathematics or science teacher, 

or atby an eligible educational service agency as 

a highly qualified teacher of mathematics or 

science to secondary school students; or

(ii) At an eligible elementary or secondary 

school or by an eligible educational service 

agency as a highly qualified special education 

teacher.

(5) The loan for which the borrower is 

seeking forgiveness must have been made prior 

to the end of the borrower's fifth year of 

qualifying teaching service.

(b) Definitions. The following definitions 

apply to this section:

Academic year means one complete school 

year at the same school, or two complete and 

consecutive half years at different schools, or 

two complete and consecutive half years from 

different school years at either the same school 

or different schools. Half years exclude summer 

sessions and generally fall within a twelvemonth period. For schools that have a year-
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

MEETING 2

FEBRUARY 13-17, 2012

74

round program of instruction, a minimum of 

nine months is considered an academic year.

Educational service agency means a 

regional public multiservice agency authorized 

by State statute to develop, manage, and 

provide services or programs to local 

educational agencies, as defined in section 9101 

of the Elementary and Secondary Education Act 

of 1965, as amended.

Elementary school means a public or 

nonprofit private school that provides 

elementary education as determined by State 

law or the Secretary if that school is not in a 

State.

Full-time means the standard used by a 

State in defining full-time employment as a 

teacher. For a borrower teaching in more than 

one school, the determination of full-time is 

based on the combination of all qualifying 

employment.

Highly qualified means highly qualified as 

defined in section 9101 of the Elementary and 

Secondary Education Act of 1965, as amended.

Secondary school means a public or 

nonprofit private school that provides 

secondary education as determined by State 

law or the Secretary if the school is not in a 

State.

Teacher means a person who provides 

direct classroom teaching or classroom-type 

teaching in a non-classroom setting, including 

Special Education teachers.

(c) Borrower eligibility. (1) A borrower who 

has been employed at an elementary or 

secondary school or by an educational service 

agency as a full-time teacher for five 

consecutive complete academic years may 

obtain loan forgiveness under this program if 

the elementary or secondary school or 

educational service agency—

(i) Is in a school district that qualifies for 

funds under title I of the Elementary and 

Secondary Education Act of 1965, as amended;

(ii) Has been selected by the Secretary 

based on a determination that more than 30 

percent of the school's or educational service 

agency's total enrollment is made up of children 

who qualify for services provided under title I; 

and

(iii) Is listed in the Annual Directory of 

Designated Low-Income Schools for Teacher 

Cancellation Benefits. If this directory is not 

available before May 1 of any year, the previous 

year's directory may be used. The Secretary 

considers all elementary and secondary schools 

operated by the Bureau of Indian Education 

(BIE) or operated on Indian reservations by 

Indian tribal groups under contract with the BIE 

to qualify as schools serving low-income 

students.

(2) If the school or educational service 

agency at which the borrower is employed 

meets the requirements specified in paragraph 

(c)(1) of this section for at least one year of the 

borrower's five consecutive complete academic 

years of teaching and fails to meet those 

requirements in subsequent years, those 

subsequent years of teaching qualify for 

purposes of this section for that borrower.

(3) In the case of a borrower whose five 

consecutive complete years of qualifying 

teaching service began before October 30, 

2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower—
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

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75

(A) Demonstrated knowledge and teaching 

skills in reading, writing, mathematics, and 

other areas of the elementary school 

curriculum, as certified by the chief 

administrative officer of the eligible elementary 

school or educational service agency where the 

borrower was employed; or

(B) Taught in a subject area that is relevant 

to the borrower's academic major as certified 

by the chief administrative officer of the eligible 

secondary school or educational service agency 

where the borrower was employed.

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on a fulltime basis at an eligible secondary school, or 

taught mathematics or science to secondary 

school students on a full-time basis atfor an 

eligible educational service agency, and was a 

highly qualified mathematics or science 

teacher; or

(B) Taught as a special education teacher on 

a full-time basis to children with disabilities at 

an eligible elementary or secondary school or 

for an eligible educational service agency and 

was a highly qualified special education teacher 

whose special education training corresponded 

to the children's disabilities and who has 

demonstrated knowledge and teaching skills in 

the content areas of the elementary or 

secondary school curriculum.

(iii) Teaching service performed atfor an 

eligible educational service agency may be 

counted toward the required five years of 

teaching only if the consecutive five-year period 

includes qualifying service atfor an eligible 

educational service agency performed after the 

2007–2008 academic year.

(4) In the case of a borrower whose five 

consecutive years of qualifying teaching service 

began on or after October 30, 2004, the 

borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower taught full time at 

an eligible elementary or secondary school or 

for an eligible educational service agency and 

was a highly qualified elementary or secondary 

school teacher.

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on a fulltime basis at an eligible secondary school, or 

taught mathematics or science on a full-time 

basis to secondary school students atfor an 

eligible educational service agency, and was a 

highly qualified mathematics or science 

teacher; or

(B) Taught as a special education teacher on 

a full-time basis to children with disabilities at 

an eligible elementary or secondary school or 

educational service agency and was a highly 

qualified special education teacher whose 

special education training corresponded to the 

children's disabilities and who has 

demonstrated knowledge and teaching skills in 

the content areas of the elementary or 

secondary school curriculum.

(iii) Teaching service performed atfor an 

eligible educational service agency may be 

counted toward the required five years of 

teaching only if the consecutive five-year period 

includes qualifying service atfor an eligible 

educational service agency performed after the 

2007–2008 academic year.

(5) To qualify for loan forgiveness as a 

highly qualified teacher, the teacher must have 
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

MEETING 2

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76

been a highly qualified teacher for all five years 

of eligible teaching service.

(6) For teacher loan forgiveness applications 

received by the Secretary on or after July 1, 

2006, a teacher in a private, non-profit 

elementary or secondary school who is exempt 

from State certification requirements unless 

otherwise applicable under State law may 

qualify for loan forgiveness under paragraphs 

(c)(3)(ii) or (c)(4) of this section if—

(i) The private school teacher is permitted 

to and does satisfy rigorous subject knowledge 

and skills tests by taking competency tests in 

applicable grade levels and subject areas;

(ii) The competency tests are recognized by 

5 or more States for the purposes of fulfilling 

the highly qualified teacher requirements under 

section 9101 of the Elementary and Secondary 

Education Act of 1965; and

(iii) The private school teacher achieves a 

score on each test that equals or exceeds the 

average passing score for those 5 states.

(7) The academic year may be counted as 

one of the borrower's five consecutive 

complete academic years if the borrower 

completes at least one-half of the academic 

year and the borrower's employer considers the 

borrower to have fulfilled his or her contract 

requirements for the academic year for the 

purposes of salary increases, tenure, and 

retirement if the borrower is unable to 

complete an academic year due to—

(i) A return to postsecondary education, on 

at least a half-time basis, that is directly related 

to the performance of the service described in 

this section;

(ii) A condition that is covered under the 

Family and Medical Leave Act of 1993 (FMLA) 

(29 U.S.C. 2601, et seq. ); or

(iii) A call or order to active duty status for 

more than 30 days as a member of a reserve 

component of the Armed Forces named in 

section 10101 of title 10, United States Code.

(8) If a borrower meets the requirements of 

paragraph (c)(7) of this section, the borrower's 

period of postsecondary education, active duty, 

or qualifying FMLA condition including the time 

necessary for the borrower to resume qualifying 

teaching no later than the beginning of the next 

regularly scheduled academic year, does not 

constitute a break in the required five 

consecutive years of qualifying teaching service.

(9) A borrower who was employed as a 

teacher at more than one qualifying school, 

atfor more than one qualifying educational 

service agency, or at a combination of both 

during an academic year and demonstrates that 

the combined teaching was the equivalent of 

full-time, as supported by the certification of 

one or more of the chief administrative officers 

of the schools or educational service agencies 

involved, is considered to have completed one 

academic year of qualifying teaching.

(10) A borrower is not eligible for teacher 

loan forgiveness on a defaulted loan unless the 

borrower has made satisfactory repayment 

arrangements to re-establish title IV eligibility, 

as defined in §685.200(b).

(11) A borrower may not receive loan 

forgiveness for the same qualifying teaching 

service under this section if the borrower 

receives a benefit for the same teaching service 

under—
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

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77

(i) Subtitle D of title I of the National and 

Community Service Act of 1990;

(ii) 34 CFR 685.219; or

(iii) Section 428 K of the Act.

(d) Forgiveness amount. (1) A qualified 

borrower is eligible for forgiveness of up to 

$5,000, or up to $17,500 if the borrower meets 

the requirements of paragraphs (c)(3)(ii) or 

(c)(4)(ii) of this section. The forgiveness amount 

is deducted from the aggregate amount of the 

borrower's Direct Subsidized Loan or Direct 

Unsubsidized Loan or Direct Consolidation Loan 

obligation that is outstanding after the 

borrower completes his or her fifth consecutive 

complete academic year of teaching as 

described in paragraph (c) of this section. Only 

the outstanding portion of the Direct 

Consolidation Loan that was used to repay an 

eligible subsidized or unsubsidized Federal 

Stafford Loan, an eligible Direct Subsidized 

Loan, or an eligible Direct Unsubsidized Loan, or 

an eligible Subsidized or Unsubsidized Federal 

Stafford Loan qualifies for loan forgiveness 

under this section.

(2) A borrower may not receive more than a 

total of $5,000, or $17,500 if the borrower 

meets the requirements of paragraphs (c)(3)(ii) 

or (c)(4)(ii) of this section, in loan forgiveness 

for outstanding principal and accrued interest 

under both this section and under section 34 

CFR 682.216.

(3) The Secretary does not refund payments 

that were received from or on behalf of a 

borrower who qualifies for loan forgiveness 

under this section.

(e) Application. (1) A borrower, after 

completing the qualifying teacher service, must 

request loan forgiveness from the Secretary on 

a form provided by the Secretary.

(2) If the Secretary determines that the 

borrower meets the eligibility requirements for 

loan forgiveness under this section, the 

Secretary—

(i) Notifies the borrower of this 

determination; and

(ii) Unless otherwise instructed by the 

borrower, applies the proceeds of the loan 

forgiveness first to any outstanding Direct 

Unsubsidized Loan balances, next to any 

outstanding Direct Subsidized Loan balances, 

next to any qualifying Direct Unsubsidized 

Consolidation Loan balances, and last to any 

qualifying outstanding Direct Subsidized 

Consolidation Loan balances.

(3) If the Secretary determines that the 

borrower does not meet the eligibility 

requirements for loan forgiveness under this 

section, the Secretary notifies the borrower of 

this determination.
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

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§ 685.218 Discharge of student loan 

indebtedness for survivors of victims of the 

September 11, 2001, attacks.

(a) Definition of terms. As used in this 

section—

(1) Eligible public servant means an 

individual who—

(i) Served as a police officer, firefighter, 

other safety or rescue personnel, or as a 

member of the Armed Forces; and

(ii)(A) Died due to injuries suffered in the 

terrorist attacks on September 11, 2001; or

(B) Became permanently and totally 

disabled due to injuries suffered in the terrorist 

attacks on September 11, 2001.

(2) Eligible victim means an individual who 

died due to injuries suffered in the terrorist 

attacks on September 11, 2001 or became 

permanently and totally disabled due to injuries 

suffered in the terrorist attacks on September 

11, 2001.

(3) Eligible parent means the parent of an 

eligible victim if—

(i) The parent owes a Direct PLUS Loan 

incurred on behalf of an eligible victim; or

(ii) The parent owes a Direct Consolidation 

Loan that was used to repay a Direct PLUS Loan 

or a FFEL PLUS Loan incurred on behalf of an 

eligible victim.

(4) Died due to injuries suffered in the 

terrorist attacks on September 11, 2001 means 

the individual was present at the World Trade 

Center in New York City, New York, at the 

Pentagon in Virginia, or at the Shanksville, 

Pennsylvania site at the time of or in the 

immediate aftermath of the terrorist-related 

aircraft crashes on September 11, 2001, and the 

individual died as a direct result of these 

crashes.

(5) Became permanently and totally 

disabled due to injuries suffered in the terrorist 

attacks on September 11, 2001 means the 

individual was present at the World Trade 

Center in New York City, New York, at the 

Pentagon in Virginia, or at the Shanksville, 

Pennsylvania site at the time of or in the 

immediate aftermath of the terrorist-related 

aircraft crashes on September 11, 2001 and the 

individual became permanently and totally 

disabled as a direct result of these crashes.

(i) An individual is considered permanently 

and totally disabled if—

(A) The disability is the result of a physical 

injury to the individual that was treated by a 

medical professional within 72 hours of the 

injury having been sustained or within 72 hours 

of the rescue;

(B) The physical injury that caused the 

disability is verified by contemporaneous 

medical records created by or at the direction 

of the medical professional who provided the 

medical care; and

(C) The individual is unable to work and 

earn money due to the disability and the 

disability is expected to continue indefinitely or 

result in death.

(ii) If the injuries suffered due to the 

terrorist-related aircraft crashes did not make 

the individual permanently and totally disabled 

at the time of or in the immediate aftermath of 

the attacks, the individual may be considered to 

be permanently and totally disabled for 

purposes of this section if the individual's 
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

MEETING 2

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medical condition has deteriorated to the 

extent that the individual is permanently and 

totally disabled.

(6) Immediate aftermath means, except in 

the case of an eligible public servant, the period 

of time from the aircraft crashes until 12 hours 

after the crashes. With respect to eligible public 

servants, the immediate aftermath includes the 

period of time from the aircraft crashes until 96 

hours after the crashes.

(7) Present at the World Trade Center in 

New York City, New York, at the Pentagon in 

Virginia, or at the Shanksville, Pennsylvania site 

means physically present at the time of the 

terrorist-related aircraft crashes or in the 

immediate aftermath—

(i) In the buildings or portions of the 

buildings that were destroyed as a result of the 

terrorist-related aircraft crashes;

(ii) In any area contiguous to the crash site 

that was sufficiently close to the site that there 

was a demonstrable risk of physical harm 

resulting from the impact of the aircraft or any 

subsequent fire, explosions, or building 

collapses. Generally, this includes the 

immediate area in which the impact occurred, 

fire occurred, portions of buildings fell, or debris 

fell upon and injured persons; or

(iii) On board American Airlines flights 11 or 

77 or United Airlines flights 93 or 175 on 

September 11, 2001.

(b) September 11 survivors discharge. (1) 

The Secretary discharges the obligation of a 

borrower and any endorser to make any further 

payments on an eligible Direct Loan if the 

borrower was, at the time of the terrorist 

attacks on September 11, 2001, and currently 

is, the spouse of an eligible public servant, 

unless the eligible public servant has died. If the 

eligible public servant has died, the borrower 

must have been the spouse of the eligible public 

servant at the time of the terrorist attacks on 

September 11, 2001 and until the date the 

eligible public servant died.

(2) The Secretary discharges the obligation 

of a borrower and any endorser to make any 

further payments towards the portion of a joint 

Direct Consolidation Loan incurred on behalf of 

an eligible victim if the borrower was, at the 

time of the terrorist attacks on September 11, 

2001, and currently is, the spouse of an eligible 

victim, unless the eligible victim has died. If the 

eligible victim has died, the borrower must have 

been the spouse of the eligible victim at the 

time of the terrorist attacks on September 11, 

2001 and until the date the eligible victim died.

(3) If the borrower is an eligible parent—

(i) The Secretary discharges the obligation 

of a borrower and any endorser to make any 

further payments on a Direct PLUS Loan 

incurred on behalf of an eligible victim.

(ii) The Secretary discharges the obligation 

of the borrower and any endorser to make any 

further payments towards the portion of a 

Direct Consolidation Loan that repaid a PLUS 

Loan incurred on behalf of an eligible victim.

(4) The parent of an eligible public servant 

may qualify for a discharge of a Direct PLUS loan 

incurred on behalf of the eligible public servant, 

or the portion of a Direct Consolidation Loan 

that repaid a FFEL or Direct PLUS Loan incurred 

on behalf of the eligible public servant, under 

the procedures, eligibility criteria, and 

documentation requirements described in this 

section for an eligible parent applying for a 

discharge of a loan incurred on behalf of an 

eligible victim.
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

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80

(c) Applying for discharge . (1) In 

accordance with the procedures in paragraphs 

(c)(2) through (c)(4) of this section, the 

Secretary discharges—

(i) A Direct Loan owed by the spouse of an 

eligible public servant;

(ii) A Direct PLUS Loan incurred on behalf of 

an eligible victim;

(iii) The portion of a Direct Consolidation 

Loan that repaid a PLUS loan incurred on behalf 

of an eligible victim; and

(iv) The portion of a joint Direct 

Consolidation Loan incurred on behalf of an 

eligible victim.

(2) After being notified by the borrower 

that the borrower claims to qualify for a 

discharge under this section, the Secretary 

suspends collection activity on the borrower's 

eligible Direct Loans and requests that the 

borrower submit a request for discharge on a 

form approved by the Secretary.

(3) If the Secretary determines that the 

borrower does not qualify for a discharge under 

this section, or the Secretary does not receive 

the completed discharge request form from the 

borrower within 60 days of the borrower 

notifying the Secretary that the borrower claims 

to qualify for a discharge, the Secretary 

resumes collection and grants forbearance of 

payment of both principal and interest for the 

period in which collection activity was 

suspended. The Secretary notifies the borrower 

that the application for the discharge has been 

denied, provides the basis for the denial, and 

informs the borrower that the Secretary will 

resume collection on the loan. The Secretary 

may capitalize any interest accrued and not 

paid during this period.

(4) If the Secretary determines that the 

borrower qualifies for a discharge under this 

section, the Secretary notifies the borrower 

that the loan has been discharged or, in the 

case of a partial discharge of a Direct 

Consolidation Loan, partially discharged. Except 

in the case of a partial discharge of a Direct 

Consolidation Loan, the Secretary returns to the 

sender any payments received by the Secretary 

after the date the loan was discharged.

(5) The Secretary discharges a Direct Loan 

owed by an eligible victim or an eligible public 

servant under the procedures in §685.212 for a 

discharge based on death or under the 

procedures in §685.213 for a discharge based 

on a total and permanent disability.

(d) Documentation that an eligible public 

servant or eligible victim died due to injuries 

suffered in the terrorist attacks on September 

11, 2001. (1) Documentation that an eligible 

public servant died due to injuries suffered in 

the terrorist attacks on September 11, 2001 

must include—

(i) A certification from an authorized official 

that the individual was a member of the Armed 

Forces, or was employed as a police officer, 

firefighter, or other safety or rescue personnel, 

and was present at the World Trade Center in 

New York City, New York, at the Pentagon in 

Virginia, or at the Shanksville, Pennsylvania site 

at the time of the terrorist-related aircraft 

crashes or in the immediate aftermath of these 

crashes; and

(ii) The inclusion of the individual on an 

official list of the individuals who died in the 

terrorist attacks on September 11, 2001.

(2) If the individual is not included on an 

official list of the individuals who died in the 
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

MEETING 2

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81

terrorist attacks on September 11, 2001, the 

borrower must provide—

(i) The certification described in paragraph 

(d)(1)(i) of this section;

(ii) An original or certified copy of the 

individual's death certificate; and

(iii) A certification from a physician or a 

medical examiner that the individual died due 

to injuries suffered in the terrorist attacks on 

September 11, 2001.

(3) If the individual owed a FFEL Program 

Loan, a Direct Loan, or a Perkins Loan at the 

time of the terrorist attacks on September 11, 

2001, documentation that the individual's loans 

were discharged by the lender, the Secretary, or 

the institution due to death may be substituted 

for the original or certified copy of a death 

certificate.

(4) Documentation that an eligible victim 

died due to injuries suffered in the terrorist 

attacks on September 11, 2001 is the inclusion 

of the individual on an official list of the 

individuals who died in the terrorist attacks on 

September 11, 2001.

(5) If the eligible victim is not included on an 

official list of the individuals who died in the 

terrorist attacks on September 11, 2001, the 

borrower must provide—

(i) The documentation described in 

paragraphs (d)(2)(ii) or (d)(3), and (d)(2)(iii) of 

this section; and

(ii) A certification signed by the borrower 

that the eligible victim was present at the World 

Trade Center in New York City, New York, at the 

Pentagon in Virginia, or at the Shanksville,

Pennsylvania site at the time of the terroristrelated aircraft crashes or in the immediate 

aftermath of these crashes.

(6) If the borrower is the spouse of an 

eligible public servant, and has been granted a 

discharge on a Perkins Loan, a FFEL Program 

loan or another Direct Loan because the eligible 

public servant died due to injuries suffered in 

the terrorist attacks on September 11, 2001, 

documentation of the discharge may be used as 

an alternative to the documentation in 

paragraphs (d)(1) through (d)(3) of this section.

(7) If the borrower is the spouse or parent 

of an eligible victim, and has been granted a 

discharge on a FFEL Program Loan or another 

Direct Loan because the eligible victim died due 

to injuries suffered in the terrorist attacks on 

September 11, 2001, documentation of the 

discharge may be used as an alternative to the 

documentation in paragraphs (d)(4) and (d)(5) 

of this section.

(8) The Secretary may discharge the loan 

based on other reliable documentation that 

establishes, to the Secretary's satisfaction, that 

the eligible public servant or the eligible victim 

died due to injuries suffered in the September 

11, 2001 attacks. The Secretary discharges a 

loan based on documentation other than the 

documentation specified in paragraphs (d)(1) 

through (d)(5) of this section only under 

exceptional circumstances and on a case-bycase basis.

(e) Documentation that an eligible public 

servant or eligible victim became permanently 

and totally disabled due to injuries suffered in 

the terrorist attacks on September 11, 2001. (1) 

Documentation that an eligible public servant 

became permanently and totally disabled due 

to injuries suffered in the terrorist attacks on 

September 11, 2001 must include—
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

MEETING 2

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(i) A certification from an authorized official 

that the individual was a member of the Armed 

Forces or was employed as a police officer, 

firefighter or other safety or rescue personnel, 

and was present at the World Trade Center in 

New York City, New York, at the Pentagon in 

Virginia, or at the Shanksville, Pennsylvania site 

at the time of the terrorist-related aircraft 

crashes or in the immediate aftermath of these 

crashes;

(ii) Copies of contemporaneous medical 

records created by or at the direction of a 

medical professional who provided medical care 

to the individual within 24 hours of the injury 

having been sustained or within 24 hours of the 

rescue; and

(iii) A certification by a physician, who is a 

doctor of medicine or osteopathy and legally 

authorized to practice in a state, that the 

individual became permanently and totally 

disabled due to injuries suffered in the terrorist 

attacks on September 11, 2001.

(2) Documentation that an eligible victim 

became permanently and totally disabled due 

to injuries suffered in the terrorist attacks on 

September 11, 2001 must include—

(i) The documentation described in 

paragraphs (e)(1)(ii) and (e)(1)(iii) of this 

section; and

(ii) A certification signed by the borrower 

that the eligible victim was present at the World 

Trade Center in New York City, New York, at the 

Pentagon in Virginia, or at the Shanksville, 

Pennsylvania site at the time of the terroristrelated aircraft crashes or in the immediate 

aftermath of these crashes.

(3) If the borrower is the spouse of an 

eligible public servant, and has been granted a 

discharge on a Perkins Loan, a FFEL Program 

loan, or another Direct Loan because the 

eligible public servant became permanently and 

totally disabled due to injuries suffered in the 

terrorist attacks on September 11, 2001, 

documentation of the discharge may be used as 

an alternative to the documentation in 

paragraph (e)(1) of this section.

(4) If the borrower is the spouse or parent 

of an eligible victim, and has been granted a 

discharge on a FFEL Program Loan, or another 

Direct Loan because the eligible victim became

permanently and totally disabled due to injuries 

suffered in the terrorist attacks on September 

11, 2001, documentation of the discharge may 

be used as an alternative to the documentation 

in paragraph (e)(2) of this section.

(f) Additional information. (1) The Secretary 

may require the borrower to submit additional 

information that the Secretary deems necessary 

to determine the borrower's eligibility for a 

discharge under this section.

(2) To establish that the eligible public 

servant or eligible victim was present at the 

World Trade Center in New York City, New York, 

at the Pentagon in Virginia, or at the 

Shanksville, Pennsylvania site, such additional 

information may include but is not limited to—

(i) Records of employment;

(ii) Contemporaneous records of a federal, 

state, city, or local government agency;

(iii) An affidavit or declaration of the eligible 

public servant's or eligible victim's employer; or

(iv) A sworn statement (or an unsworn 

statement complying with 28 U.S.C. 1746) 

regarding the presence of the eligible public 

servant or eligible victim at the site.
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

MEETING 2

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(3) To establish that the disability of the 

eligible public servant or eligible victim is due to 

injuries suffered in the terrorist attacks on 

September 11, 2001, such additional 

information may include but is not limited to—

(i) Contemporaneous medical records of 

hospitals, clinics, physicians, or other licensed 

medical personnel;

(ii) Registries maintained by federal, state, 

or local governments; or

(iii) Records of all continuing medical 

treatment.

(4) To establish the borrower's relationship 

to the eligible public servant or eligible victim, 

such additional information may include but is 

not limited to—

(i) Copies of relevant legal records including 

court orders, letters of testamentary or similar 

documentation;

(ii) Copies of wills, trusts, or other 

testamentary documents; or

(iii) Copies of approved joint FFEL or Direct 

Loan Consolidation Loan applications or an 

approved Direct PLUS Loan application.

(g) Limitations on discharge. (1) Only 

outstanding Direct Subsidized Loans, Direct 

Unsubsidized Loans, Direct PLUS Loans and 

Direct Consolidation Loans for which amounts 

were owed on September 11, 2001, or 

outstanding Direct Consolidation Loans incurred 

to pay off loan amounts that were owed on

September 11, 2001, are eligible for discharge 

under this section.

(2)(i) Eligibility for a discharge under this 

section does not qualify a borrower for a refund 

of any payments made on the borrower's Direct 

Loans prior to the date the loan was discharged.

(ii) A borrower may apply for a partial 

discharge of a joint Direct Consolidation loan 

due to death or total and permanent disability 

under the procedures in §685.212(a) or 

§685.213. If the borrower is granted a partial 

discharge under the procedures in §685.212(a) 

or §685.213 the borrower may qualify for a 

refund of payments in accordance with 

§685.212(g)(1) or §685.212(g)(2).

(iii) A borrower may apply for a discharge of 

a Direct PLUS loan due to the death of the 

student for whom the borrower received the 

PLUS loan under the procedures in §685.212(a). 

If a borrower is granted a discharge under the 

procedures in §685.212(a), the borrower may 

qualify for a refund of payments in accordance 

with §685.212(g)(1).

(3) A determination that an eligible public 

servant or an eligible victim became 

permanently and totally disabled due to injuries 

suffered in the terrorist attacks on September 

11, 2001 for purposes of this section does not 

qualify the eligible public servant or the eligible 

victim for a discharge based on a total and 

permanent disability under §685.213.

(4) The spouse of an eligible public servant 

or eligible victim may not receive a discharge 

under this section if the eligible public servant 

or eligible victim has been identified as a 

participant or conspirator in the terroristrelated aircraft crashes on September 11, 2001. 

An eligible parent may not receive a discharge 

on a Direct PLUS Loan or on a Direct 

Consolidation Loan that was used to repay a 

Direct Loan or FFEL Program PLUS Loan incurred 

on behalf of an individual who has been 

identified as a participant or conspirator in the 
Subpart B—Borrower Provisions

§685.218

Discharge of student loan indebtedness for survivors of victims of the September 11, 2001 terrorist attacks

MEETING 2

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84

terrorist-related aircraft crashes on September 

11, 2001.
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

MEETING 2

FEBRUARY 13-17, 2012

85

§ 685.219 Public Service Loan Forgiveness 

Program.

(a) General. The Public Service Loan 

Forgiveness Program is intended to encourage 

individuals to enter and continue in full-time 

public service employment by forgiving the 

remaining balance of their Direct loans after 

they satisfy the public service and loan payment 

requirements of this section.

(b) Definitions. The following definitions 

apply to this section:

AmeriCorps position means a position 

approved by the Corporation for National and 

Community Service under section 123 of the 

National and Community Service Act of 1990 

(42 U.S.C. 12573).

Eligible Direct loan means a Direct 

Subsidized Loan, Direct Unsubsidized Loan, 

Direct PLUS loan, or a Direct Consolidation loan.

Employee or employed means an individual 

who is hired and paid by a public service 

organization.

Full-time (1) means working in qualifying 

employment in one or more jobs for the greater 

of—

(i)(A) An annual average of at least 30 hours 

per week, or

(B) For a contractual or employment period 

of at least 8 months, an average of 30 hours per 

week; or

(ii) Unless the qualifying employment is 

with two or more employers, the number of 

hours the employer considers full-time.

(2) Vacation or leave time provided by the 

employer or leave taken for a condition that is a 

qualifying reason for leave under the Family and 

Medical Leave Act of 1993, 29 U.S.C. 2612(a)(1) 

and (3) is not considered in determining the 

average hours worked on an annual or contract 

basis.

Government employee means an individual 

who is employed by a local, State, Federal, or 

Tribal government, but does not include a 

member of the U.S. Congress.

Law enforcement means service performed 

by an employee of a public service organization 

that is publicly funded and whose principal 

activities pertain to crime prevention, control or 

reduction of crime, or the enforcement of 

criminal law.

Military service , for uniformed members of 

the U.S. Armed Forces or the National Guard, 

means “active duty” service or “full-time 

National Guard duty” as defined in section 

101(d)(1) and (d)(5) of title 10 in the United 

States Code, but does not include active duty 

for training or attendance at a service school. 

For civilians, “Military service” means service on 

behalf of the U.S. Armed Forces or the National 

Guard performed by an employee of a public 

service organization.

Peace Corps position means a full-time 

assignment under the Peace Corps Act as 

provided for under 22 U.S.C. 2504.

Public interest law refers to legal services 

provided by a public service organization that 

are funded in whole or in part by a local, State, 

Federal, or Tribal government.

Public service organization means:

(1) A Federal, State, local, or Tribal 

government organization, agency, or entity;
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

MEETING 2

FEBRUARY 13-17, 2012

86

(2) A public child or family service agency;

(3) A non-profit organization under section 

501(c)(3) of the Internal Revenue Code that is 

exempt from taxation under section 501(a) of 

the Internal Revenue Code;

(4) A Tribal college or university; or

(5) A private organization that—

(i) Provides the following public services: 

Emergency management, military service, 

public safety, law enforcement, public interest 

law services, early childhood education 

(including licensed or regulated child care, Head 

Start, and State funded pre-kindergarten), 

public service for individuals with disabilities 

and the elderly, public health (including nurses, 

nurse practitioners, nurses in a clinical setting, 

and full-time professionals engaged in heath 

care practitioner occupations and health care 

support occupations, as such terms are defined 

by the Bureau of Labor Statistics), public 

education, public library services, school library 

or other school-based services; and

(ii) Is not a business organized for profit, a 

labor union, a partisan political organization, or 

an organization engaged in religious activities, 

unless the qualifying activities are unrelated to 

religious instruction, worship services, or any 

form of proselytizing.

(c) Borrower eligibility. (1) A borrower may 

obtain loan forgiveness under this program if he 

or she—

(i) Is not in default on the loan for which 

forgiveness is requested;

(ii) Is employed full-time by a public service 

organization or serving in a full-time 

AmeriCorps or Peace Corps position—

(A) When the borrower makes the 120 

monthly payments described under paragraph 

(c)(1)(iii) of this section;

(B) At the time of application for loan 

forgiveness; and

(C) At the time the remaining principal and 

accrued interest are forgiven;

(iii) Makes 120 separate monthly payments 

after October 1, 2007, on eligible Direct loans 

for which forgiveness is sought. Except as 

provided in paragraph (c)(2) of this section for a 

borrower in an AmeriCorps or Peace Corps 

position, the borrower must make the monthly 

payments within 15 days of the scheduled due 

date for the full scheduled installment amount; 

and

(iv) Makes the required 120 monthly 

payments under one or more of the following 

repayment plans—

(A) Except for a parent PLUS borrower, an 

income-based repayment plan, as determined 

in accordance with §685.221;

(B) Except for a parent PLUS borrower, an 

income-contingent repayment plan, as 

determined in accordance with §685.209;

(C) A standard repayment plan, as 

determined in accordance with §685.208(b); or

(D) Any other repayment plan if the 

monthly payment amount paid is not less than 

what would have been paid under the Direct 

Loan standard repayment plan described in 

§685.208(b).

(2) If a borrower makes a lump sum 

payment on an eligible loan for which the 

borrower is seeking forgiveness by using all or 

part of a Segal Education Award received after a 
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

MEETING 2

FEBRUARY 13-17, 2012

87

year of AmeriCorps service, or by using all or 

part of a Peace Corps transition payment if the 

lump sum payment is made no later than six 

months after leaving the Peace Corps, the 

Secretary will consider the borrower to have 

made qualifying payments equal to the lesser 

of—

(i) The number of payments resulting after 

dividing the amount of the lump sum payment 

by the monthly payment amount the borrower 

would have made under paragraph (c)(1)(iv) of 

this section; or

(ii) Twelve payments.

(d) Forgiveness Amount. The Secretary 

forgives the principal and accrued interest that 

remains on all eligible loans for which loan 

forgiveness is requested by the borrower. The 

Secretary forgives this amount after the 

borrower makes the 120 monthly qualifying 

payments under paragraph (c) of this section.

(e) Application. (1) After making the 120 

monthly qualifying payments on the eligible 

loans for which loan forgiveness is requested, a 

borrower may request loan forgiveness on a 

form provided by the Secretary.

(2) If the Secretary determines that the 

borrower meets the eligibility requirements for 

loan forgiveness under this section, the 

Secretary—

(i) Notifies the borrower of this 

determination; and

(ii) Forgives the outstanding balance of the 

eligible loans.

(3) If the Secretary determines that the 

borrower does not meet the eligibility 

requirements for loan forgiveness under this 

section, the Secretary resumes collection of the 

loan and grants forbearance of payment on 

both principal and interest for the period in 

which collection activity was suspended. The 

Secretary notifies the borrower that the 

application has been denied, provides the basis 

for the denial, and informs the borrower that 

the Secretary will resume collection of the loan. 

The Secretary may capitalize any interest 

accrued and not paid during this period.
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

88

§ 685.220 Consolidation.

(a) Direct Consolidation Loans. A borrower 

may consolidate education loans made under 

certain Federal programs into a Direct 

Consolidation Loan. Loans consolidated into a 

Direct Consolidation Loan are discharged when 

the Direct Consolidation Loan is originated.

(b) Loans eligible for consolidation. The 

following loans may be consolidated into a 

Direct Consolidation Loan:

(1) Subsidized Federal Subsidized Stafford 

Loans.

(2) Guaranteed Student Loans.

(3) Federal Insured Student Loans (FISL).

(4) Direct Subsidized Loans.

(5) Direct Subsidized Consolidation Loans.

(6) Federal Perkins Loans.

(7) National Direct Student Loans (NDSL).

(8) National Defense Student Loans (NDSL).

(9) Federal PLUS Loans.

(10) Parent Loans for Undergraduate 

Students (PLUS).

(11) Direct PLUS Loans.

(12) Direct PLUS Consolidation Loans.

(13) Federal Consolidation Loans.

(13)(14) Unsubsidized Federal Unsubsidized 

Stafford Loans.

(14)(15) Federal Supplemental Loans for 

Students (SLS).

(15) Federal Consolidation Loans.

(16) Direct Unsubsidized Loans.

(17) Direct Unsubsidized Consolidation 

Loans.

(18) Auxiliary Loans to Assist Students 

(ALAS).

(19) Health Professions Student Loans 

(HPSL) and Loans for Disadvantaged Students 

(LDS) made under subpart II of part A of title VII 

of the Public Health Service Act.

(20) Health Education Assistance Loans 

(HEAL).

(21) Nursing loans made under subpart II of 

part B of title VIII of the Public Health Service 

Act.

(c) (1) Subsidized, unsubsidized, and PLUS

components of Direct Consolidation Loans. (1) 

The term “Direct Subsidized Consolidation 

Loan” refers to the portion of a Direct 

Consolidation Loan attributable to –

(i) tThe loans identified in paragraphs (b)(1) 

through (5) of this section,; and 

(ii) attributable to tThe portion of a Federal 

Consolidation Loans under paragraph 

(b)(15)(13) of this section that is eligible for 

interest benefits during a deferment period 

under Section 428C(b)(4)(C) of the Act, is 

referred to as a Direct Subsidized Consolidation 

Loan.

(2) Unsubsidized component of Direct 

Consolidation Loans. Except as provided in 

paragraph (c)(1)(3) of this section, the term 

“Direct Unsubsidized Consolidation Loan” refers 

to the portion of a Direct Consolidation Loan 

attributable to –
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

89

(i) tThe loans identified in paragraphs (b)(6) 

through (8)(12);

(ii) The portion of a Federal Consolidation 

Loan under paragraph (b)(13) of this section 

that is not eligible for interest benefits during a 

deferment period under Section 428C(b)(4)(C) 

of the Act; and 

(iii) The loans identified in paragraphs 

(b)(13)(14) through (21) of this section is 

referred to as a Direct Unsubsidized 

Consolidation Loan.

(3) PLUS component of Direct Consolidation 

Loans. In the case of a Direct Consolidation Loan 

made before July 1, 2006, the term “Direct PLUS 

Consolidation Loan” refers to Tthe portion of a 

Direct Consolidation Loan attributable to the 

loans identified in paragraphs (b)(9) through 

(12) of this section is referred to as a Direct 

PLUS Consolidation Loan.

(d) Eligibility for a Direct Consolidation 

Loan. (1) A borrower may obtain a Direct 

Consolidation Loan if the borrower meets the 

following requirements:

(i) At the time the borrower applies for a 

Direct Consolidation Loan, the borrower 

either—The borrower consolidates at least one 

Direct Loan Program or FFEL Program loan.

(A) Has an outstanding balance on a Direct 

Loan; or

(B) Has an outstanding balance on an FFEL 

loan and—

(1) The borrower is unable to obtain a FFEL 

consolidation loan;

(2) The borrower is unable to obtain a FFEL 

consolidation loan with income-sensitive 

repayment terms acceptable to the borrower;

(3) The borrower wishes to use the Public 

Service Loan Forgiveness Program or the no 

accrual of interest benefit for active duty 

service;

(4) The borrower has an FFEL Consolidation 

Loan that is in default or has been submitted to 

the guaranty agency by the lender for default 

aversion, and the borrower wants to 

consolidate the FFEL Consolidation Loan into 

the Direct Loan Program for the purpose of 

obtaining an income contingent repayment plan 

or an income-based repayment plan; or

(5) The borrower has a FFEL Consolidation 

Loan and the borrower wants to consolidate 

that loan into the Direct Loan Program for 

purposes of using the Public Service Loan 

Forgiveness Program or the no accrual of 

interest benefit for active duty service.

(ii) At the time the borrower applies for the 

Direct Consolidation Loan, the borrower is—

(A) In the grace period;

(B) In a repayment period but not in 

default;

(C) In default but has made satisfactory 

repayment arrangements, as defined in 

accordance with paragraph (2) of the definition 

of that term in §685.102(b);applicable program 

regulations, on the defaulted loan; or

(D) In default but agrees to repay the 

consolidation loan under the income contingent 

repayment plan described in §685.208(k) or the 

income-based repayment plan described in 

§685.208(m), and signs the consent form 

described in §685.209(d)(5) or §685.221(e).
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

90

(E)(D) Not subject to a judgment secured 

through litigation, unless the judgment has 

been vacated; or

(F)(E) Not subject to an order for wage 

garnishment under section 488A of the Act, 

unless the order has been lifted.

(iii) On the loans being consolidated, the

borrower is—

(A) Not subject to a judgment secured 

through litigation, unless the judgment has 

been vacated; or

(B) Not subject to an order for wage 

garnishment under section 488A of the Act, 

unless the order has been lifted.

(iv) The borrower certifies that no other 

application to consolidate any of the borrower's 

loans listed in paragraph (b) of this section is 

pending with any other lender.

(v)(iv) The borrower agrees to notify the 

Secretary of any change in address.

(2)(i) Except as provided in paragraph 

(d)(2)(ii) of this section, Aa borrower may not 

consolidate a Direct Consolidation Loan or a 

Federal Consolidation Loan into a new 

consolidation loan under this section or under 

§682.201(c) unless at least one additional 

eligible loan is included in the consolidation.

(ii) A borrower may consolidate a Federal 

Consolidation Loan into a new consolidation 

loan under this section without including any 

additional loans if –

(A) The borrower has a Federal 

Consolidation Loan that is in default or has been 

submitted to the guaranty agency by the lender 

for default aversion, and the borrower wants to 

consolidate the Federal Consolidation Loan into 

the Direct Loan Program for the purpose of 

obtaining an income contingent repayment plan 

or an income-based repayment plan; or

(B) The borrower has a Federal

Consolidation Loan and the borrower wants to 

consolidate that loan into the Direct Loan 

Program for purposes of using the Public 

Service Loan Forgiveness Program or the no 

accrual of interest benefit for active duty 

service.

(3) Eligible loans received before or after 

the date a Direct Consolidation Loan is made 

may be added to a subsequent Direct 

Consolidation Loan.

(e) Application for a Direct Consolidation 

Loan. To obtain a Direct Consolidation Loan, a 

borrower shallmust submit a completed 

application to the Secretary. A borrower may 

add eligible loans to a Direct Consolidation Loan 

by submitting a request to the Secretary within 

180 days after the date on which the Direct 

Consolidation Loan is originated.

(f) Origination of a consolidation loan. (1)(i) 

The holder of a loan that a borrower wishes to 

consolidate into a Direct Loan shall must

complete and return the Secretary's request for 

certification of the amount owed within 10 

business days of receipt or, if it is unable to 

provide the certification, provide to the 

Secretary a written explanation of the reasons 

for its inability to provide the certification.

(ii) If the Secretary approves an application 

for a consolidation loan, the Secretary pays to 

each holder of a loan selected for consolidation 

the amount necessary to discharge the loan.

(iii) For a Direct lLoan Program or FFEL 

Program loan that is in default, the Secretary 

limits collection costs that may be charged to 
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

91

the borrower to no more than those authorized 

under the FFEL Program.

(2) Upon receipt of the proceeds of a Direct 

Consolidation Loan, the holder of a 

consolidated loan shall must promptly apply the 

proceeds to fully discharge the borrower's 

obligation on the consolidated loan. The holder 

of a consolidated loan shall must notify the 

borrower that the loan has been paid in full.

(3) The principal balance of a Direct 

Consolidation Loan is equal to the sum of the 

amounts paid to the holders of the consolidated 

loans.

(4) If the amount paid by the Secretary to 

the holder of a consolidated loan exceeds the 

amount needed to discharge that loan, the 

holder of the consolidated loan shall must

promptly refund the excess amount to the 

Secretary to be credited against the outstanding 

balance of the Direct Consolidation Loan.

(5) If the amount paid by the Secretary to 

the holder of the consolidated loan is 

insufficient to discharge that loan, the holder 

shall must notify the Secretary in writing of the 

remaining amount due on the loan. The 

Secretary promptly pays the remaining amount 

due.

(g) Interest rate. The interest rate on a 

Direct Subsidized Consolidation Loan or a Direct 

Unsubsidized Consolidation Loan is the rate 

established in §685.202(a)(3)(i). The interest 

rate on a Direct PLUS Consolidation Loan is the 

rate established in §685.202(a)(3)(ii).

(h) Repayment plans. A borrower may 

choose a repayment plan for a Direct 

Consolidation Loan in accordance with 

§685.208, and may change repayment plans in 

accordance with §685.210(b).except that a 

borrower who became eligible to consolidate a 

defaulted loan under paragraph (d)(1)(ii)(D) of 

this section must repay the consolidation loan 

under the income contingent repayment plan 

unless—

(1)(i) The borrower was required to and did 

make a payment under the income contingent 

repayment plan in each of the prior three (3) 

months; or

(ii) The borrower was not required to make 

payments but made three reasonable and 

affordable payments in each of the prior three 

(3) months; and

(2) The borrower makes and the Secretary 

approves a request to change plans.

(i) Repayment period. (1) Except as noted in 

paragraph (i)(4) of this section, the repayment 

period for a Direct Consolidation Loan begins on 

the day the loan is disbursed.

(2)(i) Borrowers who entered repayment 

before July 1, 2006. The Secretary determines 

the repayment period under §685.208(i) on the 

basis of the outstanding balances on all of the 

borrower's loans that are eligible for 

consolidation and the balances on other 

education loans except as provided in 

paragraphs (i)(3)(i), (ii), and (iii) of this section.

(ii) Borrowers entering repayment on or 

after July 1, 2006. The Secretary determines the 

repayment period under §685.208(j) on the 

basis of the outstanding balances on all of the 

borrower's loans that are eligible for 

consolidation and the balances on other 

education loans except as provided in 

paragraphs (i)(3)(i) and (ii) of this section.

(3)(i) The total amount of outstanding 

balances on the other education loans used to 
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

92

determine the repayment period under 

§§685.208(i) and (j) may not exceed the amount 

of the Direct Consolidation Loan.

(ii) The borrower may not be in default on 

the other education loan unless the borrower 

has made satisfactory repayment arrangements 

with the holder of the loan.

(iii) The lender of the other educational loan 

may not be an individual.

(4) Borrowers whose consolidation 

application was received before July 1, 2006. A 

Direct Consolidation Loan receives a grace 

period if it includes a Direct Loan Program or 

FFEL Program loan for which the borrower

iswas in an in-school period at the time of 

consolidation. The repayment period begins the 

day after the grace period ends.

(j) Repayment schedule. (1) The Secretary 

provides a borrower of a Direct Consolidation 

Loan a repayment schedule before the 

borrower's first payment is due. The repayment 

schedule identifies the borrower's monthly 

repayment amount under the repayment plan 

selected.

(2) If a borrower adds an eligible loan to the 

consolidation loan under paragraph (e) of this 

section, the Secretary makes appropriate 

adjustments to the borrower's monthly 

repayment amount and repayment period.

(k) Refunds and returns of title IV, HEA 

program funds received from schools. If a lender 

receives a refund or return of title IV, HEA 

program funds from a school on a loan that has 

been consolidated into a Direct Consolidation 

Loan, the lender shallmust transmit the refund 

or return and an explanation of the source of 

the refund or return to the Secretary within 30 

days of receipt.

(l) Special provisions for joint consolidation 

loans. The provisions of paragraphs (l)(1) 

through (3) of this section apply to a Direct 

Consolidation Loan obtained by two married 

borrowers in accordance with the regulations 

that were in effect for consolidation 

applications received prior to July 1, 2006.

(1) Deferment. To obtain a deferment on a 

joint Direct Consolidation Loan under §685.204, 

both borrowers must meet the requirements of 

that section.

(2) Forbearance. To obtain forbearance on a 

joint Direct Consolidation Loan under §685.205, 

both borrowers must meet the requirements of 

that section.

(3) Discharge. (i) If a borrower dies and the 

Secretary receives the documentation 

described in §685.212(a), the Secretary 

discharges an amount equal to the portion of 

the outstanding balance of the consolidation 

loan, as of the date of the borrower's death, 

attributable to any of that borrower's loans that 

were repaid by the consolidation loan.

(ii) If a borrower meets the requirements 

for total and permanent disability discharge 

under §685.212(b), the Secretary discharges an 

amount equal to the portion of the outstanding 

balance of the consolidation loan, as of the date 

the borrower became totally and permanently 

disabled, attributable to any of that borrower's 

loans that were repaid by the consolidation 

loan.

(iii) If a borrower meets the requirements 

for discharge under §685.212(d), (e), or (f) on a 

loan that was consolidated into a joint Direct 

Consolidation Loan, the Secretary discharges 

the portion of the consolidation loan equal to 

the amount of the loan that would be eligible 

for discharge under the provisions of 
Subpart B—Borrower Provisions

§685.220

Consolidation

MEETING 2

FEBRUARY 13-17, 2012

93

§685.212(d), (e), or (f) as applicable, and that 

was repaid by the consolidation loan.

(iv) If a borrower meets the requirements 

for loan forgiveness under §685.212(h) on a 

loan that was consolidated into a joint Direct 

Consolidation Loan, the Secretary repays the 

portion of the outstanding balance of the 

consolidation loan attributable to the loan that 

would be eligible for forgiveness under the 

provisions of §685.212(h), and that was repaid 

by the consolidation loan.

Editorial Note: At 73 FR 63257, Oct. 23, 2008, 

§685.220 was amended; however, in paragraph 

(d)(1)(ii)(D), there was no reference to 

“685.220(k)”, The amendment could not be 

incorporated due to inaccurate amendatory 

instruction.
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

MEETING 2

FEBRUARY 13-17, 2012

94

§ 685.221 Income-based repayment plan.

[SEE ISSUE PAPER #2 FOR PROPOSED CHANGES 

TO THIS SECTION.]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.300

Agreements between an eligible school and the Secretary for participation in the Direct Loan Program

MEETING 2

FEBRUARY 13-17, 2012

95

Subpart C—Requirements, Standards, and 

Payments for Direct Loan Program Schools

§ 685.300 Agreements between an eligible 

school and the Secretary for participation in 

the Direct Loan Program.

(a) General. (1) Participation of a school in 

the Direct Loan Program means that eligible 

students at the school may receive Direct Loans. 

To participate in the Direct Loan Program, a 

school shallmust—

(i) Demonstrate to the satisfaction of the 

Secretary that the school meets the 

requirements for eligibility under the Act and 

applicable regulations; and

(ii) Enter into a written program 

participation agreement with the Secretary that 

identifies the loan program or programs in 

which the school chooses to participate.

(2) The chief executive officer of the school 

shall must sign the program participation 

agreement on behalf of the school.

(b) Program participation agreement. In the 

program participation agreement, the school 

shall must promise to comply with the Act and 

applicable regulations and shall must agree to—

(1) Identify eligible students who seek 

student financial assistance at the institution in 

accordance with section 484 of the Act;

(2) Estimate the need of each of these 

students as required by part F of the Act for an 

academic year. For purposes of estimating 

need, a Direct Unsubsidized Loan, a Direct PLUS 

Loan, or any loan obtained under any Statesponsored or private loan program may be used 

to offset the expected family contribution of 

the student for that year;

(3) Certify that the amount of the loan for 

any student under part D of the Act is not in 

excess of the annual limit applicable for that 

loan program and that the amount of the loan, 

in combination with previous loans received by 

the borrower, is not in excess of the aggregate 

limit for that loan program;

(4) Set forth a schedule for disbursement of 

the proceeds of the loan in installments, 

consistent with the requirements of section 

428G of the Act;

(5) Reconcile on a monthly basis;

(5)(6) Provide timely and accurate 

information to the Secretary for the servicing 

and collecting of loans—

(i) Concerning the status of student 

borrowers (and students on whose behalf 

parents borrow) while these students are in 

attendance at the school;

(ii) Upon request by the Secretary, 

concerning any new information of which the 

school becomes aware for these students (or 

their parents) after the student leaves the 

school; and

(iii) Concerning student eligibility and need, 

for the alternative origination of loans to 

eligible students and parents in accordance with 

part D of the Act;

(6)(7) Provide assurances that the school 

will comply with requirements established by 

the Secretary relating to student loan 

information with respect to loans made under 

the Direct Loan Program;

(7)(8) Provide that the school will accept 

responsibility and financial liability stemming 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.300

Agreements between an eligible school and the Secretary for participation in the Direct Loan Program

MEETING 2

FEBRUARY 13-17, 2012

96

from its failure to perform its functions 

pursuant to the agreement;

(8) Provide that eligible students at the 

school and their parents may participate in the 

programs under part B of the Act at the 

discretion of the Secretary for the period during 

which the school participates in the Direct Loan 

Program under part D of the Act, except that—

(i) A student may not receive a Direct 

Subsidized Loan and/or a Direct Unsubsidized 

Loan under part D of the Act and a subsidized 

and/or unsubsidized Federal Stafford Loan 

under part B of the Act for the same period of 

enrollment;

(ii) A graduate or professional student or a 

parent borrowing for the same dependent 

student may not receive a Direct PLUS Loan 

under part D of the Act and a Federal PLUS Loan 

under part B of the Act for the same period of 

enrollment;

(9) Provide for the implementation of a 

quality assurance system, as established by the 

Secretary and developed in consultation with 

the school, to ensure that the school is 

complying with program requirements and 

meeting program objectives;

(10) Provide that the school will not charge 

any fees of any kind, however described, to 

student or parent borrowers for origination 

activities or the provision of any information 

necessary for a student or parent to receive a 

loan under part D of the Act or any benefits 

associated with such a loan; and

(11) Comply with other provisions that the 

Secretary determines are necessary to protect 

the interests of the United States and to 

promote the purposes of part D of the Act.

(c) Origination. (1) If a school or consortium 

originates loans in the Direct Loan Program, it 

shall must enter into a supplemental agreement 

that—

(i) Provides that the school or consortium 

will originate loans to eligible students and 

parents in accordance with part D of the Act; 

and

(ii) Provides that the note or evidence of 

obligation on the loan is the property of the 

Secretary.

(2) The chief executive officer of the school 

shall must sign the supplemental agreement on 

behalf of the school.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

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§ 685.301 Origination of a loan by a Direct 

Loan Program school.

(a) Determining eligibility and loan amount. 

(1) A school participating in the Direct Loan 

Program shall must ensure that any information 

it provides to the Secretary in connection with 

loan origination is complete and accurate. A 

school shall must originate a Direct Loan while 

the student meets the borrower eligibility 

requirements of §685.200. Except as provided

in 34 CFR part 668, subpart E, a school may rely 

in good faith upon statements made by the 

borrower and, in the case of a parent PLUS loan 

borrower, the student and the parent borrower.

(2) A school shall must provide to the 

Secretary borrower information that includes 

but is not limited to—

(i) The borrower's eligibility for a loan, as 

determined in accordance with §685.200 and 

§685.203;

(ii) The student's loan amount; and

(iii) The anticipated and actual 

disbursement date or dates and disbursement 

amounts of the loan proceeds, as determined in 

accordance with §685.303(d).

(3) Before originating a Direct PLUS Loan for 

a graduate or professional student borrower, 

the school must determine the borrower's 

eligibility for a Direct Subsidized and a Direct 

Unsubsidized Loan. If the borrower is eligible 

for a Direct Subsidized or Direct Unsubsidized 

Loan, but has not requested the maximum 

Direct Subsidized or Direct Unsubsidized Loan 

amount for which the borrower is eligible, the 

school must—

(i) Notify the graduate or professional 

student borrower of the maximum Direct 

Subsidized or Direct Unsubsidized Loan amount 

that he or she is eligible to receive and provide 

the borrower with a comparison of—

(A) The maximum interest rate for a Direct 

Subsidized Loan and a Direct Unsubsidized Loan 

and the maximum interest rate for a Direct 

PLUS Loan;

(B) Periods when interest accrues on a 

Direct Subsidized Loan and a Direct 

Unsubsidized Loan, and periods when interest 

accrues on a Direct PLUS Loan; and

(C) The point at which a Direct Subsidized 

Loan and a Direct Unsubsidized Loan enters 

repayment, and the point at which a Direct 

PLUS Loan enters repayment; and

(ii) Give the graduate or professional 

student borrower the opportunity to request 

the maximum Direct Subsidized or Direct 

Unsubsidized Loan amount for which the 

borrower is eligible.

(4) A school may not originate a Direct 

Subsidized, Direct Unsubsidized, or Direct PLUS 

Loan, or a combination of loans, for an amount 

that—

(i) The school has reason to know would 

result in the borrower exceeding the annual or 

maximum loan amounts in §685.203; or

(ii) Exceeds the student's estimated cost of 

attendance less—

(A) The student's estimated financial 

assistance for that period; and

(B) In the case of a Direct Subsidized Loan, 

the borrower's expected family contribution for 

that period.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

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(5)(i) A school determines a Direct 

Subsidized or Direct Unsubsidized Loan amount 

in accordance with §685.203.

(ii) When prorating a loan amount for a 

student enrolled in a program of study with less 

than a full academic year remaining, the school 

need not recalculate the amount of the loan if 

the number of hours for which an eligible 

student is enrolled changes after the school 

originates the loan.

(6) The date of loan origination is the date a 

school creates the electronic loan origination 

record.

(7) If a student has received a 

determination of need for a Direct Subsidized 

Loan that is $200 or less, a school may choose 

not to originate a Direct Subsidized Loan for 

that student and to include the amount as part 

of a Direct Unsubsidized Loan.

(8) A school may refuse to originate a Direct 

Subsidized, Direct Unsubsidized, or Direct PLUS 

Loan or may reduce the borrower's 

determination of need for the loan if the reason 

for that action is documented and provided to 

the borrower in writing, and if—

(i) The determination is made on a case-bycase basis;

(ii) The documentation supporting the 

determination is retained in the student's file; 

and

(iii) The school does not engage in any 

pattern or practice that results in a denial of a 

borrower's access to Direct Loans because of 

the borrower's race, gender, color, religion, 

national origin, age, disability status, or income.

(9) A school may not assess a fee for the 

completion or certification of any Direct Loan 

Program forms or information or for the 

origination of a Direct Loan.

(10)(i) The minimum period of enrollment 

for which a school may originate a Direct Loan 

is—

(A) At a school that measures academic 

progress in credit hours and uses a semester, 

trimester, or quarter system, or that has terms 

that are substantially equal in length with no 

term less than nine weeks in length, a single 

academic term (e.g., a semester or quarter); or

(B) Except as provided in paragraph 

(a)(10)(ii) or (iii) of this section, Aat a school 

that measures academic progress in clock 

hours, or measures academic progress in credit 

hours but does not use a semester, trimester, 

or quarter system and does not have terms that 

are substantially equal in length with no term 

less than nine weeks in length, the lesser of—

(1) The length of the student's program (or 

the remaining portion of that program if the 

student has less than the full program 

remaining) at the school; or

(2) The academic year as defined by the 

school in accordance with 34 CFR 668.3.

(ii) For a student who transfers into a school 

with credit or clock hours from another school 

and the prior school originated a loan for a 

period of enrollment that overlaps the period of 

enrollment at the new school, the new school 

may originate a loan for the remaining portion 

of the program or academic year. In this case

the school may originate a loan for an amount 

that does not exceed the remaining balance of 

the student’s annual loan limit. [SEE ISSUE 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

MEETING 2

FEBRUARY 13-17, 2012

99

PAPER #7 FOR PROPOSED CHANGES IN THIS 

PARAGRAPH.]

(iii) For a student who completes a program 

at a school, where the student’s last loan to 

complete that program had been for less than 

an academic year, and the student then begins 

a new program at the same school, the school 

may originate a loan for the remainder of the 

academic year. In this case the school may 

originate a loan for an amount that does not 

exceed the remaining balance of the student’s 

annual loan limit at the loan level associated 

with the new program.

(ii)(iv) The maximum period for which a 

school may originate a Direct Loan is—

(A) Generally an academic year, as defined 

by the school in accordance with 34 CFR 668.3, 

except that the school may use a longer period 

of time corresponding to the period to which 

the school applies the annual loan limits under 

§685.203; or

(B) For a defaulted borrower who has 

regained eligibility, the academic year in which 

the borrower regained eligibility.

(b) Determining disbursement dates and 

amounts. (1) Before disbursing a loan, a school 

that originates loans shall determine that all 

information required by the loan application 

and promissory note has been provided by the 

borrower and, if applicable, the student.

(2) An institution must disburse the loan 

proceeds on a payment period basis in 

accordance with 34 CFR 668.164(b).

(3) Unless paragraphs (b)(4) or (b)(8) of this 

section applies—

(i) If a loan period is more than one 

payment period, the school must disburse loan 

proceeds at least once in each payment period; 

and

(ii) If a loan period is one payment period, 

the school must make at least two 

disbursements during that payment period.

(A) For a loan originated under 

§685.301(a)(9)(i)(A), the school may not make 

the second disbursement until the calendar 

midpoint between the first and last scheduled 

days of class of the loan period; or

(B) For a loan originated under 

§685.301(a)(9)(i)(B), the school may not make 

the second disbursement until the student 

successfully completes half of the number of 

credit hours or clock hours and half of the 

number of weeks of instructional time in the 

payment period.

(4)(i) If one or more payment periods have 

elapsed before a school makes a disbursement, 

the school may include in the disbursement 

loan proceeds for completed payment periods; 

or

(ii) If the loan period is equal to one 

payment period and more than one-half of it 

has elapsed, the school may include in the 

disbursement loan proceeds for the entire 

payment period.

(5) The school must disburse loan proceeds 

in substantially equal installments, and no 

installment may exceed one-half of the loan.

(6)(i) A school is not required to make more 

than one disbursement if—

(A)(1) The loan period is not more than one 

semester, one trimester, one quarter, or, for 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

MEETING 2

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100

non term-based schools or schools with nonstandard terms, 4 months; and

(2)(i) Except as provided in paragraph 

(b)(6)(i)(A)(2)(ii) of this section, the school has a 

cohort default rate, calculated under subpart M 

of 34 CFR part 668 of less than 10 percent for 

each of the three most recent fiscal years for 

which data are available;

(ii) For loan disbursements made on or after 

October 1, 2011, the school in which the 

student is enrolled has a cohort default rate, 

calculated under either subpart M or subpart N 

of 34 CFR part 668 of less than 15 percent for 

each of the three most recent fiscal years, for 

which data are available.

(B) The school is an eligible home institution 

originating a loan to cover the cost of 

attendance in a study abroad program and has 

a cohort default rate, calculated under subpart 

M or subpart N of 34 part 668, of less than 5 

percent for the single most recent fiscal year for 

which data are available.

(ii) Paragraphs (b)(6)(i)(A) and (B) of this 

section do not apply to any loans originated by 

the school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in paragraph (A) or (B), 

as applicable.

(iii) Paragraph (b)(6)(i)(B) of this section 

does not apply to any loans originated by the 

school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in that paragraph.

(c) Annual loan limit progression based on 

completion of an academic year. (1) If a school 

measures academic progress in an educational 

program in credit hours and uses either 

standard terms (semesters, trimesters, or 

quarters) or nonstandard terms that are 

substantially equal in length, and each term is 

at least nine weeks of instructional time in 

length, a student is considered to have 

completed an academic year and progresses to 

the next annual loan limit when the academic 

year calendar period has elapsed.

(2) If a school measures academic progress 

in an educational program in credit hours and 

uses nonstandard terms that are not 

substantially equal in length or each term is not 

at least nine weeks of instructional time in 

length, or measures academic progress in credit 

hours and does not have academic terms, a 

student is considered to have completed an 

academic year and progresses to the next 

annual loan limit at the later of—

(i) The student's completion of the weeks of 

instructional time in the student's academic 

year; or

(ii) The date, as determined by the school, 

that the student has successfully completed the 

academic coursework in the student's academic 

year.

(3) If a school measures academic progress 

in an educational program in clock hours, a 

student is considered to have completed an 

academic year and progresses to the next 

annual loan limit at the later of—

(i) The student's completion of the weeks of 

instructional time in the student's academic 

year; or
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

MEETING 2

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101

(ii) The date, as determined by the school, 

that the student has successfully completed the 

clock hours in the student's academic year.

(4) For purposes of this section, terms in a 

loan period are substantially equal in length if 

no term in the loan period is more than two 

weeks of instructional time longer than any 

other term in that loan period.

(d)(b) Promissory note handling. (1) The 

Secretary provides promissory notes for use in 

the Direct Loan Program. A school may not 

modify, or make any additions to, the 

promissory note without the Secretary's prior 

written approval.

(2) A school that originates a loan must 

ensure that the loan is supported by a 

completed promissory note as proof of the 

borrower's indebtedness.

(e)(c) Reporting to the Secretary. (1) The 

Secretary accepts a student’s Payment Data 

that is submitted in accordance with procedures 

established through publication in the Federal

Register, and that contains information the 

Secretary considers to be accurate in light of 

other available information including that 

previously provided by the student and the 

institution.

(2) A school that participates under school 

origination option 1 or standard origination 

must submit the initial disbursement record for 

a loan to the Secretary no later than 30 days 

following the date of the initial disbursement. 

The school must submit subsequent 

disbursement records, including adjustment 

and cancellation records, to the Secretary no 

later than 30 days following the date the 

disbursement, adjustment, or cancellation is 

made.

Editorial Note: At 72 FR 62011, Nov. 1, 2007, 

§685.301 was amended, in part, by 

redesignating (a)(8) and (9) as (a)(9) and (10). At 

72 FR 62032, Nov. 1, 2007, (a)(9) was amended 

by redesignating (a)(9)(ii) as (a)(9)(iv), revising 

(a)(9)(i), and adding new (a)(9)(ii) and (iii), but 

the amendatory instruction could not be 

followed. For the convenience of the user the 

revisions and addition are set forth to read as 

follows: 

§ 685.301 Origination of a loan by a Direct Loan Program 

school.

(a) * * *

(9)(i) The minimum period of enrollment for which a 

school may originate a Direct Loan application is—

(A) At a school that measures academic progress in 

credit hours and uses a semester, trimester, or quarter 

system, or has terms that are substantially equal in length 

with no term less than nine weeks in length, a single 

academic term (e.g., a semester or quarter); or

(B) Except as provided in paragraph (a)(9)(ii) or (iii) of 

this section, at a school that measures academic progress 

in clock hours, or measures academic progress in credit 

hours but does not use a semester, trimester, or quarter 

system and does not have terms that are substantially 

equal in length with no term less than nine weeks in 

length, the lesser of—

(1) The length of the student's program (or the 

remaining portion of that program if the student has less 

than the full program remaining) at the school; or

(2) The academic year as defined by the school in 

accordance with 34 CFR 668.3.

(ii) For a student who transfers into a school with 

credit or clock hours from another school, and the prior 

school originated or certified a loan for a period of 

enrollment that overlaps the period of enrollment at the 

new school, the new school may originate a loan for the 

remaining portion of the program or academic year. In this 

case the school may originate a loan for an amount that 

does not exceed the remaining balance of the student's 

annual loan limit.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

MEETING 2

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102

(iii) For a student who completes a program at a 

school, where the student's last loan to complete that 

program had been for less than an academic year, and the 

student then begins a new program at the same school, 

the school may originate a loan for the remainder of the 

academic year. In this case the school may originate a loan 

for an amount that does not exceed the remaining balance 

of the student's annual loan limit at the loan level 

associated with the new program.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.302

[Reserved]

MEETING 2

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103

§ 685.302 [Reserved]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

MEETING 2

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104

§ 685.303 Processing loan proceeds.

(a) Purpose. This section establishes rules 

governing a school's processing of a borrower's 

Direct Subsidized, Direct Unsubsidized, or Direct 

PLUS Loan proceeds. The school shall must also 

comply with any rules for processing loan 

proceeds contained in 34 CFR part 668.

(b) General —(1)(i) A school that initiates 

the drawdown of funds. A school may not 

disburse loan proceeds to a borrower unless the 

school borrower has obtained an executed, a 

legally enforceable promissory note from the 

borrower.

(ii) A school that does not initiate the 

drawdown of funds. AIf a school does not 

initiate the drawdown of funds, the school may 

disburse loan proceeds only to a borrower for 

whom the school has received funds from the 

Secretary.

(2)(i) Except in the case of a late 

disbursement under paragraph (d)(f) of this 

section, or as provided in paragraph (b)(2)(iii) of 

this section, a school may disburse loan 

proceeds only to a student, or a parent in the 

case of a Direct PLUS Loan obtained by a parent 

borrower, if the school determines the student 

has continuously maintained eligibility in 

accordance with the provisions of §685.200 

from the beginning of the loan period for which 

the loan was intended.

(ii) In the eventIf a student delays attending 

school for a period of time, the school may 

consider that student to have maintained 

eligibility for the loan from the first day of the 

period of enrollment. However, the school must 

comply with the requirements under paragraph 

(b)(3) of this section.

(iii) If, after a school makes the first 

disbursement to a borrower, the student 

becomes ineligible due solely to the school's 

loss of eligibility to participate in the title IV 

programs or the Direct Loan Program, the 

school may make subsequent disbursements to 

the borrower as permitted by 34 CFR part 668.

(iv) If, prior to making any disbursement to 

a borrower, the student temporarily ceases to 

be enrolled on at least a half-time basis, the 

school may make a disbursement and any 

subsequent disbursement to the student if the 

school determines and documents in the 

student's file—

(A) That the student has resumed 

enrollment on at least a half-time basis;

(B) The student's revised cost of 

attendance; and

(C) That the student continues to qualify for 

the entire amount of the loan, notwithstanding 

any reduction in the student's cost of 

attendance caused by the student's temporary 

cessation of enrollment on at least a half-time 

basis.

(3) If a student does not begin attendance 

in the period of enrollment, disbursed loan 

proceeds must be handled in accordance with 

34 CFR 668.21.

(4)(i) If a student is enrolled in the first year 

of an undergraduate program of study and has 

not previously received a Direct Subsidized 

Loan, a Direct Unsubsidized Loan, a Subsidized 

or Unsubsidized Federal Stafford Loan, or a 

Federal Supplemental Loans for Students, Direct 

Subsidized, or Direct Unsubsidized Loan, a 

school may not disburse the proceeds of a 

Direct Subsidized or Direct Unsubsidized Loan 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

MEETING 2

FEBRUARY 13-17, 2012

105

until 30 days after the first day of the student's 

program of study unless—

(A)(1) Except as provided in paragraph 

(b)(4)(i)(A)( 2 ) of this section, the school has a 

cohort default rate, calculated under subpart M 

of 34 CFR part 668, or weighted average cohort 

rate of less than 10 percent for each of the 

three most recent fiscal years for which data 

are available; or

(2) For loans first disbursed on or after 

October 1, 2011, the school in which the 

student is enrolled has a cohort default rate, 

calculated under either subpart M or N of 34 

CFR part 668 of less than 15 percent for each of 

the three most recent fiscal years for which 

data are available;

(B) The school is an eligible home institution 

originating a loan to cover the cost of 

attendance in a study abroad program and has 

a Direct Loan Program cohort rate, FFEL cohort 

default rate, or weighted average cohort rate of 

less than 5 percent for the single most recent 

fiscal year for which data are available.

(ii) Paragraphs (b)(4)(i)(A) and (B) of this 

section do not apply to any loans originated by 

the school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in paragraph (A) or (B), 

as applicable.

(iii) Paragraph (b)(4)(i)(B) of this section 

does not apply to any loans originated by the 

school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in that paragraph.

(c) Processing of the proceeds of a Direct 

Loan. Schools shall must follow the procedures 

for disbursing funds in 34 CFR 668.164.

(d) Determining disbursement dates and 

amounts. (1) Before disbursing a loan, a school 

that originates loans must determine that all 

information required by the loan application 

and promissory note has been provided by the 

borrower and, if applicable, the student.

(2) An institution must disburse the loan 

proceeds on a payment period basis in 

accordance with 34 CFR 668.164(b).

(3) Unless paragraphs (d)(4) or (d)(6) of this 

section applies—

(i) If a loan period is more than one 

payment period, the school must disburse loan 

proceeds at least once in each payment period; 

and

(ii) If a loan period is one payment period, 

the school must make at least two 

disbursements during that payment period.

(A) For a loan originated under 

§685.301(a)(10)(i)(A), the school may not make 

the second disbursement until the calendar 

midpoint between the first and last scheduled 

days of class of the loan period; or

(B) For a loan originated under 

§685.301(a)(10)(i)(B), the school may not make 

the second disbursement until the student 

successfully completes half of the number of 

credit hours or clock hours and half of the 

number of weeks of instructional time in the 

payment period.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

MEETING 2

FEBRUARY 13-17, 2012

106

(4)(i) If one or more payment periods have 

elapsed before a school makes a disbursement, 

the school may include in the disbursement 

loan proceeds for completed payment periods; 

or

(ii) If the loan period is equal to one 

payment period and more than one-half of it 

has elapsed, the school may include in the

disbursement loan proceeds for the entire 

payment period.

(5) The school must disburse loan proceeds 

in substantially equal installments, and no 

installment may exceed one-half of the loan.

(6)(i) A school is not required to make more 

than one disbursement if—

(A)(1) The loan period is not more than one 

semester, one trimester, one quarter, or, for 

non term-based schools or schools with nonstandard terms, 4 months; and

(2)(i) Except as provided in paragraph 

(d)(6)(i)(A)(2)(ii) of this section, the school has a 

cohort default rate, calculated under subpart M 

of 34 CFR part 668 of less than 10 percent for 

each of the three most recent fiscal years for 

which data are available;

(ii) For loan disbursements made on or after 

October 1, 2011, the school in which the 

student is enrolled has a cohort default rate, 

calculated under either subpart M or subpart N 

of 34 CFR part 668 of less than 15 percent for 

each of the three most recent fiscal years, for 

which data are available.

(B) The school is an eligible home institution 

originating a loan to cover the cost of 

attendance in a study abroad program and has 

a cohort default rate, calculated under subpart 

M or subpart N of 34 CFR part 668, of less than 

5 percent for the single most recent fiscal year 

for which data are available.

(ii) Paragraphs (d)(6)(i)(A) and (B) of this 

section do not apply to any loans originated by 

the school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in paragraph (A) or (B), 

as applicable.

(iii) Paragraph (d)(6)(i)(B) of this section 

does not apply to any loans originated by the 

school beginning 30 days after the date the 

school receives notification from the Secretary 

of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in that paragraph.

(e) Annual loan limit progression based on 

completion of an academic year. (1) If a school 

measures academic progress in an educational 

program in credit hours and uses either 

standard terms (semesters, trimesters, or 

quarters) or nonstandard terms that are 

substantially equal in length, and each term is 

at least nine weeks of instructional time in 

length, a student is considered to have 

completed an academic year and progresses to 

the next annual loan limit when the academic 

year calendar period has elapsed.

(2) If a school measures academic progress 

in an educational program in credit hours and 

uses nonstandard terms that are not 

substantially equal in length or each term is not 

at least nine weeks of instructional time in 

length, or measures academic progress in credit 

hours and does not have academic terms, a 

student is considered to have completed an 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

MEETING 2

FEBRUARY 13-17, 2012

107

academic year and progresses to the next 

annual loan limit at the later of—

(i) The student's completion of the weeks of 

instructional time in the student's academic 

year; or

(ii) The date, as determined by the school, 

that the student has successfully completed the 

academic coursework in the student's academic 

year.

(3) If a school measures academic progress 

in an educational program in clock hours, a 

student is considered to have completed an 

academic year and progresses to the next 

annual loan limit at the later of—

(i) The student's completion of the weeks of 

instructional time in the student's academic 

year; or

(ii) The date, as determined by the school, 

that the student has successfully completed the 

clock hours in the student's academic year.

(4) For purposes of this section, terms in a 

loan period are substantially equal in length if 

no term in the loan period is more than two 

weeks of instructional time longer than any 

other term in that loan period.

(d)(f) Late Disbursement. A school may 

make a late disbursement according to the 

provisions found under 34 CFR 668.164(g).

(e)(g) Treatment of excess loan proceeds. 

Before the disbursement of any Direct 

Subsidized Loan, Direct Unsubsidized Loan, or 

Direct PLUS Loan proceeds, if a school learns 

that the borrower will receive or has received 

financial aid for the period of enrollment for 

which the loan was intended that exceeds the 

amount of assistance for which the student is 

eligible (except for Federal Work-Study Program 

funds up to $300), the school shallmust reduce 

or eliminate the overaward by either—

(1) Using the student's Direct Unsubsidized

Loan, Direct PLUS Loan, or State-sponsored or 

another non-Federal loan to cover the expected 

family contribution, if not already done; or

(2) Reducing one or more subsequent 

disbursements to eliminate the overaward.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

MEETING 2

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108

§ 685.304 Counseling borrowers.

(a) Entrance counseling. (1) Except as 

provided in paragraph (a)(8) of this section, a 

school must ensure that entrance counseling is 

conducted with each Direct Subsidized Loan or 

Direct Unsubsidized Loan student borrower 

prior to making the first disbursement of the 

proceeds of a loan to a student borrower unless 

the student borrower has received a prior 

Direct Subsidized Loan, Direct Unsubsidized

Loan, Subsidized or Unsubsidized Federal 

Stafford Loan, or Federal SLS Loan.

(2) Except as provided in paragraph (a)(8) of 

this section, a school must ensure that entrance 

counseling is conducted with each graduate or 

professional student Direct PLUS Loan borrower 

prior to making the first disbursement of the 

loan unless the student borrower has received a 

prior Direct PLUS Loan or Federal PLUS Loan.

(3) Entrance counseling for Direct 

Subsidized Loan, Direct Unsubsidized Loan, and 

graduate or professional student Direct PLUS 

Loan borrowers must provide the borrower 

with comprehensive information on the terms 

and conditions of the loan and on the 

responsibilities of the borrower with respect to 

the loan. This information may be provided to 

the borrower—

(i) During an entrance counseling session, 

conducted in person;

(ii) On a separate written form provided to 

the borrower that the borrower signs and 

returns to the school; or

(iii) Online or by interactive electronic 

means, with the borrower acknowledging 

receipt of the information.

(4) If entrance counseling is conducted 

online or through interactive electronic means, 

the school must take reasonable steps to 

ensure that each student borrower receives the 

counseling materials, and participates in and 

completes the entrance counseling, which may 

include completion of any interactive program 

that tests the borrower's understanding of the 

terms and conditions of the borrower's loans.

(5) A school must ensure that an individual 

with expertise in the title IV programs is 

reasonably available shortly after the 

counseling to answer the student borrower's 

questions. As an alternative, in the case of a 

student borrower enrolled in a correspondence 

program or a study-abroad program approved 

for credit at the home institution, the student 

borrower may be provided with written 

counseling materials before the loan proceeds 

are disbursed.

(6) Entrance counseling for Direct 

Subsidized Loan and Direct Unsubsidized Loan 

borrowers must—

(i) Explain the use of a Master Promissory 

Note (MPN);

(ii) Emphasize to the borrower the 

seriousness and importance of the repayment 

obligation the student borrower is assuming;

(iii) Describe the likely consequences of 

default, including adverse credit reports, 

delinquent debt collection procedures under 

Federal law, and litigation;

(iv) Emphasize that the student borrower is 

obligated to repay the full amount of the loan 

even if the student borrower does not complete 

the program, does not complete the program 

within the regular time for program completion, 

is unable to obtain employment upon 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

MEETING 2

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109

completion, or is otherwise dissatisfied with or 

does not receive the educational or other 

services that the student borrower purchased 

from the school;

(v) Inform the student borrower of sample 

monthly repayment amounts based on—

(A) A range of student levels of 

indebtedness of Direct Subsidized Loan and 

Direct Unsubsidized Loan borrowers, or student 

borrowers with Direct Subsidized, Direct 

Unsubsidized, and Direct PLUS Loans depending 

on the types of loans the borrower has 

obtained; or

(B) The average indebtedness of other 

borrowers in the same program at the same 

school as the borrower;

(vi) To the extent practicable, explain the 

effect of accepting the loan to be disbursed on 

the eligibility of the borrower for other forms of 

student financial assistance;

(vii) Provide information on how interest 

accrues and is capitalized during periods when 

the interest is not paid by either the borrower 

or the Secretary;

(viii) Inform the borrower of the option to 

pay the interest on a Direct Unsubsidized Loan 

while the borrower is in school;

(ix) Explain the definition of half-time 

enrollment at the school, during regular terms 

and summer school, if applicable, and the 

consequences of not maintaining half-time 

enrollment;

(x) Explain the importance of contacting the 

appropriate offices at the school if the borrower 

withdraws prior to completing the borrower's 

program of study so that the school can provide 

exit counseling, including information regarding 

the borrower's repayment options and loan 

consolidation;

(xi) Provide information on the National 

Student Loan Data System and how the 

borrower can access the borrower's records; 

and

(xii) Provide the name of and contact 

information for the individual the borrower may 

contact if the borrower has any questions about 

the borrower's rights and responsibilities or the 

terms and conditions of the loan.

(7) Entrance counseling for graduate or 

professional student Direct PLUS Loan 

borrowers must—

(i) Inform the student borrower of sample 

monthly repayment amounts based on—

(A) A range of student levels or 

indebtedness of graduate or professional 

student PLUS loan borrowers, or student 

borrowers with Direct PLUS Loans and Direct 

Subsidized Loans or Direct Unsubsidized Loans, 

depending on the types of loans the borrower 

has obtained; or

(B) The average indebtedness of other 

borrowers in the same program at the same 

school;

(ii) Inform the borrower of the option to 

pay interest on a PLUS Loan while the borrower 

is in school;

(iii) For a graduate or professional student 

PLUS Loan borrower who has received a prior 

FFEL Stafford, or Direct Subsidized or 

Unsubsidized Loan, provide the information 

specified in §685.301(a)(3)(i)(A) through 

§685.301(a)(3)(i)(C); and
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

MEETING 2

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110

(iv) For a graduate or professional student 

PLUS Loan borrower who has not received a 

prior FFEL Stafford, or Direct Subsidized or 

Direct Unsubsidized Loan, provide the 

information specified in paragraph (a)(6)(i) 

through paragraph (a)(6)(xii) of this section.

(8) A school may adopt an alternative 

approach for entrance counseling as part of the 

school's quality assurance plan described in 

§685.300(b)(9). If a school adopts an alternative 

approach, it is not required to meet the 

requirements of paragraphs (a)(1) through 

(a)(7) of this section unless the Secretary 

determines that the alternative approach is not 

adequate for the school. The alternative 

approach must—

(i) Ensure that each student borrower 

subject to entrance counseling under paragraph 

(a)(1) or (a)(2) of this section is provided written 

counseling materials that contain the 

information described in paragraphs (a)(6)(i) 

through (a)(6)(v) of this section;

(ii) Be designed to target those student 

borrowers who are most likely to default on 

their repayment obligations and provide them 

more intensive counseling and support services; 

and

(iii) Include performance measures that 

demonstrate the effectiveness of the school's 

alternative approach. These performance 

measures must include objective outcomes, 

such as levels of borrowing, default rates, and 

withdrawal rates.

(9) The school must maintain 

documentation substantiating the school's 

compliance with this section for each student 

borrower.

(b) Exit counseling. (1) A school must ensure 

that exit counseling is conducted with each 

Direct Subsidized Loan or Direct Unsubsidized 

Loan borrower and graduate or professional 

student Direct PLUS Loan borrower shortly 

before the student borrower ceases at least 

half-time study at the school.

(2) The exit counseling must be in person, 

by audiovisual presentation, or by interactive 

electronic means. In each case, the school must 

ensure that an individual with expertise in the 

title IV programs is reasonably available shortly 

after the counseling to answer the student 

borrower's questions. As an alternative, in the 

case of a student borrower enrolled in a 

correspondence program or a study-abroad 

program approved for credit at the home 

institution, the student borrower may be 

provided with written counseling materials 

within 30 days after the student borrower 

completes the program.

(3) If a student borrower withdraws from 

school without the school's prior knowledge or 

fails to complete the exit counseling as 

required, exit counseling must be provided 

either through interactive electronic means, or 

by mailing written counseling materials to the 

student borrower at the student borrower's last 

known address, or by sending written 

counseling materials by e-mail to an e-mail 

address provided by the student borrower 

within 30 days after the school learns that the 

student borrower has withdrawn from school or 

failed to complete the exit counseling as 

required.

(4) The exit counseling must—

(i) Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower's 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

MEETING 2

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111

indebtedness or on the average indebtedness of 

student borrowers who have obtained Direct 

Subsidized Loans and Direct Unsubsidized 

Loans, student borrowers who have obtained 

only Direct PLUS Loans, or student borrowers 

who have obtained Direct Subsidized, Direct 

Unsubsidized, and Direct PLUS Loans, 

depending on the types of loans the student 

borrower has obtained, for attendance at the 

same school or in the same program of study at 

the same school;

(ii) Review for the student borrower 

available repayment plan options including the 

standard repayment, extended repayment, 

graduated repayment, income contingent 

repayment plans, and income-based repayment 

plans, including a description of the different 

features of each plan and sample information 

showing the average anticipated monthly 

payments, and the difference in interest paid 

and total payments under each plan;

(iii) Explain to the borrower the options to 

prepay each loan, to pay each loan on a shorter 

schedule, and to change repayment plans;

(iv) Provide information on the effects of 

loan consolidation including, at a minimum—

(A) The effects of consolidation on total 

interest to be paid, fees to be paid, and length 

of repayment;

(B) The effects of consolidation on a 

borrower's underlying loan benefits, including 

grace periods, loan forgiveness, cancellation, 

and deferment opportunities;

(C) The options of the borrower to prepay 

the loan and to change repayment plans; and

(D) That borrower benefit programs may 

vary among different lenders;

(v) Include debt-management strategies 

that are designed to facilitate repayment;

(vi) Explain to the student borrower how to 

contact the party servicing the student 

borrower's Direct Loans;

(vii) Meet the requirements described in 

paragraphs (a)(6)(i), (a)(6)(ii), and (a)(6)(iv) of 

this section;

(viii) Describe the likely consequences of 

default, including adverse credit reports, 

delinquent debt collection procedures under 

Federal law, and litigation;

(ix) Provide—

(A) A general description of the terms and 

conditions under which a borrower may obtain 

full or partial forgiveness or discharge of 

principal and interest, defer repayment of 

principal or interest, or be granted forbearance 

on a title IV loan; and

(B) A copy, either in print or by electronic 

means, of the information the Secretary makes 

available pursuant to section 485(d) of the HEA;

(x) Review for the student borrower 

information on the availability of the 

Department's Student Loan Ombudsman's 

office;

(xi) Inform the student borrower of the 

availability of title IV loan information in the 

National Student Loan Data System (NSLDS) and 

how NSLDS can be used to obtain title IV loan 

status information;

(xii) A general description of the types of tax 

benefits that may be available to borrowers; 

and
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

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112

(xiii) Require the student borrower to 

provide current information concerning name, 

address, social security number, references, and 

driver's license number and State of issuance, 

as well as the student borrower's expected 

permanent address, the address of the student 

borrower's next of kin, and the name and 

address of the student borrower's expected 

employer (if known).

(5) The school must ensure that the 

information required in paragraph (b)(4)(xiii) of 

this section is provided to the Secretary within 

60 days after the student borrower provides the 

information.

(6) If exit counseling is conducted through 

interactive electronic means, a school must take 

reasonable steps to ensure that each student 

borrower receives the counseling materials, and 

participates in and completes the exit 

counseling.

(7) The school must maintain 

documentation substantiating the school's 

compliance with this section for each student 

borrower.

(8)(i) For students who have received loans 

under both the FFEL Program and the Direct 

Loan Program for attendance at a school, the 

school’s compliance with the exit counseling 

requirements in §685.304(b) satisfies the exit 

counseling requirements in 34 CFR 682.604(g) if 

the school ensures that the exit counseling also 

provides the borrower with the information 

described in 34 CFR 682.604(g)(2)(i) and (ii).

(ii) A student’s completion of electronic 

interactive exit counseling offered by the 

Secretary satisfies the requirements of 

§685.304(b) and, for students who have also 

received FFEL Program loans for attendance at 

the school, 34 CFR 682.604(g).
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.305

Determining the date of a student’s withdrawal

MEETING 2

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113

§ 685.305 Determining the date of a student's 

withdrawal.

(a) Except as provided in paragraph (b) of 

this section, a school shall must follow the 

procedures in §668.22(b) or (c), as applicable, 

for determining the student's date of 

withdrawal.

(b) For a student who does not return for 

the next scheduled term following a summer 

break, which includes any summer term(s) in 

which classes are offered but students are not 

generally required to attend, a school shall must

follow the procedures in §668.22(b) or (c), as 

applicable, for determining the student's date 

of withdrawal except that the school must 

determine the student's date of withdrawal no 

later than 30 days after the start of the next 

scheduled term.

(c) The school shall must use the date 

determined under paragraph (a) or (b) of this 

section for the purpose of reporting to the 

Secretary the student's date of withdrawal and 

for determining when a refund or return of title 

IV, HEA program funds must be paid under 

§685.306.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.306

Payment of a refund or return of title IV, HEA program funds to the Secretary

MEETING 2

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114

§ 685.306 Payment of a refund or return of 

title IV, HEA program funds to the Secretary.

(a) General. By applying for a Direct Loan, a 

borrower authorizes the school to pay directly 

to the Secretary that portion of a refund or 

return of title IV, HEA program funds from the 

school that is allocable to the loan. A school—

(1) Shall Must pay that portion of the 

student's refund or return of title IV, HEA 

program funds that is allocable to a Direct Loan 

to the Secretary; and

(2) Shall Must provide simultaneous written 

notice to the borrower if the school pays a 

refund or return of title IV, HEA program funds 

to the Secretary on be-half of that student.

(b) Determination, allocation, and payment 

of a refund or return of title IV, HEA program 

funds. In determining the portion of a student's 

refund or return of title IV, HEA program funds 

that is allocable to a Direct Loan, the school 

shall must follow the procedures established in 

34 CFR 668.22 for allocating and paying a 

refund or return of title IV, HEA program funds 

that is due.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.307

Withdrawal procedure for schools participating in the Direct Loan Program

MEETING 2

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115

§ 685.307 Withdrawal procedure for schools 

participating in the Direct Loan Program.

(a) A school participating in the Direct Loan 

Program may withdraw from the program by 

providing written notice to the Secretary.

(b) A participating school that intends to 

withdraw from the Direct Loan Program shall 

must give at least 60 days notice to the 

Secretary.

(c) Unless the Secretary approves an earlier 

date, the withdrawal is effective on the later 

of—

(1) 60 days after the school notifies the 

Secretary; or

(2) The date designated by the school.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.308

Remedial actions

MEETING 2

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116

§ 685.308 Remedial actions.

(a) General. The Secretary may require the 

repayment of funds and the purchase of loans 

by the school if the Secretary determines that 

the unenforceability of a loan or loans, or the 

disbursement of loan amounts for which the 

borrower was ineligible, resulted in whole or in 

part from—

(1) The school's violation of a Federal 

statute or regulation; or

(2) The school's negligent or willful false 

certification.

(b) In requiring a school to repay funds to 

the Secretary or to purchase loans from the 

Secretary in connection with an audit or 

program review, the Secretary follows the 

procedures described in 34 CFR part 668, 

subpart H.

(c) The Secretary may impose a fine or take 

an emergency action against a school or limit, 

suspend, or terminate a school's participation in 

the Direct Loan Program in accordance with 34 

CFR part 668, subpart G.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.309

Administrative and fiscal control and fund accounting requirements for schools participating in the Direct Loan Program

MEETING 2

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117

§ 685.309 Administrative and fiscal control 

and fund accounting requirements for schools 

participating in the Direct Loan Program.

(a) General. A participating school 

shallmust—

(1) Establish and maintain proper 

administrative and fiscal procedures and all 

necessary records as set forth in this part and in 

34 CFR part 668; and

(2) Submit all reports required by this part 

and 34 CFR part 668 to the Secretary.

(b) Student status confirmation reports. A 

school shall—[SEE ISSUE PAPER #18 FOR 

PROPOSED CHANGES TO §685.309(b).]

(1) Upon receipt of a student status 

confirmation report from the Secretary, 

complete and return that report to the 

Secretary within 30 days of receipt; and

(2) Unless it expects to submit its next

student status confirmation report to the 

Secretary within the next 60 days, notify the 

Secretary within 30 days if it discovers that a 

Direct Subsidized, Direct Unsubsidized, or Direct 

PLUS Loan has been made to or on behalf of a 

student who—

(i) Enrolled at that school but has ceased to 

be enrolled on at least a half-time basis;

(ii) Has been accepted for enrollment at 

that school but failed to enroll on at least a halftime basis for the period for which the loan was 

intended; or

(iii) Has changed his or her permanent 

address.

(3) The Secretary provides student status 

confirmation reports to a school at least semiannually.

(4) The Secretary may provide the student 

status confirmation report in either paper or 

electronic format.

(c) Record retention requirements. An 

institution shall must follow the record 

retention and examination requirements in this 

part and in 34 CFR 668.24.

(d) Accounting requirements. A school shall 

must follow accounting requirements in 34 CFR 

668.24(b).

(e) Direct Loan Program bank account. 

Schools shall must follow the procedures for 

maintaining funds established in 34 CFR 

668.163.

(f) Division of functions. Schools shall must

follow the procedures for division of functions 

in 34 CFR 668.16(c).

(g) Limit on use of funds. Except for funds 

paid to a school under section 452(b)(1) of the 

Act, fFunds received by a school under this part 

may be used only to make Direct Loans to 

eligible borrowers and may not be used or 

hypothecated for any other purpose.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.400

School participation requirements

MEETING 2

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118

Subpart D—School Participation and Loan 

Origination in the Direct Loan Program

§ 685.400 School participation requirements.

(a)(1) In order to qualify for initial 

participation in the Direct Loan Program, a 

school must meet the eligibility requirements in 

section 435(a) of the Act, including the 

requirement that it have a cohort default rate 

of less than 25 percent for at least one of the 

three most recent fiscal years for which data 

are available unless the school is exempt from 

this requirement under section 435(a)(2)(C) of 

the Act.

(2) In order to continue to participate in the 

Direct Loan Program, a school must continue to 

meet the requirements of paragraph (a)(1) of 

this section for years for which cohort default 

rate data represent the years prior to the 

school's participation in the Direct Loan 

Program.

(b) In order to qualify for initial 

participation, the school must not be subject to 

an emergency action or a proposed or final 

limitation, suspension, or termination action 

under sections 428(b)(1)(T), 432(h), or 487(c) of 

the Act.

(c) If schools apply as a consortium, each 

school in the consortium must meet the 

requirements in paragraphs (a) and (b) of this 

section.

(d) The Secretary selects schools to 

participate in the Direct Loan Program from 

among those that apply to participate and meet 

the requirements in paragraphs (a)(1), (b), and 

(c) of this section.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.401

[Reserved]

MEETING 2

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119

§ 685.401 [Reserved]
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

MEETING 2

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120

§ 685.402 Criteria for schools to originate 

loans.

(a) Initial determination of origination 

status —(1) Standard origination. Any school 

eligible to participate in the Direct Loan 

Program under §685.400 is eligible to 

participate under standard origination.

(2) School Origination. To be eligible to 

originate loans, a school must meet the 

following criteria:

(i) Have participated in the Federal Perkins 

Loan Program, the Federal Pell Grant Program, 

or, for a graduate and professional school, a 

similar program for the three most recent years 

preceding the date of application to participate 

in the Direct Loan Program.

(ii) If participating in the Federal Pell Grant 

Program, not be on the reimbursement system 

of payment.

(iii) In the opinion of the Secretary, have 

had no severe performance deficiencies for any 

of the programs under title IV of the Act, 

including deficiencies demonstrated by the 

most recent audit or program review.

(iv) Be financially responsible in accordance 

with the standards of 34 CFR 668.15.

(v) Be current on program and financial 

reports and audits required under title IV of the 

Act for the 12-month period immediately 

preceding the date of application to participate 

in the Direct Loan Program.

(vi) Be current on Federal cash transaction 

reports required under title IV of the Act for the 

12-month period immediately preceding the 

date of application to participate in the Direct 

Loan Program and have no final determination 

of cash on hand that exceeds immediate title IV 

program needs.

(vii) Have no material findings in any of the 

annual financial audits submitted for the three 

most recent years preceding the date of 

application to participate in the Direct Loan 

Program.

(viii) Provide an assurance that the school 

has no delinquent outstanding debts to the 

Federal Government, unless—

(A) Those debts are being repaid under or in 

accordance with a repayment arrangement 

satisfactory to the Federal Government; or

(B) The Secretary determines that the 

existence or amount of the debts has not been 

finally determined by the cognizant Federal 

agency.

(3) A school that meets the criteria to 

originate loans may participate under school 

origination option 1 or 2 or under standard 

origination.

(b) Change in origination status. (1) After 

the initial determination of a school's 

origination status, the Secretary may allow a 

school that does not qualify to originate loans 

under either origination option 1 or origination 

option 2 to do so if the Secretary determines 

that the school is fully capable of originating 

loans under one of those options.

(2)(i) At any time after the initial 

determination of a school's origination status, a 

school participating under origination option 2 

may request to change to origination option 1 

or standard origination, and a school 

participating under origination option 1 may 

request to change to standard origination.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

MEETING 2

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121

(ii) The change in origination status 

becomes effective when the school receives 

notice of the Secretary's approval, unless the 

Secretary specifies a later date.

(3)(i) A school participating under 

origination option 1 may apply to participate 

under option 2, and a school participating in 

standard origination may apply to participate 

under either origination option 1 or 2 after one 

full year of participation in its initial origination 

status.

(ii) Applications to participate under 

another origination option are considered on an 

annual basis.

(iii) An application to participate under 

another origination option is evaluated on the 

basis of criteria and performance standards 

established by the Secretary, including but not 

limited to—

(A) Eligibility under paragraph (a)(2) of this 

section;

(B) Timely submission of accurate 

origination and disbursement records;

(C) Successful completion of reconciliation 

on a monthly basis; and

(D) Timely submission of completed and 

signed promissory notes, if applicable.

(iv) The change in origination status 

becomes effective when the school receives 

notice of the Secretary's approval, unless the 

Secretary specifies a later date.

(c) Secretarial determination of change in 

origination status. (1) At any time after a school 

has been approved to originate loans, the 

Secretary may require a school participating 

under origination option 2 to convert to option

1 or to standard origination and may require a 

school participating under origination option 1 

to convert to standard origination.

(2) The Secretary may require a school to 

change origination status if the Secretary 

determines that such a change is necessary to 

ensure program integrity or if the school fails to 

meet the criteria and performance standards 

established by the Secretary, including but not 

limited to—

(i) For an origination option 1 school, 

eligibility under paragraph (a)(2) of this section, 

the timely submission of completed and signed 

promissory notes and accurate origination and 

disbursement records, and the successful 

completion of reconciliation on a monthly basis; 

and

(ii) For an origination option 2 school, the 

criteria and performance standards required of 

origination option 1 schools and accurate and 

timely drawdown requests.

(3) The change in origination status 

becomes effective when the school receives 

notice of the Secretary's approval, unless the 

Secretary specifies a later date.

(d) Origination by consortia. A consortium 

of schools may participate under origination 

options 1 or 2 only if all members of the 

consortium are eligible to participate under 

paragraph (a)(2) of this section. All provisions of 

this section that apply to an individual school 

apply to a consortium.

(e) School determination of change of 

Servicer. (1) The Secretary assigns one or more 

Servicers to work with a school to perform 

certain functions relating to the origination and 

servicing of Direct Loans.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

MEETING 2

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122

(2) A school may request the Secretary to 

designate a different Servicer. Documentation 

of the unsatisfactory performance of the 

school's current Servicer must accompany the 

request. The Servicer requested must be one of 

those approved by the Secretary for 

participation in the Direct Loan Program.

(3) The Secretary grants the request if the 

Secretary determines that—

(i) The claim of unsatisfactory performance 

is accurate and substantial; and

(ii) The Servicer requested by the school can 

accommodate such a change.

(4) If the Secretary denies the school's 

request based on a determination under 

paragraph (e)(3)(ii) of this section, the school 

may request another Servicer.

(5) The change in Servicer is effective when 

the school receives notice of the Secretary's 

approval, unless the Secretary specifies a later 

date.

(f) Determination of eligibility for mMultiyear use of the Master Promissory Note. (1) 

Unless the Secretary determines otherwise, Aa

school maymust be authorized by the Secretary 

to use a single Master Promissory Note (MPN) 

as the basis for all loans borrowed by a student 

or parent borrower for attendance at that 

school. If the Secretary determines that A a 

school that is not authorized by the Secretary 

for multi-year use of the MPN, must obtain a 

new MPN from a student or parent borrower 

must sign a new MPN for each academic year.

(2) To be authorized for multi-year use of 

the MPN, a school must—

(i) Be a four-year or graduate/professional 

school, or other institution meeting criteria or 

otherwise designated at the sole discretion of 

the Secretary; and

(ii)(A) Not be subject to an emergency 

action or a proposed or final limitation, 

suspension, or termination action under 

sections 428(b)(1)(T), 432(h), or 487(c) of the 

Act; and

(B) Meet other performance criteria 

determined by the Secretary.

(3) A school that is authorized by the Secretary 

for multi-year use of the MPN must develop 

and document a confirmation process in 

accordance with guidelines established by the 

Secretary for loans made under the multi-year 

feature of the MPN.