1

34 CFR Part 685

Proposed Changes

Included in Notice of Proposed Rulemaking to be Published July 2013

NOTE: This document does not include changes to 34 CFR Part 685 made by interim final 

regulations published on May 16, 2013 (78 FR 28954)
Subpart A – Purpose and Scope

§685.100

The William D. Ford Federal Direct Loan Program

2

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)(i) Federal Direct Stafford/Ford 

Loan Program (formerly known as the 

Federal Direct Stafford Loan ProgramDirect 

Subsidized Loan Program), which provides 

loans to undergraduate, graduate, and 

professional students. Loans made under 

this program are referred to as Direct 

Subsidized Loans. Except as provided in 

paragraph (a)(1)(ii) of this section, Tthe 

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.

(ii) The Secretary does not subsidize 

the interest that accrues during the grace 

period on any Direct Subsidized Loan for 

which the first disbursement is made on or 

after July 1, 2012 and before July 1, 2014.

(2) Federal Direct Unsubsidized 

Stafford/Ford Loan Program (formerly 

known as the Federal Direct Unsubsidized 

Stafford Loan ProgramDirect Unsubsidized 

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

(Direct PLUS Loan 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 (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.
Subpart A – Purpose and Scope

§685.100

The William D. Ford Federal Direct Loan Program

3

(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 wishes to consolidate the Federal 

Consolidation Loan into the Direct Loan 

Program for the purpose of obtaining an 

income contingent repayment plan.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

71 FR 45709, Aug. 9, 2006]
Subpart A – Purpose and Scope

§685.101

Participation in the Direct Loan Program

4

§ 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/FordSubsidized Loan and Federal 

Direct Unsubsidized Stafford/Ford Loan 

Pprograms. 

(2) An eligible graduate or 

professional student enrolled at a school 

participating in the Direct Loan Program 

may borrow under the Federal Direct 

Stafford/FordSubsidized Loan, Federal 

Direct Unsubsidized Stafford/Ford Loan, 

and Federal Direct PLUS Loan Pprograms, 

except that a graduate or professional 

student may not borrow under the Direct 

Subsidized 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 

Loan Program.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

71 FR 45709, Aug. 9, 2006]
Subpart A—Purpose and Scope

§685.102

Definitions

5

§ 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

Disbursement

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

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

William D. Ford Federal Direct Loan 

(Direct Loan) Program

(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

Correspondence course

Credit hour

Educational program
Subpart A—Purpose and Scope

§685.102

Definitions

6

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

State

(3) The following definitions are set 

forth in the regulations for the Federal 

Family Education Loan (FFEL) Program, 34 

CFR part 682:

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 
Subpart A—Purpose and Scope

§685.102

Definitions

7

sources, such as scholarships, grants, net 

earnings from need-based employment, or 

loans, including but not limited to—

(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 postservice 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—
Subpart A—Purpose and Scope

§685.102

Definitions

8

(A) Chapter 103 of title 10, United 

States Code (Senior Reserve Officers' 

Training Corps);

(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 Service-Connected 

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 (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 
Subpart A—Purpose and Scope

§685.102

Definitions

9

was received before July 1, 2006, during inschool and grace periods.

(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 (Direct 

PLUS Loan 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 (Direct Subsidized 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, 

except that the Secretary does not subsidize 

the interest that accrues during the grace 

period on a loan for which the first 

disbursement is made on or after July 1, 

2012 and before July 1, 2014. 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 (Direct 

Unsubsidized 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, part B of the Act under which the 

Secretary directly insures lenders against 

losses.
Subpart A—Purpose and Scope

§685.102

Definitions

10

Federal Stafford Loan Program: The 

loan program authorized by title IV, part 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, a Program Direct 

Unsubsidized Loan borrower, or, in some 

cases, a Direct Consolidation Loan borrower 

whose consolidation application was 

received 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.

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 specified in 

section 435(d) 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
Subpart A—Purpose and Scope

§685.102

Definitions

11

(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.

(4) Unless the Secretary determines 

otherwise, a school may use a single MPN 

as the basis for all loans borrowed by a 

student or parent borrower for attendance 

at that school. If a school is not authorized 

by the Secretary for multi-year use of the 

MPN, a student or parent borrower must 

sign a new MPN for each academic year.

Nationwide consumer reporting 

agency: A consumer reporting agency as 

defined in 15 U.S.C. 1681a(p).

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.

(2) For the purpose of consolidating 

a defaulted loan under 34 CFR 

§685.220(d)(1)(ii)(C)(A)(3) –

(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 one of the 

income-contingent repayment plans

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 1520 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.

(4) A borrower has not used the one 

opportunity to renew eligibility for title IV 

assistance if the borrower makes six 

consecutive, on-time, voluntary, full 

monthly payments under an agreement to 

rehabilitate a defaulted loan, but does not 

receive additional title IV assistance prior to 

defaulting on that loan again.

School origination option 1: In 

general, under this option the school 
Subpart A—Purpose and Scope

§685.102

Definitions

12

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.

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 service-connected 

disability.

(Authority: 20 U.S.C. 1070g, 1087a, et seq. )

[59 FR 61690, Dec. 1, 1994]
Subpart A—Purpose and Scope

§685.102

Definitions

13

Editorial Note: For Federal Register 

citations affecting §685.102, see the List of 

CFR Sections Affected, which appears in the 

Finding Aids section of the printed volume 

and on GPO Access.
Subpart A—Purpose and Scope

§685.103

Applicability of subparts

14

§ 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.

(Authority: 20 U.S.C. 1087a et seq. )
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

15

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 halftime 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; and

(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)(B) 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)(B) If theIn the case of a borrower 

who 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)(iii), 34 CFR 674.61(b)(3)(v), 

34 CFR 682.402(c)(3)(iv), or 34 CFR 

686.42(b) based on a discharge request 

received on or after July 1, 2010, the 

borrower resumes repayment on the 

previously discharged loan in accordance 

with §685.213(b)(7), 34 CFR 674.61(b)(6), or 

34 CFR 682.402(c)(6), 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.; and [NOTE: 

This paragraph reflects changes to crossreferences that were made by final 

regulations published on November 1, 2012 

(77 FR 66088). The proposed additional 

changes redesignate the paragraph and 

slightly revise the text.]

(B)(C) 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 
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

16

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 cannot can 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 and, for periods of 

enrollment beginning before July 1, 2012, 

the Direct Subsidized Loan Program or 

under the Federal Subsidized and 
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

17

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).

(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)(3) of this section, the Secretary 

may determine that extenuating 

circumstances exist based on 

documentation that includes, 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 
Subpart B—Borrower Provisions

§685.200

Borrower eligibility

18

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 Perkins, FFEL, Program 

and Direct Loan program borrowers. Except 

as noted in §685.220(d)(1)(ii)(D)(A)(3), in 

the case of a student or parent borrower 

who is currently in default on an Perkins, 

FFEL, Program or a Direct Loan Pprogram 

Lloan, the borrower shallmust make 

satisfactory repayment arrangements, as 

described in paragraph (2)(1) 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 non-federal non-need based loan, 

including a private, state-sponsored, or 

institution loan, obtained for a loan period 

may be used to replace the expected family 

contribution for that loan period.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

60 FR 61816, Dec. 1, 1995; 61 FR 29900, 

June 12, 1996; 65 FR 65629, 65693, Nov. 1, 

2000; 66 FR 34765, June 29, 2001; 66 FR 

44007, Aug. 21, 2001; 68 FR 75430, Dec. 31, 

2003; 71 FR 45710, Aug. 9, 2006; 71 FR 

64399, Nov. 1, 2006; 74 FR 56001, Oct. 29, 

2009]
Subpart B—Borrower Provisions

§685.201

Obtaining a loan

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 with the Secretary specifies 

otherwise, the school must perform 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) In accordance with 34 CFR 

668.162, draw 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 and 

the dependent student on whose behalf the 

parent is borrowing must complete a Free 

Application for Federal Student Aid and 

submit it in accordance with instructions in 

the application.

(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 with the Secretary
Subpart B—Borrower Provisions

§685.201

Obtaining a loan

20

specifies otherwise, tThe school must 

performs 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.

(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.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[64 FR 58965, Nov. 1, 1999, as amended at 

65 FR 65629, Nov. 1, 2000; 71 FR 45711, 

Aug. 9, 2006]
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

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 in-school, 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 in-school, 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, 2013, 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.
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

22

(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.

(E) July 1, 2011 and before July 

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 twelvemonth 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 
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

23

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 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 
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

24

consolidation applications received before 

July 1, 2006, or for a Direct PLUS Loan, or 

for a Direct Subsidized Loan for which the 

first disbursement is made on or after July 

1, 2012 and before July 1, 2014, 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(b)(3)(iv), 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. 

[NOTE: This paragraph reflects a crossreference update that was made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(4) Except as provided in paragraph 

(b)(3) of this section and in §685.208(l)(5) 

and §685.209(b)(3)(iv), the Secretary 

annually capitalizes unpaid interest when 

the borrower is paying under the 

alternative repayment plan or the incomecontingent repayment plan described in 

§685.209(b) and the borrower's scheduled 

payments do not cover the interest that has 

accrued on the loan. [NOTE: This paragraph 

reflects changes made by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(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.
Subpart B—Borrower Provisions

§685.202

Charges for which Direct Loan Program borrowers are responsible

25

(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.

(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.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[59 FR 61690, Dec. 1, 1994, as amended at 

61 FR 29900, June 12, 1996; 62 FR 63434, 

Nov. 28, 1997; 64 FR 46254, Aug. 24, 1999; 

66 FR 34765, June 29, 2001; 71 FR 45711, 

Aug. 9, 2006; 72 FR 62009, Nov. 1, 2007; 74 

FR 56001, Oct. 29, 2009]
Subpart B—Borrower Provisions

§685.203

Loan limits

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:
Subpart B—Borrower Provisions

§685.203

Loan limits

27

(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 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 for periods of 

enrollment beginning before July 1, 2012, 

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.
Subpart B—Borrower Provisions

§685.203

Loan limits

28

(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 may borrow for any 

periodacademic year 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/Ford Subsidized

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 in programenrolled

Number of weeks in academic year

(2)(i) 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 
Subpart B—Borrower Provisions

§685.203

Loan limits

29

combination with the amounts determined 

under paragraph (c) of this section.

(ii) In the case of a graduate or 

professional student for a period of 

enrollment beginning before July 1, 2012, 

the total amount the student may borrow 

for any academic year of study under the 

Direct Unsubsidized Loan Program may not 

exceed the amount determined under 

paragraph (a)(5) of this section, less any 

amount received under the Direct 

Subsidized Loan Program.

(iii) In the case of a graduate or 

professional student for a period of 

enrollment beginning on or after July 1, 

2012, the total amount the student may 

borrow for any academic year of study

under the Direct Unsubsidized Loan 

Program may not exceed $8,500.

(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 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—
Subpart B—Borrower Provisions

§685.203

Loan limits

30

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.

(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 
Subpart B—Borrower Provisions

§685.203

Loan limits

31

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 amount of 
Subpart B—Borrower Provisions

§685.203

Loan limits

32

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—
Subpart B—Borrower Provisions

§685.203

Loan limits

33

(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.

(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.

(Authority: 20 U.S.C. 1070g, 1087a, et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

64 FR 58966, Nov. 1, 1999; 67 FR 67081, 

Nov. 1, 2002; 68 FR 75430, Dec. 31, 2003; 

71 FR 45711, Aug. 9, 2006; 71 FR 64399, 

Nov. 1, 2006; 73 FR 35495, June 23, 2008; 

74 FR 56001, Oct. 29, 2009]
Subpart B—Borrower Provisions

§685.204

Deferment

34

§ 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.

At or before the time a deferment is 

granted, the Secretary provides

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 for a deferment, 

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 will grant a 

deferment based on the information 

obtained under paragraph (a)(5)(i) of this 

section when determining a borrower's 

eligibility for a deferment, unless the 
Subpart B—Borrower Provisions

§685.204

Deferment

35

Secretary, as of the date of the 

determination, has information indicating 

that the borrower does not qualify for the 

deferment. The Secretary will resolve 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 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) 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)(i) The borrower Is is 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 payingto make 

payments on the loan.

(2)(ii) If the borrower elects to 

cancel the deferment and continue 

payingto make payments 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 
Subpart B—Borrower Provisions

§685.204

Deferment

36

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 six-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 inschool deferment to a student Direct PLUS 

Loan borrower in accordance with 

§685.204(b)(2)(ii), (iii), or (iv), the 

deferment period for a Direct PLUS loan 

first disbursed on or after July 1, 2008 

includes the six-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 six-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 an 

authorized official of the borrower’s 

graduate fellowship program certifies that 

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 fulltime study for at least six months;
Subpart B—Borrower Provisions

§685.204

Deferment

37

(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 an authorized official of the 

borrower’s rehabilitation training program 

certifies that the borrower is pursuing an 

eligible rehabilitation training program for 

individuals with disabilities in accordance 

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

(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—

(A) A State agency with 

responsibility for vocational rehabilitation 

programs;

(B) A State agency with 

responsibility for drug abuse treatment 

programs;

(C) A State agency with 

responsibility for mental health services 

programs;

(D) A State agency with 

responsibility for alcohol abuse treatment 

programs; or

(E) The Department of Veterans 

Affairs; and

(ii) Provides or will provide the 

borrower with rehabilitation services under 

a written plan that—

(A) Is individualized to meet the 

borrower's needs;

(B) Specifies the date on which the 

services to the borrower are expected to 

end; and

(C) Is structured in a way that 

requires a substantial commitment by the 

borrower to his or her rehabilitation. The 

Secretary considers a substantial 

commitment by the borrower to be a 

commitment of time and effort that 

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 
Subpart B—Borrower Provisions

§685.204

Deferment

38

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 three years in which the 

borrower is seeking and unable to find fulltime 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 sixmonth 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.

(iii) Full-time employment involves 

at least 30 hours of work a week and is 

expected to last at least 3 months.

(iv) The initial period of 

unemployment deferment may be granted 

for a period of unemployment beginning up 

to six months before the date the Secretary 

receives the borrower's request, and may 

be granted for up to six months after that 

date.

(4) The Secretary does not grant an 

unemployment deferment beyond the date 

that is six 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 
Subpart B—Borrower Provisions

§685.204

Deferment

39

periods that, collectively, do not exceed 

three 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 the 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

(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.
Subpart B—Borrower Provisions

§685.204

Deferment

40

(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.

(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 

the initial 12 months from the date the 

qualifying eligible service began 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 
Subpart B—Borrower Provisions

§685.204

Deferment

41

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.

(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 
Subpart B—Borrower Provisions

§685.204

Deferment

42

borrower's active duty military service and 

any applicable grace period 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, “Aactive Dduty” means active 

duty as defined in section10 U.S.C.

101(d)(1) of title 10, United States Codefor 

at least a 30-day period, 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 halftime 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 halftime basis.

(4) If a borrower qualifies for both a 

military service deferment and a post-active 

duty student deferment, the 180-day postdemobilization military service 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 with loans first 
Subpart B—Borrower Provisions

§685.204

Deferment

43

disbursed on or after July 1, 2008. (1)(i) A 

student Direct PLUS Loan borrower is 

entitled to 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 inschool 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.
Subpart B—Borrower Provisions

§685.204

Deferment

44

(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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

60 FR 33345, June 28, 1995; 61 FR 29900, 

June 12, 1996; 64 FR 58968, Nov. 1, 1999; 

71 FR 45711, Aug. 9, 2006; 72 FR 62009, 

Nov. 1, 2007; 73 FR 63254, Oct. 23, 2008; 

74 FR 56002, Oct. 29, 2009]
Subpart B—Borrower Provisions

§685.205

Forbearance

45

§ 685.205 Forbearance.

(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—

(5)(i) The borrower Isis 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, 

beforeBefore a forbearance is granted 

under §685.205(a)(5)(i), tothe borrower 

must—

(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).

(iii) The Secretary grants 

forbearance under paragraph (a)(5) of this 

section only if the Secretary believes, at the 

time of the borrower’s annual request, that 

the expected forgiveness amount under 

§685.217(d) will satisfy the anticipated 

remaining outstanding balance on the 

borrower’s loan at the time of the expected 

forgiveness;

(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
Subpart B—Borrower Provisions

§685.205

Forbearance

46

(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 postactive 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

(ii) On the day after the borrower 

ceases enrollment on at least a half-time 

basis, for a Direct Loan in repayment.

(8)(i) The Secretary may grant a 

forbearance to permit a borrower or 

endorser to resume honoring the 

agreement to repay the debt after default. 

The terms of the forbearance agreement in 

this situation must include a new 

agreement to repay the debt signed by the 

borrower or endorser or a written or oral 

affirmation of the borrower’s or endorser’s 

obligation to repay the debt.

(ii) If the forbearance is based on the 

borrower’s or endorser’s oral affirmation of 

the obligation to repay the debt, the 

forbearance period is limited to 120 days, 

such a forbearance is not granted 

consecutively, and the Secretary will—

(A) Orally review with the borrower 

the terms and conditions of the 

forbearance, including the consequences of 

interest capitalization, and other repayment 

options available to the borrower;

(B) Send a notice to the borrower or 

endorser that confirms the terms of the 

forbearance and the borrower’s or 

endorser’s affirmation of the obligation to 

repay the debt; and

(C) Retain a record of the terms of 

the forbearance and affirmation in the 

borrower’s or endorser’s file.

(iii) For purposes of this section, an 

“affirmation” means an acknowledgement 

of the loan by the borrower or endorser in a 

legally binding manner. The form of the 

affirmation may include, but is not limited 

to the borrower’s or endorser’s --

(A) New signed repayment 

agreement or schedule, or another form of 

signed agreement to repay the debt;

(B) Oral acknowledgement and 

agreement to repay the debt documented 

by the Secretary in the borrower’s or 

endorser’s file and confirmed by the 

Secretary in a notice to the borrower; or

(C) A payment made on the loan by 

the borrower or endorser;

(9)(i) The borrower is performing the 

type of service that would qualify the 

borrower for a partial repayment of his or 

her loan under the Student Loan 

Repayment Programs administered by the 

Department of Defense under 10 U.S.C. 

2174 or any other student loan repayment 
Subpart B—Borrower Provisions

§685.205

Forbearance

47

programs administered by the Department 

of Defense.

(ii) To receive a forbearance under 

this paragraph, the borrower must submit 

documentation showing the time period

during which the Department of Defense 

considers the borrower to be eligible for a 

partial repayment of his or her loan under a

student loan repayment program.

(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 or forbearance 

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 
Subpart B—Borrower Provisions

§685.205

Forbearance

48

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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

61 FR 29900, June 12, 1996; 64 FR 58968, 

Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 

FR 34765, June 29, 2001; 68 FR 75430, Dec. 

31, 2003; 71 FR 45712, Aug. 9, 2006; 73 FR 

63255, Oct. 23, 2008; 74 FR 56003, Oct. 29, 

2010]
Subpart B—Borrower Provisions

§685.206

Borrower responsibilities and defenses

49

§ 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 
Subpart B—Borrower Provisions

§685.206

Borrower responsibilities and defenses

50

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 

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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

60 FR 33345, June 28, 1995; 64 FR 58972, 

Nov. 1, 1999]
Subpart B—Borrower Provisions

§685.207

Obligation to repay

51

§ 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.

(3) A borrower’s first payment on a 

Direct Loan is due within 60 days of the 

beginning date of the repayment period as 

determined in accordance with paragraph 

(b), (c), (d), or (e) of this section.

(b) Direct Subsidized Loan 

repayment. (1) During the period in which a 

borrower is enrolled at an eligible school on 

at least a half-time 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(b).

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

enrolled at an eligible school on at least a 

half-time 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 six-month 

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)(i) A borrower is not obligated to 

pay interest on a Direct Subsidized Loan 

during periods when the borrower is 

enrolled at an eligible school on at least a 

half-time basis for in-school or grace 

periods unless the borrower is required to 

make payments on the loan during those 

periods under paragraph (b)(1) of this 

section.

(ii) Except as provided in paragraph 

(b)(3)(iii) of this section, a borrower is not 

obligated to pay interest on a Direct

Subsidized Loan during grace periods.
Subpart B—Borrower Provisions

§685.207

Obligation to repay

52

(iii) In the case of a Direct Subsidized 

Loan for which the first disbursement is 

made on or after July 1, 2012 and before 

July 1, 2014, a borrower is responsible for 

the interest that accrues during the grace 

period. 

(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 half-time 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 

half-time 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 six-month 

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, 
Subpart B—Borrower Provisions

§685.207

Obligation to repay

53

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 in-school 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 in-school 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.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

64 FR 58968, Nov. 1, 1999; 68 FR 75430, 

Dec. 31, 2003; 71 FR 45712, Aug. 9, 2006]
Subpart B—Borrower Provisions

§685.208

Repayment plans

54

§ 685.208 Repayment plans.

(a) General. (1) Borrowers who 

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

Direct Subsidized Loan, a Direct 

Unsubsidized Loan, a Direct Subsidized 

Consolidation Loan, or a Direct 

Unsubsidized Consolidation Loan may be 

repaid under – [NOTE: Paragraph (a)(1) 

reflects changes made by final regulations 

published on November 1, 2012 (77 FR 

66088)]

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section;

(B) The extended repayment plan in 

accordance with paragraph (d) of this 

section;

(C) The graduated repayment plan

in accordance with paragraph (f) of this 

section;

(D) The income-contingent

repayment plan in accordance with 

paragraph (k)(2) of this section; or 

(E) The income-based repayment 

plan in accordance with paragraph (m) of 

this section.

(ii) A Direct PLUS Loan or a Direct 

PLUS Consolidation Loan may be repaid 

under –

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section;

(B) The extended repayment plan in 

accordance with paragraph (d) of this 

section; or 

(C) The graduated repayment plan in 

accordance with paragraph (f) of this 

section.

(2) Borrowers entering repayment 

on or after July 1, 2006. (i) A Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, or a Direct PLUS Loan that was made 

to a graduate or professional student 

borrower may be repaid under – [NOTE: 

Paragraph (a)(2) reflects changes made by 

final regulations published on November 1, 

2012 (77 FR 66088).]

(A) The standard repayment plan in 

accordance with paragraph (b) 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 (g) of this 

section;

(D) The income-contingent

repayment plans in accordance with 

paragraph (k) of this section; or 

(E) The income-based repayment 

plan, in accordance with paragraph(m) of 

this section.

(ii)A Direct PLUS Loan that was made 

to a parent borrower may be repaid under –

(A) The standard repayment plan in 

accordance with paragraph (b) of this 

section;

(B) The extended repayment plan in 

accordance with paragraph (e) of this 

section; or 
Subpart B—Borrower Provisions

§685.208

Repayment plans

55

(C) The graduated repayment plan in 

accordance with paragraph (g) of this 

section.

(iii)A Direct Consolidation Loan that 

did not repay a parent Direct PLUS Loan or a 

parent Federal PLUS Loan may be repaid 

under –

(A) The 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;

(D) The income-contingent

repayment plans in accordance with 

paragraph (k) of this section; or

(E) The income-based repayment 

plan in accordance with paragraph (m) of 

this section. 

(iv) A Direct Consolidation Loan that 

repaid a parent Direct PLUS Loan or a 

parent Federal PLUS Loan may be repaid 

under --

(A) The 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-contingent plan in 

accordance with paragraph (k)(2) of this 

section.

(v) 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 incomecontingent repayment plan or the incomebased 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 

contingentincome-contingent or incomebased repayment plan, the repayment 

period for any of the repayment plans 

described in this section does not include 
Subpart B—Borrower Provisions

§685.208

Repayment plans

56

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 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 
Subpart B—Borrower Provisions

§685.208

Repayment plans

57

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.

(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;
Subpart B—Borrower Provisions

§685.208

Repayment plans

58

(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 Loan and the 

borrower's other student loans, as defined 

in §685.220(i), is—

(1) Less then than $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 Adjusted Gross Income (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. [NOTE: Paragraph (k) 

reflects changes made by final regulations 

published on November 1, 2012 (77 FR 

66088).]

(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

AGI reported by the borrower for the most 

recent year for which the Secretary has 

obtained income information. 

(3) For the income-contingent 

repayment plan described in §685.209(b), 

the regulations in effect at the time a 

borrower enters repayment and selects the 
Subpart B—Borrower Provisions

§685.208

Repayment plans

59

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 incomecontingent repayment plan; and

(ii) The borrower submits a written 

request that the amended regulations apply 

to the repayment of the borrower's Direct 

Loans.

(4) Provisions governing the incomecontingent repayment plans 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 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, as defined in 

§685.221(a)(4), 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

§685.208

Repayment plans

60

(Authority: 20 U.S.C. 1087a et seq. )

[71 FR 45712, Aug. 9, 2006, as amended at 

71 FR 64400, Nov. 1, 2006; 73 FR 63255, 

Oct. 23, 2008]
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

61

[NOTE: Section 685.209 reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

§ 685.209 Income-contingent repayment 

plans.

(a) Pay As You Earn repayment plan: 

The Pay As You Earn repayment plan is an 

income-contingent repayment plan for 

eligible new borrowers. 

(1) Definitions. As used in this 

section--

(i) Adjusted gross income (AGI)

means the borrower's adjusted gross 

income as reported to the Internal Revenue 

Service. For a married borrower filing 

jointly, AGI includes both the borrower's 

and spouse's income. For a married 

borrower filing separately, AGI includes only 

the borrower's income;

(ii) Eligible loan means any 

outstanding loan made to a borrower under 

the Direct Loan Program or the FFEL 

Program except for a defaulted loan, a 

Direct PLUS Loan or Federal PLUS Loan 

made to a parent borrower, or a Direct 

Consolidation Loan or Federal Consolidation 

Loan that repaid a Direct PLUS Loan or 

Federal PLUS Loan made to a parent 

borrower;

(iii) Eligible new borrower means an 

individual who--

(A) Has no outstanding balance on a 

Direct Loan Program Loan or a FFEL 

Program loan as of October 1, 2007, or who 

has no outstanding balance on such a loan 

on the date he or she receives a new loan 

after October 1, 2007; and

(B)(1) Receives a disbursement of a 

Direct Subsidized Loan, Direct Unsubsidized 

Loan, or student Direct PLUS Loan on or 

after October 1, 2011; or

(2) Receives a Direct Consolidation 

Loan based on an application received on or 

after October 1, 2011, except that a 

borrower is not considered an eligible new 

borrower if the Direct Consolidation Loan 

repays a loan that would otherwise make 

the borrower ineligible under paragraph 

(a)(1)(iii)(A) of this section;

(iv) 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 year 

the borrower certifies family size, 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 certifies family size, 

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;

(v) Partial financial hardship means 

a circumstance in which--

(A) For an unmarried borrower or a 

married borrower who files an individual 

Federal tax return, the annual amount due 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

62

on all of the borrower's eligible loans, as 

calculated under a standard repayment 

plan based on a 10-year repayment period, 

using the greater of the amount due at the 

time the borrower initially entered 

repayment or at the time the borrower 

elects the Pay As You Earn repayment plan, 

exceeds 10 percent of the difference 

between the borrower's AGI and 150 

percent of the poverty guideline for the 

borrower's family size; or

(B) For a married borrower who 

files a joint Federal tax return with his or 

her spouse, the annual amount due on all of 

the borrower's eligible loans and, if 

applicable, the spouse's eligible loans, as 

calculated under a standard repayment 

plan based on a 10-year repayment period, 

using the greater of the amount due at the 

time the loans initially entered repayment 

or at the time the borrower or spouse 

elects the Pay As You Earn repayment plan, 

exceeds 10 percent of the difference 

between the borrower's and spouse's AGI, 

and 150 percent of the poverty guideline 

for the borrower's family size; and

(vi) Poverty guideline refers to the 

income categorized by State and family size 

in the poverty guidelines published annually 

by the United States 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.

(2) Terms of the Pay As You Earn

repayment plan. (i) A borrower may select 

the Pay As You Earn repayment plan only if 

the borrower has a partial financial 

hardship. The borrower's aggregate 

monthly loan payments are 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.

(ii) The Secretary adjusts the 

calculated monthly payment if--

(A) Except for borrowers provided 

for in paragraph (a)(2)(ii)(B) of this section, 

the total amount of the borrower's eligible 

loans are not Direct Loans, in which case 

the Secretary determines the borrower's 

adjusted monthly payment by multiplying 

the calculated payment by the percentage 

of the total outstanding principal amount of 

the borrower’s eligible loans that are Direct 

Loans;

(B) Both the borrower and 

borrower's spouse have eligible loans and 

filed a joint Federal tax return, in which 

case the Secretary determines--

(1) Each borrower's percentage of 

the couple's total eligible loan debt;

(2) The adjusted monthly payment 

for each borrower by multiplying the 

calculated payment by the percentage 

determined in paragraph (a)(2)(ii)(B)(1) of 

this section; and

(3) If the borrower's loans are held 

by multiple holders, the borrower's 

adjusted monthly Direct Loan payment by 

multiplying the payment determined in 

paragraph (a)(2)(ii)(B)(2) of this section by 

the percentage of the total outstanding 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

63

principal amount of the borrower’s eligible 

loans that are Direct Loans;

(C) The calculated amount under 

paragraph (a)(2)(i), (a)(2)(ii)(A), or 

(a)(2)(ii)(B) of this section is less than $5.00, 

in which case the borrower's monthly 

payment is $0.00; or

(D) The calculated amount under 

paragraph (a)(2)(i), (a)(2)(ii)(A), or 

(a)(2)(ii)(B) of this section is equal to or 

greater than $5.00 but less than $10.00, in 

which case the borrower's monthly 

payment is $10.00.

(iii) If the borrower's monthly 

payment amount is not sufficient to pay the 

accrued interest on the borrower's Direct 

Subsidized loan or the subsidized portion of 

a Direct Consolidation Loan, the Secretary 

does not charge the borrower the 

remaining accrued interest for a period not 

to exceed three consecutive years from the 

established repayment period start date on 

that loan under the Pay As You Earn 

repayment plan. Any period during which 

the Secretary has previously not charged 

the borrower accrued interest on an eligible 

loan under the income-based repayment 

plan counts toward the maximum three 

years of subsidy a borrower is eligible to 

receive under the Pay As You Earn 

repayment plan. On a Direct Consolidation 

Loan that repays loans on which the 

Secretary has not charged the borrower 

accrued interest, the three-year period 

includes the period for which the Secretary 

did not charge the borrower accrued 

interest on the underlying loans. This 

three-year period does not include any 

period during which the borrower receives 

an economic hardship deferment.

(iv)(A) Except as provided in 

paragraph (a)(2)(iii) of this section, accrued 

interest is capitalized--

(1) When a borrower is determined 

to no longer have a partial financial 

hardship; or 

(2) At the time a borrower chooses 

to leave the Pay As You Earn repayment 

plan.

(B)(1) The amount of accrued 

interest capitalized under paragraph 

(a)(2)(iv)(A)(1) of this section is limited to 10 

percent of the original principal balance at 

the time the borrower entered repayment 

under the Pay As You Earn repayment plan. 

(2) After the amount of accrued 

interest reaches the limit described in 

paragraph (a)(2)(iv)(B)(1) of this section, 

interest continues to accrue, but is not 

capitalized while the borrower remains on 

the Pay As You Earn repayment plan.

(v) If the borrower's monthly 

payment amount is not sufficient to pay any 

of the principal due, the payment of that 

principal is postponed until the borrower 

chooses to leave the Pay As You Earn 

repayment plan or no longer has a partial 

financial hardship.

(vi) The repayment period for a 

borrower under the Pay As You Earn 

repayment plan may be greater than 10 

years.

(3) Payment application and 

prepayment. (i) The Secretary applies any 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

64

payment made under the Pay As You Earn 

repayment plan in the following order:

(A) Accrued interest.

(B) Collection costs.

(C) Late charges.

(D) Loan principal.

(ii) The borrower may prepay all or 

part of a loan at any time without penalty, 

as provided under §685.211(a)(2).

(iii) If the prepayment amount 

equals or exceeds a monthly payment 

amount of $10.00 or more under the 

repayment schedule established for the 

loan, the Secretary applies the prepayment 

consistent with the requirements of 

§685.211(a)(3).

(iv) If the prepayment amount 

exceeds a monthly payment amount of 

$0.00 under the repayment schedule 

established for the loan, the Secretary 

applies the prepayment consistent with the 

requirements of paragraph (a)(3)(i) of this 

section.

(4) Changes in the payment 

amount. (i) If a borrower no longer has a 

partial financial hardship, the borrower may 

continue to make payments under the Pay 

As You Earn repayment plan, but the 

Secretary recalculates the borrower's 

monthly payment. The Secretary also 

recalculates the monthly payment for a 

borrower who chooses to stop making 

income-contingent payments. In either 

case, as a result of the recalculation--

(A) The maximum monthly amount 

that the Secretary requires the borrower to 

repay is the amount the borrower would 

have paid under the standard repayment 

plan based on a 10-year repayment period 

using the amount of the borrower's eligible 

loans that was outstanding at the time the 

borrower began repayment on the loans 

under the Pay As You Earn repayment plan; 

and

(B) The borrower's repayment 

period based on the recalculated payment 

amount may exceed 10 years.

(ii) A borrower who no longer 

wishes to repay under the Pay As You Earn 

repayment plan may change to a different 

repayment plan in accordance with 

§685.210(b).

(5) Eligibility documentation, 

verification, and notifications. (i)(A) The 

Secretary determines whether a borrower 

has a partial financial hardship to qualify for 

the Pay As You Earn repayment plan for the 

year the borrower selects the plan and for 

each subsequent year that the borrower 

remains on the plan. To make this 

determination, the Secretary requires the 

borrower to provide documentation, 

acceptable to the Secretary, of the 

borrower’s AGI. 

(B) If the borrower's AGI is not 

available, or if the Secretary believes that 

the borrower's reported AGI does not 

reasonably reflect the borrower's current 

income, the borrower must provide other 

documentation to verify income. 

(C) The borrower must annually 

certify the borrower's family size. If the 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

65

borrower fails to certify family size, the 

Secretary assumes a family size of one for 

that year.

(ii) After making a determination 

that a borrower has a partial financial 

hardship to qualify for the Pay As You Earn 

repayment plan for the year the borrower 

initially elects the plan and for each 

subsequent year that the borrower has a 

partial financial hardship, the Secretary 

sends the borrower a written notification 

that provides the borrower with--

(A) The borrower’s scheduled 

monthly payment amount, as calculated 

under paragraph (a)(2) of this section, and 

the time period during which this scheduled 

monthly payment amount will apply 

(annual payment period);

(B) Information about the 

requirement for the borrower to annually 

provide the information described in 

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

borrower chooses to remain on the Pay As 

You Earn repayment plan after the initial 

year on the plan, and an explanation that 

the borrower will be notified in advance of 

the date by which the Secretary must 

receive this information; 

(C) An explanation of the 

consequences, as described in paragraphs 

(a)(5)(i)(C) and (a)(5)(vii) of this section, if 

the borrower does not provide the required 

information; and

(D) Information about the 

borrower’s option to request, at any time 

during the borrower’s current annual 

payment period, that the Secretary 

recalculate the borrower’s monthly 

payment amount if the borrower’s financial 

circumstances have changed and the 

income amount that was used to calculate 

the borrower’s current monthly payment 

no longer reflects the borrower’s current 

income. If the Secretary recalculates the 

borrower’s monthly payment amount 

based on the borrower’s request, the 

Secretary sends the borrower a written 

notification that includes the information 

described in paragraphs (a)(5)(ii)(A) through 

(a)(5)(ii)(D) of this section.

(iii) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the Pay As 

You Earn repayment plan, the Secretary 

notifies the borrower in writing of the 

requirements in paragraph (a)(5)(i) of this 

section no later than 60 days and no earlier 

than 90 days prior to the date specified in 

paragraph (a)(5)(iii)(A) of this section. The 

notification provides the borrower with--

(A) The date, no earlier than 35 days

before the end of the borrower’s annual 

payment period, by which the Secretary 

must receive all of the documentation 

described in paragraph (a)(5)(i) of this 

section (annual deadline); and

(B) The consequences if the 

Secretary does not receive the information 

within 10 days following the annual 

deadline specified in the notice, including 

the borrower’s new monthly payment 

amount as determined under paragraph 

(a)(4)(i) of this section, the effective date 

for the recalculated monthly payment 

amount, and the fact that unpaid accrued 

interest will be capitalized at the end of the 

borrower’s current annual payment period 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

66

in accordance with paragraph (a)(2)(iv) of 

this section.

(iv) Each time the Secretary makes a 

determination that a borrower no longer 

has a partial financial hardship for a 

subsequent year that the borrower wishes 

to remain on the plan, the Secretary sends 

the borrower a written notification that 

provides the borrower with--

(A) The borrower’s recalculated 

monthly payment amount, as determined in 

accordance with paragraph (a)(4)(i) of this 

section;

(B) An explanation that unpaid 

interest will be capitalized in accordance 

with paragraph (a)(2)(iv) of this section; and

(C) Information about the 

borrower’s option to request, at any time, 

that the Secretary redetermine whether the 

borrower has a partial financial hardship, if 

the borrower’s financial circumstances have 

changed and the income amount used to 

determine that the borrower no longer has 

a partial financial hardship does not reflect 

the borrower’s current income, and an 

explanation that the borrower will be 

notified annually of this option. If the 

Secretary determines that the borrower 

again has a partial financial hardship, the 

Secretary recalculates the borrower’s 

monthly payment in accordance with 

paragraph (a)(2)(i) of this section and sends 

the borrower a written notification that 

includes the information described in 

paragraphs (a)(5)(ii)(A) through (a)(5)(ii)(D) 

of this section.

(v) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on the 

Pay As You Earn repayment plan, the 

Secretary sends the borrower a written 

notification that includes the information 

described in paragraph (a)(5)(iv)(C) of this 

section.

(vi) If a borrower who is currently 

repaying under another repayment plan 

selects the Pay As You Earn repayment plan 

but does not provide the documentation 

described in paragraphs (a)(5)(i)(A) or 

(a)(5)(i)(B) of this section, or if the Secretary 

determines that the borrower does not 

have a partial financial hardship, the 

borrower remains on his or her current 

repayment plan.

(vii) The Secretary designates the 

repayment option described in paragraph 

(a)(4)(i) of this section if a borrower who is 

currently repaying under the Pay As You 

Earn repayment plan remains on the plan 

for a subsequent year but the Secretary 

does not receive the documentation 

described in paragraphs (a)(5)(i)(A) and 

(a)(5)(i)(B) of this section within 10 days of 

the specified annual deadline, unless the 

Secretary is able to determine the 

borrower’s new monthly payment amount 

before the end of the borrower’s current 

annual payment period. 

(viii) If the Secretary receives the 

documentation described in paragraphs 

(a)(5)(i)(A) and (a)(5)(i)(B) of this section 

within 10 days of the specified annual 

deadline--

(A) The Secretary promptly 

determines the borrower’s new scheduled 

monthly payment amount and maintains 

the borrower’s current scheduled monthly 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

67

payment amount until the new scheduled 

monthly payment amount is determined. 

(1) If the new monthly payment 

amount is less than the borrower’s 

previously calculated Pay As You Earn 

repayment plan monthly payment amount, 

and the borrower made payments at the 

previously calculated amount after the end 

of the most recent annual payment period, 

the Secretary makes the appropriate 

adjustment to the borrower’s account. 

Notwithstanding the requirements of 

§685.211(a)(3), unless the borrower 

requests otherwise, the Secretary applies 

the excess payment amounts made after 

the end of the most recent annual payment 

period in accordance with the requirements 

of §685.209(a)(3)(i).

(2) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated Pay As You 

Earn repayment plan monthly payment 

amount, and the borrower made payments 

at the previously calculated payment 

amount after the end of the most recent 

annual payment period, the Secretary does 

not make any adjustment to the borrower’s 

account. 

(3) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1).

(B) The new annual payment period 

begins on the day after the end of the most 

recent annual payment period. 

(ix)(A) If the Secretary receives the 

documentation described in paragraphs 

(a)(5)(i)(A) and (a)(5)(i)(B) of this section 

more than 10 days after the specified 

annual deadline and the borrower’s 

monthly payment amount is recalculated in 

accordance with paragraph (a)(4)(i) of this 

section, the Secretary grants forbearance 

with respect to payments that are overdue 

or would be due at the time the new 

calculated Pay As You Earn repayment plan 

monthly payment amount is determined, if 

the new monthly payment amount is $0.00 

or is less than the borrower’s previously 

calculated income-based monthly payment 

amount. Interest that accrues during the 

portion of this forbearance period that 

covers payments that are overdue after the 

end of the prior annual payment period is 

not capitalized.

(B) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1). 

(6) Loan forgiveness. (i) To qualify 

for loan forgiveness after 20 years, a 

borrower must have participated in the Pay 

As You Earn repayment plan and satisfied at 

least one of the following conditions during 

that period:
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

68

(A) Made reduced monthly 

payments under a partial financial hardship 

as provided in paragraph (a)(2)(i) or (a)(2)(ii) 

of this section, including a monthly 

payment amount of $0.00, as provided 

under paragraph (a)(2)(ii)(C) of this section.

(B) Made reduced monthly 

payments after the borrower no longer had 

a partial financial hardship or stopped 

making income-contingent payments as 

provided in paragraph (a)(4)(i) of this 

section.

(C) Made monthly payments under 

any repayment plan, that were not less 

than the amount required under the Direct 

Loan standard repayment plan described in 

§685.208(b) with a 10-year repayment 

period.

(D) Made monthly payments under 

the Direct Loan standard repayment plan 

described in §685.208(b) for the amount of 

the borrower’s loans that were outstanding 

at the time the borrower first selected the 

Pay As You Earn repayment plan.

(E) Made monthly payments under 

the income-contingent repayment plan 

described in paragraph (b) of this section or 

the income-based repayment plan 

described in §685.221, including a 

calculated monthly payment amount of 

$0.00.

(F) Received an economic hardship 

deferment on eligible Direct Loans.

(ii) As provided under paragraph 

(a)(6)(v) of this section, the Secretary 

cancels any outstanding balance of principal 

and accrued interest on Direct loans for 

which the borrower qualifies for forgiveness 

if the Secretary determines that--

(A) The borrower made monthly 

payments under one or more of the 

repayment plans described in paragraph 

(a)(6)(i) of this section, including a monthly 

payment amount of $0.00, as provided 

under paragraph (a)(2)(ii)(C) of this section; 

and

(B)(1) The borrower made those 

monthly payments each year for a 20-year 

period; or

(2) Through a combination of 

monthly payments and economic hardship 

deferments, the borrower has made the 

equivalent of 20 years of payments.

(iii) For a borrower who qualifies for 

the Pay As You Earn repayment plan, the 

beginning date for the 20-year period is--

(A) If the borrower made payments 

under the income-contingent repayment 

plan described in paragraph (b) of this 

section or the income-based repayment 

plan described in §685.221, the earliest 

date the borrower made a payment on the 

loan under one of those plans at any time 

after October 1, 2007; or

(B) If the borrower did not make 

payments under the income-contingent 

repayment plan described in paragraph (b) 

of this section or the income-based 

repayment plan described in §685.221--

(1) For a borrower who has an 

eligible Direct Consolidation Loan, the date 

the borrower made a payment or received 

an economic hardship deferment on that 

loan, before the date the borrower 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

69

qualified for the Pay As You Earn repayment 

plan. The beginning date is the date the 

borrower made the payment or received 

the deferment after October 1, 2007;

(2) For a borrower who has one or 

more other eligible Direct Loans, the date 

the borrower made a payment or received 

an economic hardship deferment on that 

loan. The beginning date is the date the 

borrower made that payment or received 

the deferment on that loan after October 1, 

2007;

(3) For a borrower who did not 

make a payment or receive an economic 

hardship deferment on the loan under 

paragraph (a)(6)(iii)(B)(1) or (a)(6)(iii)(B)(2) 

of this section, the date the borrower made 

a payment on the loan under the Pay As 

You Earn repayment plan;

(4) If the borrower consolidates his 

or her eligible loans, the date the borrower 

made a payment on the Direct 

Consolidation Loan that met the 

requirements of paragraph (a)(6)(i) of this 

section; or

(5) If the borrower did not make a 

payment or receive an economic hardship 

deferment on the loan under paragraph 

(a)(6)(iii)(A) or (a)(6)(iii)(B) of this section, 

the date the borrower made a payment on 

the loan under the Pay As You Earn 

repayment plan.

(iv) Any payments made on a 

defaulted loan are not made under a 

qualifying repayment plan and are not 

counted toward the 20-year forgiveness 

period.

(v)(A) When the Secretary 

determines that a borrower has satisfied 

the loan forgiveness requirements under 

paragraph (a)(6) of this section on an 

eligible loan, the Secretary cancels the 

outstanding balance and accrued interest 

on that loan. No later than six months prior 

to the anticipated date that the borrower 

will meet the forgiveness requirements, the 

Secretary sends the borrower a written 

notice that includes--

(1) An explanation that the 

borrower is approaching the date that he or 

she is expected to meet the requirements 

to receive loan forgiveness;

(2) A reminder that the borrower 

must continue to make the borrower’s 

scheduled monthly payments; and

(3) General information on the 

current treatment of the forgiveness 

amount for tax purposes, and instructions 

for the borrower to contact the Internal 

Revenue Service for more information.

(B) The Secretary determines when 

a borrower has met the loan forgiveness 

requirements in paragraph (a)(6) of this 

section and does not require the borrower 

to submit a request for loan forgiveness.

(C) After determining that a 

borrower has satisfied the loan forgiveness 

requirements, the Secretary--

(1) Notifies the borrower that the 

borrower’s obligation on the loans is 

satisfied; 

(2) Provides the borrower with the 

information described in paragraph 

(a)(6)(v)(A)(3) of this section; and
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

70

(3) Returns to the sender any 

payment received on a loan after loan 

forgiveness has been granted.

(b) Income-contingent repayment 

plan: The income-contingent repayment 

(ICR) plan is an income-contingent 

repayment plan under which a borrower’s 

monthly payment amount is generally 

based on the total amount of the 

borrower’s Direct Loans, family size, and 

AGI.

(1) Repayment amount calculation. 

(i) The amount the borrower would repay is 

based upon the borrower's Direct Loan debt 

when the borrower's first loan enters 

repayment, and this basis for calculation 

does not change unless the borrower 

obtains another Direct Loan or the 

borrower and the borrower's spouse obtain 

approval to repay their loans jointly under 

paragraph (b)(2)(ii) of this section. If the 

borrower obtains another Direct Loan, the 

amount the borrower would repay is based 

on the combined amounts of the loans 

when the last loan enters repayment. If the 

borrower and the borrower's spouse repay 

the loans jointly, the amount the borrowers 

would repay is based on both borrowers' 

Direct Loan debts at the time they enter 

joint repayment.

(ii) The annual amount payable by a 

borrower under the ICR plan is the lesser of-

-

(A) The amount the borrower would 

repay annually over 12 years using standard 

amortization multiplied by an income 

percentage factor that corresponds to the 

borrower's AGI as shown in the income 

percentage factor table in a notice 

published annually by the Secretary in the 

Federal Register; or

(B) 20 percent of discretionary 

income.

(iii)(A) For purposes of paragraph 

(b) of this section, discretionary income is 

defined as a borrower's AGI minus the 

amount of the poverty guideline, as defined 

in paragraph (b)(1)(iii)(B) of this section, for 

the borrower’s family size as defined in 

§685.209(a)(1)(iv). 

(B) For purposes of paragraph (b) of 

this section, the term “poverty guideline” 

refers to the income categorized by State 

and family size in the poverty guidelines 

published annually by the United States 

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 line to be 

used for the borrower is the poverty 

guideline (for the relevant family size) used 

for the 48 contiguous States.

(iv) For exact incomes not shown in 

the income percentage factor table in the 

annual notice published by the Secretary, 

an income percentage factor is calculated, 

based upon the intervals between the 

incomes and income percentage factors 

shown on the table.

(v) Each year, the Secretary 

recalculates the borrower's annual payment 

amount based on changes in the borrower's 

AGI, the variable interest rate, the income 

percentage factors in the table in the 

annual notice published by the Secretary, 

and updated HHS Poverty Guidelines (if 

applicable).
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

71

(vi) If a borrower's monthly 

payment is calculated to be greater than $0 

but less than or equal to $5.00, the amount 

payable by the borrower is $5.00.

(vii) For purposes of the annual 

recalculation described in paragraph 

(b)(1)(v) of this section, after periods in 

which a borrower makes payments that are 

less than interest accrued on the loan, the 

payment amount is recalculated based 

upon unpaid accrued interest and the 

highest outstanding principal loan amount 

(including amount capitalized) calculated 

for that borrower while paying under the 

ICR plan.

(viii) For each calendar year, the 

Secretary publishes in the Federal Register

a revised income percentage factor table 

reflecting changes based on inflation. This 

revised table is developed by changing each 

of the dollar amounts contained in the table 

by a percentage equal to the estimated 

percentage changes in the Consumer Price 

Index (as determined by the Secretary) 

between December 1995 and the 

December next preceding the beginning of 

such calendar year.

(ix) Examples of the calculation of 

monthly repayment amounts and tables 

that show monthly repayment amounts for 

borrowers at various income and debt 

levels are included in the annual notice 

published by the Secretary.

(x) At the beginning of the 

repayment period under the ICR plan, the 

borrower must make monthly payments of 

the amount of interest that accrues on the 

borrower’s Direct Loan until the Secretary 

calculates the borrower’s monthly payment 

amount on the basis of the borrower’s 

income.

(2) Treatment of married borrowers. 

(i)(A) For a married borrower who files a 

joint Federal tax return with his or her 

spouse, the AGI for both spouses is used to 

calculate the monthly payment amount 

under the ICR plan. 

(B) For a married borrower who 

files a Federal income tax return separately 

from his or her spouse, only the borrower’s 

AGI is used to determine the monthly 

payment amount under the ICR plan. 

(ii) Married borrowers may repay 

their loans jointly. The outstanding 

balances on the loans of each borrower are 

added together to determine the 

borrowers' payback rate under paragraph 

(b)(1) of this section.

(iii) The amount of the payment 

applied to each borrower's debt is the 

proportion of the payments that equals the 

same proportion as that borrower's debt to 

the total outstanding balance, except that 

the payment is credited toward outstanding 

interest on any loan before any payment is 

credited toward principal.

(3) Other features of the ICR plan. 

(i) Alternative documentation of income. If 

a borrower's AGI is not available or if, in the 

Secretary's opinion, the borrower's 

reported AGI does not reasonably reflect 

the borrower's current income, the 

Secretary may use other documentation of 

income provided by the borrower to 

calculate the borrower's monthly 

repayment amount.
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

72

(ii) Adjustments to repayment 

obligations. The Secretary may determine 

that special circumstances, such as a loss of 

employment by the borrower or the 

borrower's spouse, warrant an adjustment 

to the borrower's repayment obligations.

(iii) Repayment period. (A) The 

maximum repayment period under the ICR 

plan is 25 years.

(B) The repayment period includes--

(1) Periods in which the borrower 

makes payments under the ICR plan on 

loans that are not in default;

(2) Periods in which the borrower 

makes reduced monthly payments under 

the income-based repayment plan or a 

recalculated reduced monthly payment 

after the borrower no longer has a partial 

financial hardship or stops making incomebased payments, as provided in 

§685.221(d)(1)(i);

(3) Periods in which the borrower 

made monthly payments under the Pay As 

You Earn repayment plan;

(4) Periods in which the borrower 

made monthly payments under the 

standard repayment plan after leaving the 

income-based repayment plan as provided 

in §685.221(d)(2);

(5) Periods in which the borrower 

makes payments under the standard 

repayment plan described in §685.208(b);

(6) For borrowers who entered 

repayment before October 1, 2007, and if 

the repayment period is not more than 12 

years, periods in which the borrower makes 

monthly payments under the extended 

repayment plans described in §685.208(d) 

and (e), or the standard repayment plan 

described in §685.208(c);

(7) Periods after October 1, 2007, in 

which the borrower makes monthly 

payments under any other repayment plan 

that are not less than the amount required 

under the standard repayment plan 

described in §685.208(b); or

(8) Periods of economic hardship 

deferment after October 1, 2007.

(C) If a borrower repays more than 

one loan under the ICR plan, a separate 

repayment period for each loan begins 

when that loan enters repayment.

(D) If a borrower has not repaid a 

loan in full at the end of the 25-year 

repayment period under the ICR plan, the 

Secretary cancels the outstanding balance 

and accrued interest on that loan. No later 

than six months prior to the anticipated 

date that the borrower will meet the 

forgiveness requirements, the Secretary 

sends the borrower a written notification 

that includes--

(1) An explanation that the 

borrower is approaching the date that he or 

she is expected to meet the requirements 

to receive loan forgiveness;

(2) A reminder that the borrower 

must continue to make the borrower’s 

scheduled monthly payments; and

(3) General information on the 

current treatment of the forgiveness 

amount for tax purposes, and instructions 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

73

for the borrower to contact the Internal 

Revenue Service for more information. 

(E) The Secretary determines when 

a borrower has met the loan forgiveness 

requirements under paragraph (b)(3)(iii)(D) 

of this section and does not require the 

borrower to submit a request for loan 

forgiveness. After determining that a 

borrower has satisfied the loan forgiveness 

requirements, the Secretary--

(1) Notifies the borrower that the 

borrower’s obligation on the loans is 

satisfied;

(2) Provides the information 

described in paragraph (b)(3)(iii)(D)(3) of 

this section; and

(3) Returns to the sender any 

payment received on a loan after loan 

forgiveness has been granted. 

(iv) Limitation on capitalization of 

interest. If the amount of a borrower's 

monthly payment is less than the accrued 

interest, 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 amount, interest continues to 

accrue but is not capitalized. For purposes 

of this paragraph, the original amount is the 

amount owed by the borrower when the 

borrower enters repayment.

(v) Notification of terms and 

conditions. When a borrower elects or is 

required by the Secretary to repay a loan 

under the ICR plan, and for each 

subsequent year that the borrower remains 

on the plan, the Secretary sends the 

borrower a written notification that 

provides the terms and conditions of the 

plan, including--

(A) The borrower’s scheduled 

monthly payment amount as calculated 

under paragraph (b)(1) or (b)(3)(vi)(D) of 

this section, as applicable, and the time 

period during which this scheduled monthly 

payment will apply (annual payment 

period);

(B) Information about the 

requirement for the borrower to annually 

provide the information described in 

paragraph (b)(3)(vi)(A) of this section, if the 

borrower chooses to remain on the ICR plan 

after the initial year on the plan, and an 

explanation that the borrower will be 

notified in advance of the date by which the 

Secretary must receive the information; 

(C) That if the borrower believes 

that special circumstances warrant an 

adjustment to the borrower's repayment 

obligations, as described in paragraph 

(b)(3)(ii) of this section, the borrower may 

contact the Secretary at any time during the 

borrower’s current annual payment period 

and obtain the Secretary's determination as 

to whether an adjustment is appropriate; 

and

(D) An explanation of the 

consequences, as described in paragraph 

(b)(3)(vi)(D) of this section, if the borrower 

does not provide the required information.

(vi) Documentation of income and 

certification of family size. (A) For the 

initial year that a borrower selects the ICR 

plan and for each subsequent year that the 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

74

borrower remains on the plan, the 

borrower must--

(1) Provide to the Secretary, for 

purposes of calculating a monthly 

repayment amount and servicing and 

collecting the borrower’s loan, acceptable 

documentation, as determined by the 

Secretary, of the borrower’s AGI or 

alternative documentation of income in 

accordance with paragraph (b)(3)(i) of this 

section; and

(2) Certify the borrower’s family 

size. If the borrower fails to certify family 

size, the Secretary assumes a family size of 

one for the year. 

(B) For each subsequent year that a 

borrower remains on the ICR plan, the 

Secretary notifies the borrower in writing of 

the requirements described in paragraph 

(b)(3)(vi)(A) of this section no later than 60 

days and no earlier than 90 days prior to 

the date specified in paragraph 

(b)(3)(vi)(B)(1) of this section. The 

notification provides the borrower with--

(1) The date, no earlier than 35 days 

before the end of the borrower’s annual 

payment period, by which the Secretary 

must receive the documentation described 

in paragraph (b)(3)(vi)(A) of this section 

(annual deadline); and

(2) The consequences if the 

Secretary does not receive the information 

within 10 days following the annual 

deadline specified in the notice, including 

the borrower’s new monthly payment 

amount as determined under paragraph 

(b)(3)(vi)(D) of this section, and the 

effective date for the recalculated monthly 

payment amount.

(C) The Secretary designates the 

standard repayment plan for a borrower 

who initially selects the ICR plan but does 

not comply with the requirement in 

paragraph (b)(3)(vi)(A)(1) of this section.

(D) If, during a subsequent year that 

a borrower remains on the ICR plan, the 

Secretary does not receive the 

documentation described in paragraph 

(b)(3)(vi)(A)(1) of this section within 10 days 

of the specified annual deadline, the 

Secretary recalculates the borrower’s 

required monthly payment amount, unless 

the Secretary is able to determine the 

borrower’s new monthly payment amount 

before the end of the borrower’s current 

annual payment period. The maximum 

recalculated monthly amount the Secretary 

requires the borrower to repay is the 

amount the borrower would have paid 

under the standard repayment plan based 

on a 10-year repayment period using the 

amount of the borrower’s loans that was 

outstanding at the time the borrower began 

repayment under the ICR plan. The 

repayment period based on the 

recalculated payment may exceed 10 years.

(E) If the Secretary receives the 

documentation described in paragraph 

(b)(3)(vi)(A)(1) of this section within 10 days 

of the specified annual deadline--

(1) The Secretary promptly 

determines the borrower’s new scheduled 

monthly payment amount and maintains 

the borrower’s current scheduled monthly 

payment amount until the new scheduled 

monthly payment amount is determined. 
Subpart B—Borrower Provisions

§685.209

Income contingent repayment plan

75

(i) If the new calculated monthly 

payment amount is less than the borrower’s 

previously calculated monthly payment 

amount, and the borrower made payments 

at the previously calculated amount after 

the end of the most recent annual payment 

period, the Secretary makes the 

appropriate adjustment to the borrower’s 

account. Notwithstanding §685.211(a)(3), 

the Secretary applies the excess payment 

amounts made after the end of the most 

recent annual payment period in 

accordance with the requirements of 

§685.211(a)(1), unless the borrower 

requests otherwise.

(ii) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated monthly 

payment amount, and the borrower made 

payments at the previously calculated 

payment amount after the end of the most 

recent annual payment period, the 

Secretary does not make any adjustment to 

the borrower’s account.

(iii) Any payments the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1).

(2) The new annual payment period 

begins on the day after the end of the most 

recent annual payment period. 

(F)(1) If the Secretary receives the 

documentation described in paragraph 

(b)(3)(vi)(A)(1) of this section more than 10 

days after the specified annual deadline and 

the borrower’s monthly payment amount is 

recalculated in accordance with paragraph 

(b)(3)(vi)(D) of this section, the Secretary 

grants forbearance with respect to 

payments that are overdue or would be due 

at the time the new calculated monthly 

payment amount is determined, if the new 

monthly payment amount is $0.00 or is less 

than the borrower’s previously calculated 

monthly payment amount. Interest that 

accrues during the portion of this 

forbearance period that covers payments 

that are overdue after the end of the prior 

annual payment period is not capitalized.

(2) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1).

(G) If a borrower defaults and the 

Secretary designates the ICR plan for the 

borrower but the borrower fails to comply 

with the requirements in paragraph 

(b)(3)(vi)(A) of this section, the Secretary 

mails a notice to the borrower establishing 

a repayment schedule for the borrower.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq.)
Subpart B—Borrower Provisions

§685.210

Choice of repayment plan

76

§ 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 an income 

contingentincome-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)(A)(3) may not change to 

another repayment plan unless—

(i) The borrower was required to 

and did make a payment under the income 

contingentincome-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 

contingentincome-contingent or incomebased 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 under §685.209(a), the 

income-contingent repayment plan under 

§685.209(b), or the income-based 

repayment plan under §685.221, the 

repayment period is calculated as described 

in §685.209(a)(6)(iii), §685.209(b)(3)(iii), or 

§685.221(f)(3), respectively. [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

65 FR 65629, Nov. 1, 2000; 68 FR 75430, 

Dec. 31, 2003; 73 FR 63256, Oct. 23, 2008]
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

77

§ 685.211 Miscellaneous repayment 

provisions.

(a) Payment application and 

prepayment. (1) Except as provided for the 

income-contingent repayment plan under 

§685.209(a)(3) or 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. [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(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 on-time 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 
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

78

contingentincome-contingent repayment 

plan or the income-based 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—

(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.

(1) A defaulted Direct Loan, except for a 

loan on which a judgment has been 

obtained, is rehabilitated if the borrower 

makes nine 9 voluntary, reasonable, and 

affordable monthly payments within 20 

days of the due date during ten 10 

consecutive months. The amount of such a 

payment is determined on the basis of the 

borrower's total financial circumstances.If a 

defaulted loan is rehabilitated, the 

Secretary instructs any consumer reporting 

agency to which the default was reported 

to remove the default from the borrower’s 

credit history. The Secretary determines the 

amount of a borrower’s reasonable and 

affordable payment on the basis of a 

borrower’s total financial circumstances.

(i) For the purposes of this section, 

the borrower’s reasonable and affordable 

payment amount, as determined by the 

Secretary, is based solely on information 

provided on a form approved by the 

Secretary and, if requested , supporting 

documentation from the borrower and 

other sources, and considers --

(A) The borrower's, and if 

applicable, the spouse's current disposable 

income, including public assistance 

payments, and other income received by 

the borrower and the spouse, such as 

welfare benefits, Social Security benefits, 

Supplemental Security Income, and 
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

79

workers’ compensation. Spousal income is 

not considered if the spouse does not 

contribute to the borrower’s household 

income;

(B) Family size as defined in 

§685.221(a)(3) of the regulations; and

(C) Reasonable and necessary 

expenses, which include –

(1) Food;

(2) Housing;

(3) Utilities;

(4) Basic communication expenses;

(5) Necessary medical and dental 

costs;

(6) Necessary insurance costs;

(7) Transportation costs;

(8) Dependent care and other workrelated expenses;

(9) Legally required child and 

spousal support; 

(10) Other title IV and non-title IV 

student loan payments; and 

(11) Other expenses approved by 

the Secretary.

(ii) The reasonable and affordable 

payment amount must not be –

(A) A required minimum loan 

payment amount (e.g., $50) if the Secretary 

determines that a smaller amount is 

reasonable and affordable; 

(B) A percentage of the borrower’s 

total loan balance; or

(C) Based on other criteria unrelated 

to the borrower’s total financial 

circumstances.

(iii) Within 15 business days of the 

Secretary’s determination of the borrower’s 

reasonable and affordable payment 

amount, the Secretary provides the 

borrower with a written rehabilitation 

agreement which includes the borrower's 

reasonable and affordable payment 

amount, a prominent statement that the 

borrower may object orally or in writing to 

the reasonable and affordable payment 

amount with the method and timeframe for 

raising such an objection, and an 

explanation of any other terms and 

conditions applicable to the required series 

of payments that must be made. The 

Secretary does not impose any other 

conditions unrelated to the amount or 

timing of the rehabilitation payments in the 

rehabilitation agreement. The written 

rehabilitation agreement informs the 

borrower of the effects of having the loans 

rehabilitated ( e.g., removal of the record of 

default from the borrower’s credit history 

and return to normal repayment).

(2) The Secretary provides the 

borrower with a written statement 

confirming the borrower's reasonable and 

affordable payment amount, as determined 

by the Secretary, and explaining any other 

terms and conditions applicable to the 

required series of payments that must be 
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

80

made before the borrower's account can be 

rehabilitated. The statement informs the 

borrower that the borrower may object to 

the terms and conditions of the 

rehabilitation agreement, and explains the 

method and timeframe for objecting to the 

terms and conditions of the rehabilitation 

agreement.

(3) If the borrower objects to the 

monthly payment amount determined 

under paragraph (f)(1) of this section, the 

Secretary recalculates the payment amount 

by using the monthly payment calculation 

rules in §685.221(b)(1) and §685.221(b)(2),

except that if the calculated amount under 

these sections is less than $5, the monthly 

rehabilitation payment is $5.

(4) The Secretary provides the 

borrower with a written statement 

confirming the borrower’s recalculated 

reasonable and affordable payment 

amount.

(5) If the borrower objects to the 

monthly payment amount determined 

under paragraph (f)(1) of this section, but 

does not provide the documentation 

required to calculate a monthly payment 

amount under §685.221(b)(1) and 

§685.221(b)(2), no rehabilitation agreement 

exists between the borrower and the 

Secretary, and the rehabilitation does not 

proceed.

(6) The Secretary includes any 

payment made under §682.401(b)(1) in 

determining whether the 9 out of 10 

payments required under paragraph (f)(1) 

of this section have been made. 

(7) A borrower may request that the 

monthly payment amount be adjusted due 

to a change in the borrower's total financial 

circumstances only upon providing the 

documentation specified in paragraph 

(f)(1)(i) of this section.

(8) During the rehabilitation period, 

the Secretary limits contact with the 

borrower on the loan being rehabilitated to 

collection activities that are required by law 

or regulation and to communications that 

support the rehabilitation.

(9) If a defaulted loan is 

rehabilitated, the Secretary instructs any 

consumer reporting agency to which the 

default was reported to remove the default 

from the borrower’s credit history.

(2)(10) A defaulted Direct Loan on 

which a judgment has been obtained may 

not be rehabilitated.

(3)(11) A Direct Loan obtained by 

fraud for which the borrower has been 

convicted of, or has pled nolo contendere 

or guilty to, a crime involving fraud in 

obtaining title IV, HEA program assistance 

may not be rehabilitated.

(12)(i) If a borrower’s loan is being 

collected by administrative wage 

garnishment while the borrower is also 

making monthly payments on the same 

loan under a loan rehabilitation agreement, 

the Secretary continues collecting the loan 

by administrative wage garnishment until 

the borrower makes five qualifying monthly 

payments under the rehabilitation 

agreement. After the borrower makes the 

fifth qualifying monthly payment, the 

Secretary, unless otherwise directed by the 
Subpart B—Borrower Provisions

§685.211

Miscellaneous repayment provisions

81

borrower, suspends collecting the loan by 

administrative wage garnishment. 

(ii) A borrower may only obtain the 

benefit of a suspension of administrative 

wage garnishment while also attempting to 

rehabilitate a defaulted loan once.

(4)(13) Effective for any defaulted 

Direct Loan that is rehabilitated on or after 

August 14, 2008, the borrower cannot 

rehabilitate the loan again if the loan 

returns to default status following the 

rehabilitation.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

64 FR 57961, Oct. 27, 1999; 64 FR 59043, 

Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 

FR 34765, June 29, 2001; 67 FR 67081, Nov. 

1, 2002; 71 FR 45714, Aug. 9, 2006; 73 FR 

63256, Oct. 23, 2008; 74 FR 56003, Oct. 29, 

2009]
Subpart B—Borrower Provisions

§685.212

Discharge of a loan obligation

82

§ 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 
Subpart B—Borrower Provisions

§685.212

Discharge of a loan obligation

83

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 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 specified in §685.213(b)(4)(iii) or 

§685.213(c)(2)(i), as applicable. [NOTE: This 

paragraph reflects changes made by final 

regulations published on November 1, 2012 

(77 FR 66088).]

(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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 
Subpart B—Borrower Provisions

§685.212

Discharge of a loan obligation

84

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

61 FR 29900, June 12, 1996; 62 FR 30412, 

June 3, 1997; 62 FR 63435, Nov. 28, 1997; 

63 FR 34816, June 26, 1998; 64 FR 58969, 

Nov. 1, 1999; 65 FR 65629, 65694, Nov. 1, 

2000; 66 FR 34765, June 29, 2001; 67 FR 

67081, Nov. 1, 2002; 71 FR 45714, Aug. 9, 

2006; 71 FR 78083, Dec. 28, 2006; 72 FR 

62010, Nov. 1, 2007; 73 FR 63256, Oct. 23, 

2008]
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

85

[NOTE: Section 685.213 reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

§ 685.213 Total and permanent disability 

discharge.

(a) General. (1) A borrower's Direct 

Loan is discharged if the borrower becomes 

totally and permanently disabled, as 

defined in §685.102(b), and satisfies the 

eligibility requirements in this section.

(2) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the definition 

of that term in §685.102(b), the borrower's 

loan discharge application is processed in 

accordance with paragraph (b) of this 

section.

(3) For veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §685.102(b), the veteran's loan discharge 

application is processed in accordance with 

paragraph (c) of this section.

(4) For purposes of §685.213, a 

borrower’s representative or a veteran’s 

representative is a member of the 

borrower’s family, the borrower’s attorney, 

or another individual authorized to act on 

behalf of the borrower in connection with 

the borrower’s total and permanent 

disability discharge application. References 

to a “borrower” or a “veteran” include, if 

applicable, the borrower’s representative or 

the veteran’s representative for purposes of 

applying for a total and permanent 

disability discharge, providing notifications 

or information to the Secretary, and 

receiving notifications from the Secretary. 

(b) Discharge application process 

for a borrower who is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that term 

in §685.102(b). (1) Borrower application 

for discharge. To qualify for a discharge of a 

Direct Loan based on a total and permanent 

disability, a borrower must submit a 

discharge application to the Secretary on a 

form approved by the Secretary. If the 

borrower notifies the Secretary that the 

borrower claims to be totally and 

permanent disabled prior to submitting a 

total and permanent disability discharge 

application, the Secretary--

(i) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent disability 

discharge;

(ii) Suspends collection activity on 

any of the borrower’s title IV loans held by 

the Secretary, and notifies the borrower’s 

other title IV loan holders to suspend 

collection activity on the borrower’s title IV 

loans for a period not to exceed 120 days; 

and

(iii) Informs the borrower that the 

suspension of collection activity will end 

after 120 days and collection will resume on 

the loans if the borrower does not submit a 

total and permanent disability discharge 

application to the Secretary within that 

time.

(2) Physician certification or Social 

Security Administration (SSA) disability 

notice of award. The application must 

contain--
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

86

(i) A certification by a physician, 

who is a doctor of medicine or osteopathy 

legally authorized to practice in a State, that 

the borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in §685.102(b); 

or

(ii) An SSA notice of award for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) benefits 

indicating that the borrower’s next 

scheduled disability review will be within 

five to seven years.

(3) Deadline for application 

submission. The borrower must submit the 

application described in paragraph (b)(1) of 

this section to the Secretary within 90 days 

of the date the physician certifies the 

application, if applicable. Upon receipt of 

the borrower's application, the Secretary--

(i) Identifies all title IV loans owed 

by the borrower, notifies the lenders that 

the Secretary has received a total and 

permanent disability discharge application 

from the borrower and directs the lenders 

to suspend collection activity or maintain 

the suspension of collection activity on the 

borrower’s title IV loans; 

(ii) If the application is incomplete, 

notifies the borrower of the missing 

information and requests the missing 

information from the borrower or the 

physician who certified the application, as 

appropriate, and does not make a 

determination of eligibility for discharge 

until the application is complete; 

(iii) Notifies the borrower that no 

payments are due on the loan while the 

Secretary determines the borrower's 

eligibility for discharge; and

(iv) Explains the process for the 

Secretary’s review of total and permanent 

disability discharge applications. 

(4) Determination of eligibility. (i) 

If, after reviewing the borrower's 

completed application, the Secretary 

determines that the physician’s certification 

or the SSA notice of award for SSDI or SSI 

benefits supports the conclusion that the 

borrower meets the criteria for a total and 

permanent disability discharge, as 

described in paragraph (1) of the definition 

of that term in §685.102(b), the borrower is 

considered totally and permanently 

disabled--

(A) As of the date the physician 

certified the borrower's application; or

(B) As of the date the Secretary 

received the SSA notice of award for SSDI or 

SSI benefits.

(ii) The Secretary may require the 

borrower to submit additional medical 

evidence if the Secretary determines that 

the borrower's application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the definition 

of that term in §685.102(b). As part of the 

Secretary's review of the borrower's 

discharge application, the Secretary may 

require and arrange for an additional 

review of the borrower's condition by an 

independent physician at no expense to the 

borrower.
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

87

(iii) After determining that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) of 

the definition of that term in §685.102(b), 

the Secretary discharges the borrower's 

obligation to make any further payments on 

the loan, notifies the borrower that the loan 

has been discharged, and returns to the 

person who made the payments on the 

loan any payments received after the date 

the physician certified the borrower's loan 

discharge application or the date the 

Secretary received the SSA notice of award 

for SSDI or SSI benefits. The notification to 

the borrower explains the terms and 

conditions under which the borrower's 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(b)(7)(i) of this section.

(iv) If the Secretary determines that 

the physician’s certification or the SSA 

notice of award for SSDI or SSI benefits 

provided by the borrower does not support 

the conclusion that the borrower is totally 

and permanently disabled, as described in 

paragraph (1) of the definition of that term 

in §685.102(b), the Secretary notifies the 

borrower that the application for a 

disability discharge has been denied. The 

notification to the borrower includes--

(A) The reason or reasons for the 

denial;

(B) A statement that the loan is due 

and payable to the Secretary under the 

terms of the promissory note and that the 

loan will return to the status that would 

have existed if the total and permanent 

disability discharge application had not 

been received;

(C) The date that the borrower must 

resume making payments; 

(D) An explanation that the 

borrower is not required to submit a new 

total and permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the borrower’s 

application for discharge by providing, 

within 12 months of the date of the 

notification, additional information that 

supports the borrower’s eligibility for 

discharge; and

(E) An explanation that if the 

borrower does not request re-evaluation of 

the borrower’s prior discharge application 

within 12 months of the date of the 

notification, the borrower must submit a 

new total and permanent disability 

discharge application to the Secretary if the 

borrower wishes the Secretary to reevaluate the borrower’s eligibility for a total 

and permanent disability discharge.

(v) If the borrower requests reevaluation in accordance with paragraph 

(b)(4)(iv)(D) of this section or submits a new 

total and permanent disability discharge 

application in accordance with paragraph 

(b)(4)(iv)(E) of this section, the request 

must include new information regarding the

borrower’s disabling condition that was not 

provided to the Secretary in connection 

with the prior application at the time the 

Secretary reviewed the borrower’s initial 

application for total and permanent 

disability discharge. 

(5) Treatment of disbursements 

made during the period from the date of the 

physician's certification or the date the 

Secretary received the SSA notice of award 
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

88

for SSDI or SSI benefits until the date of 

discharge. If a borrower received a title IV 

loan or TEACH Grant before the date the 

physician certified the borrower's discharge 

application or before the date the Secretary 

received the SSA notice of award for SSDI or 

SSI benefits and a disbursement of that loan 

or grant is made during the period from the 

date of the physician's certification or the 

receipt of the SSA notice of award for SSDI 

or SSI benefits until the date the Secretary 

grants a discharge under this section, the 

processing of the borrower's loan discharge 

request will be suspended until the 

borrower ensures that the full amount of 

the disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable.

(6) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician’s certification or after the date the 

Secretary received the SSA notice of award 

for SSDI or SSI benefits. If a borrower 

receives a disbursement of a new title IV 

loan or receives a new TEACH Grant made 

on or after the date the physician certified 

the borrower’s discharge application or on 

or after the date the Secretary received the 

SSA notice of award for SSDI or SSI benefits 

and before the date the Secretary grants a 

discharge under this section, the Secretary 

denies the borrower’s discharge request 

and resumes collection on the borrower’s 

loan.

(7) Conditions for reinstatement of a 

loan after a total and permanent disability 

discharge. (i) The Secretary reinstates a 

borrower's obligation to repay a loan that 

was discharged in accordance with 

paragraph (b)(4)(iii) of this section if, within 

three years after the date the Secretary 

granted the discharge, the borrower--

(A) Has annual earnings from 

employment that exceed 100 percent of the 

poverty guideline for a family of two, as 

published annually by the United States 

Department of Health and Human Services 

pursuant to 42 U.S.C. 9902(2);

(B) Receives a new TEACH Grant or 

a new loan under the Perkins or Direct Loan 

programs, except for a Direct Consolidation 

Loan that includes loans that were not 

discharged; 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to the 

discharge date that is made is returned to 

the loan holder or to the Secretary, as 

applicable, within 120 days of the 

disbursement date; or

(D) Receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s continuing 

disability review will no longer be the fiveto seven-year period indicated in the SSA 

notice of award for SSDI or SSI benefits.

(ii) If the borrower's obligation to 

repay the loan is reinstated, the Secretary--

(A) Notifies the borrower that the 

borrower's obligation to repay the loan has 

been reinstated; 

(B) Returns the loan to the status 

that would have existed if the total and 

permanent disability discharge application 

had not been received; and
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

89

(C) Does not require the borrower 

to pay interest on the loan for the period 

from the date the loan was discharged until 

the date the borrower's obligation to repay 

the loan was reinstated.

(iii) The Secretary's notification 

under paragraph (b)(7)(ii)(A) of this section 

will include--

(A) The reason or reasons for the 

reinstatement;

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and

(C) Information on how the 

borrower may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was reinstated 

based on incorrect information.

(8) Borrower's responsibilities after 

a total and permanent disability discharge. 

During the three-year period described in 

paragraph (b)(7)(i) of this section, the 

borrower must--

(i) Promptly notify the Secretary of 

any changes in the borrower’s address or 

phone number;

(ii) Promptly notify the Secretary if 

the borrower's annual earnings from 

employment exceed the amount specified 

in paragraph (b)(7)(i)(A) of this section; 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower's annual earnings from 

employment on a form provided by the 

Secretary; and

(iv) Promptly notify the Secretary if 

the borrower receives a notice from the SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s continuing 

disability review will no longer be the fiveto seven-year period indicated in the SSA 

notice of award for SSDI or SSI benefits.

(c) Discharge application process for 

veterans who are totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in §685.102(b). 

(1) Veteran's application for discharge. To 

qualify for a discharge of a Direct Loan 

based on a total and permanent disability as 

described in paragraph (2) of the definition 

of that term in §685.102(b), a veteran must 

submit a discharge application to the 

Secretary on a form approved by the 

Secretary. The application must be 

accompanied by documentation from the 

Department of Veterans Affairs showing 

that the Department of Veterans Affairs has 

determined that the veteran is 

unemployable due to a service-connected 

disability. The Secretary does not require 

the veteran to provide any additional 

documentation related to the veteran's 

disability. Upon receipt of the veteran's 

application, the Secretary--

(i) Identifies all title IV loans owed 

by the veteran and notifies the lenders that 

the Secretary has received a total and 

permanent disability discharge application 

from the borrower;

(ii) If the application is incomplete, 

requests the missing information from the 

veteran and does not make a determination 
Subpart B—Borrower Provisions

§685.213

Total and permanent disability discharge

90

of eligibility for discharge until the 

application is complete; 

(iii) Notifies the veteran that no 

payments are due on the loan while the 

Secretary determines the veteran's 

eligibility for discharge; and

(iv) Explains the Secretary’s process 

for reviewing total and permanent disability 

discharge applications.

(2) Determination of eligibility. (i) If 

the Secretary determines, based on a 

review of the documentation from the 

Department of Veterans Affairs, that the 

veteran is totally and permanently disabled 

as described in paragraph (2) of the 

definition of that term in §685.102(b), the 

Secretary discharges the veteran's 

obligation to make any further payments on 

the loan and returns to the person who 

made the payments on the loan any 

payments received on or after the effective 

date of the determination by the 

Department of Veterans Affairs that the 

veteran is unemployable due to a serviceconnected disability.

(ii) If the Secretary determines, 

based on a review of the documentation 

from the Department of Veterans Affairs, 

that the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §685.102(b), the Secretary notifies the 

veteran that the application for a disability 

discharge has been denied. The notification 

to the veteran includes--

(A) The reason or reasons for the 

denial;

(B) An explanation that the loan is 

due and payable to the Secretary under the 

terms of the promissory note and that the 

loan will return to the status it was in at the 

time the veteran applied for a total and 

permanent disability discharge;

(C) The date that the veteran must 

resume making payments;

(D) An explanation that the veteran 

is not required to submit a new total and 

permanent disability discharge application if 

the veteran requests that the Secretary reevaluate the veteran’s application for 

discharge by providing, within 12 months of 

the date of the notification, additional 

documentation from the Department of 

Veterans Affairs that supports the veteran’s 

eligibility for discharge; and 

(E) Information on how the veteran 

may reapply for a total and permanent 

disability discharge in accordance with the 

procedures described in paragraph (b) of 

this section if the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that term 

in §685.102(b), but indicates that the 

veteran may be totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term.

(Approved by the Office of Management 

and Budget under control number 1845-

0065.) 

(Authority: 20 U.S.C.1087a et seq.)
Subpart B—Borrower Provisions

§685.214

Closed school discharge

91

§ 685.214 Closed school discharge.

(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, regardless of whether the 

school or its location or branch is 

considered eligible.

(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, so as to delete all 

adverse credit history assigned to the loan.

(c) Borrower qualification for 

discharge. (1) 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)(i) State that the borrower (or the 

student on whose behalf a parent 

borrowed)—

(i)(A) Received the proceeds of a 

loan, in whole or in part, on or after January 

1, 1986 to attend a school;

(ii)(B) Did not complete the program 

of study at that school because the school 

closed while the student was enrolled, or 

the student withdrew from the school not 

more than 90120 days before the school 

closed (or longer in exceptional 

circumstances);. The Secretary may extend 

the 120-day period if the Secretary 

determines that exceptional circumstances 

related to a school’s closing justify an 

extension. Exceptional circumstances for 

this purpose may include, but are not 

limited to: the school’s loss of accreditation; 

the school’s discontinuation of the majority 
Subpart B—Borrower Provisions

§685.214

Closed school discharge

92

of its academic programs; action by the 

State to revoke the school’s license to 

operate or award academic credentials in 

the State; or a finding by a State or Federal 

government agency that the school violated 

State or Federal law; and

(iii)(C) 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)(ii) 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)(iii) State that the borrower (or 

student)—

(i)(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

(ii)(B) 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.

(2) 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 the discharge.

(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.
Subpart B—Borrower Provisions

§685.214

Closed school discharge

93

(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 at the school on the school 

closure date or to have withdrawn not 

more than 90120 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, 
Subpart B—Borrower Provisions

§685.214

Closed school discharge

94

the Secretary notifies that borrower in 

writing of that determination and the 

reasons for the determination.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

59 FR 66134, Dec. 22, 1994; 64 FR 58972, 

Nov. 1, 1999. Redesignated at 65 FR 65629, 

Nov. 1, 2000, as amended at 66 FR 34765, 

June 29, 2001]
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

95

§ 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)paragraph (c)(4)(ii) of this 

section.

(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.
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

96

(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, so as to delete all adverse credit 

history assigned to 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 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 
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

97

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—

(A)(1) Authentic specimens of the 

signature of the individual, as provided in 

paragraph (c)(2)(ii) of this section, 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, 

identity theft is defined as the unauthorized 

use of the identifying information of 

another individual that is punishable under 

18 U.S.C. 1028, 1028A, 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 
Subpart B—Borrower Provisions

§685.215

Discharge for false certification of student eligibility or unauthorized payment

98

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 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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

59 FR 66134, Dec. 22, 1994; 61 FR 29900, 

June 12, 1996; 64 FR 58972, Nov. 1, 1999; 

65 FR 65622, Nov. 1, 2000. Redesignated

and amended at 65 FR 65629, Nov. 1, 2000; 

66 FR 34765, June 29, 2001; 71 FR 45714, 

Aug. 9, 2006]
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

99

§ 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)—
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

100

(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;

(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—
Subpart B—Borrower Provisions

§685.216

Unpaid refund discharge

101

(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 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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[64 FR 58969, Nov. 1, 1999. Redesignated 

and amended at 65 FR 65629, Nov. 1, 2000; 

66 FR 34765, June 29, 2001
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

102

§ 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 fulltime 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 
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

103

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 yearround 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.
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

104

(2) 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)(3) 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)(4) 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—

(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 full-time 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)(5) 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.
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

105

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

loan forgiveness if the borrower—

(A) Taught mathematics or science 

on a full-time 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 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.

(5)(6) To qualify for loan forgiveness 

as a highly qualified teacher, the teacher 

must have been a highly qualified teacher 

for all five years of eligible teaching service.

(6)(7) 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)(4)(ii) or 

(c)(4)(5) 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)(8) 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
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

106

(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)(9) If a borrower meets the 

requirements of paragraph (c)(7) of this 

section, theA borrower's period of 

postsecondary education, active duty, or

qualifying FMLA condition, or military active 

duty as described in paragraph (c)(8) of this 

section, 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)(10) 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)(11) A borrower is not eligible 

for teacher loan forgiveness on a defaulted 

loan unless the borrower has made 

satisfactory repayment arrangements to reestablish title IV eligibility, as defined in 

§685.200(b).

(11)(12) 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—

(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.

(13) A borrower may request 

forbearance during each of the five years of 

qualifying teaching service in accordance 

with §685.205(a)(5).

(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)(4)(ii) or (c)(4)(5)(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)(4)(ii) or (c)(4)(5)(ii) of this 

section, in loan forgiveness for outstanding 
Subpart B—Borrower Provisions

§685.217

Teacher loan forgiveness program

107

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.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[65 FR 65629, Nov. 1, 2000, as amended at 

71 FR 45715, Aug. 9, 2006; 71 FR 64400, 

Nov. 1, 2006; 73 FR 35495, June 23, 2008; 

74 FR 56004, Oct. 29, 2009]
Subpart B—Borrower Provisions

§685.218

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

108

§ 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 
Subpart B—Borrower Provisions

§685.218

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

109

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 

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.
Subpart B—Borrower Provisions

§685.218

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

110

(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 or FFEL 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.

(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.
Subpart B—Borrower Provisions

§685.218

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

111

(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 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, a FFEL 

Program 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, the lender, 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 terrorist-related 

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, 

or a FFEL Program 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 
Subpart B—Borrower Provisions

§685.218

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

112

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 or a FFEL Program 

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-by-case 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—

(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 2472 hours of the injury having been 

sustained or within 2472 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 terrorist-related 

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 
Subpart B—Borrower Provisions

§685.218

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

113

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.

(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 or FFEL Consolidation Loan 

applications or an approved Direct or FFEL 

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, 
Subpart B—Borrower Provisions

§685.218

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

114

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 terrorist-related 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 terroristrelated aircraft crashes on September 11, 

2001.

[71 FR 78083, Dec. 28, 2006, as amended at 

72 FR 55054, Sept. 28, 2007]
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

115

§ 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 fulltime 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 
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

116

organization that are funded in whole or in 

part by a local, State, Federal, or Tribal 

government.

Public service organization means:

[NOTE: This definition reflects changes 

made by a technical correction notice 

published on December 28, 2012 (77 FR 

76414).]

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

government organization, agency, or entity;

(2) A public child or family service 

agency;

(3) A non-profit organization under

section 501(c)(3) of the Internal Revenue

Code that—

(i) Is exempt from taxation under 

section 501(a) of the Internal Revenue 

Code; and

(ii) Is not an organization engaged in 

religious activities, unless the qualifying 

activities are unrelated to religious 

instruction, worship services, or any form of

proselytizing;

(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 

health 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 schoolbased 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 
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

117

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 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 
Subpart B—Borrower Provisions

§685.219

Public service loan forgiveness program

118

collection of the loan. The Secretary may 

capitalize any interest accrued and not paid 

during this period.

(Authority: 20 U.S.C. 1087e(m))

[73 FR 63256, Oct. 23, 2008, as amended at 

74 FR 56005, Oct. 29, 2009]
Subpart B—Borrower Provisions

§685.220

Consolidation

119

§ 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) Components of Direct 

Consolidation Loans. (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 (b)(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 
Subpart B—Borrower Provisions

§685.220

Consolidation

120

deferment period under Ssection 

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

–

(i) tThe loans identified in 

paragraphs (b)(6) through (8)(b)(12) of this 

section;

(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 (b)(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 

(b)(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 incomesensitive 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.
Subpart B—Borrower Provisions

§685.220

Consolidation

121

(ii) At the time the borrower applies 

for the Direct Consolidation LoanOn the 

loans being consolidated, the borrower is—

(A) At the time the borrower applies 

for the Direct Consolidation Loan --

(A)(1) In the grace period;

(B)(2) In a repayment period but not 

in default; or

(C)(3) 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 one of the 

income-contingent repayment plans

described in §685.208(k) or the incomebased repayment plan described in 

§685.208(m). [NOTE: The deleted text 

shown here for paragraph (d)(1)(ii)(D) 

reflects previous changes that were made 

by final regulations published on November 

1, 2012 (77 FR 66088). This NPRM proposes 

to delete the previously amended 

paragraph (d)(1)(ii)(D) and make numerous 

other changes in paragraph (d). The 

provision that was in (d)(1)(ii)(D) is in 

proposed (d)(1(ii)(A)(3).]

(E)(B) Not subject to a judgment 

secured through litigation, unless the 

judgment has been vacated; or

(F)(C) 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)(iii) The borrower agrees to notify 

the Secretary of any change in address.

(2) A 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, 

except that a borrower may consolidate a 

Federal Consolidation Loan into a new 

consolidation loan under this section 

without including any additional loans if –

(i) 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

(ii) The borrower has a Federal

Consolidation Loan and the borrower wants 

to consolidate that loan into the Direct Loan 
Subpart B—Borrower Provisions

§685.220

Consolidation

122

Program for the purpose 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 the borrower to no more than 

those authorized under the FFEL Programa 

maximum of 18.5 percent of the 

outstanding principal and interest amount 

of the defaulted loan. For any other 

defaulted Federal education loan, all 

collection costs that are owed may be 

charged to the borrower.

(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 
Subpart B—Borrower Provisions

§685.220

Consolidation

123

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)through (iii) of this section.

(3)(i) The total amount of 

outstanding balances on the other 

education loans used to 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 that was 

made based on an application received 

before July 1, 2006 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 
Subpart B—Borrower Provisions

§685.220

Consolidation

124

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 §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 
Subpart B—Borrower Provisions

§685.220

Consolidation

125

under the provisions of §685.212(h), and 

that was repaid by the consolidation loan.

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority: 20 U.S.C. 1078–8, 1087a et seq. )

[59 FR 61690, Dec. 1, 1994. Redesignated 

and amended at 64 FR 58969, 58970, 

59044, Nov. 1, 1999; 65 FR 37045, June 13, 

2000. Redesignated at 65 FR 65629, Nov. 1, 

2000, as amended at 66 FR 34765, June 29, 

2001; 67 FR 67082, Nov. 1, 2002; 68 FR 

75430, Dec. 31, 2003; 71 FR 45716, Aug. 9, 

2006; 71 FR 64400, Nov. 1, 2006; 73 FR 

63257, Oct. 23, 2008; 74 FR 56005, Oct. 29, 

2009]

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. [NOTE: This 

Editorial Note will be removed in the final 

regulations.]
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

126

[NOTE: Section 685.221 reflects changes 

made by final regulations published on 

November 1, 2012 (77 FR 66088).]

§ 685.221 Income-based repayment plan.

(a) Definitions. As used in this 

section—

(1) Adjusted gross income (AGI) 

means the borrower's adjusted gross 

income as reported to the Internal Revenue 

Service. For a married borrower filing 

jointly, AGI includes both the borrower's 

and spouse's income. For a married 

borrower filing separately, AGI includes only 

the borrower's income.

(2) Eligible loan means any 

outstanding loan made to a borrower under 

the FFEL or Direct Loan programs except for 

a defaulted loan, a FFEL or Direct PLUS Loan 

made to a parent borrower, or a FFEL or 

Direct Consolidation Loan that repaid a FFEL 

or Direct PLUS Loan made to a parent 

borrower.

(3) 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 year 

the borrower certifies family size, 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 certifies family size, 

the other individuals—

(i) Live with the borrower; and

(ii) 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.

(4) New borrower means an 

individual who has no outstanding balance 

on a Direct Loan Program or FFEL Program 

loan on July 1, 2014, or who has no 

outstanding balance on such a loan on the 

date he or she obtains a loan after July 1, 

2014.

(5) Partial financial hardship means 

a circumstance in which—

(i) For an unmarried borrower or a 

married borrower who files an individual 

Federal tax return, the annual amount due 

on all of the borrower's eligible loans, as 

calculated under a standard repayment 

plan based on a 10-year repayment period, 

using the greater of the amount due at the 

time the borrower initially entered 

repayment or at the time the borrower 

elects the income-based repayment plan, 

exceeds 15 percent or, for a new borrower, 

10 percent of the difference between the 

borrower's AGI and 150 percent of the 

poverty guideline for the borrower's family 

size; or

(ii) For a married borrower who files 

a joint Federal tax return with his or her 

spouse, the annual amount due on all of the 

borrower's eligible loans and, if applicable, 

the spouse's eligible loans, as calculated 

under a standard repayment plan based on 

a 10-year repayment period, using the 

greater of the amount due at the time the 

loans initially entered repayment or at the 

time the borrower or spouse elects the 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

127

income-based repayment plan, exceeds 15 

percent or, for a new borrower, 10 percent

of the difference between the borrower's 

and spouse's AGI, and 150 percent of the 

poverty guideline for the borrower's family 

size.

(6) Poverty guideline refers to the 

income categorized by State and family size 

in the poverty guidelines published annually 

by the United States 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.

(b) Terms of the repayment plan. (1) 

A borrower may select the income-based 

repayment plan only if the borrower has a 

partial financial hardship. The borrower's 

aggregate monthly loan payments are 

limited to no more than 15 percent or, for a 

new borrower, 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.

(2) The Secretary adjusts the 

calculated monthly payment if—

(i) Except for borrowers provided for 

in paragraph (b)(2)(ii) of this section, the 

total amount of the borrower's eligible 

loans are not Direct Loans, in which case 

the Secretary determines the borrower's 

adjusted monthly payment by multiplying 

the calculated payment by the percentage 

of the total outstanding principal amount of 

the borrower’s eligible loans that are Direct 

Loans;

(ii) Both the borrower and 

borrower's spouse have eligible loans and 

filed a joint Federal tax return, in which 

case the Secretary determines—

(A) Each borrower's percentage of 

the couple's total eligible loan debt;

(B) The adjusted monthly payment 

for each borrower by multiplying the 

calculated payment by the percentage 

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

section; and

(C) If the borrower's loans are held 

by multiple holders, the borrower's 

adjusted monthly Direct Loan payment by 

multiplying the payment determined in 

paragraph (b)(2)(ii)(B) of this section by the 

percentage of the total outstanding 

principal amount of the borrower’s eligible 

loans that are Direct Loans;

(iii) The calculated amount under 

paragraph (b)(1), (b)(2)(i), or (b)(2)(ii) of this 

section is less than $5.00, in which case the 

borrower's monthly payment is $0.00; or

(iv) The calculated amount under 

paragraph (b)(1), (b)(2)(i), or (b)(2)(ii) of this 

section is equal to or greater than $5.00 but 

less than $10.00, in which case the 

borrower's monthly payment is $10.00.

(3) If the borrower’s monthly 

payment amount is not sufficient to pay the 

accrued interest on the borrower’s Direct 

Subsidized loan or the subsidized portion of 

a Direct Consolidation Loan, the Secretary 

does not charge the borrower the 

remaining accrued interest for a period not 

to exceed three consecutive years from the 

established repayment period start date on 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

128

that loan under the income-based 

repayment plan. Any period during which 

the Secretary has previously not charged 

the borrower accrued interest on an eligible 

loan under the Pay As You Earn repayment 

plan counts toward the maximum three 

years of subsidy a borrower is eligible to 

receive under the income-based repayment 

plan. On a Direct Consolidation Loan that 

repays loans on which the Secretary has not 

charged the borrower accrued interest, the 

three-year period includes the period for 

which the Secretary did not charge the 

borrower accrued interest on the 

underlying loans. This three-year period 

does not include any period during which 

the borrower receives an economic 

hardship deferment.

(4) Except as provided in paragraph 

(b)(3) of this section, accrued interest is 

capitalized at the time a borrower chooses 

to leave the income-based repayment plan 

or no longer has a partial financial hardship.

(5) If the borrower's monthly 

payment amount is not sufficient to pay any 

of the principal due, the payment of that 

principal is postponed until the borrower 

chooses to leave the income-based 

repayment plan or no longer has a partial 

financial hardship.

(6) The repayment period for a 

borrower under the income-based 

repayment plan may be greater than 10 

years.

(c) Payment application and 

prepayment. (1) The Secretary applies any 

payment made under the income-based 

repayment plan in the following order:

(i) Accrued interest.

(ii) Collection costs.

(iii) Late charges.

(iv) Loan principal.

(2) The borrower may prepay all or 

part of a loan at any time without penalty, 

as provided under §685.211(a)(2).

(3) If the prepayment amount 

equals or exceeds a monthly payment 

amount of $10.00 or more under the 

repayment schedule established for the 

loan, the Secretary applies the prepayment 

consistent with the requirements of 

§685.211(a)(3).

(4) If the prepayment amount 

exceeds a monthly payment amount of 

$0.00 under the repayment schedule 

established for the loan, the Secretary 

applies the prepayment consistent with the 

requirements of paragraph (c)(1) of this 

section.

(d) Changes in the payment amount. 

(1) If a borrower no longer has a partial 

financial hardship, the borrower may 

continue to make payments under the 

income-based repayment plan, but the 

Secretary recalculates the borrower's

monthly payment. The Secretary also 

recalculates the monthly payment for a 

borrower who chooses to stop making 

income-based payments. In either case, as 

result of the recalculation--
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

129

(i) The maximum monthly amount 

that the Secretary requires the borrower to 

repay is the amount the borrower would 

have paid under the standard repayment 

plan based on a 10-year repayment period 

using the amount of the borrower's eligible 

loans that was outstanding at the time the 

borrower began repayment on the loans 

under the income-based repayment plan; 

and

(ii) The borrower's repayment 

period based on the recalculated payment 

amount may exceed 10 years.

(2)(i) If a borrower no longer wishes 

to pay under the income-based repayment 

plan, the borrower must pay under the 

standard repayment plan and the Secretary 

recalculates the borrower's monthly 

payment based on--

(A) For a Direct Subsidized Loan, a 

Direct Unsubsidized Loan, or a Direct PLUS 

Loan, the time remaining under the 

maximum ten-year repayment period for 

the amount of the borrower's loans that 

were outstanding at the time the borrower 

discontinued paying under the incomebased repayment plan; or

(B) For a Direct Consolidation Loan, 

the time remaining under the applicable 

repayment period as initially determined

under §685.208(j) and the amount of that 

loan that was outstanding at the time the 

borrower discontinued paying under the 

income-based repayment plan.

(ii) A borrower who no longer 

wishes to repay under the income-based 

repayment plan and who is required to 

repay under the Direct Loan standard 

repayment plan in accordance with 

paragraph (d)(2)(i) of this section may 

request a change to a different repayment 

plan after making one monthly payment 

under the Direct Loan standard repayment 

plan. For this purpose, a monthly payment 

may include one payment made under a 

forbearance that provides for accepting 

smaller payments than previously 

scheduled, in accordance with §685.205(a).

(e) Eligibility documentation, 

verification, and notifications. (1) The 

Secretary determines whether a borrower 

has a partial financial hardship to qualify for 

the income-based repayment plan for the 

year the borrower selects the plan and for 

each subsequent year that the borrower 

remains on the plan. To make this 

determination, the Secretary requires the 

borrower to--

(i) Provide documentation, 

acceptable to the Secretary, of the 

borrower’s AGI;

(ii) If the borrower's AGI is not 

available, or the Secretary believes that the 

borrower's reported AGI does not 

reasonably reflect the borrower's current 

income, provide other documentation to 

verify income; and

(iii) Annually certify the borrower's 

family size. If the borrower fails to certify 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

130

family size, the Secretary assumes a family 

size of one for that year.

(2) After making a determination 

that a borrower has a partial financial 

hardship to qualify for the income-based 

repayment plan for the year the borrower 

initially elects the plan and for any 

subsequent year that the borrower has a 

partial financial hardship, the Secretary 

sends the borrower a written notification 

that provides the borrower with--

(i) The borrower’s scheduled 

monthly payment amount, as calculated 

under paragraph (b)(1) of this section, and 

the time period during which this scheduled 

monthly payment amount will apply 

(annual payment period);

(ii) Information about the 

requirement for the borrower to annually 

provide the information described in 

paragraph (e)(1) of this section, if the 

borrower chooses to remain on the incomebased repayment plan after the initial year 

on the plan, and an explanation that the 

borrower will be notified in advance of the 

date by which the Secretary must receive 

this information;

(iii) An explanation of the 

consequences, as described in paragraphs 

(e)(1)(iii) and (e)(7) of this section, if the 

borrower does not provide the required 

information;

(iv) An explanation of the 

consequences if the borrower no longer 

wishes to repay under the income-based 

repayment plan; and 

(v) Information about the 

borrower’s option to request, at any time 

during the borrower’s current annual 

payment period, that the Secretary 

recalculate the borrower’s monthly 

payment amount if the borrower’s financial 

circumstances have changed and the 

income amount that was used to calculate 

the borrower’s current monthly payment 

no longer reflects the borrower’s current 

income. If the Secretary recalculates the 

borrower’s monthly payment amount 

based on the borrower’s request, the 

Secretary sends the borrower a written 

notification that includes the information 

described in paragraphs (e)(2)(i) through 

(e)(2)(v) of this section.

(3) For each subsequent year that a 

borrower who currently has a partial 

financial hardship remains on the incomebased repayment plan, the Secretary 

notifies the borrower in writing of the 

requirements in paragraph (e)(1) of this 

section no later than 60 days and no earlier 

than 90 days prior to the date specified in 

paragraph (e)(3)(i) of this section. The 

notification provides the borrower with--

(i) The date, no earlier than 35 days 

before the end of the borrower’s annual 

payment period, by which the Secretary 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

131

must receive all of the information 

described in paragraph (e)(1) of this section 

(annual deadline); and

(ii) The consequences if the 

Secretary does not receive the information 

within 10 days following the annual 

deadline specified in the notice, including 

the borrower’s new monthly payment 

amount as determined under paragraph 

(d)(1) of this section, the effective date for 

the recalculated monthly payment amount, 

and the fact that unpaid accrued interest 

will be capitalized at the end of the 

borrower’s current annual payment period 

in accordance with paragraph (b)(4) of this 

section.

(4) Each time the Secretary makes a 

determination that a borrower no longer 

has a partial financial hardship for a 

subsequent year that the borrower wishes 

to remain on the plan, the Secretary sends 

the borrower a written notification that 

provides the borrower with--

(i) The borrower’s recalculated 

monthly payment amount, as determined in 

accordance with paragraph (d)(1) of this 

section; 

(ii) An explanation that unpaid 

interest will be capitalized in accordance 

with paragraph (b)(4) of this section; and

(iii) Information about the 

borrower’s option to request, at any time, 

that the Secretary redetermine whether the 

borrower has a partial financial hardship, if 

the borrower’s financial circumstances have 

changed and the income amount used to 

determine that the borrower no longer has 

a partial financial hardship does not reflect 

the borrower’s current income, and an 

explanation that the borrower will be 

notified annually of this option. If the 

Secretary determines that the borrower 

again has a partial financial hardship, the 

Secretary recalculates the borrower’s 

monthly payment in accordance with

paragraph (b)(1) of this section and sends 

the borrower a written notification that 

includes the information described in 

paragraphs (e)(2)(i) through (e)(2)(v) of this 

section.

(5) For each subsequent year that a 

borrower who does not currently have a 

partial financial hardship remains on the 

income-based repayment plan, the 

Secretary sends the borrower a written 

notification that includes the information 

described in paragraph (e)(4)(iii) of this 

section. 

(6) If a borrower who is currently 

repaying under another repayment plan 

selects the income-based repayment plan 

but does not provide the information 

described in paragraphs (e)(1)(i) and 

(e)(1)(ii) of this section, or if the Secretary 

determines that the borrower does not 

have a partial financial hardship, the 

borrower remains on his or her current 

repayment plan.
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

132

(7) The Secretary designates the 

repayment option described in paragraph 

(d)(1) of this section if a borrower who is 

currently repaying under the income-based 

repayment plan remains on the plan for a 

subsequent year but the Secretary does not 

receive the information described in 

paragraphs (e)(1)(i) through (e)(1)(ii) of this 

section within 10 days of the specified 

annual deadline, unless the Secretary is able 

to determine the borrower’s new monthly 

payment amount before the end of the 

borrower’s current annual payment period.

(8) If the Secretary receives the 

information described in paragraphs 

(e)(1)(i) and (e)(1)(ii) of this section within 

10 days of the specified annual deadline--

(i) The Secretary promptly 

determines the borrower’s new scheduled 

monthly payment amount and maintains 

the borrower’s current scheduled monthly 

payment amount until the new scheduled 

monthly payment amount is determined.

(A) If the new monthly payment 

amount is less than the borrower’s 

previously calculated income-based 

monthly payment amount, and the 

borrower made payments at the previously 

calculated amount after the end of the 

most recent annual payment period, the 

Secretary makes the appropriate 

adjustment to the borrower’s account. 

Notwithstanding the requirements of 

§685.211(a)(3), unless the borrower 

requests otherwise, the Secretary applies 

the excess payment amounts made after 

the end of the most recent annual payment 

period in accordance with the requirements 

of §685.221(c)(1).

(B) If the new monthly payment 

amount is equal to or greater than the 

borrower’s previously calculated monthly 

payment amount, and the borrower made 

payments at the previously calculated 

payment amount after the end of the most 

recent annual payment period, the 

Secretary does not make any adjustment to 

the borrower’s account.

(C) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1).

(ii) The new annual payment period 

begins on the day after the end of the most 

recent annual payment period. 

(9)(i) If the Secretary receives the 

documentation described in paragraphs 

(e)(1)(i) and (e)(1)(ii) of this section more 

than 10 days after the specified annual 

deadline and the borrower’s monthly 

payment amount is recalculated in 

accordance with paragraph (d)(1) of this 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

133

section, the Secretary grants forbearance 

with respect to payments that are overdue 

or would be due at the time the new 

calculated income-based monthly payment 

amount is determined, if the new monthly 

payment amount is $0.00 or is less than the 

borrower’s previously calculated incomebased monthly payment amount. Interest 

that accrues during the portion of this 

forbearance period that covers payments 

that are overdue after the end of the prior 

annual payment period is not capitalized.

(ii) Any payments that the borrower 

continued to make at the previously 

calculated payment amount after the end 

of the prior annual payment period and 

before the new monthly payment amount is 

calculated are considered to be qualifying 

payments for purposes of §685.219, 

provided that the payments otherwise meet 

the requirements described in 

§685.219(c)(1).

(f) Loan forgiveness. (1) To qualify 

for loan forgiveness after 25 years or, for a 

new borrower, after 20 years, a borrower 

must have participated in the income-based 

repayment plan and satisfied at least one of 

the following conditions during the 

applicable loan forgiveness period:

(i) Made reduced monthly 

payments under a partial financial hardship 

as provided in paragraph (b)(1) or (b)(2) of 

this section, including a monthly payment 

amount of $0.00, as provided under 

paragraph (b)(2)(iii) of this section.

(ii) Made reduced monthly 

payments after the borrower no longer had 

a partial financial hardship or stopped 

making income-based payments as 

provided in paragraph (d) of this section.

(iii) Made monthly payments under 

any repayment plan, that were not less 

than the amount required under the Direct 

Loan standard repayment plan described in 

§685.208(b) with a 10-year repayment 

period.

(iv) Made monthly payments under 

the Direct Loan standard repayment plan 

described in §685.208(b) for the amount of 

the borrower’s loans that were outstanding 

at the time the borrower first selected the 

income-based repayment plan.

(v) Made monthly payments under 

a Direct Loan income-contingent repayment 

plan, including a calculated monthly 

payment amount of $0.00.

(vi) Received an economic hardship 

deferment on eligible Direct Loans.

(2) As provided under paragraph 

(f)(4) of this section, the Secretary cancels 

any outstanding balance of principal and 

accrued interest on Direct loans for which 

the borrower qualifies for forgiveness if the 

Secretary determines that--

(i) The borrower made monthly 

payments under one or more of the 

repayment plans described in paragraph 

(f)(1) of this section, including a monthly 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

134

payment amount of $0.00, as provided 

under paragraph (b)(2)(iii) of this section; 

and

(ii)(A) The borrower made those 

monthly payments each year for the 

applicable loan forgiveness period, or

(B) Through a combination of 

monthly payments and economic hardship 

deferments, the borrower has made the 

equivalent of 25 years of payments or, for a 

new borrower, the equivalent of 20 years of 

payments.

(3) For a borrower who qualifies for 

the income-based repayment plan, the 

beginning date for the applicable loan 

forgiveness period is--

(i) If the borrower made payments 

under the income-contingent repayment 

plan, the date the borrower made a 

payment on the loan under that plan at any 

time after July 1, 1994; or

(ii) If the borrower did not make 

payments under the income-contingent 

repayment plan--

(A) For a borrower who has an 

eligible Direct Consolidation Loan, the date 

the borrower made a payment or received 

an economic hardship deferment on that 

loan, before the date the borrower 

qualified for income-based repayment. The 

beginning date is the date the borrower 

made the payment or received the 

deferment, but no earlier than July 1, 2009;

(B) For a borrower who has one or 

more other eligible Direct Loans, the date 

the borrower made a payment or received 

an economic hardship deferment on that 

loan. The beginning date is the date the 

borrower made that payment or received 

the deferment on that loan, but no earlier 

than July 1, 2009;

(C) For a borrower who did not 

make a payment or receive an economic 

hardship deferment on the loan under 

paragraph (f)(3)(ii)(A) or (f)(3)(ii)(B) of this 

section, the date the borrower made a 

payment under the income-based 

repayment plan on the loan;

(D) If the borrower consolidates his 

or her eligible loans, the date the borrower 

made a payment on the Direct 

Consolidation Loan that met the 

requirements in paragraph (f)(1) of this 

section; or

(E) If the borrower did not make a 

payment or receive an economic hardship 

deferment on the loan under paragraph 

(f)(3)(i) or (f)(3)(ii) of this section, the date 

the borrower made a payment under the 

income-based repayment plan on the loan.

(4) Any payments made on a 

defaulted loan are not made under a 

qualifying repayment plan and are not 

counted toward the applicable loan 

forgiveness period. 
Subpart B—Borrower Provisions

§685.221

Income-based repayment plan

135

(5)(i) When the Secretary 

determines that a borrower has satisfied 

the loan forgiveness requirements under 

paragraph (f) of this section on an eligible 

loan, the Secretary cancels the outstanding 

balance and accrued interest on that loan. 

No later than six months prior to the 

anticipated date that the borrower will 

meet the forgiveness requirements, the 

Secretary sends the borrower a written 

notice that includes--

(A) An explanation that the 

borrower is approaching the date that he or 

she is expected to meet the requirements 

to receive loan forgiveness;

(B) A reminder that the borrower 

must continue to make the borrower’s 

scheduled monthly payments; and

(C) General information on the 

current treatment of the forgiveness 

amount for tax purposes, and instructions 

for the borrower to contact the Internal 

Revenue Service for more information.

(ii) The Secretary determines when 

a borrower has met the loan forgiveness 

requirements under paragraph (f) of this 

section and does not require the borrower 

to submit a request for loan forgiveness. 

(iii) After determining that a 

borrower has satisfied the loan forgiveness 

requirements, the Secretary--

(A) Notifies the borrower that the 

borrower’s obligation on the loans is 

satisfied; 

(B) Provides the borrower with the 

information described in paragraph 

(f)(5)(i)(C) of this section; and

(C) Returns to the sender any 

payment received on a loan after loan 

forgiveness has been granted in accordance 

with paragraph (f)(5)(i) of this section.

(Authority: 20 U.S.C. 1098e)

[73 FR 63258, Oct. 23, 2008, as amended at 

74 FR 56006, Oct. 29, 2009]
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

136

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)(1) Demonstrate to the 

satisfaction of the Secretary that the school

meets the requirements for eligibility under 

the Act and applicable regulations; and

(ii)(2) 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 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 State-sponsored 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) On a monthly basis, reconcile 

institutional records with Direct Loan funds 

received from the Secretary and Direct Loan 

disbursement records submitted to and 

accepted by the Secretary;

(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;
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

137

(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 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 aA school or 

consortiumthat originates loans in the 

Direct Loan Program, it shall enter into a 

supplemental agreement that— must 

originate loans to eligible students and 

parents in accordance with part D of the 

Act. The note or evidence of the borrower’s 

obligation on the loan originated by the 

school is the property of the Secretary.

(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 sign the supplemental 

agreement on behalf of the school.

(Authority: 20 U.S.C. 1087a et seq., 1094)

[59 FR 61690, Dec. 1, 1994, as amended at 

64 FR 58970, Nov. 1, 1999; 71 FR 64400, 

Nov. 1, 2006]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

138

§ 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—
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

139

(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.

(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-by-case 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
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

140

(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 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.

(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) 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. [NOTE: Proposed 

revised paragraph (b) contains the 

provisions that are in current paragraph 

(d).]

[NOTE: The deleted text that follows is from 

current paragraph (b); the proposed 

regulations move these provisions to 

§685.303.]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 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

141

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 non term-based schools or 

schools with non-standard 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.
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

142

(c) Reporting to the Secretary. 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.

[NOTE: Proposed revised paragraph (c) 

contains the provisions that are in current 

paragraph (e), with a technical correction 

(removal of current (e)(2).]

[NOTE: The deleted text that follows is from 

current paragraph (c); the proposed 

regulations move these provisions to 

§685.303.]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

(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) 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. [NOTE: The 

proposed regulations move the provisions 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

143

that are in current paragraph (d) to 

paragraph (b).]

(e) 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. [NOTE: The proposed regulations 

move the provisions that are in current 

paragraph (e)(1) to paragraph (c). The 

provisions in current paragraph (e)(2) would 

be removed. This paragraph should have 

been deleted by final regulations published 

on October 29, 2010 (75 FR 66832), but it 

was inadvertently retained.]

(Approved by the Office of Management and 

Budget under control number 1845–0021) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 60 

FR 33345, June 28, 1995; 60 FR 61794, Dec. 1, 

1995; 61 FR 29900, June 12, 1996; 61 FR 31359, 

June 19, 1996; 61 FR 60610, Nov. 29, 1996; 62 

FR 63435, Nov. 28, 1997; 64 FR 58970, Nov. 1, 

1999; 65 FR 65622, 65651, Nov. 1, 2000; 66 FR 

34765, June 29, 2001; 67 FR 67082, Nov. 1, 

2002; 68 FR 75430, Dec. 31, 2003; 71 FR 45717, 

Aug. 9, 2006; 72 FR 62011, 62032, Nov. 1, 2007; 

74 FR 55666, Oct. 28, 2009]

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: 

[NOTE: This Editorial Note and the 

regulatory text that follows (in a smaller 

font) will be removed in the final 

regulations.]

§ 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 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.301

Origination of a loan by a Direct Loan Program school

144

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.

(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]

145

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

§685.303

Processing loan proceeds

146

§ 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)(2) A school that does not initiate 

the drawdown of funds. A school may 

disburse loan proceeds only to a borrower 

for whom the school has received funds 

from the Secretary. The Secretary provides 

Direct Loan funds to a school in accordance 

with 34 CFR 668.162.

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

disbursement under paragraph (d)(f) of this 

section, or as provided in paragraph 

(b)(2)(3)(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)(4) 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)(4) 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)(5)(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 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

147

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 until 30 days after the 

first day of the student's program of study 

unless—

(A)(1) Except as provided in 

paragraph (b)(4)(5)(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)(5)(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 

(b)(5)(i)(A) or (B) of this section, as 

applicable.

(iii) Paragraph (b)(4)(5)(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.

[NOTE: Proposed new paragraph (d) 

contains the provisions that are in current 

§685.301(b).]

(d) Determining disbursement dates 

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

school must determine that all information 

required by the 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 paragraph (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
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

148

(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.

(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.

(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.

(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 non-standard 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; or

(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; or

(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 five 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 

(d)(6)(i)(A) or (B) of this section, 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 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

149

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.

[Note: Proposed new paragraph (e) contains 

the provisions that are in current 

§685.301(c).]

(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 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—
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.303

Processing loan proceeds

150

(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.

(Approved by the Office of Management 

and Budget under control number 1840–

0672)

(Authority: 20 U.S.S. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 

60 FR 33345, June 28, 1995; 61 FR 29901, 

June 12, 1996; 61 FR 60610, Nov. 29, 1996; 

64 FR 58971, Nov. 1, 1999; 65 FR 65651, 

Nov. 1, 2000; 66 FR 34766, June 29, 2001; 

68 FR 75430, Dec. 31, 2003; 71 FR 45717, 

Aug. 9, 2006; 71 FR 64400, Nov. 1, 2006; 72 

FR 62033, Nov. 1, 2007; 74 FR 55666, Oct. 

28, 2009]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

151

§ 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 

student Direct PLUS Loan or student 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, 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

152

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 

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 halftime 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 of 

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

§685.304

Counseling borrowers

153

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 Loan, or Direct Unsubsidized 

Loan, Subsidized Federal Stafford Loan, or 

Unsubsidized Federal Stafford Loan, provide 

the information specified in 

§685.301(a)(3)(i)(A) through 

§685.301(a)(3)(i)(C); and

(iv) For a graduate or professional 

student PLUS Loan borrower who has not 

received a prior FFEL Stafford, or Direct 

Subsidized Loan, or Direct Unsubsidized 

Loan, Subsidized Federal Stafford Loan, or 

Unsubsidized Federal Stafford 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 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

154

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 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 

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 

contingentincome-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;
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

155

(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

(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 

paragraph (b) of this section satisfies the 

exit counseling requirements in 34 CFR 

682.604(a) if the school ensures that the 

exit counseling also provides the borrower

with the information described in 34 CFR 

682.604(a)(2)(i) and (ii).

(ii) A student’s completion of 

electronic interactive exit counseling 
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.304

Counseling borrowers

156

offered by the Secretary satisfies the 

requirements of paragraph (b) of this 

section and, for students who have also 

received FFEL Program loans for attendance 

at the school, 34 CFR 682.604(a).

(Approved by the Office of Management 

and Budget under control number 1845–

0021) 

(Authority:20 U.S.C. 1087a et seq. )

[74 FR 55666, Oct. 28, 2009]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.305

Determining the date of a student’s withdrawal

157

§ 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.

(Authority: 20 U.S.C. 1087 et seq. )

[64 FR 59044, Nov. 1, 1999]
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

158

§ 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.

(Authority: 20 U.S.C. 1087a et seq. )

[64 FR 59044, Nov. 1, 1999; 65 FR 37045, 

June 13, 2000]
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.307

Withdrawal procedure for schools participating in the Direct Loan Program

159

§ 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.

(Authority: 20 U.S.C. 1087a et seq. )
Subpart C—Requirements, Standards, and Payments for Direct Loan Program Schools

§685.308

Remedial actions

160

§ 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.

(Authority: 20 U.S.C. 1087a et seq. )
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

161

§ 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 

reportsEnrollment reporting process. A 

school shall—

(1) Upon receipt of a student status 

confirmationan enrollment report from the 

Secretary, a school must update all 

information included in the report complete 

and return that the report to the Secretary

–

(i) In the manner and format 

prescribed by the Secretary; and 

(ii) wWithin 30 days of receipt; 

andthe timeframe prescribed by the 

Secretary.

(2) Unless it expects to submit its 

next student status confirmationupdated 

enrollment report to the Secretary within 

the next 60 days, a school must notify the 

Secretary within 30 days if itafter the date 

the school discovers that a Direct 

Subsidized, Direct Unsubsidized, or Direct 

PLUS Loan has been made to or on behalf of 

a student who—

(i) A loan under title IV of the Act

was made to or on behalf of a student who 

was Eenrolled or accepted for enrollment at 

that the school, and the student but has 

ceased to be enrolled on at least a half-time 

basis or failed to enroll on at least a halftime basis for the period for which the loan 

was intended; or 

(ii) Has been accepted for 

enrollment at that school but failed to 

enroll on at least a half-time basis for the 

period for which the loan was intended; or

(iii) (ii) A student who is enrolled at 

the school and who received a loan under 

title IV of the Act Hhas changed his or her 

permanent address.

(3) The Secretary provides student 

status confirmation reports to a school at 

least semi-annually.

(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).
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

162

(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.

(Approved by the Office of Management 

and Budget under control number 1840–

0672) 

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

60 FR 33345, June 28, 1995; 61 FR 60493, 

Nov. 27, 1996; 61 FR 60610, Nov. 29, 1996]
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.400

School participation requirements

163

Subpart D—School Participation and Loan 

Origination in the Direct Loan Program

§ 685.400 [Reserved] 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.

(Authority: 20 U.S.C. 1087a et seq. )

[59 FR 61690, Dec. 1, 1994, as amended at 

64 FR 46255, Aug. 24, 1999]
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.401

[Reserved]

164

§ 685.401 [Reserved]
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

165

§ 685.402 [Reserved] 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.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

166

(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.

(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.
Subpart D—School Participation and Loan Origination in the Direct Loan Program

§685.402

Criteria for schools to originate loans

167

(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.

(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 

multi-year use of the Master Promissory 

Note. (1) A school must 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. 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 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.

(Authority: 20 U.S.C. 1087a et seq. )

[62 FR 35602, July 1, 1997, as amended at 

64 FR 58972, Nov. 1, 1999]