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DRAFT for discussion at 3rd session

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Issue 14

Proposed Regulatory Language

Team II - School-based Loan Issues

Origin: HEOA section 465

Issue: Military Service Cancellation

Statutory Cite: HEA section 465(a)(3)(A)

Regulatory Cite: §674.59

DCL page reference: Page 136

Status: Tentative agreement reached

Regulatory language:

Sec. 674.59 Cancellation for military service.

 (a) Cancellation on a Defense loan. (1) An 

institution must cancel up to 50 percent of a Defense loan 

made after April 13, 1970 for the borrower's full-time 

active service starting after June 30, 1970, in the U.S. 

Army, Navy, Air Force, Marine Corps, or Coast Guard.

 (2) The cancellation rate is 12 1/2 percent of the 

original loan principal, plus the interest on the unpaid 

balance accruing during the year of qualifying service, for 

the first complete year of qualifying service, and for each 

consecutive year of qualifying service.
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DRAFT for discussion at 3rd session

4/23/2009

 (3) Service for less than a complete year, including 

any fraction of a year beyond a complete year of service, 

does not qualify for military cancellation.

 (b) Cancellation of an NDSL or Perkins loan. (1) An 

institution must cancel up to 50 percent of the outstanding 

balance on an NDSL or Perkins loan for active duty service 

that ended before August 14, 2008, as a member of the U.S. 

Army, Navy, Air Force, Marine Corps, or Coast Guard in an 

area of hostilities that qualifies for special pay under 

section 310 of title 37 of the United States Code.

 (2) The cancellation rate is 12 1/2 percent of the 

original loan principal, plus the interest on the unpaid 

balance accruing during the year of qualifying service, for 

each complete year of qualifying service.

 (c) (1) An institution must cancel up to 100 percent 

of the outstanding balance on a borrower’s Federal Perkins 

or NDSL loan for a borrower’s full year of active duty 

service that includes August 14, 2008, or begins on or 

after that date, as a member of the U.S. Army, Navy, Air 

Force, Marine Corps, or Coast Guard in an area of 

hostilities that qualifies for special pay under section 

310 of title 37 of the United States Code.
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DRAFT for discussion at 3rd session

4/23/2009

(2) The cancellation rate is 15 percent for the first 

and second year of qualifying service, 20 percent for the 

third and fourth year of qualifying service, and 30 percent 

for the fifth year of qualifying service.

 (3d) Service for less than a complete year, including 

any fraction of a year beyond a complete year of service, 

does not qualify for military cancellation.
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DRAFT for discussion at 3rd session

4/23/2009

Issue 14

Amendatory Language

Team II – School-based Loan Issues

x. Section 674.59 is amended by:

A. In paragraph (a)(1), removing the word “shall” and 

adding, in its place, the word “must”.

B. Revising paragraph (b)(1).

C. Adding new paragraph (c). 

D. Redesignating paragraph (b)(3) as paragraph (d).

E. Revising the authority citation that appears at 

the end of the section.

The addition and revisions read as follows:

§674.59 Military Service Cancellation.

* * * * *

(b) Cancellation of an NDSL or Perkins loan. (1) An 

institution must cancel up to 50 percent of the outstanding

balance on an NDSL or Perkins loan for active duty service 

that ended before August 14, 2008, as a member of the U.S. 

Army, Navy, Air Force, Marine Corps, or Coast Guard in an 

area of hostilities that qualifies for special pay under 

section 310 of title 37 of the United States Code.

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DRAFT for discussion at 3rd session

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(c) (1) An institution must cancel up to 100 percent 

of the outstanding balance on a borrower’s Federal Perkins 

or NDSL loan for a borrower’s full year of active duty 

service that includes August 14, 2008, or begins on or 

after that date, as a member of the U.S. Army, Navy, Air 

Force, Marine Corps, or Coast Guard in an area of 

hostilities that qualifies for special pay under section 

310 of title 37 of the United States Code.

(2) The cancellation rate is 15 percent for the first 

and second year of qualifying service, 20 percent for the 

third and fourth year of qualifying service, and 30 percent 

for the fifth year of qualifying service.

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