Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers
Released: 2019-09-24T00:00:00

Introduction

The William D. Ford Federal Direct Loan (Direct Loan) program makes several types of federal student loans available to individuals to assist them with financing postsecondary education expenses. It represents the single largest source of federal financial assistance to support students' postsecondary educational pursuits. The U.S. Department of Education (ED) estimates that in FY2020, 15.9 million new loans, averaging $6,299 each and totaling $100.2 billion, will be made through the Direct Loan pro gram to undergraduate and graduate students, and to the parents of undergraduate students. In addition, ED estimates that 755,000 Direct Consolidation Loans, averaging $61,433 each and totaling $46.4 billion, will be made to existing borrowers of federal student loans. As of the end of the second quarter of FY2019, $1.2 trillion in principal and interest on Direct Loan program loans, borrowed by or on behalf of 34.5 million individuals, remained outstanding.

This report presents a comprehensive overview of the terms and conditions that apply to federal student loans made through the Direct Loan program. It begins by providing background information on the history of the Direct Loan program. This is followed by a brief description of the various types of loans that are offered through the program. The report then presents a thorough description of the terms and conditions for loans made through the Direct Loan program. In identifying and describing loan terms and conditions, it focuses on provisions applicable to loans that are currently being made or that have been made in recent years. Emphasis is placed on discussing Direct Loan program provisions that are related to borrower eligibility, amounts that may be borrowed, interest rates and fees, procedures for loan repayment, repayment relief, the availability of loan discharge and loan forgiveness benefits, and the consequences of defaulting. The final section of the report provides a summary of the methods that are used to ensure that borrowers are informed about the terms and conditions of the loans they obtain and their obligation to repay them.

This report has been prepared as a resource for Members of Congress, congressional committees, and congressional staff to support them in their legislative, oversight, and representational roles related to federal student loan policy. It is intended to provide a thorough, but nonexhaustive, description of loan terms and conditions and borrower benefits. It is not intended to be relied upon by borrowers as a resource for validating individual eligibility for specific borrower benefits.

Appendix A to this report contains a directory of resources from which additional information may be obtained about loans made available through the Direct Loan program. Appendix B consists of a glossary of terms. Appendix C contains a set of tables that present historical information on borrowing limits, interest rates, and fees that have applied to loans made through the Direct Loan program.

Background on the Direct Loan Program

The Direct Loan program is authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA; P.L. 89-329, as amended). It was established by the Student Loan Reform Act of 1993 (SLRA), Title IV of the Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ). Federal student loans were first made through the Direct Loan program in 1994.

In the Direct Loan program, loans are made by the government using federal capital (i.e., funds from the U.S. Treasury), and once made, outstanding loans constitute an asset of the federal government. Some important characteristics of loans made through the Direct Loan program are that the federal government assumes the risk for losses that may occur as a result of borrower default, and that it pays for the discharge of loans in cases of borrower death, total and permanent disability, and other limited instances. The federal government also assumes the cost of loans that are not required to be paid in full due to borrowers satisfying criteria that make them eligible to have a portion or all of the balance of their loans discharged under any of several loan forgiveness programs. For federal budgeting purposes, the program is classified as a direct loan program, which is a type of federal credit program for which mandatory spending authority is provided.

ED's Office of Federal Student Aid (FSA) is the primary entity tasked with administering the Direct Loan program. The institutions of higher education (IHEs) that participate in the Direct Loan program originate loans to borrowers through FSA's Common Origination and Disbursement (COD) system. Contractors hired by ED service and collect on the program's loans.

When the Direct Loan program was first established, it was intended gradually to expand and then ultimately fully replace the Federal Family Education Loan (FFEL) program, a guaranteed student loan program authorized under Title IV, Part B of the HEA, and through which most federal student loans were being made. The FFEL program had descended from the Guaranteed Student Loan (GSL) program, which was enacted under Title IV of the HEA in 1965 to enhance access to postsecondary education for students from low- and middle-income families by providing them access to low-interest federal student loans. In the FFEL program, loan capital was provided by private lenders who also originated and serviced loans. The federal government guaranteed lenders against loss due to factors such as borrower default, death, total and permanent disability, and in limited instances, bankruptcy. State and nonprofit guaranty agencies administered the federal guarantee. The federal government was also responsible for making several different types of payments to lenders and guaranty agencies to support the operation of the program. The FFEL program was administratively complex and the Direct Loan program was established with the aims of streamlining the federal student loan delivery system and achieving cost savings.

Several years into the implementation of the Direct Loan program, statutory provisions specifying that it ultimately succeed the FFEL program were repealed by the Higher Education Amendments of 1998 ( P.L. 105-244 ). From 1994 to 2010, the Direct Loan program and the FFEL program operated side-by-side. During this period, IHEs could elect to participate in the program of their choice. As this decision was made at the institutional level, the program through which an individual could borrow federal student loans was dependent upon the program participation decisions made by the institution a student attended.

During the period while loans were being made through both the FFEL and Direct Loan programs, from the perspective of the borrower the terms and conditions of loans offered through the programs were similar in most respects. However, the degree of similarity varied over time. Notable differences included certain characteristics of the repayment plans offered and, beginning in 2008, the availability of the Public Service Loan Forgiveness (PSLF) program only to borrowers of loans made through the Direct Loan program.

The authority to make loans through the FFEL program was terminated, effective July 1, 2010, by the SAFRA Act, Title II of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ). While loans are no longer being made through the FFEL program, as of the end of the second quarter of FY2019, $271.6 billion in principal and interest on FFEL program loans, borrowed by or on behalf of 12.8 million students, remained outstanding and due to be repaid over the coming years.

Over the history of the Direct Loan program, Congress has periodically made changes to loan terms and conditions. Such changes have often been made as part of comprehensive amendments to the HEA, which authorizes the Direct Loan program; as part of amendments contained in budget reconciliation measures; or as part of amendments included in annual appropriations measures. Congress may well contemplate making future changes to loan terms and conditions.

Direct Loan Types

The following types of loans are currently made available to borrowers through the Direct Loan program:

Direct Subsidized Loans . These loans are available only to undergraduate students who demonstrate financial need. Direct Subsidized Loans are characterized by having an interest subsidy that applies during an in-school period when a borrower is enrolled in an eligible program on at least a half-time basis, during a six-month grace period, during periods of authorized deferment, and during certain other periods. The Direct Subsidized Loans currently being made have a fixed interest rate that remains constant for the duration of the loan. Direct Unsubsidized Loans . These loans are available to undergraduate students, graduate students, and professional students, without regard to the student's financial need. Direct Unsubsidized Loans generally do not have an interest subsidy. The Direct Unsubsidized Loans currently being made have a fixed interest rate that remains constant for the duration of the loan. The interest rate on loans made to graduate and professional students is higher than the rate on loans made to undergraduate students. Direct PLUS Loans . These loans are available to graduate and professional students, and to the parents of undergraduate students who are dependent upon them for financial support. They are made without regard to financial need and generally do not have an interest subsidy. The Direct PLUS Loans currently being made have a fixed interest rate, which remains constant for the duration of the loan; and the interest rate is higher than the rate on both Direct Subsidized Loans and Direct Unsubsidized Loans. Direct Consolidation Loans . These loans allow individuals who have at least one loan borrowed through either the Direct Loan program or the FFEL program to refinance their eligible federal student loan debt by borrowing a new loan and using the proceeds to pay off their existing federal student loan obligations, including loans that are in default. Direct Consolidation Loans may be obtained without regard to financial need. The Direct Consolidation Loans currently being made have fixed interest rates, which are determined by calculating the weighted average of the interest rates on the loans that are consolidated, rounded up the result to the next higher one-eighth of a percentage point. Upon an individual obtaining a Direct Consolidation Loan, a new repayment period begins, which may be for a longer term than applied to the loans originally borrowed. A Direct Consolidation Loan may have a subsidized component 18 and an unsubsidized component .

Eligibility and Amounts That May Be Borrowed

Eligibility for an individual to borrow a loan through the Direct Loan program and the amount that he or she may borrow are governed by provisions in the HEA and by policies and procedures implemented by ED. All loan types except Direct PLUS Loans are made available without consideration of a borrower's ability to repay the loan. Eligibility to borrow a Direct PLUS Loan depends on an individual's creditworthiness.

The section that follows identifies and describes factors that determine an individual's eligibility to borrow one or more types of loans made available through the Direct Loan program. This is followed by a section that describes policies and procedures for determining amounts that may be borrowed.

Factors Affecting Eligibility to Borrow

For an individual to be eligible to borrow a loan through the Direct Loan program, the student borrower, or the student on whose behalf a parent borrower would obtain a Direct PLUS Loan, must meet a number of eligibility requirements. A broad set of general eligibility criteria applies to students who may benefit from a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan. An additional set of requirements applies specifically to applicants seeking to borrow a Direct PLUS Loan. Still other requirements apply to applicants for Direct Consolidation Loans. Eligibility to borrow various types of loans is also affected by a student's dependency status, program level (e.g., undergraduate, graduate, or professional), undergraduate class level, financial need, cost of attendance (COA) of the academic program, estimated financial assistance (EFA) he or she expects to receive from other sources, and certain other factors. Factors that affect eligibility to borrow through the Direct Loan program are discussed below.

General Student-Based Eligibility Criteria

In general, for a student to be eligible to borrow a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan, or for a parent to borrow a Direct PLUS Loan on behalf of a student, the student must

be enrolled on at least a half-time basis as a regular student in either an eligible program at a participating eligible IHE, a preparatory program necessary for enrollment in an eligible program (for up to one year), or a teacher certification program; not be incarcerated; be a U.S. citizen or national, U.S. permanent resident, or other eligible noncitizen; maintain satisfactory academic progress as defined by the school; not be in default on a federal student loan, nor owing a refund on a grant or loan made under HEA, Title IV without having made satisfactory repayment arrangements; have on file at the IHE attended a statement of educational purpose stating that the loan will be used solely for educational expenses; and meet applicable Selective Service System registration requirements.

Student Dependency Status

For purposes of awarding federal student aid, dependency status determines whether a student is deemed to be dependent upon his or her parents' financial support, or is independent of their support. Dependency status is determined by a student's responses to questions on the Free Application for Federal Student Aid (FAFSA), which he or she must complete and submit to ED when applying for federal student aid.

A student is deemed to be an independent student if he or she

is, or will be, 24 years of age or older before January 1 of the award year; is married at the time of completing the FAFSA; will be a graduate or professional student at the start of the award year; is currently serving on active duty in the Armed Forces for other than training purposes; is a veteran of the Armed Forces; has legal dependents other than a spouse; was an orphan, in foster care, or a ward of the court, at any time since age 13; is an emancipated minor or is in legal guardianship as determined by a court of competent jurisdiction in the individual's state of legal residence, or was when reaching the age of majority; is an unaccompanied youth who is homeless, or self-supporting and at risk of being homeless; or is a student for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances or based upon a documented determination of independence that was previously made by another financial aid administrator in the same award year.

A student who does not satisfy any of the criteria to qualify as an independent student is classified as a dependent student .

Dependency status determines the types of loans available to be borrowed by students and their families, which in turn affects the amounts that may be borrowed. Of particular importance with regard to undergraduate students is the fact that Direct PLUS Loansâthe loans with the most flexible borrowing limitsâare available to the parents of dependent students but not to the parents of independent students. However, independent undergraduate students are extended higher personal borrowing limits than are dependent students. These differential borrowing limits are predicated on the expectation that the postsecondary education expenses of dependent students will be financed by some combination of students and their parents, whereas the postsecondary education expenses of independent students will typically be financed without parental assistance.

Dependency status also determines which individuals in a student's family will have their income and assets considered in need analysis calculations for the student (discussed below). Need analysis calculations for a dependent student are based on the income and assets of both the student and the student's parents, whereas need analysis calculations for an independent student are based on the income and assets of the student (and if applicable, the student's spouse).

Program Level

The academic level of the program in which a student is enrolled impacts both the types of loans that he or she may borrow and certain terms and conditions of such loans.

Undergraduate Studies

Undergraduate students may borrow Direct Subsidized Loans and Direct Unsubsidized Loans, and the parents of undergraduate students who are dependent upon them for financial support may borrow Direct PLUS Loans on the student's behalf. Direct PLUS Loans may not be borrowed by undergraduate students nor by parents on behalf of undergraduate independent students.

Graduate and Professional Studies

Graduate and professional students may borrow Direct Unsubsidized Loans and Direct PLUS Loans. To be eligible to borrow as a graduate or professional student, an individual must be enrolled in a program above the baccalaureate level or in one that leads to a first professional degree, must have completed at least the equivalent of three years of full-time study either prior to entering the program or as part of it, and must not be concurrently receiving Title IV aid as an undergraduate student. Graduate and professional students, all of whom are classified as independent students, are extended higher borrowing limits than undergraduate students.

Undergraduate Class Level

For undergraduates, a student's class level determines the maximum amount the student may borrow on an annual basis. A student's class level is based on his or her progression according to the academic standards of the school the student attends. For undergraduate students, progression to a higher grade level for purposes of awarding a loan through the Direct Loan program does not necessarily correspond to the start of a new academic year (AY). For instance, a student who continues to make satisfactory academic progress but does not progress to the next grade level due to having completed an insufficient number of credits could borrow a loan through the Direct Loan program more than once as a first-year student. Once the student accrues enough credits to progress to the next higher grade level, he or she would become eligible for the higher borrowing limits available to second-year students, and so on.

Financial Need

Direct Subsidized Loans are need-based and may only be borrowed by students who demonstrate having financial need according to federal need analysis procedures. Applicants seeking to borrow Direct Subsidized Loans must undergo a need test through which the expected family contribution (EFC) to be made by the student, and, if applicable, the student's family, toward paying the student's postsecondary education expenses is determined on the basis of the financial resources available to the student. According to federal student aid need analysis procedures, the sum of the student's EFC and the amount of estimated financial assistance (EFA) he or she expects to receive from sources other than programs authorized under Title IV of the HEA is subtracted from the estimated cost of attendance (COA) of the institution the student attends to determine the amount of need-based financial aid that he or she is eligible to receive.

Additional procedures are followed to determine the composition of the student's federal student aid package. For instance, undergraduate students must receive a determination of their eligibility to receive a Federal Pell Grant (a form of need-based aid available only to undergraduates) prior to being certified by their school as being eligible to borrow a Direct Subsidized Loan. This procedure is designed to first provide maximum grant aid to needy students before they incur student loan debt. The amount a student may borrow with a Direct Subsidized Loan may not exceed the amount of the student's unmet financial need after other forms of need-based federal student aid available under HEA, Title IV have been awarded. (For additional information, see the section on " Limits on Borrowing Determined by Need Analysis and Packaging " below.) Since July 1, 2012, only undergraduate students have been eligible to borrow Direct Subsidized Loans.

Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers

Since July 1, 2013, a student who is a first-time borrower may only borrow Direct Subsidized Loans for a period that may not exceed 150% of the published length of the academic program in which he or she is currently enrolled. This is referred to as the Direct Subsidized Loan maximum eligibility period . For undergraduates subject to this provision, a student enrolled in a two-year associate degree program may receive Direct Subsidized Loans for a maximum eligibility period of no more than three years, while a student enrolled in a four-year bachelor's degree program may receive Direct Subsidized Loans for a maximum eligibility period of no more than six years.

Subsidized usage periods are used to measure a borrower's progress toward the maximum eligibility period. They are the quotient of dividing the number of days in the borrower's loan period (e.g., semester, quarter) for a Direct Subsidized Loan by the number of days in the academic year for which the borrower receives the Direct Subsidized Loan, rounded to the nearest tenth of a year. Subsidized usage periods are prorated based on intensity of enrollment (i.e., multiplied by 0.75 or 0.50 for three-quarter or half-time enrollment, respectively). A borrower's remaining eligibility period is determined by subtracting a borrower's cumulative subsidized usage periods from the maximum eligibility period.

This provision also limits a borrower's eligibility for the interest subsidy on Direct Subsidized Loans. If a Direct Subsidized Loan borrower subject to this provision remains enrolled in the same program for which the loan was obtained, or another undergraduate academic program of equal or shorter length, beyond the applicable maximum eligibility period, the borrower will lose the interest subsidy and will become responsible for paying the interest that accrues on his or her Direct Subsidized Loans after the date that the maximum eligibility period was exceeded.

Eligibility Requirements for Direct PLUS Loans

In addition to satisfying the general student-based eligibility criteria, an individual must meet certain other eligibility criteria specifically applicable to Direct PLUS loans.

Parent Borrower Eligibility Criteria

Direct PLUS Loans may be borrowed by one or both parents of an undergraduate dependent student who meets the general student-based eligibility criteria described above. Eligible parents include biological parents, adoptive parents, and stepparents (if the stepparent's income and assets are taken into account in determining a student's EFC). A legal guardian may not borrow a Direct PLUS Loan on behalf of a student as a parent borrower. Parent borrowers must also meet the same citizenship and residency requirements as student borrowers; may not be in default on a federal student loan, nor owe a refund on a grant or loan made under Title IV without having made satisfactory repayment arrangements; and may not be incarcerated.

For a parent to be eligible to borrow a Direct PLUS Loan on behalf of an undergraduate dependent student, the student must have completed a FAFSA. There is no requirement that a parent borrower complete a separate FAFSA. The eligibility of a noncustodial parent to borrow a Direct PLUS Loan on behalf of his or her child is not impacted by that parent's financial information not appearing on the student's FAFSA.

Creditworthiness Requirements to Borrow Direct PLUS Loans

Eligibility for an individual to borrow a Direct PLUS Loan also depends on that individual's creditworthiness. Only individuals who do not have an adverse credit history, as determined according to procedures specified in regulations, may borrow Direct PLUS Loans. The creditworthiness criteria apply to both parent borrowers and to graduate and professional student borrowers. Creditworthiness is assessed on the basis of a credit report on the applicant obtained from at least one consumer reporting agency. An applicant is considered to have an adverse credit history if he or she either

has one or more debts totaling more than $2,085 that are 90 days or more delinquent as of the date of the credit report, or that have been placed in collection or been charged off by the creditor as a loss within the two years prior to the credit report; or has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under HEA, Title IV within the five years prior to the credit report.

An applicant who is determined to have an adverse credit history may not obtain a Direct PLUS Loan unless he or she either obtains an endorser or demonstrates that extenuating circumstances exist with regard to the applicant's credit history. Extenuating circumstances may include an updated credit report or a letter from a creditor stating that the applicant has made satisfactory repayment arrangements on a derogatory debt. In addition, to obtain a Direct PLUS Loan an applicant who has an adverse credit history must also complete credit counseling. (See the section on " PLUS Loan Credit Counseling For Borrowers with Adverse Credit .") An applicant may not, however, be rejected for a Direct PLUS Loan on the basis of having no credit history.

A dependent undergraduate student whose parents are unable to obtain a Direct PLUS Loan due to their having an adverse credit history may borrow a larger amount in the form of a Direct Unsubsidized Loan. In such a case, the student may borrow up to the borrowing limit applicable to a similarly situated independent undergraduate student. (These amounts are discussed below in the section on " Amounts That May Be Borrowed .")

Eligibility Requirements for Direct Consolidation Loans

To be eligible to obtain a Direct Consolidation Loan, a borrower must have an outstanding principal balance on at least one loan that was made through either the Direct Loan program or the FFEL program. In addition, with respect to the loans being consolidated, the applicant must be (1) in the grace period prior to entering repayment; (2) in repayment status, but not in default; or (3) in default, but having made satisfactory repayment arrangements.

For the purposes of including a defaulted loan in a Direct Consolidation Loan, making "satisfactory repayment arrangements" means that the defaulted borrower has made at least three consecutive voluntary full monthly payments within 20 days of the due date, or has agreed to repay according to one of the Income-Driven Repayment (IDR) plans (described below). A borrower of a defaulted loan who is subject to a court judgment or wage garnishment is ineligible to obtain a Direct Consolidation Loan.

In general, a set of loans may be consolidated only once. However, in select circumstances a Direct Consolidation Loan may be used to repay a previously obtained Direct Consolidation Loan or a FFEL Consolidation Loan. Loans made to borrowers within 180 days prior to or after the date of obtaining a Direct Consolidation Loan may be added to that Direct Consolidation Loan. A borrower who has an existing Direct Consolidation Loan and also has other eligible loans that have not been consolidated, or who subsequently obtains other eligible loans, may consolidate those loans with his or her existing loans for purposes of obtaining a new Direct Consolidation Loan. A borrower who has an existing FFEL Consolidation Loan and whose loan is in default or has been referred to a guaranty agency for default aversion assistance may consolidate his or her loan into a Direct Consolidation Loan for purposes of repaying according to one of the IDR plans. Finally, a borrower who has an existing FFEL Consolidation Loan may consolidate that loan into a Direct Consolidation Loan for the purposes of applying for loan forgiveness through the Public Service Loan Forgiveness (PSLF) Program or to receive the No Accrual of Interest on Loans of Certain Active Duty Servicemembers benefit that is only available to borrowers of loans made through the Direct Loan program.

A Direct Consolidation Loan must consist of at least one eligible loan made through either the Direct Loan or FFEL programs, and may also contain other types of federal student loans. The eligible types of federal student loans made through the Direct Loan and FFEL programs include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation Loans, FFEL Subsidized Stafford Loans, FFEL Unsubsidized Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans. The eligible types of federal student loans made outside of the Direct Loan and FFEL programs are Federal Perkins Loans, Guaranteed Student Loans, Federal Insured Student Loans, National Direct Student Loans, National Defense Student Loans, Supplemental Loans for Students (SLS), Auxiliary Loans to Assist Students (ALAS), Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Loans for Disadvantaged Students (LDS), and Nursing Loans.

Amounts That May Be Borrowed

The maximum amounts that a student or a parent may borrow in loans made through the Direct Loan program are determined by the interaction of annual and aggregate borrowing limits and federal need analysis and packaging procedures. Limitations on borrowing vary by loan type, borrower characteristics, program level, and class level.

Annual Loan Limits

For undergraduate students, annual loan limits cap both the maximum amount that may be borrowed in Direct Subsidized Loans and the total combined amount that may be borrowed through Direct Subsidized Loans and Direct Unsubsidized Stafford Loans during a single academic year. Annual loan limits for Direct Subsidized Loans vary by undergraduate class level; however, at any particular class level these limits are the same for both undergraduate dependent students and undergraduate independent students. Annual loan limits for the total combined amount of Direct Subsidized Loans and Direct Unsubsidized Loans that may be borrowed by undergraduate students vary by both undergraduate class level and by student dependency status.

For graduate and professional students, annual loan limits cap the maximum that may be borrowed in Direct Unsubsidized Loans, irrespective of class level. However, higher exceptional annual loan limits are extended to students enrolled in certain health professions programs. There is no specified limit to the amount that may be borrowed in Direct PLUS Loans by either parent borrowers or by graduate and professional students.

The annual loan limits apply to the maximum principal amount that may be borrowed in an academic year. Any loan origination fees that the borrower is required to pay (see the " Loan Origination Fees " below) are included in the amount to be borrowed that is subject to these limits.

Borrowing limits for a student who is enrolled for less than one year are prorated based on the fraction of the academic year for which the student is enrolled. An academic year is defined in statute as a minimum of 30 weeks of instruction for courses of study measured in credit hours, or 26 weeks for courses of study measured in clock hours and during which a full-time student is expected to complete a minimum of 24 semester or trimester hours, 36 quarter hours, or 900 clock hours.

Aggregate Loan Limits

Aggregate loan limits cap the total cumulative amount of outstanding loans that a student may borrow through certain loan types. One limit applies to the total amount that may be borrowed in Direct Subsidized Loans and another limit applies to the total combined amount that may be borrowed in Direct Subsidized Loans and Direct Unsubsidized Loans. No aggregate limits are placed on Direct PLUS Loan borrowing. The aggregate loan limits apply only to the aggregate outstanding principal balance (OPB) of the loans a student has borrowed. They do not apply to accrued or capitalized interest. Annual and aggregate limits that have applied to loans made through the Direct Loan program since July 1, 2012, are presented in Table 1 .

A listing of the annual and aggregate loan limits that have applied throughout the history of the Direct Loan program is presented in Appendix C in Table C-1 .

Limits on Borrowing Determined by Need Analysis and Packaging

The process of awarding one or more forms of federal student aid to a student in accordance with federal student aid need analysis procedures and individual program rules is referred to as packaging . Financial aid administrators at IHEs are afforded a degree of discretion in determining how aid is packaged. The packaging of aid may affect the amounts that may be borrowed by a student or by a parent on behalf of a student through the various types of loans offered through the Direct Loan program. The process for packaging aid provided through the Direct Loan program is briefly described below. The following terms are instrumental in describing this process.

Cost of A ttendance (COA). This is an institution-determined amount indicative of a student's educational expenses for a period of enrollment (e.g., an academic year) at the IHE. It is determined by the institution a student attends and may include tuition and fees, and allowances for room and board, books, supplies, transportation, loan fees, personal expenses, child or dependent care, etc. For the Direct Loan program, a student's COA represents an absolute limit on the maximum amount of aid he or she may receive during an academic year. Expected F amily C ontribution (EFC). This is the dollar amount a student and the student's family (e.g., parents or spouse) are expected to contribute toward his or her education expenses for a year. A student's EFC is calculated according to procedures specified in law using information supplied by the student on the FAFSA. The formula for calculating a student's EFC takes into account myriad factors including taxed and untaxed income, financial assets, certain benefits (e.g., Social Security, unemployment compensation), family size, and the number of family members to be enrolled in college during an academic year. Estimated F inancial A ssistance (EFA). This is the amount of aid anticipated to be made available to a student from federal, state, institutional, or other sources for a period of enrollment. It includes grant, scholarship, fellowship, loan, and need-based employment assistance. For purposes of need analysis and packaging, two variations of EFA are relevant: (1) EFA not received under HEA, Title IV programs, and (2) EFA from all sources. EFA does not include Iraq and Afghanistan Service Grants; federal veterans' education benefits; or, for purposes of awarding Direct Subsidized Loans, Segal AmeriCorps Education Awards. F inancial N eed. This is the amount determined by subtracting a student's EFC and EFA not received under HEA, Title IV from the student's COA. Unmet F inancial N eed. This is the amount determined by subtracting the sum of a student's EFC and EFA from the student's COA.

When packaging Title IV aid, the total amount of need-based aid awarded to a student may not exceed the amount of the student's financial need. A common packaging strategy is to award need-based aid that is not required to be repaid (e.g., Federal Pell Grant, Federal Supplemental Educational Opportunity Grant [FSEOG] and Federal Work-Study [FSW] awards) before awarding loan aid, which must be repaid. With respect to loans made through the Direct Loan program, only Direct Subsidized Loans are need-based; however, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans may all be awarded to satisfy a student's unmet financial need. Additionally, once a student's unmet financial need has been satisfied, non-need-based aid, such as Direct Unsubsidized Loans and Direct PLUS Loans, may be awarded to replace some or all of a student's EFC. Overall, when packaging Title IV aid the total amount awarded (including both need-based and non-need-based aid) may not exceed the student's COA, less EFA. Processes for determining the amount of aid that may be awarded through the various types of loans offered through the Direct Loan program are described below.

Direct Subsidized Loans

Direct Subsidized Loans are need-based. They may be awarded to satisfy a student's unmet financial need. The maximum Direct Subsidized Loan amount a student is eligible to borrow is determined by summing the student's EFC and EFA, and then subtracting that amount from the student's COA for the school attended. As discussed above, Direct Subsidized Loan borrowing is also capped by applicable annual loan limits. The calculation shown in the text box below is used to determine the amount that a student may borrow through a Direct Subsidized Loan.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are non-need-based. Students are eligible to borrow Direct Unsubsidized Loans irrespective of the amount of their EFC, in amounts up to the lesser of (1) the result of subtracting the student's EFA (including, for undergraduate students, any amount borrowed through a Direct Subsidized Loan) from COA, or (2) the result of subtracting the amount borrowed through a Direct Subsidized Loan from the annual Direct Subsidized Loan and Direct Unsubsidized Loan combined borrowing limit applicable to the student's program level and class level. The calculation shown in the text box below is used to determine the amount that a student may borrow through a Direct Unsubsidized Loan.

Direct PLUS Loans

Direct PLUS Loans are non-need-based. Graduate and professional students and the parents of dependent undergraduate students may borrow Direct PLUS Loans irrespective of the student's EFC. The amount that may be borrowed through a Direct PLUS Loan is limited to the result of subtracting the EFA (including any amount borrowed through a Direct Subsidized Loan or a Direct Unsubsidized Loan) of the student on whose behalf the loan will be made from the COA of the institution attended. The calculation shown in the text box below is used to determine the amount that a student or a parent may borrow through a Direct PLUS Loan.

With regard to parent borrowing, the total Direct PLUS Loan eligibility amount may be borrowed by one parent, or it may be divided among more than one parent (including noncustodial parents) and borrowed in separate amounts by each.

Interest on Direct Loan Program Loans

Interest is charged on loans made through the Direct Loan program. It constitutes a charge for the use of borrowed money over a specified period of time. In the Direct Loan program, interest is calculated based on rates that are set according to formulas specified in the HEA. Interest accrual is calculated using a simple daily interest formula. The federal government offers several types of interest subsidies that may limit the amount of interest that accrues on the outstanding principal balance of a loan. In certain circumstances, a borrower may be permitted to defer paying some or all of the interest that has accrued on his or her loan(s) until a later point in time. If a borrower does not pay the interest that has accrued, it may, in certain circumstances, be capitalized (i.e., added to the outstanding principal balance of the borrower's loan).

Interest Rates

Interest rates on loans made through the Direct Loan program are set according to procedures specified by statute. Since the inception of the Direct Loan program in 1994, a variety of different procedures have been used for setting student loan interest rates. The loans currently being made through the Direct Loan program have fixed interest rates that remain constant from the time a loan is made until it is paid in full. Since July 1, 2013, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, have been made with fixed interest rates that are indexed to the interest rates on 10-year U.S. Treasury notes that are auctioned just prior to the start of the academic year during which the loans are made. Since February 1, 1999, Direct Consolidation Loans have been made with fixed interest rates that are based on the weighted average of the interest rates on the loans that are included in the Direct Consolidation Loan. Previously, other procedures had been used for setting student loan interest rates, and a number of loans that had been made according to these prior procedures remain outstanding.

Procedures for Setting Student Loan Interest Rates

The various procedures that have been used for setting interest rates on loans made through the Direct Loan program can be broadly categorized as follows: (1) variable interest rates that are indexed to the interest rates on short-term U.S. Treasury securities that are auctioned just prior to the start of the academic year during which the rate will be in effect, (2) fixed interest rates that are set according to the weighted average of the interest rates of the loans included in a Direct Consolidation Loan, (3) fixed interest rates that are specified in statute, and (4) fixed interest rates that are indexed to the interest rates on long-term U.S. Treasury securities that are auctioned just prior to the start of the academic year during which the loans are made. Because loans with interest rates that have been set according to each of these categories still remain outstanding, each is briefly discussed below. Appendix C presents a detailed history of the various procedures that have been used to set the interest rates that apply to Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans ( Table C-2 ); the procedures that have been used to set the interest rates that apply to Direct Consolidation Loans ( Table C-3 ); and the interest rates that have been in effect on these loans on a year-by-year basis ( Table C-4 ).

Variable Interest Rates Indexed to Short-Term U.S. Treasury Securities

At the inception of the Direct Loan program in 1994, all loan types were made with variable interest rates that would adjust once per year on July 1. On variable rate loans, the applicable interest rate is determined according to a formula specified in statute. For each 12-month period that extends from July 1 through June 30, the applicable interest rate is indexed to the bond equivalent rate of 91-day U.S. Treasury bills (or other short-term U.S. Treasury securities) auctioned at the final auction held prior to the preceding June 1. An interest rate add-on increases the rate above the rate of the index. Different interest rate add-ons may apply to loans depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the status of the loan (e.g., in school, grace, repayment), and when the loan was made. An interest rate cap of 8.25% applies to variable rate Direct Subsidized Loans and Direct Unsubsidized Loans and the portion of a variable rate Direct Consolidation Loan attributable to such loans. An interest rate cap of 9.0% applies to variable rate Direct PLUS Loans and the portion of a variable rate Direct Consolidation Loan attributable to a PLUS Loan. Direct Consolidation Loans were made with variable interest rates through January 31, 1999, while all other types of Direct Loan program loans continued to be made with variable interest rates through June 30, 2006.

Fixed Interest Rates on Direct Consolidation Loans

Since February 1, 1999, Direct Consolidation Loans have been made with fixed interest rates that remain in effect for the duration of the loan. The applicable interest rate on a Direct Consolidation Loan is determined by calculating the weighted average of the interest rates in effect on the loans being consolidated, and rounding the result up to the nearest higher one-eighth of 1%. If a borrower obtains a Direct Consolidation Loan to repay one or more loans having a variable interest rate, the weighted average of the interest rates in effect on the loans being consolidated will be used to set the fixed rate that will apply for the duration of the new Direct Consolidation Loan. For Direct Consolidation Loans made during the period from February 1, 1999, through June 30, 2013, the maximum interest rate was capped at 8.25%. There is no maximum interest rate for Direct Consolidation Loans made on or after July 1, 2013.

Fixed Interest Rates Specified in the HEA

During the period from July 1, 2006, through June 30, 2013, all loans made through the Direct Loan program, with the exception of Direct Consolidation Loans, were made with fixed interest rates that were determined by Congress and specified in statute. Different fixed interest rates applied depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the program level for which it was borrowed (e.g., undergraduate, graduate), and the academic year for which the first disbursement of the loan was made (e.g., AY2007-2008, AY2008-2009). For these loans, the interest rate that was in effect when the loan was made remains in effect for the duration of the loan.

Fixed Interest Rates Indexed to Long-Term U.S. Treasury Securities

With the exception of Direct Consolidation Loans, all loans made through the Direct Loan program on or after July 1, 2013, have market-indexed fixed interest rates. For these loans, the applicable interest rate is set according to a formula specified in statute and remains in effect for the duration of the loan. For new loans made during each 12-month period that extends from July 1 through June 30, the applicable interest rate is indexed to the bond equivalent rate of 10-year U.S. Treasury notes auctioned at the final auction held prior to the preceding June 1. An interest rate add-on increases the applicable borrower rate above the rate of the index. Different interest rate add-ons apply depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan) and the program level for which it was borrowed (e.g., undergraduate, graduate). An interest rate cap of 8.25% applies to Direct Subsidized Loans and to Direct Unsubsidized Loans made to undergraduate students; a cap of 9.5% applies to Direct Unsubsidized Loans made to graduate and professional students; and a cap of 10.5% applies to all Direct PLUS Loans. The interest rates applicable to loans being made through the Direct Loan program in AY2019-2020 are presented below in Table 2 .

Interest Accrual

Interest accrual is the process through which interest accumulates over time. In the Direct Loan program, the accrual of interest is calculated using a simple daily interest formula. With this formula, interest accrues only on the outstanding principal balance (OPB) of the loan. This is in contrast to a compound interest formula, in which interest accrues on both the OPB of the loan and any interest that has accrued during a prior period. In a limited set of circumstances, accrued interest that has not been paid by a borrower may be capitalized, or added to the OPB of the loan. This is discussed below in the " Interest Capitalization " section.

According to the simple daily interest formula used in the Direct Loan program, the amount of interest that accrues over a certain period of time is the product of (1) the number of days of interest being calculated (e.g., days since the last payment was made), (2) the OPB of the loan, and (3) an interest rate factor. The interest rate factor is the quotient of the applicable interest rate of the loan divided by the number of days in a year (365.25). An example of the calculation of accrued interest over a 30-day period is provided in the text box below.

For loans made through the Direct Loan program, interest begins to accrue on the OPB once the first installment of a loan is disbursed. Unless it is subsidized (see " Subsidized Interest "), interest accrues during the entirety of the period that a loan is in effect, irrespective of whether the borrower is expected to be making payments on it.

Subsidized Interest

In a limited set of circumstances, the federal government subsidizes some or all of the interest that would otherwise accrue on loans made through the Direct Loan program. During periods when an interest subsidy is provided, borrowers are relieved of the requirement to pay the interest that would accrue. The availability of an interest subsidy depends on factors such as the type of loan borrowed, Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers, eligibility for an authorized deferment, the repayment plan selected, and the borrower's status as a servicemember in the Armed Forces. Interest subsidies that may be available on loans made through the Direct Loan program are described below.

Interest Subsidy on Direct Subsidized Loans

On Direct Subsidized Loans, and on the subsidized component of Direct Consolidation Loans, interest is subsidized by the government (i.e., interest does not accrue) during in-school periods while a borrower is enrolled in an eligible program on at least a half-time basis, during a six-month grace period, and during periods of authorized deferment. Due to amendments to the HEA made by the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), interest is not subsidized during the grace period on Direct Subsidized Loans disbursed between July 1, 2012, and June 30, 2014.

Limit on Direct Subsidized Loan Interest Subsidy if 150% of Published Academic Program Length is Exceeded

For a borrower to whom the Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers applies, eligibility both to borrow a Direct Subsidized Loan and to receive the interest subsidy on Direct Subsidized Loans previously obtained is limited to a period that may not exceed 150% of the published length of the academic program in which the student is enrolled. If a Direct Subsidized Loan borrower subject to this provision remains enrolled beyond the applicable maximum eligibility period, the borrower will lose the interest subsidy and will become responsible for paying the interest that accrues on his or her Direct Subsidized Loans after the date that the maximum eligibility period is exceeded.

Interest Rate Reduction for Automatic Debit Repayment

The HEA authorizes the Secretary of Education (the Secretary) to offer borrowers of loans made through the Direct Loan program an interest rate reduction as an incentive for having loan payments automatically debited from a bank account. The Secretary currently offers a 0.25 percentage point interest rate reduction for automatic debit repayment. This option helps ensure that borrowers make their student loan payments on time. The interest rate reduction for automatic debit repayment does not apply during in-school, grace, deferment, or forbearance periods.

Interest Subsidies on Eligible Loans Repaid According to Certain Income-Driven Repayment (IDR) Plans During Negative Amortization

Interest subsidies are provided on certain types of loans repaid according to the Income-Based Repayment (IBR) plans, the Pay As You Earn (PAYE) repayment plan, and the Revised Pay As You Earn (REPAYE) repayment plan during periods when a borrower's loans are in negative amortization. (Details of these income-driven repayment plans are described below in " Loan Repayment Plans " section.) A common characteristic of these IDR plans is that an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans for a maximum of the first three consecutive years that the borrower repays according to the applicable IBR plan. In addition, in the REPAYE plan an extended, partial interest subsidy is provided on all eligible loan types. These IDR plan interest subsidies are described in greater detail below.

Three-Year Interest Subsidy on Direct Subsidized Loans Repaid According to Certain IDR Plans During Negative Amortization

The structure of the IBR, PAYE, and REPAYE plans provide that in certain instances, a borrower's required monthly payment amount may be insufficient to pay all of the interest that has accrued on the borrower's Direct Subsidized Loans, or on the subsidized component of a Direct Consolidation Loan. In such instances, the Secretary does not charge the borrower for the amount of the accrued interest that is in excess of the applicable monthly payment amount (referred to as the remaining accrued interest ) for a period of up to the first three years from the date the borrower began repaying according to the IDR plan. For borrowers who switch repayment plans and repay their loans sequentially according to more than one of the IDR plans under which a subsidized loan interest subsidy is provided, a cumulative three-year limit on receipt of the interest subsidy applies to periods of repayment made under any of the aforementioned IDR plans. Any periods during which the borrower receives an economic hardship deferment and during which an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans are excluded from the three-year eligibility limit.

50% Interest Subsidy on All Eligible Loan Types Repaid According to the REPAYE Plan During Negative Amortization

In addition to the three-year interest subsidy of the remaining accrued interest on Direct Subsidized Loans and the subsidized component of Direct Consolidation Loans described above, the REPAYE plan includes a 50% subsidy of the remaining accrued interest on all loans. Beyond the three-year period for Direct Subsidized Loans and the subsidized component of Direct Consolidation Loans (described above), and during all periods of repayment on other eligible loans, in the instance that a borrower's required monthly payment amount is insufficient to pay all of the interest that has accrued on his or her loans, the Secretary charges the borrower for only 50% of the remaining accrued interest. There is no time limit on receipt of the REPAYE plan 50% interest subsidy.

No Accrual of Interest on Loans of Certain Active DutyÂ Servicemembers

For all types of loans made through the Direct Loan program that were first disbursed on or after October 1, 2008, no interest accrues during a period of up to 60 months while the borrower is serving on active duty in the Armed Forces or is performing qualifying National Guard duty in an area of hostilities during a war or national emergency. For Direct Consolidation Loans, the no accrual of interest subsidy applies only to the portion of the loan that was used to repay other loans that were first disbursed on or after October 1, 2008.

SCRA 6% Interest Rate Cap on Loans of Borrowers Who Enter Military Service

The Servicemembers Civil Relief Act (SCRA) provides that for individuals who borrow loans after August 14, 2008, but prior to their entrance into military service, the interest rate on their loans must be capped at a rate of 6% for the duration of their military service. The federal government, as the creditor on loans made through the Direct Loan program, must forgive interest above the 6% rate and may not accelerate repayment of the loans. Loan servicers are required to regularly check with the U.S. Department of Defense Manpower Data Center (DMDC) to determine whether borrowers qualify for the SCRA 6% interest rate cap and to extend the benefit to borrowers. Borrowers also have the option of completing an SCRA Interest Rate Limitation Request and submitting it to their loan servicer to document their eligibility for the 6% interest rate cap.

SCRA 6% Interest Rate Cap and Direct Consolidation Loans

If a borrower repays one or more loans on which the interest rate has been reduced to 6% under the SCRA with a Direct Consolidation Loan, the 6% interest rate is required to be used as the applicable interest rate on those loans for purposes of determining the weighted average interest rate of the new Direct Consolidation Loan. In such an occurrence, because Direct Consolidation Loans are currently being made with fixed interest rates, the 6% rate would essentially be locked in and would remain in effect beyond the end of the borrower's period of military service.

Interest Subsidy on All Loan Types During Cancer Treatment Deferment

A Cancer Treatment Deferment is to be provided during periods while a borrower is receiving treatment for cancer and for the six months thereafter. During periods while a borrower receives this deferment, no interest accrues on his or her qualifying loans. The Cancer Treatment Deferment is available on all types of Direct Loan program loans that are either made on or after September 28, 2018, or that had entered repayment status on or before September 28, 2019. This benefit does not appear to be available for loans that were made prior to September 28, 2019, but had not yet entered repayment prior to that date.

Deferred Payment of Accrued Interest

In certain instances, the obligation of a borrower to pay the interest that accrues on the outstanding principal balance of loans made through the Direct Loan program may be deferred. For instance, during in-school, grace, deferment, and forbearance periods, borrowers are not required to make payments of either principal o r the interest that accrues on the OPB. Also, for a borrower whose loans are in repayment status and who is repaying according to an IDR plan, if the amount of his or her required monthly payment is less than the amount of interest that has accrued on the loans, the payment of any accrued interest owed that is in excess of the required monthly payment amount may be deferred. Nonetheless, except to the extent that a borrower is receiving an interest subsidy, interest continues to accrue on his or her loans during periods while repayment of accrued interest is deferred.

Negative Amortization

The term negative amortization describes the situation in which the amount of interest that accrues on a loan over a given period of time is greater than the amount of payments that are made on it. In a case of negative amortization, the accumulation of unpaid accrued interest leads to the outstanding balance of principal and interest on the loan increasing over time. The deferred payment of accrued interest during periods of repayment according to the IDR plans (see " Income-Driven Repayment (IDR) Plans ") may lead to negative amortization.

Interest Capitalization

On certain occasions, any interest that has accrued but not been paid by a borrower may be added to the outstanding principal balance of the borrower's loans. This is called interest capitalization. When interest is capitalized, it becomes part of the OPB and interest begins to accrue on that new, larger loan amount. Over time, interest capitalization increases the total amount a borrower is required to repay. Interest is capitalized in the following situations:

Entering R epayment Status . Any unpaid interest that has accrued on a borrower's loans during the in-school and grace periods is capitalized at the time a borrower's loan enters repayment status. Loan Consolidation. Any interest that has accrued on a borrower's loan and remains unpaid when the borrower includes the loan in a Direct Consolidation Loan is capitalized upon consolidation. Annually, in ICR and Alternative Repayment Plans. Any unpaid interest that has accrued on a borrower's loan while the borrower is repaying according to the income-contingent repayment (ICR) plan or one of the alternative repayment plans is capitalized annually. End of Partial Financial Hardship . Any unpaid interest that has accrued on a borrower's loans during a period when he or she was repaying according to either of the IBR plans or the PAYE repayment plan and had a partial financial hardship is capitalized when the borrower is determined to no longer have a partial financial hardship. Exit from IBR, PAYE, or REPAYE Repayment Plan. Any unpaid interest that has accrued on a borrower's loan during a period when he or she was repaying according to the IBR, PAYE, or REPAYE repayment plans is capitalized at the time the borrower changes to a different repayment plan. End of Deferment or Forbearance. Any unpaid interest that has accrued on a borrower's loan during a period of deferment or forbearance is capitalized at the expiration of the respective period. However, if during the period of deferment or forbearance a borrower was repaying according to either of the IBR plans or the PAYE repayment plan and was experiencing a partial financial hardship, any interest that accrued during the period of deferment or forbearance will not be capitalized so long as the borrower continues to have a partial financial hardship. Default. Any unpaid interest that has accrued on a borrower's loan prior to the borrower defaulting (e.g., during periods of negative amortization, during delinquency) is capitalized at the time of default.

Limit on Interest Capitalization in the IDR and Alternative Repayment Plans

For borrowers who are repaying their loans according to some of the IDR plans or an alternative repayment plan, the amount of interest that may be capitalized is capped. For borrowers repaying their loans according to the ICR plan, the PAYE repayment plan, or the alternative repayment plans, interest may be capitalized until the outstanding principal balance reaches a maximum of 110% of the amount of the OPB owed at the time the borrower entered repayment. Once the limit is reached, interest will continue to accrue and accumulate, but it will no longer be capitalized as long as the borrower remains in the same repayment plan.

Loan Origination Fees

Loan origination fees are charged to borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. No fees are charged to borrowers of Direct Consolidation Loans. These fees help offset federal loan subsidy costs by passing along some of the costs to borrowers. Loan origination fees are calculated as a proportion of the loan principal borrowed and are deducted proportionately from the proceeds of each loan disbursement to the borrower.

The amount to be charged for loan origination fees is specified in statute. For Direct Subsidized Loans and Direct Unsubsidized Loans made on or after July 1, 2010, the HEA specifies a loan origination fee of 1%. (Higher loan origination fees were charged on loans made prior to July 1, 2010.) Since the inception of the Direct Loan program, the HEA has specified a loan origination fee of 4% for Direct PLUS Loans.

During periods when a budget sequestration order that applies to direct (or mandatory) spending programs is in effect, such as for the Direct Loan program, special rules apply to loan origination fees. In instances where the first disbursement of a loan is made during a period that is subject to a sequestration order, the loan origination fee is required to be increased by the uniform percentage sequestration amount that is applicable to nondefense, mandatory spending programs. Loan origination fees that apply to loans made during FY2019 and FY2020 (periods of budget sequestration) are presented below in Table 3 . A history of loan origination fees that previously applied to loans made through the Direct Loan program is presented in Appendix C in Table C-5 .

Loan Repayment

Borrowers are required to make payments on loans made through the Direct Loan program during a repayment period that, depending on the loan type, commences either upon the loan being fully disbursed (Direct PLUS Loans and Direct Consolidation Loans made on or after July 1, 2006) or after a six-month grace period (Direct Subsidized Loans, Direct Unsubsidized Loans, and pre-July 1, 2006, Direct Consolidation Loans). Borrowers are afforded the opportunity to choose from among a selection of numerous loan repayment plan options to repay their loans. The repayment plan selected is a determining factor in the duration of the repayment period. Borrowers may prepay all or any part of a loan made through the Direct Loan program at any time without being subject to a prepayment penalty.

Grace Period

A grace period is a six-month period beginning immediately after a borrower of a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a pre-July 1, 2006, Direct Consolidation Loan first ceases to be enrolled in an eligible program on at least a half-time basis. The grace period excludes any period of up to three years during which a borrower who is a member of a reserve component of the Armed Forces is called or ordered to active duty for a period of more than 30 days and thus ceases to be enrolled on at least a half-time basis, as well as any additional period necessary for such a borrower to resume enrollment at the next available regular enrollment period.

The grace period is distinct from and not part of the repayment period. A loan on which a grace period is provided does not enter repayment status until the day after the grace period ends. If a borrower desires to enter repayment on loans that have a grace period immediately after completing school or ceasing to be enrolled on at least a half-time basis, he or she may consolidate those loans into a Direct Consolidation Loan during the grace period and enter repayment on the Direct Consolidation Loan upon its disbursement.

Loan Repayment Period

In the Direct Loan program, the repayment period is the period during which borrowers are obliged to repay their loans. The repayment period for Direct Subsidized Loans, Direct Unsubsidized Loans, and pre-July 1, 2006, Direct Consolidation Loan begins the day after the grace period ends. Thus, for these types of loans the loan repayment period begins six months and one day after the borrower first ceases to be enrolled in an eligible program on at least a half-time basis. The repayment period for Direct PLUS Loans and Direct Consolidation Loans made on or after July 1, 2006, begins the day the loan is fully disbursed. (This would be the day of the last disbursement if the loan has multiple disbursements.) For all loan types, the first payment is due no later than 60 days after the start of the repayment period.

In general, the repayment period excludes any periods of authorized deferment and forbearance; however, in certain instances of a borrower repaying a loan according to an IDR plan, periods during which the borrower is receiving an economic hardship deferment may be considered as part of the repayment period. In instances where a borrower has entered a period of deferment or forbearance, the next subsequent payment is due no later than 60 days after the end of the deferment or forbearance period.

Loan Repayment Plans

Borrowers may choose from among numerous loan repayment plan options to repay their loans. The available repayment plans fall into five broad categories: standard repayment plans, extended repayment plans, graduated repayment plans, income-driven repayment (IDR) plans, and alternative repayment plans.

The particular repayment plans available to any individual borrower may depend on the type(s) of loans borrowed, the date of becoming a new borrower , or the date of entering repayment status. In general, all of a borrower's loans made through the Direct Loan program must be repaid together according to the same repayment plan. However, if a borrower seeking to repay according to one of the IDR plans has some types of loans that may be repaid according to an IDR plan and some that may not, the borrower may repay the eligible loans according to an IDR plan and the ineligible loans according to a non-IDR plan. If a borrower fails to actively select a repayment plan, he or she is placed into the standard repayment plan that is applicable to the loans.

In general, a borrower may change from one plan to another eligible plan at any time and may not change to a repayment plan that has a maximum repayment period of fewer than the number of years that the borrower's loans have already been in repayment status. If a borrower changes plans to any of the standard repayment plans, graduated repayment plans, extended repayment plans, or alternative repayment plans, the beginning of the applicable repayment period will be measured from the date that the borrower's loan initially entered repayment status. If a borrower changes to one of the IDR plans, the beginning of the repayment period will be measured from the date the borrower satisfied certain plan-specific criteria, as described below, for the applicable IDR plans.

Under the standard repayment plans, graduated repayment plans, extended repayment plans, and most alternative repayment plans, payment amounts may not be less than the amount of accrued interest that is due. Negative amortization is permitted in the IDR plans and as part of one alternative repayment plan option. Also, for loans with variable interest rates (which had been made prior to July 1, 2006), monthly payment amounts or the length of the repayment period may be adjusted under the standard repayment plans, graduate repayment plans, and extended repayment plans to take into account the effects of annual changes in the variable interest rate.

Table 4 provides a summary of selected characteristics of the various loan repayment plans that are made generally available to borrowers. Following the table, the various repayment plans are described in detail.

Standard Repayment Plans

Standard repayment plans allow borrowers to make predictable, level payments on their loans over a defined period of time. Two standard repayment plans are offered.

Standard Repayment Plan with a Maximum 10-Year Term

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, and borrowers of Direct Consolidation Loans that entered repayment prior to July 1, 2006, may select a standard repayment plan that has a maximum repayment period of 10 years. According to this plan, borrowers make fixed monthly payments of not less than $50 over a period of 10 years; however, loans with small balances may be repaid in a period that is shorter than 10 years.

Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms

Borrowers of Direct Consolidation Loans that were made on or after July 1, 2006, may select a standard repayment plan that has a repayment period of between 10 and 30 years. Under this plan, borrowers make fixed monthly payments of not than less than $50. The duration of the repayment period is based on the combined balances of the Direct Consolidation Loan and all other federal and private education loans owed by the borrower. However, for purposes of determining the repayment period, the combined balance of the other education loans may not be greater than the balance of the Direct Consolidation Loan. Repayment periods for the Standard Repayment Plan for Direct Consolidation Loans are shown in Table 5 . (The repayment periods shown also apply to the Graduated Repayment Plan for Direct Consolidation Loans, which is discussed in a later section.)

Extended Repayment Plans

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans may elect to repay according to an extended repayment plan. The extended repayment plans afford borrowers with large total loan balances the opportunity to make lower monthly payments in return for extending the repayment of their loans for a longer duration. By extending the repayment term, interest accrues over a longer period of time; as a consequence, a larger amount of interest is paid under an extended repayment plan than would be paid according to a standard repayment plan with a 10-year term. There are three extended repayment plans. Eligibility to select an extended repayment plan is limited based on when a borrower's loans entered repayment and the total outstanding principal balance owed on loans made through the Direct Loan program.

Extended Fixed Repayment Plan with a Maximum 25-Year Term

This repayment plan is available to individuals who are new borrowers on or after October 7, 1998; whose loans enter repayment on or after July 1, 2006; and who have an outstanding balance of more than $30,000 on loans made through the Direct Loan program. The Extended Fixed Repayment Plan allows borrowers to make monthly payments in equal amounts over a period of 25 years from the date their loans entered repayment status. This results in monthly payment amounts being lower than they would be under a standard repayment plan with a 10-year term.

Extended Graduated Repayment Plan with a Maximum 25-Year Term

Like the above plan, this repayment plan is available to individuals who are new borrowers on or after October 7, 1998; whose loans enter repayment on or after July 1, 2006; and who have an outstanding balance of more than $30,000 on loans made through the Direct Loan program. The Extended Graduated Repayment Plan allows borrowers to make monthly payments that are initially low and increase in amount every two years over a repayment period of 25 years from the date the borrower's loans entered repayment status. Under this plan, monthly payment amounts increase from an initial payment amount that must be at least $50 to an amount that may not be greater than three times the initial monthly payment amount.

Extended Repayment Plan with 12-Year to 30-Year Terms (Pre-July 1, 2006)

This extended repayment plan is available to borrowers of loans made through the Direct Loan program who entered repayment prior to July 1, 2006. Under this plan, borrowers make monthly payments in equal amounts over a period that may range from 12 to 30 years from the date their loans entered repayment status. The minimum monthly payment amount is $50, and the duration of the repayment term is dependent upon the outstanding principal balance of the borrower's loans made through the Direct Loan program. The extension of the repayment term results in monthly payment amounts being lower than they would be under a standard repayment plan with a 10-year term. Repayment periods for the extended repayment plan, by loan amount, are shown below in Table 6 . (The repayment periods shown in this table also apply to the graduated repayment plan for borrowers who entered repayment prior to July 1, 2006, which is discussed in the next section.)

Graduated Repayment Plans

Loan repayment according to the graduated repayment plans is structured so that a borrower's monthly payment amount will periodically change over the course of the repayment period. In general, borrowers will be required to make smaller payments at first and larger payments later. Monthly payment amounts may be less than $50; however, in no instance may they be less than the amount of interest that accrues. There are three graduated repayment plans. A borrower's eligibility to select one of the graduated repayment plans depends on loan type and when the borrower's loans entered repayment.

Graduated Repayment Plan with a Maximum 10-Year Term

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans that entered repayment after July 1, 2006, may select a graduated repayment plan that has a maximum repayment period of 10 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may be less than $50 to an amount that may not be greater than three times the initial monthly payment amount.

Graduated Repayment Plan for Direct Consolidation Loanswith 10-Year to 30-Year Terms

Borrowers of Direct Consolidation Loans that were made on or after July 1, 2006, may select a graduated repayment plan that has a repayment period of between 10 and 30 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may be less than $50 to an amount that may not be greater than three times the initial monthly payment amount. The duration of the repayment period is based on the combined balances of the Direct Consolidation Loan and all other federal and private education loans owed by the borrower. However, for purposes of determining the repayment period, the combined balance of the other education loans may not be greater than the balance of the Consolidation Loan. Repayment periods for the Graduated Repayment Plan for Direct Consolidation Loans are shown above in Table 5 .

Graduated Repayment Plan with 12-Year to 30-Year Terms (Pre-July 1, 2006)

Borrowers of loans made through the Direct Loan program who entered repayment prior to July 1, 2006, may repay their loans according to a graduated repayment plan with a term that can range from 12 to 30 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may not be less than either $25 or 50% of the amount that would be required under the Standard Repayment Plan with a Maximum 10-Year Term to an amount that may be no more than 150% of the amount that would be required under the Standard Repayment Plan with a Maximum 10-Year Term. The duration of the repayment term is determined based on the total outstanding principal balance of the borrower's loans made through the Direct Loan program. Repayment periods for this graduated repayment plan vary by loan balance, and are shown above in Table 6 .

Income-Driven Repayment (IDR) Plans

Since its establishment, the Direct Loan program has included a requirement that a repayment plan be made available to borrowers (other than to parent borrowers of Direct PLUS Loans) under which monthly payment amounts would vary according to the income of the borrower. For the first 15 years that the Direct Loan program was in operation, an Income-Contingent Repayment (ICR) plan fulfilled this requirement. Over time, additional repayment plans that served this purpose became available. Collectively, these plans have come to be referred to as income-driven repayment (IDR) plans.

Several IDR plans are currently available to borrowers: the Income-Contingent Repayment plan, the Income-Based Repayment (IBR) plan (one version of which is available to individuals who qualify as a new borrower on or after July 1, 2014, and another which is available to individuals who do not qualify as a new borrower as of that date), the Pay As You Earn (PAYE) repayment plan, and the Revised Pay As You Earn (REPAYE) repayment plan.

The IDR plans afford borrowers the opportunity to make monthly payments in amounts that are capped at a specified share or proportion of their discretionary income over a repayment period that may not exceed a specified duration . Discretionary income is defined as the portion of a borrower's adjusted gross income (AGI) that is in excess of a specified multiple of the federal poverty guidelines applicable to the borrower's family size. In general, a borrower's family size includes the borrower, the borrower's spouse, and the borrower's children, and may include other individuals who both live with the borrower and receive more than half of their support from the borrower. The portion of a borrower's income that is below the federal poverty guideline multiple that is applicable to a particular IDR plan may be considered nondiscretionary income, or income that may be needed for purposes of meeting certain basic needs such as food and shelter. Multiples of the federal poverty guidelines that are applicable to the IDR plans are presented below in Table 7 for family sizes of one through eight persons.

The various IDR plans are primarily distinguished by (1) the multiple (e.g., 100%, 150%) of the federal poverty guidelines used to define discretionary income, (2) the percentage of a borrower's discretionary income (e.g., 10%, 15%, 20%) that is assessed as being available for purposes of making student loan payments, and (3) the maximum duration of the repayment term (e.g., 20 years, 25 years). The IDR plans also share other common characteristics that include the following:

Required certification of income and family size. The processes for determining IDR plan monthly payment amounts take into account a borrower's income and family size. Consequently, on an annual basis borrowers must provide documentation of their income and must certify their family size to become and remain eligible for IDR plan repayment. In addition, borrowers may update their income and family size at any time if either changes. Potential n egative amortization. IDR plan payment amounts are capped at no more than a certain proportion of a borrower's discretionary income. As a result, in some circumstances required payment amounts may be less than the amount of interest that accrues, which may lead to a borrower's loan(s) becoming negatively amortized. Potential availability of l oan forgiveness. All the IDR plans make available the prospect of eventual loan forgiveness if a borrower, after making payments according to one or more of the IDR plans, has been unable to fully repay his or her student loan debt by the end of the maximum repayment term. Payments made on defaulted loans repaid according to the IDR plans do not count toward a borrower's eligibility for loan forgiveness.

Each of the IDR plans are described in detail below.

Income-Contingent Repayment (ICR) Plan

The Income-Contingent Repayment plan permits borrowers to make payments on eligible student loans in amounts that are determined according to procedures that take into account a borrower's adjusted gross income and family size. Any loan balance that remains unpaid after 25 years of repayment according to the ICR plan and other qualified plans will be forgiven. Specifications for the ICR plan are established by the Secretary and are codified in regulations. An income-contingent repayment plan has been available to borrowers since the establishment of the Direct Loan program in 1994.

Eligibility. The ICR plan is available to all borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate and professional students, and Direct Consolidation Loans. Direct PLUS Loans made to parent borrowers are not eligible to be repaid according to the ICR plan; however, parent borrowers of Direct PLUS Loans may qualify to repay those loans according to the ICR plan by consolidating them into a Direct Consolidation Loan. There are no specific income restrictions that limit a borrower's eligibility to repay according to the ICR plan.

Payment Amounts. Under the ICR plan, monthly payment amounts are calculated according to procedures that take into account factors including the outstanding loan balance at the time the borrower's loans enter repayment status, the interest rates applicable to those loans, the amount of any unpaid accrued interest, the borrower's adjusted gross income (AGI) and family size, and an income percentage factor. For a married borrower who files a joint federal tax return with his or her spouse, the AGI for both spouses is used; for a married borrower who files a separate federal tax return, only the AGI of the borrower is used. Consistent with these criteria, monthly payment amounts are the lesser of

a monthly payment amount calculated according to a 12-year amortization schedule, multiplied by an income percentage factor that corresponds to the borrower's AGI and tax filing status; or one-twelfth of 20% of the amount by which the borrower's AGI exceeds 100% of the federal poverty guideline applicable to the borrower's family size (see Table 7 ).

Monthly payment amounts may range from $0 for a borrower with an income at or below 100% of the federal poverty guideline to amounts more than sufficient to repay the borrower's loans in 12 years or less. For a borrower whose calculated monthly payment results in an amount that is greater than $0 but less than $5, a minimum monthly payment amount of $5 is required. Monthly payment amounts are recalculated annually to take into account changes (e.g., borrower AGI, the amount of any unpaid accrued interest) that may have occurred over the past year.

Joint ICR Plan Repayment for Married Borrowers . Borrowers of loans made through the Direct Loan program who are married to each other may elect to repay their loans jointly. Married borrowers must file a joint federal tax return to qualify for Joint ICR plan repayment. Under this option, the sum of the outstanding loan balances of each borrower, as of the time they elect joint repayment, is used to determine their combined monthly payment amount according to the procedures described above for the ICR plan. Payments made by married borrowers repaying jointly are applied to each borrower's loans in proportion to each borrower's share of the combined outstanding balance.

Subsidized Interest . No special interest subsidies are made available to borrowers as part of the ICR plan.

Application of Payments. Payments made by borrowers under the ICR plan are first applied to any outstanding charges or collection costs, then to outstanding interest due on the loan, and then to principal. Under the ICR plan formula, it is possible that a borrower's monthly payment amount may be for less than the amount of interest that has accrued since the last payment. Should this occur, interest will continue to accrue on the outstanding principal balance and unpaid interest that has accumulated will be capitalized into the principal balance of the loan once per year. However, unpaid accrued interest may only be capitalized until the outstanding principal balance reaches 110% of the amount of the original principal balance as of when the borrower's loan(s) entered repayment. Once the OPB has reached 110% of the original principal balance, unpaid accrued interest may continue to accumulate but will no longer be capitalized.

Failure to Certify Income and Family Size . To qualify and remain eligible to repay according to the ICR plan, borrowers must annually provide certification of their income and family size to ED. Certification of income is normally satisfied by providing the borrower's AGI. However, if the borrower's AGI does not reflect his or her current income, alternative documentation of income may be provided. If the borrower fails to provide certification of income, his or her monthly payment amount will be recalculated to equal the amount the borrower would have paid according to the Standard Repayment Plan with a Maximum 10-Year Term, based on the amount owed at the time he or she first elected to repay according to the ICR plan. The repayment period based on the recalculated payment amount may exceed 10 years. If the borrower fails to certify his or her family size, a family size of one will be assumed and used for the year.

Maximum Repayment Period and Loan Forgiveness . The ICR plan has a maximum repayment period of 25 years. If a borrower repays according to the ICR plan and obtains an additional loan that is eligible to be repaid according to the plan, a new, separate repayment period will begin for the new loan when it enters repayment. If after 25 years of having repaid a nondefaulted loan or loans according to the ICR plan or certain other repayment plans, or having qualified for and received an economic hardship deferment, a borrower still has an outstanding loan balance, the remaining unpaid balance will be discharged (i.e., forgiven). The maximum 25-year repayment period for the ICR plan, after which loan forgiveness may be granted, includes periods during which the borrower

made monthly payments (including payments of $0) according to the ICR plan, made monthly payments (including payments of $0) according to an IBR plan while experiencing a partial financial hardship; made monthly payments, either as part of an IBR plan after no longer having a partial financial hardship or after leaving an IBR plan, in amounts calculated according to the Standard Repayment Plan with a Maximum 10-Year Term, based on the outstanding balance as of when the borrower first began repaying according to an IBR plan; made monthly payments (including payments of $0) according to the PAYE repayment plan or the REPAYE repayment plan; made monthly payments according to the REPAYE Alternative Repayment plan prior to changing to an IBR plan; made monthly payments on a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan according to the Standard Repayment Plan with a Maximum 10-Year Term during the portion of the maximum 10-year repayment period that remains after the borrower ceases to repay according to an IBR plan; made payments on a Direct Consolidation Loan according to the Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms or the Graduate Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms during the portion of the maximum 10-year to 30-year repayment period that remains after the borrower ceases to repay according to an IBR plan; made monthly payments according to the Standard Repayment Plan with a Maximum 10-Year Term; made monthly payments during periods after October 1, 2007, according to any repayment plan in amounts not less than the amount required under the Standard Repayment Plan with a Maximum 10-Year Term; only for borrowers who entered repayment prior to October 1, 2007, and only if the applicable repayment term is for not more than 12 years, made payments according to the Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms, the Extended Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms, or the Graduated Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms (see Table 5 ); or received an economic hardship deferment.

Income-Based Repayment (IBR) Plans

The Income-Based Repayment plans permit borrowers to repay eligible student loans according to procedures that limit monthly payment amounts based on criteria that take into account a borrower's adjusted gross income, family size, and monthly payment amount as calculated according to a standard 10-year repayment period, based on the greater of the amount owed at the time the borrower initially entered repayment or the amount owed at the time the borrower elects to repay according to the IBR plan. Any loan balance that remains after the maximum repayment period of the plan will be forgiven. There are two IBR plan versions that function similarly. They are differentiated by (1) the date used to delimit borrower eligibility (July 1, 2014), (2) the percentage of discretionary income used to determine borrower eligibility for the plan and monthly payment amounts (15% or 10%), and (3) the maximum repayment period (25 years or 20 years). The description that follows distinguishes between the two IBR plan versions as applicable.

The initial version of the IBR plan was established under the College Cost Reduction and Access Act of 2008 (CCRAA; P.L. 110-84 ), and on July 1, 2009, it became available to borrowers of loans made through the Direct Loan program and the FFEL program, irrespective of when an individual had borrowed a loan through either program. (Hereinafter, this version is referred to as the Original IBR p lan .) Amendments to the IBR plan were enacted in 2010 under the SAFRA Act (Title II of the HCERA; P.L. 111-152 ), and a revised version of the IBR plan was made available to individuals who, on or after July 1, 2014, became new borrowers of loans made through the Direct Loan program. (Hereinafter, this version is referred to as the IBR Plan for Post-July 1, 2014, New Borrowers .)

Eligibility. With certain exceptions, federal student loans made through both the Direct Loan program and the FFEL program are considered eligible loans for purposes of repayment according to the Original IBR plan, while only loans made through the Direct Loan program are eligible for repayment according to the IBR plan for Post-July 1, 2014, New Borrowers. In both cases, exceptions pertain to loans made to parent borrowers. Direct PLUS Loans and FFEL PLUS Loans that were made to a parent borrower and Direct Consolidation Loans and FFEL Consolidation Loans that that were used to repay either a Direct PLUS Loan or a FFEL PLUS Loan that was made to a parent borrower are ineligible to be repaid according to either of the IBR plans. These loans to parent borrowers are also excluded from being considered when determining a borrower's eligibility for IBR plan repayment. This discussion addresses the IBR plans available through the Direct Loan program.

Partial Financial Hardship. To be eligible to begin repaying according to an IBR plan, a borrower must be determined to have a partial financial hardship . The criteria for determining whether a borrower has a partial financial hardship take into account the borrower's federal income tax filing status (e.g., single, married filing jointly), AGI, family size, multiples of the federal poverty guidelines applicable to the borrower's family size, and monthly payment amounts as calculated according to a standard 10-year repayment period based on the greater of the amount owed at the time the borrower initially entered repayment or the amount owed at the time the borrower elects to repay according to the IBR plan.

If a borrower is single, or is married and files an individual federal tax return, he or she is determined to have a partial financial hardship if the total annual payments for all of the borrower's eligible loans, as calculated according to a standard 10-year repayment period, are greater than the applicable percentage (15% or 10%) of his or her discretionary income. If a borrower is married and files a joint federal tax return, he or she is determined to have a partial financial hardship if the total annual payments for all of the eligible loans of the borrower and, if applicable, the eligible loans of the borrower's spouse, as calculated according to a standard 10-year repayment period, are greater than the applicable percentage of the combined discretionary income of the borrower and the borrower's spouse. Discretionary income is defined as the portion of a borrower's adjusted gross income that is in excess of 150% of the poverty guideline that is applicable to his or her family size. If the total annual payments for all of the borrower's eligible loans, as calculated according to a standard 10-year repayment period, do not exceed 15% or 10% of his or her discretionary income, as applicable, the borrower is no longer considered as having a partial financial hardship.

Payment Amounts. During periods while a borrower has a partial financial hardship and repays according to an IBR plan, monthly amounts due on his or her loans may range from $0, for a borrower with an AGI that is at or below 150% of the poverty guideline, to a maximum of one-twelfth of the specified percentage factor (15% or 10%) of a borrower's discretionary income. For example, based on the 2019 HHS Poverty Guidelines, 150% of the poverty guideline for a family of one in the 48 contiguous states and the District of Columbia is $18,735. (See Table 7 .)

In the Original IBR plan, a single borrower with an adjusted gross income of $40,000 would have a partial financial hardship if his or her annual student loan payments were greater than $3,189.75, or $265.81 per month. ($3,189.75 is 15% of the result of subtracting $18,735 from $40,000.)

In the IBR plan for post-July 1, 2014, New Borrowers, a single borrower with an adjusted gross income of $40,000 would have a partial financial hardship if his or her annual student loan payments were greater than $2,126.50, or $177.21 per month. ($2,126.50 is 10% of the result of subtracting $18,735 from $40,000.)

For a borrower whose calculated monthly payment results in an amount that is greater than or equal to $5 but less than $10, the monthly payment is set at $10. For a borrower whose calculated monthly payment results in an amount that is less than $5, the monthly payment is set at $0. Monthly payment amounts are recalculated annually to take into account changes that may have occurred over the past year.

If a borrower who is repaying according to an IBR plan no longer demonstrates having a partial financial hardship or no longer desires to make payments based on income, he or she may remain in the IBR plan; however, the borrower's maximum required monthly payment amount will no longer be calculated according the formula described above. Nonetheless, the required payment amount may not exceed the monthly amount due, as calculated according to a standard 10-year repayment period based on the borrower's loan balance at the time he or she elected to begin repaying according to the IBR plan. However, in such a case the duration of the repayment period may exceed 10 years.

Joint IBR Plan Repayment for Married Borrowers. Since July 1, 2010, the IBR plan has provided for the joint repayment of loans by married borrowers who both have eligible loans and who file a joint federal tax return. Individual payment amounts are proportional to each spouse's share of the couple's combined loan balances and combined AGI.

Subsidized Interest . As part of the IBR plans, an interest subsidy is available on subsidized loans during periods of negative amortization for a maximum of the first three years from the start of a borrower's repayment according to an IBR plan. If a borrower's required monthly payment is not sufficient to cover all of the interest that accrues on a Direct Subsidized Loan (or the subsidized component of a Direct Consolidation Loan), the portion of the accrued interest not covered by the borrower's monthly payment is subsidized, or paid by the Secretary. Any periods during which the borrower has received an interest subsidy under either the PAYE plan or the REPAYE plan are applied toward this three-year period. However, any periods during which a borrower has received an interest subsidy while qualifying for an economic hardship deferment (during which an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of a Direct Consolidation Loan) are excluded from the three-year period.

Application of Payments. Payments made by borrowers repaying under an IBR plan are first applied to interest due on the loan, then to any fees, and then to principal. If a borrower's required monthly payment is for an amount that is less than the amount of interest that accrues on a loan other than a Direct Subsidized Loan or the subsidized component of a Direct Consolidation Loan, or that accrues on a subsidized loan type after the three-year interest subsidy period described above, the unpaid accrued interest will accumulate, but not be capitalized, so long as the borrower remains in the IBR plan and continues to have a partial financial hardship. If a borrower's required monthly payment is sufficient to pay the accrued interest but is insufficient to repay the amount of principal due, then the payment of any principal due in excess of the monthly payment amount owed will be postponed until the borrower no longer has a partial financial hardship or leaves the IBR plan. Upon a borrower either no longer having a partial financial hardship or electing to no longer repay according to an IBR plan, any accumulated accrued interest that has not been paid will be capitalized.

If a borrower chooses to leave an IBR plan, he or she must change to the Standard Repayment Plan that is applicable to the loansâeither the Standard Repayment Plan with a Maximum 10-Year Term or the Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms. (The borrower may subsequently change to another repayment plan; however, he or she may not change to a repayment planâother than a different IDR planâthat has maximum term that is less than the number of years the borrower's loans have already been in repayment. ) The monthly payment amount due on the borrower's loans must be calculated according to the applicable standard repayment plan based on the time remaining in the repayment period under such plan and the outstanding balance owed at the time the borrower ceased repaying according to the IBR plan. A borrower who changes from the IBR plan to a standard repayment plan must make at least one monthly payment according to the standard repayment plan before changing to another repayment plan for which the borrower may be eligible. Borrowers may request a forbearance that permits the making of a smaller payment amount than otherwise would be required for purposes of making that one required monthly payment according to the Standard Repayment Plan.

Failure to Certify Income and Family Size . To qualify and remain eligible to repay according to the IBR plans, borrowers must annually provide certification of their income and family size to ED. Certification of income is normally satisfied by providing the borrower's AGI. However, if the borrower's AGI does not reflect his or her current income, alternative documentation of income may be provided. If the borrower fails to provide certification of income, any unpaid accrued interest will be capitalized and his or her monthly payment amount will be recalculated to equal the amount the borrower would have paid according to the Standard Repayment Plan with a Maximum 10-Year Term, based on the amount owed at the time he or she first elected to repay according to the IBR plan. The repayment period based on the recalculated payment amount may exceed 10 years. If the borrower fails to certify his or her family size, a family size of one will be assumed and used for the year.

Maximum Repayment Period and Loan Forgiveness . The maximum repayment period for the Original IBR plan is 25 years, whereas the maximum repayment period for the IBR plan for post-July 1, 2014, New Borrowers is 20 years. If after having repaid according to an IBR plan a borrower obtains additional loans that are eligible to be repaid according to that IBR plan, a new repayment period will begin for the new loans when they enter repayment. A borrower who has participated in one of the IBR plans and has satisfied any combination of the following conditions for the duration of the applicable repayment period becomes eligible to have any balance that remains at the end of the maximum repayment period forgiven:

made reduced monthly payments (including payments of $0) according to an IBR plan while experiencing a partial financial hardship; made monthly payments in amounts calculated according to the Standard Repayment Plan with a Maximum 10-Year Term after no longer having a partial financial hardship; made monthly payments on Direct Subsidized Loans, Direct Unsubsidized Loans, or Direct PLUS Loans according to the Standard Repayment Plan with a Maximum 10-Year Term, or on Direct Consolidation Loans according to the Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms, as applicable, after choosing to no longer repay according to an IBR plan; made monthly payments according to any repayment plan in amounts not less than the amount required under the Standard Repayment Plan with a Maximum 10-Year Term; made monthly payments according to the Standard Repayment Plan with a Maximum 10-Year Term based on the amount owed at the time the borrower initially selected an IBR plan; made monthly payments (including payments of $0) according to the ICR plan, the PAYE repayment plan, or the REPAYE repayment plan; made monthly payments according to the REPAYE Alternative Repayment Plan prior to changing to an IDR plan; or received an economic hardship deferment.

Pay As You Earn (PAYE) Repayment Plan

The Pay As You Earn (PAYE) repayment plan is substantially similar to the IBR plan for post-July 1, 2014, New Borrowers (see above). The plan permits borrowers to repay eligible loans according to procedures that limit monthly payment amounts based on criteria that take into account a borrower's AGI, family size, and monthly payment amount as calculated according to a standard 10-year repayment period based on the greater of the amount owed at the time the borrower initially entered repayment or the amount owed at the time he or she elects to repay according to the PAYE plan. For borrowers who repay according to this plan, any loan balance that remains after 20 years of repayment will be forgiven. The plan became available to eligible borrowers on December 21, 2012.

The PAYE repayment plan was established by the Obama Administration through the rulemaking process under authority provided in the HEA for the Secretary to establish an income-contingent repayment plan. With the establishment of the PAYE repayment plan, a set of benefits substantially similar to those that had been extended to a specific class of borrowers through the enactment of legislation (the IBR Plan for post-July 1, 2014, New Borrowers) was extended to a broader class of borrowers through the rulemaking process.

Eligibility. The PAYE repayment plan is available to individuals who are new borrowers on or after October 1, 2007, and have received a disbursement on a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan to graduate and professional students on or after October 1, 2011, or a Direct Consolidation Loan based on an application received by ED on or after October 1, 2011, and who are identified as having a partial financial hardship. Eligible borrowers may use the plan to repay loans made through the Direct Loan program, with the exceptions of Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans used to repay either Direct PLUS Loans or FFEL PLUS Loans that had been made to parent borrowers.

Partial Financial Hardship. A borrower is considered as having a partial financial hardship if the total of his or her annual payments on all eligible loans, as calculated according to a standard 10-year repayment period based on the greater of the amount owed at the time the borrower initially entered repayment or the amount owed at the time he or she elects to repay according to the PAYE plan, is greater than 10% of the amount by which the borrower's AGI exceeds 150% of the poverty line applicable to his or her family size.

If a borrower is single, or is married and files an individual federal tax return, he or she is determined to have a partial financial hardship if the total annual payments for all of the borrower's eligible loans, as calculated according to a standard 10-year repayment period, are greater than 10% of his or her discretionary income. If a borrower is married and files a joint federal tax return, he or she is determined to have a partial financial hardship if the total annual payments for all of the borrower's eligible loans and, if applicable, the borrower's spouse's eligible loans, as calculated according to a standard 10-year repayment period, are greater than 10% of the combined discretionary income of the borrower and his or her spouse. If the total annual payments for all of the borrower's eligible loans, as calculated according to a standard 10-year repayment period, do not exceed 10% of his or her discretionary income, the borrower is no longer considered as having a partial financial hardship.

Payment Amounts. While repaying according to the PAYE repayment plan, monthly amounts due on borrowers' loans may range from $0, for those with incomes at or below 150% of the poverty line, to a maximum of one-twelfth of 10% of any amount by which the borrower's AGI exceeds 150% of the poverty line. If a borrower who is repaying according to the plan no longer demonstrates having a partial financial hardship or no longer desires to make payments based on income, the monthly payment amount will be recalculated. In such a case, the maximum monthly payment amount may not exceed the amount due as calculated according to the Standard Repayment Plan with a Maximum 10-Year Term based on the borrower's loan balance at the time he or she elected to begin repaying according to the PAYE repayment plan. However, the duration of the repayment period may exceed 10 years.

For a borrower whose calculated monthly payment results in an amount that is greater than or equal to $5 but less than $10, the monthly payment is set at $10. For a borrower whose calculated monthly payment results in an amount that is less than $5, the monthly payment is set at $0. Monthly payment amounts are recalculated annually to take into account changes that may have occurred over the past year.

Joint PAYE Repayment for Married Borrowers. The PAYE repayment plan provides for the joint repayment of loans by married borrowers who both have eligible loans and who file a joint federal tax return. For married borrowers repaying jointly according to the plan, individual payment amounts are proportional to each spouse's share of the couple's combined loan balances and combined AGI.

Subsidized Interest . An interest subsidy is available on subsidized loans during periods of negative amortization for a maximum of the first three years from the start of repayment according to the PAYE repayment plan. If a borrower's calculated monthly payment is insufficient to pay all of the interest that accrues on a Direct Subsidized Loan (or the subsidized component of a Direct Consolidation Loan), the portion of the accrued interest that is not covered by his or her monthly payment is subsidized for a period not to exceed three years. Periods during which a borrower is receiving an economic hardship deferment are excluded from the three-year eligibility period. In general, the terms of this interest subsidy for subsidized loans are the same as the terms that apply to the IBR plans (see above).

Application of Payments. Payments made by borrowers repaying according to the PAYE repayment plan are credited first to interest due on the loan, then to any fees, and then to principal. If a borrower's required monthly payment is for an amount that is less than the amount of interest that accrues, the unpaid accrued interest will accumulate, but not be capitalized, so long as the borrower remains in the plan and continues to have a partial financial hardship. If a borrower's required monthly payment is sufficient to pay the accrued interest but is insufficient to repay the amount of principal due, then the payment of any principal due in excess of the monthly payment amount owed will be postponed until he or she no longer has a partial financial hardship or leaves the plan.

If a borrower no longer has a partial financial hardship but remains in the PAYE repayment plan, accumulated accrued interest is capitalized into the principal balance of the loan. In such a case, the amount of accrued interest that may be capitalized is limited to 10% of the outstanding principal balance at the time the borrower began repaying according to the plan. Any accrued interest beyond the 10% limit will remain due but will not be capitalized as long as the borrower remains in the plan.

If a borrower chooses to leave the PAYE repayment plan, he or she may change to any other repayment plan for which he or she is eligible, as long as the new repayment plan has a maximum term that is not less than the number of years the borrower's loans have already been in repayment, or is an available IDR plan. Upon a borrower electing to no longer repay according to the PAYE repayment plan, any accumulated accrued interest that has not been paid will be capitalized.

Failure to Certify Income and Family Size . To qualify and remain eligible to repay according to the PAYE repayment plan, borrowers must annually provide certification of their income and family size. Certification of income is normally satisfied by providing the borrower's AGI. However, if the borrower's AGI does not reflect his or her current income, alternative documentation of income may be provided. If the borrower fails to provide certification of income, any unpaid accrued interest will be capitalized and his or her monthly payment amount will be recalculated to equal the amount the borrower would have paid according to the Standard Repayment Plan with a Maximum 10-Year Term, based on the amount owed at the time he or she first elected to repay according to the plan. The repayment period based on the recalculated payment amount may exceed 10 years. If the borrower fails to certify his or her family size, a family size of one will be assumed and used for the year.

Maximum Repayment Period and Loan Forgiveness . In the PAYE repayment plan, the maximum repayment period is 20 years. A borrower who at any time participates in the plan becomes eligible to have any balance that remains on his or her eligible loans forgiven if during the 20-year repayment period the borrower meets the loan forgiveness eligibility criteria specified in regulations at 34 C.F.R. Section 685.209(a)(6). (These criteria are substantially similar to the provisions that are applicable to the IBR plan for post-July 1, 2014, New Borrowers, as described above.) If after having repaid according to the PAYE repayment plan a borrower obtains additional loans that are eligible to be repaid according to the plan, a new repayment period will begin for the new loans when they enter repayment.

Revised Pay As You Earn (REPAYE) Repayment Plan

The Revised Pay As You Earn (REPAYE) repayment plan permits borrowers to repay eligible loans made through the Direct Loan program according to procedures that limit monthly payment amounts based on criteria that take into account a borrower's AGI and family size. For borrowers whose student loan debt was obtained exclusively for undergraduate education, the maximum repayment period is 20 years; for borrowers whose student loan debt includes any amounts obtained for graduate education, the maximum repayment period is 25 years. Any loan balance that remains after the maximum repayment period will be forgiven. The REPAYE repayment plan became available to eligible borrowers on December 17, 2015.

Like the PAYE repayment plan, the REPAYE repayment plan was established by the Obama Administration through the rulemaking process under authority provided in the HEA for the Secretary to establish an income-contingent repayment plan. The REPAY repayment plan has a number of characteristics that are similar to the other IDR plans. It also has an enhanced interest subsidy that is unique to the plan.

Eligibility. The REPAYE repayment plan is available to borrowers of loans made through the Direct Loan program except for Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans used to repay either Direct PLUS Loans or FFEL PLUS Loans that had been made to parent borrowers. The plan is available to borrowers irrespective of when an individual became a new borrower. A borrower's eligibility to repay according to the REPAYE repayment plan is not limited based on factors that take into account the relationship between his or her student loan debt and discretionary income (i.e., borrowers need not demonstrate anything akin to having a partial financial hardship to repay according to the REPAYE repayment plan).

P ayment Amounts. While repaying according to the REPAYE repayment plan, monthly amounts due on borrowers' loans may range from $0, for those with incomes at or below 150% of the poverty line, to a maximum of one-twelfth of 10% of any amount by which a borrower's AGI exceeds 150% of the poverty line. For a borrower whose calculated monthly payment results in an amount that is greater than or equal to $5 but less than $10, the monthly payment is set at $10. For a borrower whose calculated monthly payment results in an amount that is less than $5, the monthly payment is set at $0. Monthly payment amounts are recalculated annually to take into account changes that may have occurred over the past year.

For purposes of calculating monthly payment amounts under the REPAYE repayment plan, if the borrower is unmarried his or her AGI is used. If the borrower is married, and unless certain exceptions apply, the AGI of both the borrower and his or her spouse is used irrespective of whether the borrower files a joint or separate federal tax return with his or her spouse. If a borrower is married and certifies that he or she is separated from his or her spouse, or is unable to access information on the income of his or her spouse, then the AGI of only the borrower is used.

Joint REPAYE Repayment for Married Borrowers. The REPAYE repayment plan provides for the joint repayment of loans by married borrowers who both have eligible loans and who file a joint federal tax return. For married borrowers repaying jointly according to an IBR plan, individual payment amounts are proportional to each spouse's share of the couple's combined loan balances and combined AGI.

Subsidized Interest . Under the REPAYE repayment plan, an interest subsidy is available on both subsidized loans and unsubsidized loans during periods of negative amortization. During the first three years from the start of repayment under the plan, for Direct Subsidized Loans and the subsidized component of Direct Consolidation Loans, if a borrower's calculated monthly payment is not sufficient to pay all of the interest that accrues, 100% of the portion of the accrued interest that is not covered by his or her monthly payment is subsidized. Periods during which a borrower receives an interest subsidy during an economic hardship deferment are excluded from the consecutive three-year period. After the three-year period for subsidized loans, and during all periods for Direct Unsubsidized Loans, Direct PLUS Loans, and the unsubsidized component of Direct Consolidation Loans, 50% of the portion of the accrued interest that is not covered by the borrower's monthly payment is subsidized.

Graduate students who are borrowers of Direct PLUS Loans may be able to qualify for the 50% interest subsidy while they are in school in lieu of receiving an in-school deferment while interest accrues at the otherwise applicable interest rate. For Direct PLUS Loans, the repayment period begins the day the loan is fully disbursed. However, borrowers who are enrolled on at least a half-time basis qualify for and typically receive an in-school deferment during which they are not required to make payments, but during which interest accrues. Student borrowers are placed in an in-school deferment upon requesting such a deferment or the Secretary receiving notification from the borrower's school or the National Student Loan Data System (NSLDS) that the student is enrolled on at least a half-time basis. Nonetheless, borrowers who receive an in-school deferment have the option to cancel it. Borrowers whose AGI while in school is low enough that it would result in the calculation of a monthly payment amount according to the REPAYE repayment plan that would be insufficient to pay all of the interest that accrues on their loan may consider choosing to cancel receipt of an in-school deferment in favor of receiving a 50% interest subsidy on the portion of the interest that would not be covered by his or her monthly payment amount.

Application of Payments. Payments made by borrowers repaying according to the REPAYE repayment plan are credited first to interest due on the loan, then to any fees, and then to principal. If a borrower's required monthly payment is for an amount that is less than the amount of interest that accrues on a loan other than a Direct Subsidized Loan or the subsidized component of a Direct Consolidation Loan, or that accrues on a subsidized loan type after the three-year interest subsidy period described above, the unpaid accrued interest will accumulate, but not be capitalized, so long as the borrower remains in the plan. If a borrower's required monthly payment is sufficient to pay the accrued interest but is insufficient to repay the amount of principal due, then the payment of any principal due in excess of the monthly payment amount owed will be postponed.

If a borrower chooses to leave the REPAYE repayment plan, he or she may change to any other repayment plan for which he or she is eligible, as long as the new repayment plan has a maximum term that is not less than the number of years the borrower's loans have already been in repayment, or is an available IDR plan. Upon a borrower electing to no longer repay according to the REPAYE repayment plan, any accumulated accrued interest that has not been paid will be capitalized.

Failure to Certify Income and Family Size . To qualify and remain eligible to repay according to the REPAYE repayment plan, borrowers must annually provide certification of their income and family size. Certification of income is normally satisfied by providing the borrower's AGI. However, if the borrower's AGI does not reflect his or her current income, alternative documentation of income may be provided. If the borrower fails to provide certification of income, any unpaid accrued interest will be capitalized and he or she will be placed in the REPAYE Alternative Repayment plan. If the borrower fails to certify his or her family size, a family size of one will be assumed and used for the year.

REPAYE Alternative Repayment Plan. Borrowers repaying according to the REPAYE repayment plan who fail to provide timely certification of their income are subject to being placed into the REPAYE Alternative Repayment plan. Under the REPAYE Alternative Repayment plan, monthly payment amounts are calculated to equal the amount necessary to repay the borrower's loans in full within the earlier of 10 years from placement into the REPAYE Alternative Repayment plan or the ending of the maximum repayment period of 20 years or 25 years, as applicable. Payments made during periods of repayment according to the REPAYE Alternative Repayment plan count as qualifying payments for loan forgiveness under the various IDR plans; however, they do not count as qualifying payments for the Public Service Loan Forgiveness program.

Maximum Repayment Period and Loan Forgiveness . In the REPAYE repayment plan, the maximum repayment period is 20 years for borrowers whose student loan debt was obtained exclusively for undergraduate education; and 25 years for borrowers whose student loan debt includes any amounts obtained for graduate education. A borrower who at any time participates in the REPAYE repayment plan becomes eligible to have any balance that remains on his or her eligible loans forgiven if for 20 years or 25 years, as applicable, the borrower meets the loan forgiveness eligibility criteria specified in regulations at 34 C.F.R. Section 685.209(c)(5). (These criteria are substantially similar to the provisions that are applicable to the IBR plans, as described above.) If after having repaid according to the REPAYE repayment plan a borrower obtains additional loans that are eligible to be repaid according to the plan, a new repayment period will begin for the new loans when they enter repayment.

Adjusted Payment Amounts for Borrowers Who Return to the REPAYE Repayment Plan. If a borrower seeks to return to the REPAYE repayment plan after having left and repaid according to any other repayment plan (including the REPAYE Alternative Repayment plan), he or she must provide documentation of income for the entire period that he or she repaid according to another plan. If it is determined that the borrower paid a lesser amount under the other repayment plan (or plans) than he or she would have been required to repay according to the REPAYE repayment plan, upon returning to the REPAYE repayment plan the borrower's monthly payment amounts will be adjusted upward to ensure that the difference between the two amounts will be paid before the end of the maximum repayment period of 20 or 25 years, as applicable.

Alternative Repayment Plans

Alternative repayment plans are available in more limited situations, on a case-by-case basis, to borrowers who demonstrate that due to exceptional circumstances they are unable to repay according to other available repayment plans. Loan servicers are provided with discretion in determining what constitutes "exceptional circumstances" for purposes of permitting individual borrowers to repay according to any of the alternative repayment plans. If a borrower is permitted to repay according to an alternative repayment plan, he or she is notified in writing of the terms of the plan and may either accept those terms or select one of the other available repayment plans discussed above. Four variations of alternative repayment plans are available:

Alternative Fixed Payment Repayment, Alternative Fixed Term Repayment, Alternative Graduated Payment Repayment, and Alternative Negative Amortization Repayment.

The alternative repayment plans are established in accordance with general guidelines specified in regulations. Details on specific provisions of these plans are communicated to eligible borrowers by loan servicers. A borrower may be provided up to a maximum of 30 years to repay according to an alternative repayment plan, not including periods of deferment and forbearance. There is a minimum monthly payment amount of $5 and payments cannot vary by more than three times the amount of the smallest payment. Under the Alternative Negative Amortization Repayment plan, a borrower may be permitted for one year to make monthly payments of less than the amount of the interest that accrues on the loan. In such a case, any unpaid interest will be capitalized; however, capitalization of unpaid interest may not result in the loan balance exceeding 110% of the original principal amount. If this occurs, any additional interest that accrues must be paid by the borrower. Payments made according to an alternative repayment plan do not count toward the periods of repayment that may qualify a borrower for loan forgiveness under the IDR plans or the PSLF program.

Prepayment

The portion of any payment that is in excess of the amount due is considered a prepayment . Borrowers of loans made through the Direct Loan program may prepay all or any part of their loans at any time without penalty. Borrowers may obtain information from their Direct Loan servicer on how to provide prepayment, with instructions regarding the application of overpayments. The procedures for applying prepayments to borrowers' accounts are specified in regulations issued by ED.

The procedures that apply for crediting a prepayment to a borrower's loan balance depend on the size of the prepayment amount relative to the borrower's scheduled monthly payment. A borrower with more than one loan who wants a prepayment to be applied to a certain loan or loans (e.g., the loan with the highest interest rate) must specify such when making the prepayment; otherwise, the prepayment will be applied in accordance with HEA regulations and guidelines, which, among other provisions, generally require all of a borrower's loans to be repaid together and under the same repayment plan.

In general, if the amount of a prepayment is less than the next scheduled monthly payment amount according to the borrower's repayment plan, the prepayment is applied in the following order: (1) to charges and collection costs, (2) to accrued interest, and then (3) to outstanding principal. However, if the amount of the prepayment is less than the next scheduled monthly payment amount and the borrower is repaying according to the IBR, PAYE, or REPAYE repayment plans and has a scheduled monthly payment of $0.00, the prepayment is applied in the following order: (1) to accrued interest, (2) to collection costs, (3) to late charges, and then (4) to outstanding principal. For example, consider a borrower whose next scheduled monthly payment was $200 in January and who was current on making payments. If at the time of making the January payment the borrower made a payment of $300, this would result in a prepayment of $100. The $100 prepayment would be applied toward reducing the outstanding principal balance on the borrower's loans, because he or she did not have any outstanding charges or accrued interest. The borrower's next scheduled monthly payment of $200 would remain due in February.

If the amount of the prepayment is equal to or greater than the next scheduled monthly payment amount under the borrower's repayment plan, the prepayment is applied in the same order as described above, and, unless the borrower requests otherwise, the due date of the borrower's next payment is advanced and he or she is notified of the due date for the next payment. For example, consider again a borrower whose next monthly payment was $200 in January and who was current on making payments. If at the time of making the January payment the borrower made a payment of $600, this would result in a prepayment of $400. Because this borrower did not have any outstanding charges or accrued interest, the $400 prepayment would be applied toward the next two payments due (i.e., the February and March payments) and the due date of the borrower's next payment would be advanced to April. If the borrower instead wanted the $400 prepayment to be applied toward reducing the outstanding principal balance and the next scheduled payment to remain due in February, he or she would need to request this at the time of making the prepayment.

Application of Payments on Delinquent Loans

The loans of borrowers who fall behind on making payments are considered to be delinquent. In general, a federal student loan is considered delinquent when the full payment amount is not satisfied by the payment due date. A borrower may restore a delinquent loan to current status by making payments that are applied to past due amounts. When borrowers make payments on delinquent loans, their payments are generally credited first to the oldest past due amounts owed.

An example of how a delinquent loan may be restored to current status is provided by ED in its contracts for its loan servicers. The example considers a borrower whose scheduled monthly payment amount of $225 is due on the 14 th of the month. If as of January 14 th , the borrower had paid only $200 for the January payment, the loan would become delinquent, as $25 would remain unpaid. However, if on February 14 th , the borrower paid $250, $25 would be applied to the past due amount for January and $225 would be applied to the amount due for February. This would restore the borrower's loan to current status.

Deferment and Forbearance

Periods of deferment and forbearance provide borrowers with temporary relief from the obligation to make monthly payments that would otherwise be due on their loans. In certain instances, interest subsidies may be provided during periods of deferment; however, interest subsidies are not available during periods of forbearance. In general, periods during which borrowers are in a deferment or forbearance are excluded from the repayment period. However, for borrowers who are repaying according to any of the IDR plans, periods of up to three years while in receipt of an economic hardship deferment are included as part of the repayment period. The various forms of deferment and forbearance that are available to borrowers of loans made through the Direct Loan program are described below.

Deferments

A deferment is a temporary period during which a borrower's obligation to make regular monthly payments of principal and interest is suspended, and during which an interest subsidy may be provided. Deferments are available during periods while a student is pursuing postsecondary education, participating in a graduate fellowship program or a training program, unemployed or experiencing an economic hardship, performing or has recently completed military service, or receiving treatment for cancer. Deferments are not available to borrowers whose loans are in default status.

In most instances, a borrower must proactively apply for and request a deferment. To qualify for it, the borrower (or, in certain instances, the individual on whose behalf the loan was made for parent borrowers of Direct PLUS Loans) must satisfy certain eligibility criteria. Several deferment types have no maximum period of eligibility, while other types are initially granted for a limited period of time and may be subsequently renewed up to a maximum period of eligibility for the deferment type. Periods of eligibility for deferments are specific to the borrower, as opposed to the borrower's loans. Thus, for those deferment types that have a maximum period of eligibility, if a borrower exhausts his or her eligibility with one set of loans no eligibility would remain to qualify for the same type of deferment on any other loans for which he or she had not received the deferment.

Unless an interest subsidy applies to a borrower's loans, interest will continue to accrue during a period of deferment. While in receipt of a deferment, borrowers have the option either to pay the interest as it accrues or pay it at a later time. In most instances, if the interest that accrues during a period of deferment is not paid as it accrues it will be capitalized at the end of the deferment period. However, if a borrower's deferment coincides with the individual having a partial financial hardship while repaying according to either of the IBR plans or the PAYE repayment plan, any interest that has accrued during the deferment will not be capitalized so long as the borrower continues to have a partial financial hardship.

The following types of deferments are available to borrowers of loans made through the Direct Loan program.

In-School Deferment

A borrower is eligible to receive an in-school deferment for any period during which he or she is enrolled at an eligible institution on at least a half-time basis, as determined by the institution attended. Graduate student borrowers of Direct PLUS Loans first disbursed on or after July 1, 2008, (which enter repayment upon being fully dispersed) are also eligible to receive an in-school deferment while they are enrolled in school and during the six-month period after ceasing to be enrolled on at least a half-time basis.

During an in-school deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans. There is no maximum period of eligibility for an in-school deferment.

Eligible borrowers are typically placed in an in-school deferment automatically on the basis of being enrolled in an eligible institution on at least a half-time basis. However, eligible borrowers may also proactively request an in-school deferment. Borrowers who have been automatically placed in an in-school deferment have the option to cancel it. If these borrowers wish to do so, they have the option to pay any principal and interest that had already been deferred or they may let the interest that had accrued on the deferred payments be capitalized upon cancellation of the deferment.

In-School Deferment for Parent Borrowers of Direct PLUS Loans

Parent borrowers of Direct PLUS Loans for which the first disbursement was made on or after July 1, 2008, are eligible for a deferment for any period during which the student on whose behalf the loan was made would qualify for an in-school deferment. This deferment is also available during the six-month grace period after the student on whose behalf the loan was made first ceases to be enrolled on at least a half-time basis.

Graduate Fellowship Deferment

A borrower may receive a deferment while pursuing a course of study in a graduate fellowship program. Eligibility requirements include that the borrower has earned a bachelor's degree, and that the program operates on a full-time basis, provides financial support for at least six months, and requires the applicant to submit a written statement of objectives and periodic progress reports. There is no maximum period of eligibility for this deferment. It is not available to borrowers who are serving in medical residency or internship programs, except for residency programs in dentistry.

During a graduate fellowship deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Rehabilitation Training Program Deferment

A borrower may receive a deferment while pursuing a course of study in a rehabilitation training program for individuals with disabilities. For a borrower to be eligible, the rehabilitation training program must be licensed, approved, certified, or recognized by a state agency or the U.S. Department of Veterans Affairs. It also must provide services according to a written, individualized plan that specifies an expected completion date, and must require a substantial commitment by the borrower toward rehabilitation to the extent that it would normally prevent an individual from being employed full-time (i.e., 30 or more hours per week) for at least three months. There is no maximum period of eligibility for this deferment.

During a rehabilitation training program deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Unemployment Deferment

A borrower who is seeking to obtain full-time employment and is either not employed or is employed less than full-time may be granted an unemployment deferment. To be eligible, a borrower must be either receiving unemployment benefits or must document that he or she has registered with a public or private employment agency (if one is available within 50 miles) and is diligently seeking to obtain full-time employment. A borrower may receive the deferment for a maximum cumulative period of three years, which may include one or more episodes of unemployment. He or she is not required to have been employed previously to qualify for it.

A borrower may request that an unemployment deferment begin the date that he or she became unemployed or began working less than full-time, but that date may be no earlier than six months prior to requesting the deferment. The deferment may be granted for an initial period of six months and may be extended in six-month increments.

During an unemployment deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Economic Hardship Deferment

A borrower may qualify for a deferment during periods while he or she is experiencing an economic hardship or is serving as a volunteer in the Peace Corps. To qualify for this deferment on a loan made through the Direct Loan program, a borrower must satisfy at least one of the following criteria:

the borrower has been granted an economic hardship deferment under the FFEL program or the Perkins Loan program for the same period of time for which the borrower requests an economic hardship deferment; the borrower is receiving payments under a federal or state public assistance program (e.g., Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), state general public assistance, other means-tested benefits); the borrower is working full-time and has a monthly income that does not exceed an amount equal to 150% of the poverty line applicable to the borrower's family size, (see Table 7 ) as calculated on a monthly basis; or the borrower is serving as a volunteer in the Peace Corps.

The deferment may be granted for periods of up to one year at a time, and may be extended up to a cumulative maximum of three years. Periods of up to three years while a borrower qualifies for an economic hardship deferment may be counted as part of the repayment period for each of the IDR plans. During an economic hardship deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Military Service Deferment

A borrower may qualify for a military service deferment on the basis of serving on active duty or performing qualifying National Guard duty during a war or other military operation or national emergency. The deferment is provided for the entire period of qualifying military service, and for an additional 180 days following the completion of military service for borrowers whose period of qualifying service includes or began after October 1, 2007.

During a military service deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Post-Active Duty Student Deferment

A borrower may qualify for a post-active duty student deferment if he or she is a member of the National Guard or other reserve component of the Armed Forces (or is a member in retired status) and is called or ordered to active duty while he or she is enrolled on at least a half-time basis at an eligible institution, or within six months of being enrolled. To qualify, the borrower must have been required to perform at least 30 consecutive days of active duty service on or after October 1, 2007. The deferment is available for a period of up to the lesser of 13 months following the completion of active duty service or until the borrower re-enrolls in an eligible institution on at least a half-time basis. If a borrower qualifies for both the military service deferment and the post-active duty student deferment, the 180-day post-demobilization period and the 13-month post-active duty service period apply concurrently.

During a post-active duty student deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

Cancer Treatment Deferment

A borrower may receive a cancer treatment deferment on eligible loans during periods while he or she is receiving treatment for cancer and for the six months thereafter. To qualify for the deferment, the borrower must submit an application on which a physician who is a Doctor of Medicine (M.D.) or a Doctor of Osteopathy (D.O.) certifies that the borrower is receiving treatment for cancer under the physician's care.

During periods while a borrower receives a cancer treatment deferment, no interest accrues on the qualifying loans. Qualifying loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans that were either made on or after September 28, 2018, or had entered repayment status on or before September 28, 2018. Loans made prior to September 28, 2018, but had not yet entered repayment as of that date due to the borrower being enrolled in school on at least a half-time basis or being in the grace period, are not eligible for this deferment. However, as Direct Consolidation Loans made on or after September 28, 2018, are eligible for the deferment, borrowers of ineligible loans may consider including them in a Direct Consolidation Loan for purposes of qualifying for the deferment.

Forbearance

Forbearance constitutes permission for a borrower to temporarily cease making monthly student loan payments, to make payments in reduced amounts, or to make payments over an extended period of time. During periods of forbearance, no interest subsidies are provided and borrowers ultimately remain responsible for paying all of the interest that accrues on their loans. Borrowers have the option of either paying the interest as it accrues during forbearance or letting it be capitalized into the principal balance at the end of the forbearance period. In most instances, borrowers must apply for forbearance; and for certain types of it, borrowers must provide supporting documentation to their loan servicer. Forbearance may be granted for an initial period of up to 12 months, and may be renewed upon the borrower's request. Certain types of forbearance are limited to a maximum of 36 months.

Forbearance may be granted for a number of reasons. General or discretionary forbearance , may be granted at the discretion of the loan servicer to borrowers who are temporarily unable to make scheduled loan payments. Administrative forbearance is granted by the Secretary to borrowers during periods necessary to determine a borrower's eligibility for a number of borrower benefits and for certain other reasons. Certain types of forbearance, referred to as mandatory forbearance , are required to be granted to borrowers who satisfy applicable eligibility criteria.

General (Discretionary) Forbearance

A borrower may request a general forbearance on the basis of experiencing a temporary hardship due to financial difficulties, a change in employment, medical expenses, or other reasons. A general forbearance may be granted at the discretion of a borrower's loan servicer for an initial period of up to 12 months and may be extended in increments of 12 months. A borrower's loan servicer may limit the maximum duration of forbearance; however, there is no statutory or regulatory limit.

Administrative Forbearance

Administrative forbearance may be granted during periods necessary to process requests by a borrower for certain benefits or to determine his or her eligibility. It may be granted for up to 60 days for the processing of requests for deferment, forbearance, change of repayment plan, and loan consolidation. (Interest that accrues during administrative forbearance for these purposes is not capitalized.) Administrative forbearance is also granted during periods necessary to determine a borrower's eligibility for a student loan discharge (e.g., death or total and permanent disability, closed school, false certification, unauthorized payment, unpaid refund, bankruptcy, borrower defense to repayment) or for loan forgiveness through the Teacher Loan Forgiveness program.

Administrative forbearance is provided to a borrower for up to three years if changes to variable interest rates preclude the borrower's ability to repay his or her loans in 10 years under the standard or graduated repayment plans. It may also be granted for short periods, such as when payments are overdue at the beginning of an authorized period of deferment or forbearance.

The Secretary may also authorize administrative forbearance in response to a national military mobilization or a local or national emergency.

Medical or Dental Internship or Residency Forbearance

A borrower who is a medical or dental intern or resident and does not or no longer qualifies for a deferment may receive mandatory forbearance. To qualify, the borrower must have been accepted into a medical or dental internship or residency program that either leads to a degree or certificate that is awarded by an IHE, a hospital, or a health care facility that offers postgraduate training, or that must be completed before the borrower may begin professional practice or service. This type of forbearance may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower's internship or residency.

AmeriCorps National Service Forbearance

A borrower who is serving in a national service position for which he or she receives a Segal AmeriCorps Education Award may receive mandatory forbearance. It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower's national service.

Whereas borrowers are normally responsible for paying the interest that accrues during forbearance, the National Service Trust will pay all or a portion of the interest that accrues during forbearance for a borrower who has earned a Segal AmeriCorps Education Award.

Teacher Loan Forgiveness Program Forbearance

A borrower who is serving in a position that would qualify him or her for loan forgiveness under the Teacher Loan Forgiveness Program (described below) may receive mandatory forbearance. To be eligible, the borrower must be serving as a full-time teacher at an elementary school, secondary school, or educational service agency that serves low-income families. The borrower's outstanding loan balance is also considered in determining eligibility. This forbearance may be granted "only if the Secretary believes, at the time of the borrower's annual request, that the expected forgiveness amount [i.e., up to $5,000 or up to $17,500, as applicable] will satisfy the anticipated remaining outstanding balance on the borrower's loan at the time of the expected forgiveness." It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the five consecutive years of teaching service required to qualify for loan forgiveness.

Student Loan Debt Burden Forbearance

A borrower may receive mandatory forbearance on the basis of having a federal student loan debt burden that equals or exceeds 20% of his or her monthly total income. To qualify, a borrower must demonstrate that his or her required monthly payments on federal student loans made under Title IV of the HEA (e.g., loans made under the Direct Loan program, the FFEL program, or the Perkins Loan program) equal or exceed 20% of his or her total monthly taxable income. This type of forbearance may be granted for an initial period of 12 months and may be extended in increments of 12 months for a maximum duration of 36 months.

National Guard Duty Forbearance

Mandatory forbearance is available to a borrower who is a member of the National Guard and qualifies for a Post-Active Duty Student Deferment but does not qualify for a Military Service Deferment or other deferment, and is engaged in active state duty service for 30 or more consecutive days. This type of forbearance may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower's qualifying National Guard service.

Department of Defense Student Loan Repayment Program Forbearance

Mandatory forbearance is available during periods while a borrower is performing service that qualifies him or her for partial repayment under a U.S. Department of Defense student loan repayment program. Interest that accrues during this forbearance is not capitalized at the end of the forbearance period. It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower's qualifying service.

Loan Discharge and Loan Forgiveness

An important benefit to borrowers of federal student loans made through the Direct Loan program is that their obligation to repay these loans may be discharged or forgiven in a variety of circumstances. Several types of loan discharge and loan forgiveness benefits are available. These may be grouped into three broad categories: loan discharge for borrower hardship, loan forgiveness following IDR plan repayment, and loan forgiveness for public service.

Loan Discharge for Borrower Hardship

A borrower who experiences certain types of hardship may have his or her loan discharged. Types of hardship discharges available to borrowers of loans made through the Direct Loan program are described below. Administrative forbearance (see above) is granted during the period necessary to determine a borrower's eligibility for these types of discharge.

Discharge Due to Death

A borrower's obligation to repay a loan is discharged if he or she dies; and in the case of a Direct PLUS Loan made to a parent borrower, the obligation to repay is discharged if the student on whose behalf the loan was made dies. In the case of a Direct Consolidation Loan that repaid either a Direct PLUS Loan or a FFEL PLUS Loan that was borrowed by a parent on behalf of a student, if the student dies a proportionate share of the Direct Consolidation Loan attributable to the applicable Direct PLUS Loan or FFEL PLUS Loan is discharged. In the case of a Joint Direct Consolidation Loan borrowed by two married individuals, upon the death of one spouse a proportionate share of the loan attributable to the individual who died is discharged.

Total and Permanent Disability Discharge

A borrower's liability to repay a loan is discharged upon the individual being determined to have a total and permanent disability (TPD). A borrower may be determined to be have a total and permanent disability based on any of the following three criteria:

1. Physician's Certification. Certification by a physician (M.D. or D.O.) licensed to practice in the United States that the borrower is unable to engage in any substantial gainful activity due to a physical or mental impairment that can be expected to result in death, has lasted continuously for at least 60 months, or can be expected to last continuously for at least 60 months. 2. SSA Disability Determination . Documentation from the Social Security Administration (SSA) that the borrower is receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits and that his or her next scheduled disability review will be within five to seven years from the date of the individual's most recent SSA disability determination. 3. VA Service Connected Disability or Unemployability . Documentation from the Department of Veterans Affairs (VA) that the borrower has a service connected disability (or disabilities) that is 100% disabling or that he or she is totally disabled based on an individual unemployability rating.

On a periodic basis, ED obtains information from SSA and VA on borrowers who might qualify for a TPD discharge on the basis of the second and third criteria, respectively, and contacts them to inform them of their potential eligibility. A borrower, or his or her authorized representative, may apply for a TPD discharge by submitting an application along with any required documentation of the borrower's disability. A borrower who has been identified as a veteran with a VA service-connected disability or unemployability determination will be granted a TPD discharge without needing to submit an application unless he or she decides to opt out of the process within 60 days of being notified by ED.

If a borrower's TPD discharge application is approved, he or she will be considered totally and permanently disabled as of the date of the physician's certification, the date that ED received an SSA notice of award for SSDI or SSI benefits or Benefits Planning Query (BPQY), or the effective date of a VA service-connected disability or unemployability determination, as applicable. Upon the determination of a borrower being totally and permanently disabled, his or her obligation to make any further payments on the loans will be discharged and any loan payments that were made after the aforementioned dates will be returned.

A TPD discharge approved on the basis of a physician's certification or an SSA disability determination is granted on a conditional basis for a three-year period that begins on the date of discharge. During the three-year period, a borrower who has been granted a TPD discharge according to either of these two criteria is subject to having his or her loans reinstated if the borrower (1) has annual earnings from employment in excess of 100% of the federal poverty guideline for a family of two (see Table 7 ), (2) obtains a new Direct Loan program loan or a TEACH Grant, (3) fails to return any Direct Loan or TEACH Grant disbursements made between the TPD discharge application date and the discharge date, or (4) receives a notice from SSA that he or she is no longer disabled or that his or her next scheduled disability review will be sooner than five to seven years from the date of the borrower's most recent SSA disability determination. After the three-year period, the TPD discharge becomes permanent. A TPD discharge granted on the basis of a VA service connected disability or unemployability is permanent upon being granted and is not subject to a post-discharge monitoring period.

Closed School Discharge

A borrower's liability to repay a loan is discharged if the borrower (or the student on whose behalf a Direct PLUS Loan is made to a parent borrower) does not complete the program of study for which the loan was made because the school he or she attended has closed. In the case of a Direct Consolidation Loan, the portion of the loan attributable to loans borrowed to finance the program of study at the closed school is discharged.

With regard to loans made before July 1, 2020, to qualify for a closed school discharge, a borrower generally must submit an application and certify that the school attended closed either while the student was enrolled or within 120 days of the student withdrawing, and the student must not have completed the program of study for which the loan was obtained through a teach-out agreement at another school or by transferring credits earned at the closed school to another school. However, if based on information available to the Secretary, a borrower qualifies for a closed school discharge with respect to a school that closed on or after November 1, 2013, and before July 1, 2020, and the borrower did not subsequently re-enroll in any Title IV-eligible IHE within three years of the school having closed, the Secretary is to discharge the borrower's loan without the borrower needing to submit an application for a discharge.

For loans made on or after July 1, 2020, to qualify for a closed school discharge, a borrower must submit an application and must certify that the school attended closed either while the student was enrolled or within 180 days of the student withdrawing, that he or she has not completed the program of study for which the loan was obtained through a teach-out agreement at another school or by transferring credits earned at the closed school to another school, and that he or she has not accepted the opportunity to complete the program of study or a comparable program at another school through either a teach-out plan performed by the closing school or a teach-out agreement at another school. Upon being granted a closed school discharge, a borrower is reimbursed for any amounts he or she had already repaid on the loan. If the borrower had previously defaulted on the loan, upon being granted a closed school discharge his or her eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan. Any discharged loans do not count against the borrower's annual and aggregate loan limits, nor against his or her Subsidized Usage Period applicable under the Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers.

False Certification and Unauthorized Payment Discharges

A borrower's liability to repay a loan is discharged if the eligibility of the borrower (or of the student in the case of a Direct PLUS Loan made to a parent borrower) to receive the proceeds of the loan was falsely certified by the IHE attended, or if the loan proceeds were disbursed without his or her authorization (e.g., unauthorized signature, identity theft). In the case of a Direct Consolidation Loan, a borrower's liability to repay the portion of the loan that is attributable to loans that were falsely certified by the IHE attended, or that were disbursed without his or her authorization, is discharged. Upon being granted a false certification or unauthorized payment discharge, the borrower is reimbursed for any amounts he or she had already repaid on the loan. If the borrower had previously defaulted on the loan, upon being granted a false certification or unauthorized payment discharge his or her eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan.

Unpaid Refund Discharge

If a borrower is owed a refund by an IHE that has not been paid, his or her liability to repay an amount equal to the unpaid refund and any associated accrued interest and other charges is discharged. An unpaid refund discharge is only available in instances where a borrower is owed a refund by a school that has closed, or by an open IHE that the borrower (or the student on whose behalf a Direct PLUS Loan is made to a parent borrower) is no longer attending.

Borrower Defense to Repayment Discharge

A borrower's liability to repay a loan is discharged in whole or in part, and previous loan payments are refunded, if the borrower (or the student on whose behalf a Direct PLUS Loan was made to a parent borrower) successfully asserts a defense to repayment of the loan. A borrower may assert certain acts or omissions by the IHE for which the loan was borrowed that relates to the making of the loan as a defense to repayment.

A borrower may assert a defense to repayment according to procedures specified in regulations that are specific to the period during which his or her loans were made. There are three distinct periods applicable to borrower defense claims. In the case of a Direct Consolidation Loan, the procedures to be used for adjudicating a defense to repayment claim depend on the types of loans that were repaid by it (e.g., loans made through the Direct Loan program, other types of eligible loans) and when it was made.

For loans disbursed prior to July 1, 2017, a borrower defense to repayment "refers to any act or omission of the school attended ... that would give rise to a cause of action against the school under applicable state law." For loans disbursed on or after July 1, 2017, and before July 1, 2020, a borrower defense to repayment refers to a nondefault, contested judgment against the school; a breach of contract by the school; or a substantial misrepresentation by the school to the borrower that the borrower had relied on to his or her detriment when he or she decided to attend or continue attending the school, or decided to borrow a loan.

For loans disbursed on or after July 1, 2020, a borrower defense to repayment refers to a misrepresentation of material fact made by the borrower's school about enrollment or the provision of educational services that the borrower relied upon in deciding to borrow a loan and from which he or she suffered financial harm. For loans disbursed on or after July 1, 2020, a borrower must assert a defense to repayment within three years of ceasing to be enrolled at the IHE.

In the instance that a borrower had previously defaulted on a loan, upon being granted a defense to repayment discharge the borrower's eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan.

Bankruptcy Discharge

Section 523(a)(8) of the Bankruptcy Code provides that student loans (e.g., loans made through the Direct Loan program) are presumed to be not dischargeable in bankruptcy proceedings, unless the debtor is able to demonstrate to the court that "excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor's dependents." In general, to discharge student loan debt in bankruptcy, the debtor must file a separate lawsuit against the holder of the debt and must prove by a preponderance of the evidence that repayment of the debt would impose an undue hardship. If a borrower's liability to repay a loan made through the Direct Loan program is discharged in bankruptcy, the Secretary will cease to require the borrower to make payments on the loan.

Loan Forgiveness Following IDR Plan Repayment

A borrower who has repaid a loan made through the Direct Loan program according to one or more of the Income-Driven Repayment (IDR) plans for the duration of the applicable maximum repayment period (including periods of repayment according to certain other eligible plans and periods while in receipt of an economic hardship deferment) is relieved of the obligation to repay any balance of principal and interest that remains outstanding. The applicable maximum repayment period varies by IDR repayment plan as follows:

Income-Contingent Repayment Plan: 25 years; Original IBR Plan: 25 years; IBR Plan for Post-July 1, 2014, New Borrowers: 20 years; PAYE Repayment Plan: 20 years; REPAYE Repayment Plan for borrowers with debt only for undergraduate education: 20 years; and REPAYE Repayment Plan for borrowers with any debt for graduate education: 25 years.

For detailed information on the requirements for a borrower to qualify for loan forgiveness following IDR plan repayment, see the descriptions of the maximum repayment period and loan forgiveness in the prior sections on each of the various IDR plans.

Loan Forgiveness for Public Service

The Direct Loan program makes loan forgiveness benefits available to borrowers who have engaged in certain types of public service for a specified period of time and meet program-specific requirements, as described below.

Teacher Loan Forgiveness Program

A borrower who has completed five consecutive complete academic years of teaching service in a low-income school or educational service agency (ESA) may be relieved of the obligation to repay up to $5,000 for service as a highly qualified teacher, or up to $17,500 for service as a highly qualified special education teacher or secondary school teacher of mathematics or science. Teacher Loan Forgiveness benefits are only available to borrowers who had no outstanding balance on any federal student loan made through the Direct Loan program (or the FFEL program) as of the date the borrower first obtained such a loan after October 1, 1998.

Student loan debt attributable to Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct Consolidation Loans (to the extent that the Direct Consolidation Loan repaid a Direct Subsidized Loan, a Direct Unsubsidized Loan, a FFEL Subsidized Stafford Loan, or a FFEL Unsubsidized Stafford Loan) may be forgiven. Loans must have been obtained prior to the end of a borrower's fifth year of qualifying service and may not be in default, unless satisfactory repayment arrangements have been made. A borrower may receive Teacher Loan Forgiveness Program Forbearance during the five years of teaching service required to qualify for benefits.

A borrower becomes eligible for loan forgiveness benefits upon completion of the fifth year of qualifying service. If a borrower's student loan debt exceeds the amount to be forgiven, unless otherwise requested by the borrower, loan forgiveness benefits are applied first to Direct Unsubsidized Loans, then to Direct Subsidized Loans, then to the unsubsidized component of Direct Consolidation Loans, and finally to the subsidized component of Direct Consolidation Loans. Loan forgiveness benefits may not be provided for the same service used to qualify for benefits under the Public Service Loan Forgiveness (PSLF) program, the Loan Forgiveness for Service in Areas of National Need Program, or a Segal AmeriCorps Education Award.

Public Service Loan Forgiveness (PSLF) Program

A borrower may be relieved of the obligation to repay the balance of principal and interest that remains outstanding on eligible loans upon having made 120 qualifying monthly payments on or after October 1, 2007, concurrent with the borrower being employed full-time by one or more public service organizations or serving full-time in an AmeriCorps or Peace Corps position. To qualify, a borrower must make 120 separate, full, on-time scheduled monthly payments on loans that are not in default. In general, qualifying payments are those made within 15 days of the due date according to certain repayment plans; however, borrowers using Segal AmeriCorps Education Award benefits, Peace Corps transition payments, or certain Department of Defense student loan repayment benefits may make lump sum payments. Qualifying payments include those made according to one or more of the following repayment plans:

Income-Contingent Repayment (ICR) plan; Income-Based Repayment (IBR) plans; Pay As You Earn (PAYE) repayment plan; Revised Pay As You Earn (REPAYE) repayment plan; Standard Repayment Plan with a Maximum 10-Year Term; and any other of the loan repayment plans (except for the alternative repayment plans [discussed above]) if the monthly payment amount is not less than what would be paid under the Standard Repayment Plan with a Maximum 10-Year Term.

A borrower must be employed by or serving full time with a public service organization at the time he or she makes each of the required 120 payments, applies for loan forgiveness benefits, and has forgiveness granted. Public service organizations are federal, state, local, or tribal government agencies, organizations, or entities; tribal colleges and universities; public child or family service agencies; nonprofit entities organized under Section 501(c)(3) of the Internal Revenue Code (IRC) that are tax-exempt under IRS Section 501(a); and certain other private nonprofit entities that are providers of public services. Public service organizations exclude labor unions, political organizations, and religious organizations (except to the extent that activities do not relate to religious instruction, worship services, or proselytizing). Eligible private nonprofit entities include providers of any of the following public services: emergency management, military service, public safety, law enforcement, public interest law services, early childhood education, public service for individuals with disabilities and the elderly, public health, public education, public library services, and school library or other school-based services. Loan forgiveness benefits may not be provided for the same service used to qualify for benefits under the Teacher Loan Forgiveness Program, the Civil Legal Assistance Attorney Loan Repayment Program, or the Loan Forgiveness for Service in Areas of National Need Program.

Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Program

The TEPSLF program was established in response to concerns that some borrowers were experiencing difficulty in deciphering and complying with the requirements for establishing eligibility for loan forgiveness through the PSLF program. A borrower who would qualify for loan forgiveness under the PSLF program except for the fact that, under certain circumstances, some or all of the required 120 monthly payments were nonqualifying may be relieved of the obligation to repay the balance of principal and interest that remains outstanding upon the borrower otherwise satisfying the requirements of the PSLF program as well as the following criteria:

All of the borrower's nonqualifying monthly payments must have been made according to any of the Extended Repayment Plans or the Graduated Repayment Plans, but in an amount that was less than what would have been paid under the Standard Repayment Plan with a Maximum 10-Year Term. The amount of both the borrower's most recent monthly payment and the monthly payment made 12 months prior to application for relief through the TEPLSF program must equal or exceed the monthly payment amount that would have been calculated under one of the IDR plans for which the borrower would have otherwise qualified. (An exception to this criterion is provided to a borrower who would otherwise qualify for TEPSLF benefits but over the past five years demonstrates an "unusual fluctuation of income." )

Only a borrower whose applications for PSLF benefits was denied due to some or all of the required payments not being made according to a qualifying repayment plan may apply for TEPSLF benefits. Benefits are available on a first-come, first-served basis and are subject to the availability of funds.

Tax Treatment of Discharged and Forgiven Debt

The IRC provides that, in general, student loan debt (as well as other types of debt) that is discharged, forgiven, or repaid on a borrower's behalf is included as part of the individual's gross income for the purposes of federal income taxation. In certain instances, however, discharged or forgiven student loan debt may be excluded from an individual's gross income and, therefore, exempted from consideration in determining federal income tax liability. If loan discharge or loan forgiveness benefits are not specifically excluded from an individual's gross income, he or she may be responsible for paying any income tax liability associated with the benefits received. In the circumstances described below, discharged or forgiven student loan debt may be excluded from an individual's gross income:

Discharge Due to Death. Student loan debt that is discharged due to the death of the borrower, or due to the death of the student on whose behalf a Direct PLUS Loan was made to a parent borrower, if the discharge occurs after December 31, 2017, and before January 1, 2026. Total and Permanent Disability Discharge . Student loan debt that is discharged due to the total and permanent disability of the borrower, if the discharge occurs after December 31, 2017, and before January 1, 2026. Closed School Discharge . Student loan debt that is discharged on the basis of the school attended having closed while the student was enrolled or within 120 days of the student withdrawing and the student also having not completed the program of study for which the loan was obtained through a teach-out plan at another school or by transferring credits earned at the closed school to another school. False Certification and Unauthorized Payment Discharges . Student loan debt that is discharged on the basis of the proceeds of the loan having been falsely certified by the IHE the borrower attended or having been disbursed without his or her authorization. Unpaid Refund Discharge . Student loan debt that is discharged on the basis of a school that has closed or that a borrower no longer attends having not refunded amounts owed to the borrower. Bankruptcy Discharge . Student loan debt that is discharged in bankruptcy proceedings. Insolvency. Student loan debt that is discharged while an individual is insolvent. Depending on an individual's unique circumstances, it may be possible for a borrower who receives Loan Forgiveness Following IDR Plan Repayment to be considered insolvent at the time of discharge. Loan Forgiveness for Public Service . Discharged or forgiven student loan debt may be excluded if a loan was made by certain types of lenders (e.g., the federal government), was borrowed to assist an individual in attending a qualified educational institution, and contains terms providing that some or all of the balance will be cancelled for work for a specified amount of time in certain professions or occupations and for any of a broad class of employers (e.g., public service organizations). Student loan debt that is discharged through the Teacher Loan Forgiveness program, the PSLF program, and the TEPSLF program may be excluded.

Loan Default, Its Consequences, and Resolution

A loan made through the Direct Loan program is considered to be in default once the borrower has failed to make payments when due or has otherwise not adhered to the terms of the promissory note for 270 days. Defaulting on a federal student loan can result in a number of adverse consequences for the borrower. Upon default, the borrower's obligation to repay the loan is accelerated (i.e., the entire unpaid balance of principal and accrued interest becomes due in full). In addition, upon defaulting a borrower loses eligibility for certain borrower benefits (e.g., deferment, forbearance, loan forgiveness), as well as eligibility to receive additional Title IV federal student aid.

Defaulting may also result in other adverse effects for the borrower and may present a major obstacle to the borrower's future economic well-being. The Secretary will report defaulted loans to consumer reporting agencies and will take action to collect on them through one or more means. The borrower of a defaulted loan may be assessed a variety of charges for the costs of collecting on it.

Several options are available to borrowers to bring defaulted loans back into good standing. A borrower may remove a loan from default status by rehabilitating the loan, consolidating the loan into a new Direct Consolidation Loan, or paying off the defaulted loan balance.

Consequences of Default for Borrowers

A borrower who defaults on a loan made through the Direct Loan program becomes subject to many consequences, which are briefly described below:

Ineligibility for Federal Student Aid . The borrower becomes ineligible to receive federal student aid made under Title IV of the HEA. A defaulted borrower may regain eligibility by voluntarily making six consecutive, on-time, full monthly payments. A borrower may restore eligibility for Title IV aid though this method only once. Capitalization of Interest. Any unpaid interest that has accrued (e.g., during periods of negative amortization, during delinquency) may be capitalized into the principal balance of the loan. Acceleration. The entire unpaid balance owed on the borrower's loan becomes due in full. Transfer to Private Collection Agencies. Upon default, student loan accounts are initially transferred from the borrower's student loan servicer to the Office of Federal Student Aid's Default Management and Collection System (DMCS), which may then transfer defaulted loans to private collection agencies (PCAs) that are under contract with FSA for collections. A PCA will first contact the borrower before pursuing efforts to collect on the debt. The PCA may offer the borrower the opportunity to rehabilitate the loan or to enter into a voluntary repayment agreement. If the borrower accepts neither offer, or does not honor a voluntary repayment agreement, the PCA may seek to collect on the defaulted loans by means of administrative wage garnishment (AWG). The PCA may also refer defaulted loans to the Treasury Offset Program (TOP) for collection, or may recommend litigation. Assessment of Collection Charges. The borrower may be charged for the costs of collecting on the loan, including loan collection fees, TOP processing fees, court costs, and attorney's fees. Administrative Wage Garnishment . Up to 15% of the borrower's disposable pay may be garnished to repay the defaulted student loan. Disposable pay is defined as that part of a borrower's compensation that remains after deducting amounts required by law to be withheld. Defaulters must be given written notice of the intent to garnish wages; and they have rights to examine the debt record, have a hearing concerning the existence and amount of the debt or repayment terms, and establish a repayment schedule before garnishment begins. Federal Salary Offset. Similar to AWG, up to 15% of the disposable pay (including retirement pay) of a borrower who is a current or former federal employee may be offset to repay a defaulted student loan. Treasury Offset Program. Defaulters become subject to having their federal income tax returns, Social Security benefits, and certain other federal benefits offset through the Treasury Offset Program (TOP) as payment on their student loans. Up to 100% of federal tax refunds may be offset. Social Security benefits may be offset in an amount up to the lesser of 15% of the borrower's monthly benefit amount, or the amount that his or her monthly benefit exceeds $750. Special rules apply with regard to the offset of Social Security Disability Insurance (SSDI) benefits. If a recipient has a disability rating of medical improvement not expected (MINE), the offset of SSDI benefits will be suspended. However, if a recipient's disability benefits are converted to retirement benefits, the offset of Social Security benefits may resume. Civil Lawsuit . Litigation is employed as a last resort to collect on a defaulted loan. If this option is pursued, the U.S. Department of Justice may sue the defaulter, on behalf of the Office of Federal Student Aid, to compel repayment. Reporting to Consumer Reporting Agencies . Information on student loans, including amounts borrowed, amounts owed, and repayment status, is regularly exchanged with consumer reporting agencies. Upon default, information about it will also be shared. Consumer reporting agencies may report information on the status of a borrower's defaulted student loan for seven years from the date of the default.

Resolution of Default

A number of options are available to borrowers to get out of default. As noted above, a borrower may rehabilitate the defaulted loan, obtain a Direct Consolidation Loan and use the proceeds to pay off the defaulted loan, pay the amount owed on the defaulted loan in full, or, in limited circumstances, enter into a compromise agreement.

Repaying a defaulted loan in full may be beyond the means of many borrowers. However, options to do so may include obtaining financing from outside the Direct Loan program to pay off the defaulted debt. A compromise agreement or debt settlement may permit a borrower to satisfy the debt by making a lump sum payment in an amount that is less than the full balance due. Compromise agreements and settlements are offered only after other repayment options have been exhausted.

Loan rehabilitation and loan consolidation are more widely available to and used by borrowers. Each is described below.

Loan Rehabilitation

Loan rehabilitation offers borrowers who have defaulted on a student loan an opportunity to have their loan(s) reinstated as active and to have their borrower benefits and privileges restored. A defaulter must contact the PCA to whom the debt has been transferred to request loan rehabilitation. If during a period of 10 consecutive months a borrower voluntarily makes nine reasonable and affordable monthly payments on a defaulted loan within 20 days of the due date, the defaulted loan is rehabilitated.

One of two methods may be used to determine what constitutes a reasonable and affordable payment amount for purposes of rehabilitating a defaulted loan. It is initially determined as being an amount equal to the greater of either one-twelfth of 15% of any portion of the borrower's AGI that is in excess of 150% of the poverty line applicable to the borrower's family size (see Table 7 ), or $5. However, a borrower is permitted to object to the initial determination and may instead elect to have the amount calculated according to an alternative formula that is based on an itemized accounting of his or her monthly income and expenses. In either case, the borrower is required to provide documentation of income and, as applicable, expenses for purposes of determining a reasonable and affordable payment amount.

Only payments that are voluntarily made by a borrower may be counted as among the nine reasonable and affordable payments required for loan rehabilitation. Involuntary payments may continue to be collected (e.g., through administrative wage garnishment or the TOP) while a borrower pursues loan rehabilitation.

Upon a loan being rehabilitated, the borrower again becomes eligible for full borrower privileges, such as deferments and loan forgiveness, and other means of collecting on the loan while it was in default will cease. The borrower's loan will then be transferred by DMCS to a nondefault loan servicer and he or she will be placed in one of the alternative repayment plans (discussed above) for a period of 90 days. The borrower may then apply for another repayment plan for which he or she is eligible; if the borrower does not apply for a repayment plan, he or she will be placed in a standard repayment plan. Consumer reporting agencies will also be instructed to remove any record of the default from the borrower's credit history; however, records of late or missed payments that led to the loan defaulting will not be removed.

A defaulted loan may be rehabilitated only once. Defaulted loans upon which a court judgement has been obtained through a civil lawsuit are not eligible to be rehabilitated.

Loan Consolidation

A borrower may use the proceeds of a new Direct Consolidation Loan to pay off one or more defaulted loans. To become eligible to do so, a borrower must make what are considered satisfactory repayment arrangements.

One approach is for the borrower, prior to consolidation, to make three voluntary, consecutive, on-time, full monthly payments that are considered reasonable and affordable, based on the borrower's total financial circumstances. These payments must be made within 20 days of the due date and may not be involuntary payments (e.g., payments collected through administrative wage garnishment or the TOP). A borrower who chooses this approach may repay the new Direct Consolidation Loan according to any available repayment plan.

Another approach is for the borrower to agree to repay the new Direct Consolidation Loan according to one of the IDR plans for which the borrower is eligible. If the borrower obtains a Direct Consolidation Loan for purposes of repaying a Direct PLUS Loan or a FFEL PLUS Loan made to a parent borrower, he or she must repay the new loan according to the Income-Contingent Repayment plan, which is the only IDR plan available to borrowers of parent loans.

Several restrictions limit the availability of loan consolidation as an option for borrowers to bring defaulted loans into good standing. If the borrower's loan was subject to AWG, this must first be lifted for the loan to be eligible for consolidation. A loan on which a court judgment has been secured through litigation is not eligible for loan consolidation. If the borrower's defaulted loan is a Direct Consolidation Loan, the borrower must include at least one other eligible loan in the new Direct Consolidation Loan. If the borrower's defaulted loan is a FFEL Consolidation Loan, the borrower may include the loan in a new Direct Consolidation Loan without including any other loans; however, the borrower must repay according to one of the IDR plans.

If a borrower consolidates a loan out of default, collection fees will be assessed on the outstanding principal and interest of the defaulted loan, and these fees will be included as part of the original principal balance of the new Direct Consolidation Loan. Upon a defaulted loan being repaid by a Direct Consolidation Loan, the borrower regains eligibility for full borrower privileges, such as deferments and loan forgiveness, as well as eligibility for additional federal student aid. However, in contrast to loan rehabilitation, repaying a defaulted loan with a Direct Consolidation Loan will not remove the record of default from the borrower's credit history.

Loan Counseling and Disclosures

This report seeks to provide a comprehensive overview of the terms and conditions of federal student loans made through the Direct Loan program. These loan terms and conditions are voluminous and complex. For many individuals, the process of borrowing a federal student loan may be among their first experiences with making a major financial transaction; thus, it is imperative for borrowers to understand the terms and conditions of the loans they obtain and their associated rights and responsibilities as borrowers.

As part of the process of obtaining a federal student loan, borrowers are required to undergo financial counseling that provides them with information about their loans and the obligations they assume as borrowers. First-time borrowers must be provided with entrance counseling, which provides them with comprehensive information on the loans they are about to obtain. Borrowers who have received an adverse credit determination but have been able to establish eligibility to borrow Direct PLUS Loans must receive PLUS Loan credit counseling. At the time of obtaining a loan, borrowers are required to sign a promissory note, which is a contract that establishes the borrower's legal obligation to repay. The promissory note is accompanied by a rights and responsibilities statement that uses plain language to disclose the terms and conditions of the loan. Prior to a borrower ceasing to be enrolled on at least a half-time basis, he or she must be provided with exit counseling.

Entrance Counseling

The institution attended by a first-time borrower of a Direct Subsidized Loan or a Direct Unsubsidized Loan, or by a first-time graduate or professional student borrower of a Direct PLUS Loan is required to ensure that he or she receives entrance counseling prior to the first installment of the loan being disbursed. Entrance counseling may be provided through an in-person counseling session, a written document provided to the borrower, or an online interactive medium. Irrespective of the means through which entrance counseling is provided, the institution must ensure that an individual who has expertise in federal student aid is available shortly after the session to respond to any questions a borrower might have.

Entrance counseling is designed to provide a borrower with comprehensive information on both the terms and conditions of the loan and the borrower's rights and responsibilities with regard to the loan. Entrance counseling must satisfy the following requirements:

explain the master promissory note; emphasize to the borrower the seriousness and importance of the obligation to repay the loan; describe the likely consequences of default, which include adverse credit reports, the collection of delinquent debt, and litigation; emphasize that the borrower is required to repay the loan in full, irrespective of whether he or she completes the program of study on time or at all, is unable to obtain employment, or is dissatisfied with the program; provide the borrower with sample monthly payment amounts based on either a range of amounts that might be borrowed or the average cumulative amount borrowed by other students in the same program; explain potential implications that accepting the loan might have on the borrower's eligibility to receive other forms of student aid; provide information on interest accrual and capitalization; inform the borrower of the option to pay the interest that accrues on Direct Unsubsidized Loans and Direct PLUS Loans while he or she is enrolled in school; explain the meaning of half-time enrollment and the consequences of not maintaining half-time enrollment; explain the importance of informing the school if the borrower chooses to withdraw so that exit counseling can be provided; provide information about, and how the borrower can access, the National Student Loan Data System (NSLDS); provide the name of and contact information for an individual the borrower may ask any questions about the terms and conditions of the loan and the borrower's rights and responsibilities with regard to the loan; explain to post-July 1, 2013, first-time borrowers the Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers provision for Direct Subsidized Loans and its implications; and explain to first-time graduate student borrowers of a Direct PLUS Loan who have previously borrowed a Direct Subsidized Loan or a Direct Unsubsidized Loan the differences between these loan types with regard to interest rates, the accrual of interest, and the start of the repayment period.

PLUS Loan Credit Counseling For Borrowers with Adverse Credit

Any parent borrower or graduate or professional student borrower with an adverse credit determination who becomes eligible to borrow a Direct PLUS Loan, either by obtaining an endorser or by providing documentation of extenuating circumstances, must receive special PLUS Loan credit counseling. The counseling is also available on a voluntary basis to Direct PLUS Loan borrowers who have not received an adverse credit determination. This counseling includes information similar to what is currently provided in PLUS Loan entrance counseling.

Master Promissory Note and Plain Language Disclosure

The terms and conditions of federal student loans made through the Direct Loan program are specified in a promissory note, which is a contract that establishes the borrower's obligation to repay the loan. A master promissory note (MPN) is a type of promissory note under which loans may be made to a borrower for a single academic year or for multiple academic years. One type of MPN is used for making Direct Subsidized Loans and Direct Unsubsidized Loans and another type of MPN is used for making Direct PLUS Loans. A different type of promissory note is used for making Direct Consolidation Loans.

The MPN must be read and signed by a student or parent borrower before loan funds may be disbursed. The IHE a student attends may choose to use a MPN with either a single-year or a multiyear feature. IHEs that use a single-year MPN may only make loans under the MPN for one academic year. IHEs that use the multiyear feature may make one or more loans under the same MPN for up to 10 academic years.

IHEs that use a multiyear MPN must confirm a borrower's acceptance of a new loan for each subsequent year by either obtaining a borrower's written confirmation of acceptance (affirmative confirmation) or by not receiving a borrower's notification that he or she is specifically declining the loan in whole or in part (passive confirmation). Under current regulations, IHEs are encouraged, but not required, to obtain affirmative confirmation from the student that he or she accepts the loan before disbursing loan funds.

Attached to the MPN is a Plain Language Disclosure (PLD) form that explains loan terms and conditions and the borrower's rights and responsibilities in simplified terms. The PLD is provided to borrowers prior to each disbursement of a loan made through the Direct Loan program, regardless of whether an IHE uses a single-year or multiyear MPN.

Exit Counseling

Prior to a student borrower ceasing to be enrolled on at least a half-time basis, the institution a borrower attends must provide him or her with exit counseling. It may be provided through an in-person counseling session, an audiovisual presentation, or an online interactive medium. Irrespective of the means through which exit counseling is provided, the institution must ensure that an individual who has expertise in federal student aid is available shortly after the session to respond to any questions a borrower might have.

Exit counseling is designed to provide the borrower with comprehensive information on both the terms and conditions of the loan and the borrower's rights and responsibilities with regard to the obligation to repay the loan. Exit counseling must satisfy the following requirements:

inform the borrower of the average anticipated monthly payment amount based on either the individual's actual student loan debt or the average cumulative amount borrowed by other students at the same school; provide a review of the repayment plan options available to the borrower, along with a description of the various features of each plan and sample information showing average anticipated monthly payment amounts and differences in interest and total payments under each plan; explain options to prepay a loan, to repay according to a shorter schedule, and to change repayment plans; provide information on loan consolidation and how it affects the length of repayment and total interest paid; how it affects borrower benefits, such as grace periods, loan forgiveness, loan cancellation, and deferment; and options to prepay a loan or change repayment plans; explain how to contact the borrower's loan servicer; explain the master promissory note; emphasize to the borrower the seriousness and importance of the obligation to repay the loan; emphasize that the borrower is required to repay the loan in full, irrespective of whether he or she completes the program of study on time or at all, is unable to obtain employment, or is dissatisfied with the program; describe the likely consequences of default, which include adverse credit reports, the collection of delinquent debt, and litigation; provide a general description of the terms and conditions under which a borrower may receive full or partial discharge or forgiveness of principal and interest, may defer repayment of principal or interest, or may be granted forbearance; and descriptions of federal student assistance programs and other information and ED publications as required by HEA Section 485(d); review information on the availability of the FSA Ombudsman Group; provide information about, and how the borrower can access, the NSLDS; explain to post-July 1, 2013, first-time borrowers the Direct Subsidized Loan Limitations for Post-July 1, 2013, First-Time Borrowers provision for Direct Subsidized Loans and its implications; provide a general description of tax benefits that may be available to borrowers; and require the borrower to provide current and expected future contact information, next of kin, and (if known) expected employer.

Additional Information on Loan Terms and Conditions

The loan counseling and disclosures described above are designed to ensure that borrowers are provided with information about the terms and conditions of their loans, as required by law. Appendix A presents a list of additional resources that may be accessed by policymakers and others who may be interested in obtaining more detailed information about borrowers' rights, responsibilities, and obligations with regard to Direct Loan program loans.

Appendix A. Directory of Resources

Directory of Resources

Appendix B. Glossary of Terms

Appendix C. Historical Tables on Selected Loan Terms and Conditions