| AwardYear: 1996-1997 EnterChapterNo: 6 EnterChapterTitle: Federal Perkins Loan Program SectionNumber: 4 SectionTitle: Forbearance and Deferment PageNumbers: 35-48 [[Definition of forbearance]] [[Forbearance--34CFR 674.33(d)]] If a borrower is financially unable to make the required payments on a loan, he or she may request that the school grant forbearance. Forbearance is a temporary postponement of payments, an extension of time allowed for making payments, or the acceptance of smaller payments than were previously scheduled. Interest will continue to accrue during any period of forbearance. The borrower must request forbearance in writing, providing documentation that supports the borrowers claim that he or she is financially unable to make payments. Forbearance is available for all Perkins Loans and National Direct Student Loans (NDSLs), regardless of when they were made. When the school receives the borrowers written request and supporting documentation, the school must grant the borrower forbearance for a period of up to one year at a time. The forbearance may be renewed, but the periods of forbearance collectively may not exceed a total of three years. A school may apply an authorized period of forbearance to begin retroactively (that is, to begin on an earlier date than the date of the borrowers request) if the borrower requests that the school do so and if he or she provides adequate documentation to support the request. Both loan principal and any interest that accrues must be included in the forbearance unless the borrower chooses to pay interest that accrues. The borrower and the school must agree in writing on the terms of forbearance. The forbearance must be in the form of a temporary cessation of payments unless the borrower chooses one of the alternative types of forbearance (as explained in the first paragraph above). [[Criteria for granting forbearance]] [[Evidence the borrower must submit]] A school must grant forbearance if the total amount the borrower is obligated to pay monthly on all Student Financial Assistance (SFA) loans is equal to or greater than 20% of the borrowers total monthly gross income (defined on the next page). If the borrowers loan payments are due less frequently than monthly, a proportional share of the payments is used to determine the equivalent in total monthly payments. For example, if a payment is due quarterly, divide the amount by three (because the payment covers three months) to determine the equivalent monthly payment amount. The school must require the borrower to submit at least the following documentation: - evidence of the amount of the most recent total monthly gross income the borrower received and - evidence of the amount of the monthly payments the borrower owes for the most recent month on his or her SFA loans. [[Definition of "total monthly gross income"]] Total monthly gross income is the gross amount of income received by the borrower from employment (either full-time or part-time) and from other sources. [[Other reasons for granting forbearance]] A school also must grant forbearance if it determines the borrower should qualify due to poor health or other acceptable reasons or if the U.S. Department of Education (ED) authorizes a period of forbearance due to a national military mobilization or other national emergency. ED strongly encourages a school to grant forbearance to a borrower who is serving in Americorps. DEFERMENT [[Definition of deferment]] A borrower is entitled to have the repayment of a loan deferred under certain circumstances. A deferment is a period of time during which the borrower is not required to repay the loan principal. Interest will not accrue during any type of deferment except a hardship deferment. For loans made on or after July 1, 1993, INTEREST DOES NOT ACCRUE during any type of deferment. [[Deferment and cancellation]] If a borrower is teaching or engaged in other services that qualify him or her for both deferment and cancellation, the loan deferment is considered to run concurrently with any period for which loan cancellation is granted. [[Applying for a deferment]] A borrower must apply for a deferment in writing by obtaining a deferment form from the business or student loan office of the school that made the loan (or from the schools billing service, if it uses one). The form must be submitted to the school along with whatever documentation the school requires. The school establishes a deadline for submitting the form and documentation. (ED does NOT approve or supply deferment forms.) The borrower must file a form at least once a year for as long as the deferment can be claimed. The borrower must immediately report any change in deferment status to the lending institution. IN-SCHOOL DEFERMENT--COMMON TO ALL PROGRAM LOANS [[Required enrollment status]] A borrower may defer repayment of a Perkins Loan, NDSL, or Defense Loan if he or she is enrolled at least half time in an eligible institution. Interest will not accrue during the deferment. To receive a deferment based on at least half-time enrollment, also called an in- school deferment, the student must be enrolled as a regular student in an eligible institution of higher education or a comparable institution outside the United States approved by ED for deferment purposes. However, it is not a requirement that the school participate in the Federal Perkins Loan Program. If a borrower is attending a school that ceases to qualify as an institution of higher education, the borrowers deferment ends on the date the school ceases to qualify. A regular student is one who is enrolled for the purpose of obtaining a degree or certificate. If the borrower is attending at least half time as a regular student for a full academic year and intends to do so in the next academic year, he or she is entitled to a deferment for 12 months. DEFERMENT OF LOANS MADE ON OR AFTER JULY 1, 1993 For Perkins Loans and NDSLs made on or after July 1, 1993, a borrower may defer loan repayment, and interest does not accrue while the borrower [[In-school deferment]] - is enrolled at least half time as a regular student at an eligible institution and is attending classes at that school as described above; - is enrolled and in attendance as a regular student in a course of study that is part of a graduate fellowship program approved by ED*1*; - is engaged in graduate or post-graduate fellowship-supported study (such as a Fulbright grant) outside the United States; [[Residency program in dentistry]] - is serving in a residency program in dentistry*2*; [[Rehabilitation training]] - is enrolled in a course of study that is part of an ED-approved rehabilitation training program for disabled individuals; [[Unemployment]] - is seeking and is unable to find full-time employment*3*; [[Economic hardship]] - is suffering an economic hardship*3* (discussed below); or - is engaged in certain types of service that qualify the borrower for cancellation of the loan*4*. [[Post-deferment grace period]] A Perkins Loan or NDSL borrower is entitled to a six-month grace period after each type of deferment (a "post-deferment" grace period). Neither the deferment nor the grace period is counted as part of the borrowers 10-year repayment period. [[Economic hardship deferment 34CFR Section 674.34(e)]] For Perkins Loans or NDSLs made ON OR AFTER July 1, 1993, the hardship deferment has been replaced by the ECONOMIC HARDSHIP deferment. A school may grant a deferment due to economic hardship for up to a total of three years. Unlike loans made before July 1, 1993, loans made after that date do not qualify for UNLIMITED deferments due to hardship. Also unlike the former hardship deferment, the new economic hardship deferment allows a borrower to defer interest as well as principal. An eligible borrower is entitled to an economic hardship deferment for periods of up to one year at a time, not to exceed three years cumulatively if the borrower provides the school with satisfactory documentation showing that he or she 1. has been granted an economic hardship deferment under either the Federal Direct Student Loan (Direct Loan) Program or the Federal Family Education Loan (FFEL) Program for the same period of time for which the Perkins Loan or NDSL deferment has been requested; 2. is receiving federal or state public assistance, such as Aid to Families with Dependent Children, Supplemental Security Income, Food Stamps, or state general public assistance; 3. is working full time and is earning a total monthly gross income that does not exceed the greater of a) the monthly earnings of an individual earning the federal minimum wage or b) an amount equal to 100% of the poverty line for a family of two as determined in accordance with section 673(2) of the Community Service Block Grant Act; 4. is not receiving total monthly gross income that is more than twice the amount in (a) or (b) above and that income minus an amount equal to the borrowers monthly payments on federal postsecondary education loans does not exceed the amount specified in (a) or (b) above; or 5. is working full time and has a federal educational debt burden that equals or exceeds 20% of the borrowers total monthly gross income and the borrowers total monthly gross income minus such burden is less than 220% of the greater of a) the monthly earnings of an individual earning the federal minimum wage or b) an amount equal to 100% of the poverty line for a family of two as determined in accordance with section 673(2) of the Community Service Block Grant Act. For information on the minimum wage, contact the Wage and Hour Division of the U.S. Department of Labor. The telephone number is (202) 219-7043. The U.S. Department of Health and Human Services 1995 poverty line for a family of two was $12,540 for Alaska, $11,550 for Hawaii, and $10,030 for all other states. [[Documentation for economic hardship]] To support a borrowers eligibility for an initial economic hardship deferment based on the criteria in option 4 above, the school must collect at least the following documentation: - evidence showing the amount of the borrowers most recent total monthly gross income from all sources--that is, the gross amount of income the borrower received from employment (either full- time or part-time) and from other sources and - evidence showing the most recent monthly amount due on each of the borrowers federal postsecondary education loans, as determined by the method described below. [[Determining monthly amount due on education loans]] To determine the monthly amount due on federal postsecondary education loans, the school must count only the monthly amount that the borrower WOULD HAVE OWED on each loan IF IT HAD BEEN SCHEDULED TO BE REPAID IN 10 YEARS from the date the loan entered repayment; the school should disregard the actual repayment schedule or the actual monthly payment amount (if any) that the borrower would owe during the period for which the economic hardship deferment is requested. To qualify for a SUBSEQUENT period of deferment that begins less than one year after the end of the deferment described in option 3 or 4 above, the school must require the borrower to submit a copy of his or her federal income tax return if the borrower filed a tax return within the eight months preceding the date the deferment is requested. For purposes of qualifying under option 3 or 5 of the economic hardship deferment, a borrower is considered to be working full time if he or she is expected to be employed for at least three consecutive months for at least 30 hours per week. [[Rehabilitation training program deferment]] To qualify for a deferment for study in a rehabilitation training program, all of the following criteria must be met: 1. The borrower must provide the school with a certification from the rehabilitation agency that the borrower is either receiving or scheduled to receive training services designed to rehabilitate disabled individuals. 2. The borrower must provide the school with a certification from the rehabilitation agency that one of the following entities licenses, approves, certifies, or otherwise recognizes the rehabilitation program as providing rehabilitation training to disabled individuals: - a state agency with responsibility for vocational rehabilitation programs; - a state agency with responsibility for drug abuse treatment programs; - a state agency with responsibility for mental health services programs; - a state agency with responsibility for alcohol abuse treatment programs; or - the U.S. Department of Veterans Affairs. 3. The rehabilitation agency must certify that the rehabilitation program provides or will provide the borrower with rehabilitation services under a written plan that - is individualized to meet the borrowers needs; - specifies the date on which the services to the borrower are expected to end; and - is structured in a way that requires the borrowers substantial commitment to his or her rehabilitation. ED considers a substantial commitment to be one of time and effort that would normally prevent an individual from engaging in full-time employment either because of the number of hours that must be devoted to rehabilitation or because of the nature of the rehabilitation. DEFERMENT OF PERKINS LOANS MADE BEFORE JULY 1, 1993 A borrower of a Perkins Loan made before July 1, 1993 may defer repayment if he or she is enrolled at least half time as a regular student in an eligible institution (as explained on page 6-37). [[Three-year deferments]] Such a borrower may also defer repayment for up to three years and interest will not accrue while he or she is - a member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard; - a member of the National Guard or the Reserves serving a period of full-time active duty in the armed forces; - an officer in the Commissioned Corps of the U.S. Public Health Service; - on full-time active duty as a member of the National Oceanic and Atmospheric Administration Corps; - a Peace Corps volunteer; - a volunteer under Title I, Part A of the Domestic Volunteer Service Act of 1973 (ACTION programs); - a full-time volunteer in service for a tax-exempt organization that ED has determined is comparable to Peace Corps or ACTION service*5*; or - temporarily totally disabled or unable to work because he or she must care for a SPOUSE OR OTHER DEPENDENT who is so disabled*5*. [[Volunteer service comparable to Peace Corps]] A borrower is considered to be providing service comparable to Peace Corps or ACTION service if he or she meets all of the following five criteria: 1. The borrower serves in an organization that is exempt from taxation under the provisions of Section 501(c)(3) of the Internal Revenue Code of 1954. 2. The borrower provides service to low-income persons and their communities to assist them in eliminating poverty and poverty- related human, social, and environmental conditions. 3. The borrower does not receive compensation that exceeds the rate prescribed under Section 6 of the Fair Labor Standards Act of 1938 (the federal minimum wage), except that the tax-exempt organization may provide the volunteer with health, retirement, and other fringe benefits that are substantially equivalent to the benefits offered to other employees of the organization. 4. The borrower, as part of his or her duties, does not give religious instruction, conduct worship service, engage in religious proselytizing, or engage in fund raising to support religious activities. 5. The borrower has agreed to serve on a full-time basis for a term of at least one year. [[Temporary total disability]] Temporarily totally disabled, with regard to the borrower, means the inability due to an injury or illness to attend an eligible school or to be gainfully employed during a reasonable period of recovery. Temporarily totally disabled, with regard to a disabled spouse or other dependent of a borrower, means requiring continuous nursing or other services from the borrower for a period of at least three months due to illness or injury. An affidavit from a qualified physician*6* is required to prove disability. The definition of dependent for temporary total disability deferment purposes is the same as the definition used in the Free Application for Federal Student Aid (FAFSA) for a member of the independent applicants household: A borrowers dependent is a child who receives more than half of his or her financial support from the borrower or another person who lives with the borrower and who receives more than half of his or her financial support from the borrower. [[Internship deferment]] A borrower whose Perkins Loan was made before July 1, 1993 and who is serving in a medical internship or residency program is not considered to be in school for deferment purposes and may not receive an in-school deferment on that Perkins Loan for the internship or residency program; however, the borrower is eligible for an INTERNSHIP DEFERMENT for up to two years. While the borrower is serving an eligible internship, he or she may defer repayment for up to two years. Interest will not accrue during the internship deferment. An eligible internship is one that requires the borrower to hold at least a bachelors degree before beginning the program; in addition, the internship must meet the criteria of EITHER a OR b below to be eligible: a. The successful completion of the internship must be required by a state licensing agency as a prerequisite for certification of the individual for professional practice or service. For this type of eligible internship, the borrower must provide the school with the following certifications: - a statement from an official of the appropriate state licensing agency indicating that the successful completion of the internship is required by the state licensing agency as a prerequisite for certification for professional practice or service; - a statement from the organization where the borrower will be an intern certifying that attaining a bachelors degree is required to be admitted in the program; - a statement from the organization where the borrower will be an intern indicating that the borrower has been accepted into its internship program; and - certification of the dates when the borrower is expected to begin and complete the program. b. The internship or residency program must lead to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility offering postgraduate training. For this type of eligible internship, the borrower must provide the school with a statement from an authorized official of the internship program certifying that - a individual must have a bachelors degree to be admitted in the program; - the borrower has been accepted into the program; and - the internship or residency program leads to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility that offers postgraduate training. A borrower of a Federal Perkins Loan made before July 1, 1993 may also defer repayment (and interest will not accrue) during a period of [[One-year "working mother" deferment]] - up to one year if the borrower is a mother of a preschool-age child, provided the mother is going to work (or going back to work) at a salary that is no more than $1.00 above the minimum hourly wage or [[Six-month "parental leave" deferment}} - up to 6 months if the borrower is pregnant, or if he or she is taking care of a newborn or newly adopted child.*7* [[Hardship deferment]] A borrower may defer repayment for hardship, as determined by the school (for example, if the borrower is facing a prolonged period of illness or unemployment). Interest will continue to accrue during the deferment. [[Post-deferment grace period]] A borrower is entitled to a six-month grace period after each of the deferments that apply to Perkins Loans (a post-deferment grace period) except after a hardship deferment. Neither the deferment nor the post-deferment grace period is counted as part of the 10-year repayment period. DEFERMENT OF NDSLS MADE BETWEEN OCTOBER 1, 1980 AND JULY 1, 1993 [[At least half-time attendance]] A borrower of an NDSL made on or after October 1, 1980 but before July 1, 1993 may defer repayment if he or she is enrolled at least half time as a regular student in an eligible institution (as explained on page 6-37). [[Three-year deferments]] A borrower may defer repayment for up to three years (and interest will not accrue) while the borrower is - a member of the U.S. Army, Navy, Air Force, Marines, or Coast Guard; - a member of the National Guard or the Reserves serving a period of full-time active duty in the armed forces; - an officer in the Commissioned Corps of the U.S. Public Health Service; - a Peace Corps volunteer; - a volunteer under Title I, Part A of the Domestic Volunteer Service Act of 1973 (ACTION programs); - a full-time volunteer in service for a tax-exempt organization ED has determined to be comparable to Peace Corps or ACTION;*8* or - temporarily totally disabled or unable to work because he or she must care for a SPOUSE who is so disabled.*9* [[Two-year deferments]] A borrower of an NDSL made on or between October 1, 1980 and July 1, 1993 may defer repayment for up to two years (and interest will not accrue) while the borrower is serving in an eligible internship. An eligible internship is one - that requires the borrower to hold at least a bachelors degree before beginning the internship program and - that the state licensing agency requires the borrower to complete as a prerequisite for his or her certification for professional practice or service. To qualify for an internship deferment, the borrower must provide the school with the following certifications: - a statement from an official of the appropriate state licensing agency indicating that the successful completion of the internship is required by the state licensing agency as a prerequisite of certifying for professional practice or service; - a statement from the organization where the borrower will be an intern certifying that attaining a bachelors degree is required to be admitted in the program; - a statement from the organization where the borrower will be an intern indicating that the borrower has been accepted into its internship program; and - certification of the dates when the borrower is expected to begin and complete the program. A borrower may defer repayment for hardship, as determined by the school (for example, if the borrower is facing a prolonged period of illness or unemployment). Interest will continue to accrue during the deferment. For all NDSLs made on or after October 1, 1980 and before July 1, 1993, a borrower is also entitled to a six-month post-deferment grace period after each of the deferments that apply to those loans except after a hardship deferment. Neither the deferment nor the post- deferment grace period is counted as part of the 10-year repayment period. [[Deferment provisions for loans made before 10/1/80]] For information on deferment provisions for loans made before October 1, 1980, see the 1994-95 Federal Student Financial Aid Handbook or 34CFR 674.37. DEFERMENT VS. POSTPONEMENT FOR SERVICE THAT WILL QUALIFY FOR LOAN CANCELLATION For Perkins Loans and NDSLs made on or after July 1, 1993, deferment of repayment is applicable during periods while the borrower is performing a service that will subsequently qualify him or her for cancellation of all or a portion of the loan. A school may grant a deferment of repayment for up to 12 months at a time. Interest does not accrue during this period of deferment. A borrower is entitled to deferment and post-deferment grace periods; therefore, regardless of the length of time that the eligible service is performed, repayment is deferred during that period of service and does not resume until six months after the cessation of service. Because a borrower of a loan made on or after July 1, 1993 is entitled to a deferment while performing a service that will subsequently qualify him or her for cancellation of all or a portion of the loan, a school that is exercising the minimum monthly payment provision listed in the promissory note must cease doing so and grant a deferment to cover any period of qualifying service. A borrower of a Perkins Loan, NDSL, or Defense Loan made before July 1, 1993 may NOT receive a deferment during a period while he or she is performing a service that will subsequently qualify him or her for cancellation of all or a portion of the loan; rather, a school must grant POSTPONEMENT of loan repayment for a 12-month period if the borrower - notifies the school in writing that he or she is performing a qualifying service and - submits a statement specifying that he or she is so employed.*10* Postponement differs from deferment in the following ways: - the borrower is not entitled to a postponement; - the borrower does not receive a grace period following postponement; and - interest continues to accrue during postponement. Because postponement is not an entitlement, a borrower who does not complete the period required to receive cancellation will be required to make any payments that had been postponed during the partial period of service. These payments become due and payable immediately upon the cessation of service. A school that is exercising the minimum monthly payment provisions listed in a borrowers promissory note can still grant postponement to cover a period of qualifying service. If the school was originally exercising the minimum payment option, it must cease doing so if the borrower is eligible for postponement. If a borrower has received more than one type of loan but is performing a service that qualifies only one loan for cancellation, the school may defer loan payments (or postpone loan payments for loans made prior to July 1, 1993) ONLY on the loan that qualifies for the cancellation. The amount due on the loan that is not eligible for cancellation is the amount the borrower would normally pay. THE CONCURRENT DEFERMENT PERIOD If a borrower is teaching or engaged in other services that qualify him or her for both deferment and cancellation, the loan deferment is considered to run concurrently with any period for which loan cancellation is granted. DEFERMENT AND DEFAULT [[Deferment when loan is in default]] A borrower is not entitled to a deferment on a defaulted loan. If the borrower signs a new repayment agreement, however, a school may grant a deferment even if the school has accelerated*11* the loan. The school would have to de-accelerate the loan before granting the deferment. Before granting a deferment on a defaulted loan, the school may require the borrower to pay immediately late fees, collection costs, and some or all of the amount past due as of the date on which the school determined that the borrower had demonstrated eligibility for a deferment. ED encourages schools to require the borrower to do so, thus "curing" the default. The policy to permit deferments on defaulted loans applies to all requests for deferment received after February 3, 1988, regardless of the date the loan was made. The borrower must file for deferment on time and provide satisfactory documentation that he or she qualifies for the deferment. "On time" means by a deadline that the school establishes. A SCHOOL IS NOT REQUIRED TO GRANT DEFERMENTS ON LOANS IN DEFAULT; however, if a school does so, it is expected to calculate past-due accrued interest. If a school believes this is too burdensome, it may deny deferments on defaulted loans. DEFERMENT VS. IN-SCHOOL ENROLLMENT STATUS A borrower may neglect to notify a school that he or she has enrolled at least half time at another school before the initial grace period expires. Because the school would not have this information, the school would assume that the students repayment period had started and might demand payment from the borrower. In such a case, a borrower often requests a deferment rather than a continuation of his or her in-school status. Because the borrower re-enrolled at least half time before the initial grace period expired, repayment had not yet started, and a deferment would not be appropriate. The borrower may submit proof at any time--even after a loan has been accelerated--that he or she re-enrolled at least half time before the initial grace period expired and that the repayment period should have begun later than the date originally calculated. THE SCHOOL MUST RECALCULATE THAT DATE IF IT RECEIVES THIS PROOF. The school must also deduct from the loan balance any interest accrued and any late charges added before the date the repayment period actually should have begun. Note that the borrower remains responsible for payments that would have been due under the recalculated repayment period and that the school is not obligated to grant a deferment for any payments past due under that period. *1* The borrower must provide certification that he or she has been accepted for or is engaged in full-time study in the schools graduate fellowship program. *2* Deferments may no longer be granted to a borrower while serving in a medical internship or residency program, except for a program in dentistry. *3* These deferments may not be granted in excess of three years. *4* See Section 5, "Cancellation." *5* See the criteria on the next page. *6* A qualified physician is a doctor of medicine or osteopathy who is legally authorized to practice medicine. *7* This deferment is called a parental leave deferment. The borrower must be unemployed and not attending school and must apply for deferment within six months of leaving school or dropping below half-time status. *8* See the volunteer service criteria on page 6-42. *9* See the discussion of temporary total disability on page 6-42. A physicians statement is required. *10* The statement must be signed by a responsible official in the military, agency, or school employing the borrower, and the statement must describe the borrowers job, list the period of employment, and state whether the job is full- or part-time. *11* Acceleration is one of the penalties a school may impose on a defaulted loan. A loan that has been accelerated becomes due and payable immediately in one lump sum. |