Federal Student Aid - IFAP
   
AwardYear: 1997-1998
EnterChapterNo: 10
EnterChapterTitle: Federal Family Education Loan Program
SectionNumber: 5
SectionTitle: Deferment & Forbearance
PageNumbers: 57-68


Deferment periods are periods during which payment of principal on
a Federal Family Education Loan (FFEL) is postponed and, for
subsidized Federal Stafford Loans, interest subsidy payments are
made by the federal government. Once repayment begins, a borrower
is entitled to a deferment if he or she meets the requirements for one.
However, A BORROWER MUST REQUEST A DEFERMENT
EITHER VERBALLY OR ON A FORM THE LENDER
PROVIDES. A BORROWER ALSO MUST PROVIDE
DOCUMENTATION TO THE LENDER IN SUPPORT OF THE
REQUEST. FOR AN IN-SCHOOL DEFERMENT ON A
STAFFORD LOAN OR FEDERAL PLUS LOAN, THE
BORROWER MAY APPLY ON THE LOAN APPLICATION.

A borrower who requests deferment should continue making
payments on a loan until he or she receives notification that the
deferment has been approved. A deferment period begins on the date
the qualifying condition, such as unemployment or military service,
begins.

The following deferments apply to "new" FFEL borrowers (Stafford
Loan, PLUS Loan, and Consolidation Loan borrowers). A new
borrower for deferment purposes is one whose first loan
disbursement was made on or after July 1, 1993 and who, at the time
the loan application was certified, had no outstanding balance on
ANY FFEL made before that date.

Deferments are authorized for

- at-least-half-time study by the borrower at an eligible school;

- study in an eligible graduate fellowship program, including study
outside the United States;

- study in an approved rehabilitation training program for the
disabled;

- up to three years during periods in which the borrower is seeking
and unable to find full-time employment; and

- up to three years during periods that the lender determines will
cause the borrower economic hardship.

IN-SCHOOL DEFERMENT

A deferment for full- or half-time study at an eligible school is
commonly referred to as an "in-school" deferment. Any school that
meets the definition of an eligible institution, whether or not it is
currently participating in any SFA Program, is an eligible school for
the purpose of the in-school deferment. However, if a school has
never participated in the SFA Programs, the Department must
determine whether the school meets the definition of an eligible
institution before the school may certify an in-school deferment.
Please refer to Chapter 3 for additional information on institutional
eligibility requirements.

A Stafford Loan or PLUS Loan application can serve as a request for
in-school deferment for a full-time student. A lender or guaranty
agency may rely on the school's certification of a borrower's
eligibility on the loan application for the in-school deferment. The
anticipated graduation date on the application is considered to be the
end date of the in-school deferment. However, the school is required
to update the lender and guarantor on the borrower's status using the
Student Status Confirmation Report (SSCR).

[[Internships and residencies]]
Since July 1, 1993, medical interns and residents have not qualified
for in-school deferments because these borrowers are not considered
to be maintaining an in-school status. However, medical interns or
residents may meet the regulatory provisions for an economic
hardship deferment. (This type of deferment is not based on the
borrower's status as a medical intern or resident.) Dental interns and
residents continue to qualify for in-school deferments.

UNEMPLOYMENT DEFERMENT

Before the end of each six-month period of unemployment, a
borrower must provide an additional deferment request, affirming his
or her continuing search for employment. For details on other
unemployment deferment eligibility criteria, see 34 CFR 668.210(h).

ECONOMIC HARDSHIP DEFERMENT

Economic hardship exists when the borrower is receiving payment
under a federal or state public assistance program or is working full
time and is earning a total monthly gross income that does not
exceed the greater of the following two amounts:

- the minimum wage

- the poverty line for a family of two, as determined in
Section 673(2) of the Community Service Block Grant Act.

[[Other criteria for economic hardship]]
The borrower may also meet other criteria to determine economic
hardship. Specifically, the borrower may qualify if he or she is
working full time and has a federal education debt burden (including
defaulted loans) that is at least 20% of the borrower's total monthly
gross income. The borrower's income, minus the educational debt
burden, must be less than 220% of the total monthly gross amount
associated with minimum wage rate work or earnings equal to 100%
of the poverty line for a family of two. For a borrower not working
full-time, the criteria is more complex. See 34 CFR 682.210(s)(6)(v)
for more information.

In addition, a borrower may receive an economic hardship deferment
under FFEL if he or she has been granted an economic hardship
deferment under either the William D. Ford Federal Direct Loan
Program (Direct Loans) or the Federal Perkins Loan Program for the
same period of time for which the FFEL economic hardship
deferment is requested. Other criteria for this deferment are
described in 34 CFR 682.210(s)(6).

ADDITIONAL PLUS LOAN DEFERMENT

A PLUS Loan borrower whose loan was first made and disbursed
prior to July 1, 1993 qualifies for a deferment when a dependent
student for whom the parent borrowed a PLUS Loan is still
dependent and meets one of the following conditions:

- The student is attending an eligible school full time.

- The student is attending full time at an institution of higher
education or a vocational school that is operated by an agency of
the federal government.

- The student is enrolled in an eligible graduate fellowship program
or in an approved rehabilitation training program for the disabled.

- The student is attending an eligible school half time, and he or she
meets ALL of the following conditions:

- The student has an outstanding balance on a Stafford Loan
or SLS loan borrowed on or after July 1, 1987 but before
July 1, 1993.

- On the date the student signed the promissory note for that loan,
he or she had no outstanding balance on another FFEL
borrowed before July 1, 1987.

- The student obtains a Stafford Loan or Direct Loan for the same
enrollment period for which the parent is applying for a
deferment.

DEFERMENT ELIGIBILITY ISSUES

[[Retroactive granting of deferment]]
A deferment may be granted retroactively. However, it cannot be
granted retroactively to begin more than six months before the date
the lender receives the request and supporting documentation. If, for
example, a borrower whose Stafford Loan has entered repayment
returns to school full time from September 1996 to May 1997. The
borrower requests a deferment and provides supporting
documentation to the lender in July 1997. The lender may grant the
deferment (provided that the borrower meets all eligibility
requirements for it), but the deferment can cover only the portion of
enrollment from January 1997 (six months before the lender received
the request and documentation) to May 1997 (the end of the
qualifying period). If the borrower did not make payments between
September 1996 and January 1997, the lender may apply a
forbearance to that period to cure the delinquency.

[[Defaulted loan]]
A borrower whose loan is in default is NOT eligible for any
deferments for that loan--unless the borrower has made payment
arrangements acceptable to the lender prior to the payment of a
default claim by a guaranty agency.

Please note that a co-maker on a Federal Consolidation Loan may
receive a deferment if both borrowers are simultaneously eligible for
the same or different deferments.

The financial aid administrator may wish to reassure students with
previous loans--if they are concerned about changes in deferment
conditions--that deferments listed on the promissory note cannot be
changed; however, additional deferments that could apply to ALL
borrowers may be added by future legislation.

Because the repayment period on a PLUS Loan begins on the date of
last disbursement, a deferment covering such a loan would also begin
on the date of the last loan disbursement.


DEFERMENT PROVISION CHART FOOTNOTES

The following footnotes apply to the deferment chart on page 10-64:

1. Includes student PLUS Loan borrowers and Consolidation Loans
made prior to November 1, 1983.

2. A borrower who, on the date he or she signs the promissory note,
has no outstanding balance on (1) a Stafford Loan, SLS loan, or
PLUS Loan made before July 1, 1987 for a period of enrollment
beginning before July 1, 1987 or (2) a Consolidation Loan that
repaid such a loan.

3. A new borrower who, on the date he or she applies for a loan,
has no outstanding balance on a Stafford Loan, SLS loan, PLUS
Loan, or Federal Consolidation Loan made before July 1, 1993
AND whose first disbursement of the loan is made on or after
July 1, 1993.

4. Consolidation Loans made on or after July 1, 1993 to borrowers
who have no outstanding FFELs other than the FFELs to be
consolidated.

5. A Stafford Loan or SLS loan borrower or a PLUS Loan parent
borrower who was made or disbursed on or after July 1, 1987 and
before July 1, 1993 and who, on the date he or she signed the
promissory note, had no outstanding balance on a FFEL made
before July 1, 1987 is eligible for deferment while engaged in at
least half-time study at a participating school if the borrower
obtains a Stafford Loan or for that period of enrollment. If a new
borrower (see footnote 3) under these loan programs receives a
first disbursement on or after July 1, 1993, he or she is not
required to borrow loans to qualify for the deferment.

6. Deferment approval for a new borrower enrolled in a graduate or
postgraduate, fellowship-supported program (that is, a Fulbright
Fellowship) will extend for the duration of the fellowship period.

7. Public Law 102-26 authorized, for the period of April 9, 1991 to
September 30, 1997, special Stafford Loan deferment and grace
period provisions for reservists called up for active duty service in
connection with Operation Desert Shield and Operation Desert
Storm. These benefits are:

- A military deferment for the duration of service in connection
with Operation Desert Shield or Operation Desert Storm, even if
the length of the deferment exceeds the maximum deferment
authorized in sections 428(b)(1)(M)(ii) or 427(a)(2)(C)(ii);

- A six-month post-deferment grace period following an
Operation Desert Shield or Operation Desert Storm military
deferment; and

- A one-time six-month post-deferment grace period following an
in-school deferment for a borrower who received a military
deferment and who later becomes eligible for an in-school
deferment.

8. Periods of service in an eligible internship program (See 34 CFR
Section 682.210(g)); or serving in an internship or residency
program leading to a degree or certificate awarded by an
institution of higher education, a hospital, or a health-care facility
that offers postgraduate training. Lenders are now required to
grant forbearance to medical interns and residents who have
expended their two-year residency deferments before they have
completed their intern and residency requirements.

9. A mother who

- has a preschool-age child,

- is entering or reentering the work force full time, and

- is being paid no more than $1 above the minimum wage.

10. A borrower who is seeking, but who is unable to find, full-time
employment.

11. A borrower is considered to have an economic hardship if the
borrower

- is receiving payment under a federal or state public assistance
program;

- is working full time but earning an amount that does not exceed
the greater of

- the federal minimum wage, or

- an amount equal to 100% of the poverty line for a family of
two as determined according to section 673(2) of the
Community Service Block Grant Act; or

- meets other regulatory criteria which take into account the
borrower's debt-to-income ratio as a primary factor.
Specifically, the borrower may qualify if

- he or she is working full time and has a federal educational
debt burden (including defaulted loans) that is at least 20% of
the borrower's total monthly gross income. The borrower's
income, minus the education debt burden, must be less than
220% of the total monthly gross amount associated with
minimum wage rate work or earnings equal to 100% of the
poverty line for a family of two.

- he or she is not working full time and has a total monthly
gross income that does not exceed twice the minimum wage
or the poverty line for a family of two, and, after deducting
the borrower's monthly education loan payments, the
remaining amount of the borrower's income does not exceed
those amounts.

- has been granted an economic hardship deferment under either
Direct Loans or the Federal Perkins Loan Program for the same
period of time for which the FFEL economic hardship
deferment is requested.

12. Period for which the borrower is pregnant, caring for his or her
newborn child, or caring for his or her adopted child (immediately
following adoption). The borrower may neither be attending
school nor be gainfully employed and must have been enrolled at
least half time at a participating school at some time during the six
months preceding the period of parental leave.

13. A PLUS Loan borrower whose loan was first made and
disbursed prior to July 1, 1993 qualifies for a deferment when a
dependent student for whom the parent borrowed a PLUS Loan is
still dependent and meets one of the following conditions:

- The student is attending an eligible school full time.

- The student is attending full time at an institution of higher
education or a vocational school that is operated by an agency
of the federal government.

- The student is enrolled in an eligible graduate fellowship
program or in an approved rehabilitation training program for
the disabled.

- The student is attending an eligible school half time, and he or
she meets ALL of the following conditions:

- The student has an outstanding balance on a Stafford Loan
or SLS loan borrowed on or after July 1, 1987 but before
July 1, 1993.

- On the date the student signed the promissory note for that
loan, he or she had no outstanding balance on another FFEL
borrowed before July 1, 1987.

- The student obtains a Stafford Loan or Direct Loan for the
same enrollment period for which the parent is applying for a
deferment.

[[The chart "Federal Family Education Loan Program Deferment
Provisions" on page 10-64 is currently unavailable for viewing. Please
reference your paper document for additional information.]]

GENERAL FORBEARANCE PROVISIONS

If a borrower (or endorser) is willing but financially unable to make
the required payments on an FFEL because of poor health or other
unanticipated personal problems, he or she may request that the
lender grant forbearance. Forbearance means permitting the
temporary cessation of payments, allowing an extension of time for
making payments, or temporarily accepting smaller payments than
were previously scheduled.

With the exception of the special categories of forbearances for
variable interest rate changes and income-sensitive repayment
schedules, the borrower may elect to pay nothing during the
forbearance period. If the borrower wishes to make reduced
payments, a lender may grant forbearance of principal, interest, or
both. Forbearance usually requires a WRITTEN AGREEMENT
between borrower and lender. When forbearance is granted, the
borrower is always responsible for repayment of accrued interest
charges. While lenders do not in most cases have to grant
forbearance, they are encouraged to do so if such action would likely
prevent the borrower from defaulting.

If two persons are jointly liable for repayment (are co-makers) of a
PLUS Loan or Consolidation Loan, the lender may grant forbearance
only if BOTH persons meet the conditions for a forbearance.

MANDATORY FORBEARANCE

The law specifies that a lender must grant mandatory forbearance of
both principal and interest (if requested) to a FFEL borrower in
certain circumstances (the first two circumstances apply only to
borrowers; the other two apply to borrowers and endorsers):

- If a borrower serving in a medical or dental internship or
residency program has already received the maximum two-year
internship deferment or is not eligible for such a deferment
because he or she is a new borrower, a forbearance must be
granted. Forbearance in this instance must be cessation of all
payments unless the borrower requests forbearance as an extension
of time for making payments or requests a temporary reduction in
payments. The forbearance is renewable at 12-month intervals
while the borrower remains in the internship/residency program.
The borrower must request forbearance in writing for each 12-
month period.

- If a borrower's monthly student loan payments are collectively
equal to or greater than 20% of the borrower's total monthly
income, a forbearance must be granted in yearly increments for
periods of time that collectively do not exceed three years.

- If a borrower is serving in a national service position for which he
or she received a national service education award under the
National and Community Service Trust Act of 1993, a forbearance
must be granted; the forbearance is renewable in yearly increments
during the time the borrower serves in this capacity.

- If a borrower is eligible for partial repayment of a loan under the
Student Loan Repayment Programs administered by the
Department of Defense under 10 U.S.C. 2171, a forbearance must
be granted.

ADMINISTRATIVE FORBEARANCE

Administrative forbearance does not require agreement from a
borrower, and a lender may grant it only under specified conditions
authorized by law or by the Department in regulations. Upon
notifying the borrower, a lender may grant forbearance for payments
of interest and principal that are overdue

- when a deferment is granted and the lender later learns that the
borrower did not qualify for the deferment,

- at the beginning of a deferment period,

- from the time the borrower entered repayment until the first
payment was due,

- during a period of national military mobilization such as Bosnia
and Operation Desert Storm, and

- during a period prior to a borrower's filing of bankruptcy.

A lender may grant administrative forbearance

- during a period not to exceed 60 days after a lender learns of a
borrower's death or total and permanent disability, as long as the
lender has received documentation verifying those conditions;

- for a period of delinquency at the time a loan is sold or
transferred, as long as the borrower or endorser is less than 60
days delinquent on the loan at the time of sale or transfer;

- for periods necessary to determine a borrower's eligibility for loan
discharge because of past attendance at a school that later closed
or because of false certification of loan eligibility;

- for periods when a borrower's or endorser's eligibility for
bankruptcy discharge is being determined; or

- for a period of delinquency that may remain after a borrower ends
a period of deferment or mandatory forbearance until the next due
date is established.

MANDATORY ADMINISTRATIVE FORBEARANCE

FFEL program regulations specify that a lender must grant a
mandatory administrative forbearance to FFEL borrowers in certain
circumstances:

- For up to three years of payments when the effect of a variable
interest rate change requires the extension of the maximum
repayment term (under a standard or graduated repayment
schedule), forbearance must be granted.

- For up to five years of payments when an income-sensitive
repayment schedule requires the extension of the maximum
repayment term, forbearance must be granted to avoid ballooning
payments.

[[Exceptional circumstances]]
- When the Department notifies the lender that exceptional
circumstances (such as a local or national emergency or a military
mobilization), a forbearance must be granted. Borrowers subject to
a military mobilization must provide supporting documentation as
proof.

[[Natural disasters]]
- When the Department notifies loan holders that specific
geographical areas have been designated as natural disaster areas,
the holders are strongly encouraged to grant administrative
forbearance for up to three months to assist borrowers who have
been affected by the disaster and who contact the holders and
request assistance. A borrower in this situation is not required to
sign a forbearance agreement or to submit supporting
documentation. For example, victims of Hurricanes Marilyn and
Opal were granted administrative forbearance.

INTEREST ACCRUING DURING DEFERMENT AND
FORBEARANCE

Interest continues to accrue on all loans during deferment periods.
Interest also accrues on all FFELs during forbearance. Unless a
borrower qualifies for interest subsidy during deferment, he or she is
responsible for paying this interest and may do so during deferment
or forbearance. Or, a lender may agree to capitalize the interest (add
it to loan principal) when repayment of the principal resumes.

Interest that accrues during a deferment or forbearance may be
capitalized no more frequently than quarterly. Procedures for
capitalization of interest under different deferments may vary. The
borrower should be instructed to read his or her promissory note and
to check with the lender or guaranty agency for details on
capitalization of interest. If a borrower agrees to pay interest during
deferment but fails to do so, the borrower will be considered
delinquent.