§ 1087e. Terms and conditions of loans
(a)
In general
(b)
Interest rate
(1)
Rates for FDSL and FDUSL
For Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after July 1, 1994, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(2)
In school and grace period rules
(A)
Notwithstanding the provisions of paragraph (1), but subject to paragraph (3), with respect to any Federal Direct Stafford Loan or Federal Direct Unsubsidized Stafford Loan for which the first disbursement is made on or after July 1, 1995, the applicable rate of interest for interest which accrues—
(ii)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1078
(b)(1)(M) or
1077
(a)(2)(C) of this title,
shall not exceed the rate determined under subparagraph (B).
(B)
For the purpose of subparagraph (A), the rate determined under this subparagraph shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(i)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(3)
Out-year rule
Notwithstanding paragraphs (1) and (2), for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans made on or after July 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(A)
the bond equivalent rate of the security with a comparable maturity as established by the Secretary; plus
except that such rate shall not exceed 8.25 percent.
(4)
Rates for FDPLUS
(A)
(i)
For Federal Direct PLUS Loans for which the first disbursement is made on or after July 1, 1994, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on or before June 30, 2001, be determined on the preceding June 1 and be equal to—
(I)
the bond equivalent rate of 52-week Treasury bills auctioned at final auction held prior to such June 1; plus
except that such rate shall not exceed 9 percent.
(ii)
For any 12-month period beginning on July 1 of 2001 or any succeeding year, the applicable rate of interest determined under this subparagraph shall be determined on the preceding June 26 and be equal to—
(I)
the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the last calendar week ending on or before such June 26; plus
except that such rate shall not exceed 9 percent.
(B)
For Federal Direct PLUS loans made on or after July 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(i)
the bond equivalent rate of the security with a comparable maturity as established by the Secretary; plus
except that such rate shall not exceed 9 percent.
(5)
Temporary interest rate provision
(A)
Rates for FDSL and FDUSL
Notwithstanding the preceding paragraphs of this subsection, for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(i)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(B)
In school and grace period rules
Notwithstanding the preceding paragraphs of this subsection, with respect to any Federal Direct Stafford Loan or Federal Direct Unsubsidized Stafford Loan for which the first disbursement is made on or after July 1, 1998, and before October 1, 1998, the applicable rate of interest for interest which accrues—
(ii)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1078
(b)(1)(M) or
1077
(a)(2)(C) of this title,
shall be determined under subparagraph (A) by substituting “1.7 percent” for “2.3 percent”.
(6)
Interest rate provision for new loans on or after October 1, 1998, and before July 1, 2006
(A)
Rates for FDSL and FDUSL
Notwithstanding the preceding paragraphs of this subsection, for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to—
(i)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(B)
In school and grace period rules
Notwithstanding the preceding paragraphs of this subsection, with respect to any Federal Direct Stafford Loan or Federal Direct Unsubsidized Stafford Loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest for interest which accrues—
(ii)
during the period in which principal need not be paid (whether or not such principal is in fact paid) by reason of a provision described in section
1078
(b)(1)(M) or
1077
(a)(2)(C) of this title,
shall be determined under subparagraph (A) by substituting “1.7 percent” for “2.3 percent”.
(C)
PLUS loans
Notwithstanding the preceding paragraphs of this subsection, with respect to Federal Direct PLUS Loan for which the first disbursement is made on or after October 1, 1998, and before July 1, 2006, the applicable rate of interest shall be determined under subparagraph (A)—
(D)
Consolidation loans
Notwithstanding the preceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after February 1, 1999, and before July 1, 2006, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(E)
Temporary rules for consolidation loans
Notwithstanding the preceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after October 1, 1998, and before February 1, 1999, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to—
(i)
the bond equivalent rate of 91-day Treasury bills auctioned at the final auction held prior to such June 1; plus
except that such rate shall not exceed 8.25 percent.
(7)
Interest rate provision for new loans on or after July 1, 2006
(A)
Rates for FDSL and FDUSL
Notwithstanding the preceding paragraphs of this subsection, for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans for which the first disbursement is made on or after July 1, 2006, the applicable rate of interest shall be 6.8 percent on the unpaid principal balance of the loan.
(B)
PLUS loans
Notwithstanding the preceding paragraphs of this subsection, with respect to any Federal Direct PLUS loan for which the first disbursement is made on or after July 1, 2006, the applicable rate of interest shall be 7.9 percent on the unpaid principal balance of the loan.
(C)
Consolidation loans
Notwithstanding the preceding paragraphs of this subsection, any Federal Direct Consolidation loan for which the application is received on or after July 1, 2006, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the lesser of—
(D)
Reduced rates for undergraduate FDSL
Notwithstanding the preceding paragraphs of this subsection and subparagraph (A) of this paragraph, for Federal Direct Stafford Loans made to undergraduate students for which the first disbursement is made on or after July 1, 2006, and before July 1, 2012, the applicable rate of interest shall be as follows:
(i)
For a loan for which the first disbursement is made on or after July 1, 2006, and before July 1, 2008, 6.8 percent on the unpaid principal balance of the loan.
(ii)
For a loan for which the first disbursement is made on or after July 1, 2008, and before July 1, 2009, 6.0 percent on the unpaid principal balance of the loan.
(iii)
For a loan for which the first disbursement is made on or after July 1, 2009, and before July 1, 2010, 5.6 percent on the unpaid principal balance of the loan.
(8)
Repayment incentives
(A)
In general
Notwithstanding any other provision of this part, the Secretary is authorized to prescribe by regulation such reductions in the interest rate or origination fee paid by a borrower of a loan made under this part as the Secretary determines appropriate to encourage on-time repayment of the loan. Such reductions may be offered only if the Secretary determines the reductions are cost neutral and in the best financial interest of the Federal Government. Any increase in subsidy costs resulting from such reductions shall be completely offset by corresponding savings in funds available for the William D. Ford Federal Direct Loan Program in that fiscal year from section
1087h of this title and other administrative accounts.
(B)
Accountability
Prior to publishing regulations proposing repayment incentives, the Secretary shall ensure the cost neutrality of such reductions. The Secretary shall not prescribe such regulations in final form unless an official report from the Director of the Office of Management and Budget to the Secretary and a comparable report from the Director of the Congressional Budget Office to the Congress each certify that any such reductions will be completely cost neutral. Such reports shall be transmitted to the authorizing committees not less than 60 days prior to the publication of regulations proposing such reductions.
(c)
Loan fee
(1)
In general
The Secretary shall charge the borrower of a loan made under this part an origination fee of 4.0 percent of the principal amount of loan.
(2)
Subsequent reduction
Paragraph (1) shall be applied to loans made under this part, other than Federal Direct Consolidation loans and Federal Direct PLUS loans—
(A)
by substituting “3.0 percent” for “4.0 percent” with respect to loans for which the first disbursement of principal is made on or after February 8, 2006, and before July 1, 2007;
(B)
by substituting “2.5 percent” for “4.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2007, and before July 1, 2008;
(C)
by substituting “2.0 percent” for “4.0 percent” with respect to loans for which the first disbursement of principal is made on or after July 1, 2008, and before July 1, 2009;
(d)
Repayment plans
(1)
Design and selection
Consistent with criteria established by the Secretary, the Secretary shall offer a borrower of a loan made under this part a variety of plans for repayment of such loan, including principal and interest on the loan. The borrower shall be entitled to accelerate, without penalty, repayment on the borrower’s loans under this part. The borrower may choose—
(A)
a standard repayment plan, consistent with subsection (a)(1) of this section and with section
1078
(b)(9)(A)(i) of this title;
(C)
an extended repayment plan, consistent with section
1078
(b)(9)(A)(iv) of this title, except that the borrower shall annually repay a minimum amount determined by the Secretary in accordance with section
1078
(b)(1)(L) of this title;
(D)
an income contingent repayment plan, with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS loan made on behalf of a dependent student; and
(E)
beginning on July 1, 2009, an income-based repayment plan that enables borrowers who have a partial financial hardship to make a lower monthly payment in accordance with section
1098e of this title, except that the plan described in this subparagraph shall not be available to the borrower of a Federal Direct PLUS Loan made on behalf of a dependent student or a Federal Direct Consolidation Loan, if the proceeds of such loan were used to discharge the liability on such Federal Direct PLUS Loan or a loan under section
1078–2 of this title made on behalf of a dependent student.
(2)
Selection by Secretary
If a borrower of a loan made under this part does not select a repayment plan described in paragraph (1), the Secretary may provide the borrower with a repayment plan described in subparagraph (A), (B), or (C) of paragraph (1).
(3)
Changes in selections
The borrower of a loan made under this part may change the borrower’s selection of a repayment plan under paragraph (1), or the Secretary’s selection of a plan for the borrower under paragraph (2), as the case may be, under such terms and conditions as may be established by the Secretary.
(4)
Alternative repayment plans
The Secretary may provide, on a case by case basis, an alternative repayment plan to a borrower of a loan made under this part who demonstrates to the satisfaction of the Secretary that the terms and conditions of the repayment plans available under paragraph (1) are not adequate to accommodate the borrower’s exceptional circumstances. In designing such alternative repayment plans, the Secretary shall ensure that such plans do not exceed the cost to the Federal Government, as determined on the basis of the present value of future payments by such borrowers, of loans made using the plans available under paragraph (1).
(e)
Income contingent repayment
(1)
Information and procedures
The Secretary may obtain such information as is reasonably necessary regarding the income of a borrower (and the borrower’s spouse, if applicable) of a loan made under this part that is, or may be, repaid pursuant to income contingent repayment, for the purpose of determining the annual repayment obligation of the borrower. Returns and return information (as defined in section
6103 of title
26) may be obtained under the preceding sentence only to the extent authorized by section
6103
(l)(13) of title
26. The Secretary shall establish procedures for determining the borrower’s repayment obligation on that loan for such year, and such other procedures as are necessary to implement effectively income contingent repayment.
(2)
Repayment based on adjusted gross income
A repayment schedule for a loan made under this part and repaid pursuant to income contingent repayment shall be based on the adjusted gross income (as defined in section
62 of title
26) of the borrower or, if the borrower is married and files a Federal income tax return jointly with the borrower’s spouse, on the adjusted gross income of the borrower and the borrower’s spouse.
(3)
Additional documents
A borrower who chooses, or is required, to repay a loan made under this part pursuant to income contingent repayment, and for whom adjusted gross income is unavailable or does not reasonably reflect the borrower’s current income, shall provide to the Secretary other documentation of income satisfactory to the Secretary, which documentation the Secretary may use to determine an appropriate repayment schedule.
(4)
Repayment schedules
Income contingent repayment schedules shall be established by regulations promulgated by the Secretary and shall require payments that vary in relation to the appropriate portion of the annual income of the borrower (and the borrower’s spouse, if applicable) as determined by the Secretary.
(5)
Calculation of balance due
The balance due on a loan made under this part that is repaid pursuant to income contingent repayment shall equal the unpaid principal amount of the loan, any accrued interest, and any fees, such as late charges, assessed on such loan. The Secretary may promulgate regulations limiting the amount of interest that may be capitalized on such loan, and the timing of any such capitalization.
(6)
Notification to borrowers
The Secretary shall establish procedures under which a borrower of a loan made under this part who chooses or is required to repay such loan pursuant to income contingent repayment is notified of the terms and conditions of such plan, including notification of such borrower—
(A)
that the Internal Revenue Service will disclose to the Secretary tax return information as authorized under section
6103
(l)(13) of title
26; and
(B)
that if a borrower considers that special circumstances, such as a loss of employment by the borrower or the borrower’s spouse, warrant an adjustment in the borrower’s loan repayment as determined using the information described in subparagraph (A), or the alternative documentation described in paragraph (3), the borrower may contact the Secretary, who shall determine whether such adjustment is appropriate, in accordance with criteria established by the Secretary.
(7)
Maximum repayment period
In calculating the extended period of time for which an income contingent repayment plan under this subsection may be in effect for a borrower, the Secretary shall include all time periods during which a borrower of loans under part B, part C, or part D—
(B)
(iii)
makes monthly payments of not less than the monthly amount calculated under section
1078
(b)(9)(A)(i) of this title or subsection (d)(1)(A), based on a 10-year repayment period, when the borrower first made the election described in section
1098e
(b)(1) of this title;
(iv)
makes payments of not less than the payments required under a standard repayment plan under section
1078
(b)(9)(A)(i) of this title or subsection (d)(1)(A) with a repayment period of 10 years; or
(f)
Deferment
(1)
Effect on principal and interest
A borrower of a loan made under this part who meets the requirements described in paragraph (2) shall be eligible for a deferment, during which periodic installments of principal need not be paid, and interest—
(A)
shall not accrue, in the case of a—
(ii)
a Federal Direct Consolidation Loan that consolidated only Federal Direct Stafford Loans, or a combination of such loans and Federal Stafford Loans for which the student borrower received an interest subsidy under section
1078 of this title; or
(2)
Eligibility
A borrower of a loan made under this part shall be eligible for a deferment during any period—
(A)
during which the borrower—
(i)
is carrying at least one-half the normal full-time work load for the course of study that the borrower is pursuing, as determined by the eligible institution (as such term is defined in section
1085
(a) of this title) the borrower is attending; or
(ii)
is pursuing a course of study pursuant to a graduate fellowship program approved by the Secretary, or pursuant to a rehabilitation training program for individuals with disabilities approved by the Secretary,
except that no borrower shall be eligible for a deferment under this subparagraph, or a loan made under this part (other than a Federal Direct PLUS Loan or a Federal Direct Consolidation Loan), while serving in a medical internship or residency program;
(B)
not in excess of 3 years during which the borrower is seeking and unable to find full-time employment;
(3)
“Borrower” defined
For the purpose of this subsection, the term “borrower” means an individual who is a new borrower on the date such individual applies for a loan under this part for which the first disbursement is made on or after July 1, 1993.
(4)
Deferments for previous part B loan borrowers
A borrower of a loan made under this part, who at the time such individual applies for such loan, has an outstanding balance of principal or interest owing on any loan made, insured, or guaranteed under part B of this subchapter prior to July 1, 1993, shall be eligible for a deferment under section
1077
(a)(2)(C) of this title or section
1078
(b)(1)(M) of this title as such sections were in effect on July 22, 1992.
(g)
Federal Direct Consolidation Loans
A borrower of a loan made under this part may consolidate such loan with the loans described in section
1078–3
(a)(4) of this title. To be eligible for a consolidation loan under this part, a borrower shall meet the eligibility criteria set forth in section
1078–3
(a)(3) of this title. The Secretary, upon application for such a loan, shall comply with the requirements applicable to a lender under section
1078–3
(b)(1)(G) of this title.
(h)
Borrower defenses
Notwithstanding any other provision of State or Federal law, the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan.
(i)
Loan application and promissory note
The common financial reporting form required in section
1090
(a)(1) of this title shall constitute the application for loans made under this part (other than a Federal Direct PLUS loan). The Secretary shall develop, print, and distribute to participating institutions a standard promissory note and loan disclosure form.
(j)
Loan disbursement
(1)
In general
Proceeds of loans to students under this part shall be applied to the student’s account for tuition and fees, and, in the case of institutionally owned housing, to room and board. Loan proceeds that remain after the application of the previous sentence shall be delivered to the borrower by check or other means that is payable to and requires the endorsement or other certification by such borrower.
(k)
Fiscal control and fund accountability
(1)
In general
(A)
An institution shall maintain financial records in a manner consistent with records maintained for other programs under this subchapter.
(B)
Except as otherwise required by regulations of the Secretary [1] an institution may maintain loan funds under this part in the same account as other Federal student financial assistance.
(2)
Payments and refunds
Payments and refunds shall be reconciled in a manner consistent with the manner set forth for the submission of a payment summary report required of institutions participating in the program under subpart 1 of part A of this subchapter, except that nothing in this paragraph shall prevent such reconciliations on a monthly basis.
(l)
Armed Forces student loan interest payment program
(1)
Authority
Using funds received by transfer to the Secretary under section
2174 of title
10 for the payment of interest on a loan made under this part to a member of the Armed Forces, the Secretary shall pay the interest on the loan as due for a period not in excess of 36 consecutive months. The Secretary may not pay interest on such a loan out of any funds other than funds that have been so transferred.
(2)
Forbearance
During the period in which the Secretary is making payments on a loan under paragraph (1), the Secretary shall grant the borrower forbearance, in the form of a temporary cessation of all payments on the loan other than the payments of interest on the loan that are made under that paragraph.
(m)
Repayment plan for public service employees
(1)
In general
The Secretary shall cancel the balance of interest and principal due, in accordance with paragraph (2), on any eligible Federal Direct Loan not in default for a borrower who—
(A)
has made 120 monthly payments on the eligible Federal Direct Loan after October 1, 2007, pursuant to any one or a combination of the following—
(ii)
payments under a standard repayment plan under subsection (d)(1)(A), based on a 10-year repayment period;
(2)
Loan cancellation amount
After the conclusion of the employment period described in paragraph (1), the Secretary shall cancel the obligation to repay the balance of principal and interest due as of the time of such cancellation, on the eligible Federal Direct Loans made to the borrower under this part.
(3)
Definitions
In this subsection:
(A)
Eligible Federal Direct Loan
The term “eligible Federal Direct Loan” means a Federal Direct Stafford Loan, Federal Direct PLUS Loan, or Federal Direct Unsubsidized Stafford Loan, or a Federal Direct Consolidation Loan.
(B)
Public service job
The term “public service job” means—
(i)
a full-time job in emergency management, government (excluding time served as a member of Congress), military service, public safety, law enforcement, public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Labor Statistics), public education, social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy on behalf of low-income communities at a nonprofit organization), early childhood education (including licensed or regulated childcare, Head Start, and State funded prekindergarten), public service for individuals with disabilities, public service for the elderly, public library sciences, school-based library sciences and other school-based services, or at an organization that is described in section
501
(c)(3) of title
26 and exempt from taxation under section 501(a) of such title; or
(ii)
teaching as a full-time faculty member at a Tribal College or University as defined in section
1059c
(b) of this title and other faculty teaching in high-needs subject areas or areas of shortage (including nurse faculty, foreign language faculty, and part-time faculty at community colleges), as determined by the Secretary.
(n)
Identity fraud protection
The Secretary shall take such steps as may be necessary to ensure that monthly Federal Direct Loan statements and other publications of the Department do not contain more than four digits of the Social Security number of any individual.
(o)
No accrual of interest for active duty service members
(1)
In general
Notwithstanding any other provision of this part and in accordance with paragraphs (2) and (4), interest shall not accrue for an eligible military borrower on a loan made under this part for which the first disbursement is made on or after October 1, 2008.
(2)
Consolidation loans
In the case of any consolidation loan made under this part that is disbursed on or after October 1, 2008, interest shall not accrue pursuant to this subsection only on such portion of such loan as was used to repay a loan made under this part for which the first disbursement is made on or after October 1, 2008.
(p)
Disclosures
Each institution of higher education with which the Secretary has an agreement under section
1087c of this title, and each contractor with which the Secretary has a contract under section
1087f of this title, shall, with respect to loans under this part and in accordance with such regulations as the Secretary shall prescribe, comply with each of the requirements under section
1083 of this title that apply to a lender with respect to a loan under part B.
[1] So in original. Probably should be followed by a comma.