Federal Student Loans Made Under the
Federal Family Education Loan Program and
the William D. Ford Federal Direct Loan
Program: Terms and Conditions for Borrowers
David P. Smole
Specialist in Education Policy
January 11, 2012
Congressional Research Service
7-5700
www.crs.gov
R40122
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Summary
The William D. Ford Federal Direct Loan (DL) program, authorized under Title IV, Part D of the
Higher Education Act of 1965 (HEA), as amended, is the primary federal student loan program
administered by the U.S. Department of Education (ED). The program makes available loans to
undergraduate and graduate students and the parents of dependent undergraduate students to help
them finance their postsecondary education costs. Several types of loans are offered through the
DL program: Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and
graduate students; PLUS Loans for graduate students and the parents of dependent undergraduate
students; and Consolidation Loans through which borrowers may combine their loans into a
single loan. For FY2012, ED estimates that 25.1 million loans (not including Consolidation
Loans) totaling $124.3 billion will be made to students and their parents through the DL program.
Until July 1, 2010, Subsidized Stafford Loans, Unsubsidized Stafford Loans, PLUS Loans, and
Consolidation Loans were also available through the Federal Family Education Loan (FFEL)
program, authorized under Title IV, Part B of the HEA. The SAFRA Act, part of the Health Care
and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152), terminated the authority to
make new loans under the FFEL program after June 30, 2010. While new loans may no longer be
made through the FFEL program, approximately $384 billion in FFEL program loans are
outstanding and are due to be repaid over the coming years.
Under the DL program, which has effectively replaced the FFEL program, loans are made with
capital provided by the federal government. Under the FFEL program, loans were made with
capital provided by private lenders, and the federal government guaranteed lenders against loss
through borrower default, death, permanent disability, or, in limited instances, bankruptcy. When
both programs were authorized and making available essentially the same types of loans,
institutions of higher education (IHEs) were permitted to select the program of their choice.
FFEL and DL program loans are low-interest loans, with maximum interest rates for each type of
loan established by statute. Subsidized Stafford Loans are unique in that they are only available to
students demonstrating financial need. The Secretary of Education pays the interest that accrues
on Subsidized Stafford Loans while borrowers are in school, during a six-month grace period, and
during authorized periods of deferment. Unsubsidized Stafford Loans and PLUS Loans are
available to borrowers irrespective of their financial need; and borrowers are responsible for
paying all the interest that accrues on these loans. FFEL and DL program loans have terms and
conditions that may be more favorable to borrowers than private and other non-federal loans.
These beneficial terms and conditions include interest rates that are often lower than rates that
might be obtained from other lenders, opportunities for repayment relief through deferment and
forbearance, loan consolidation, and several loan forgiveness programs.
In recent years, numerous changes have been made to the terms and conditions of FFEL and DL
program loans. The Budget Control Act of 2011 (P.L. 112-25) eliminated the availability of
Subsidized Stafford Loans to graduate and professional students for periods of instruction
beginning on or after July 1, 2012; and the availability of certain repayment incentives for loans
made on or after July 1, 2012. The Consolidated Appropriations Act, FY2012 (P.L. 112-74)
eliminated interest subsidies during the six-month post-enrollment grace period on Subsidized
Stafford Loans disbursed to undergraduate students between July 1, 2012, and June 30, 2014.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Contents
Introduction...................................................................................................................................... 1
FFEL and DL Program Loan Types........................................................................................... 3
Stafford Loans and PLUS Loans ..................................................................................................... 4
Eligibility Requirements............................................................................................................ 5
In General............................................................................................................................ 5
PLUS Loans ........................................................................................................................ 5
Factors That Affect Eligibility to Borrow ........................................................................... 6
Loan Limits ............................................................................................................................... 9
Annual Loan Limits ............................................................................................................ 9
Aggregate Loan Limits........................................................................................................ 9
Interest Rates ........................................................................................................................... 11
Stafford Loans ................................................................................................................... 11
PLUS Loans ...................................................................................................................... 13
Borrower Fees ......................................................................................................................... 13
Consolidation Loans ...................................................................................................................... 15
Eligibility Requirements.......................................................................................................... 15
Interest Rates ........................................................................................................................... 16
Loan Consolidation During the Grace Period ................................................................... 16
Special Direct Consolidation Loans ........................................................................................ 16
Loan Consolidation and Borrower Benefits ............................................................................ 17
Student Loan Discounts and Repayment Incentives...................................................................... 17
Loan Discounts Under the FFEL Program........................................................................ 18
Repayment Incentives Under the DL Program.................................................................. 19
Loan Repayment............................................................................................................................ 20
In General ................................................................................................................................ 20
Beginning of Repayment................................................................................................... 20
Prepayment........................................................................................................................ 21
Repayment Plans ..................................................................................................................... 21
Standard Repayment Plan ................................................................................................. 22
Graduated Repayment Plan............................................................................................... 23
Extended Repayment Plan ................................................................................................ 23
Income-Sensitive Repayment Plan.................................................................................... 24
Income-Contingent Repayment Plan................................................................................. 24
Income-Based Repayment Plan ........................................................................................ 26
Alternative Repayment Plans ............................................................................................ 28
Borrower Repayment Relief .......................................................................................................... 28
Deferments .............................................................................................................................. 28
In-School Deferment ......................................................................................................... 29
Graduate Fellowship Deferment ....................................................................................... 29
Rehabilitation Training Program Deferment..................................................................... 30
Unemployment Deferment................................................................................................ 30
Economic Hardship Deferment ......................................................................................... 30
Military Service Deferment............................................................................................... 30
Post-Active Duty Student Deferment................................................................................ 30
Forbearance ............................................................................................................................. 31
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Mandatory Forbearance..................................................................................................... 31
Mandatory Administrative Forbearance............................................................................ 32
Interest Rate Benefits for Active Duty Servicemembers......................................................... 32
Servicemembers Civil Relief Act (SCRA)........................................................................ 32
No Accrual of Interest on DL Program Loans for Certain Active
Duty Servicemembers .................................................................................................... 32
Loan Default and its Consequences for Borrowers ....................................................................... 32
Consequences of Default for Borrowers ................................................................................. 33
Report to Consumer Reporting Agencies.......................................................................... 33
Offset of Tax Refund......................................................................................................... 33
Offset of Social Security Benefits ..................................................................................... 33
Wage Garnishment ............................................................................................................ 33
Ineligibility for Federal Student Aid ................................................................................. 34
Civil Lawsuit..................................................................................................................... 34
Loan Rehabilitation ....................................................................................................................... 34
Loan Discharge and Forgiveness ................................................................................................... 34
Loan Discharge........................................................................................................................ 34
Death or Disability ............................................................................................................ 34
Bankruptcy ........................................................................................................................ 35
Other.................................................................................................................................. 35
Loan Forgiveness..................................................................................................................... 35
Loan Forgiveness for Teachers.......................................................................................... 36
DL Program Loan Forgiveness for Public Service Employees ......................................... 36
Loan Forgiveness for Service in Areas of National Need ................................................. 37
Loan Repayment for Civil Legal Assistance Attorneys .................................................... 37
Tables
Table 1. Annual and Aggregate Loan Limits for
Borrowers of Stafford Loans and PLUS Loans, by Dependency Status and Grade Level ......... 10
Table 2. Stafford Loan Interest Rates............................................................................................. 12
Table 3. Borrower Fees on Stafford Loans and PLUS Loans, by Loan Program: Loans
Disbursed On or After July 1, 2006, by Disbursement Period ................................................... 14
Table 4. Repayment Periods for Consolidation Loans Repaid According to the Standard,
Graduated, and Income-Sensitive Repayment Plans .................................................................. 23
Table B-1. Annual Loan Limits for Borrowers of Stafford Loans and PLUS Loans,
by Dependency Status and Grade Level ..................................................................................... 40
Table B-2. History of Annual Loan Limits for Stafford Loans and PLUS Loans, by
Borrower Type ............................................................................................................................ 42
Table B-3. History of Aggregate Loan Limits for Stafford Loans and PLUS Loans, by
Borrower Type ............................................................................................................................ 49
Table B-4. History of Stafford Loan Fixed Interest Rates and Variable Interest Rate
Formulas ..................................................................................................................................... 53
Table B-5. Stafford Loan Interest Rates in Effect, by Borrower Cohort: 1992-1993 to
2012-2013................................................................................................................................... 55
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-6. History of PLUS Loan Fixed Interest Rates and
Variable Interest Rate Formulas.................................................................................................. 58
Table B-7. PLUS Loan Interest Rates in Effect, by Borrower Cohort: 1992-1993 to 2012-
2013 ............................................................................................................................................ 59
Table B-8. History of Borrower Fees on Stafford Loans and PLUS Loans................................... 60
Table B-9. History of Consolidation Loan Interest Rate Formulas ............................................... 62
Appendixes
Appendix A. Glossary of Financial Terms..................................................................................... 39
Appendix B. Detailed Tables on Selected Characteristics of FFEL and DL Program Loans ........ 40
Contacts
Author Contact Information........................................................................................................... 64
Acknowledgments ......................................................................................................................... 64
Congressional Research Service
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Introduction
The William D. Ford Federal Direct Loan (DL) program—authorized under Title IV, Part D of the
Higher Education Act of 1965 (HEA), as amended, and administered by the U.S. Department of
Education (ED)—is the primary source of federal student loans.1 Several types of loans are
offered through the DL program: Subsidized Stafford Loans and Unsubsidized Stafford Loans for
undergraduate and graduate students; PLUS Loans for graduate students and parents of dependent
undergraduate students; and Consolidation Loans through which borrowers may combine their
loans into a single loan payable over a longer term, which varies according to the combined loan
balance. Until recently, essentially the same set of loans was also available through the Federal
Family Education Loan (FFEL) program, authorized under Title IV, Part B of the HEA; and the
majority of loans made were FFEL program loans. The SAFRA Act terminated the authority to
make new FFEL program loans, effective July 1, 2010.2
Both the FFEL and DL programs are descendents of the Guaranteed Student Loan (GSL)
program, which was originally enacted under Title IV of the HEA, to enhance access to
postsecondary education for students from low- and middle-income families by providing them
access to low-interest student loans. Under the FFEL program, loans were originated by private
sector and state-based lenders and were funded with non-federal capital. The federal government
guaranteed lenders against loss through borrower default, death, permanent disability, or, in
limited instances, bankruptcy. The federal government also entered into agreements to provide
participating lenders a variety of incentives designed to ensure that non-federal capital would
consistently be available to support FFEL program student loans.3 FFEL program loans are
serviced by private sector and state-based lenders; and state and nonprofit guaranty agencies
receive federal funds to play the lead role in administering the federal loan guarantee. While no
new loans are being made under the FFEL program, outstanding FFEL program loans are due to
be repaid over the coming years.
Authorization for the DL program was enacted under the Student Loan Reform Act of 1993, part
of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).4 The program was established
with the goals of streamlining the student loan delivery system and achieving cost savings. When
enacted, the program was originally intended to gradually expand and replace the FFEL program;
however, provisions calling for a “phase-in” of the DL program were repealed under the Higher
Education Amendments of 1998 (P.L. 105-244). For the nearly two decades that both the FFEL
and DL programs were in operation, IHEs were able to participate in the program of their choice.
1 There is a smaller, separate federal student loan program—the Federal Perkins Loan program—that is also authorized
by the Higher Education Act, but it will not be discussed in this report. For more information on Perkins Loans, see
CRS Report RL31618, Campus-Based Student Financial Aid Programs Under the Higher Education Act, by David P.
Smole.
2 For additional information on changes made to the FFEL and DL programs by the SAFRA Act, see CRS Report
R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation , coordinated by Cassandria
Dortch.
3 One such incentive is the “special allowance payment,” a market-indexed loan subsidy payment that is made by the
government and is designed to compensate lenders for the difference between the statutorily set interest rate charged to
borrowers and a different statutorily set lender interest rate.
4 A Federal Direct Loan Demonstration Program was enacted under the Education Amendments of 1992 (P.L. 102-
325); however, prior to being fully implemented, the demonstration program was succeeded by the Federal Direct
Student Loan program that was enacted under P.L. 103-66.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
The DL program uses a different administrative structure and draws on a different source of
capital than was used in the FFEL program. Under the DL program, the federal government
essentially serves as the banker—it provides the loans to students and their families using federal
capital (i.e., funds from the U.S. Treasury), and it owns the loans. Schools that participate in the
DL program may serve as direct loan originators or the loans may be originated by a contractor
working for ED. Federal contractors hired by ED service DL program loans.
The DL program is the largest federal program that provides direct aid to support students’
postsecondary educational pursuits. In FY2012, ED estimates that 25.1 million new DL program
Stafford Loans and PLUS Loans, averaging $4,948 each and totaling $124.3 billion, will be made
to undergraduate and graduate students, and the parents of undergraduate dependent students; and
it estimates that 609,000 Consolidation loans, averaging $37,323 and totaling $22.7 billion, will
also be made.5
This report discusses major provisions of federal student loans made available through the DL
program and previously made through the FFEL program. The primary emphasis is placed on
discussing provisions related to borrower eligibility, loan terms and conditions, borrower
repayment relief, and loan default and its consequences for borrowers. These topics are
principally discussed with regard to loans currently being made through the DL program, or made
in the recent past through either program. Historical information on certain prior terms and
conditions is also presented in instances where there remains substantial interest in those aspects
of loans. Following a brief review of loan types in the introduction, the next section of this report
reviews eligibility requirements, loan limits, interest rates, and allowable fees for these loans.
This is followed by a comparable section on Consolidation Loans. The remainder of the report
examines various terms and conditions of FFEL and DL program loans that are applicable to all
loan types. These include student loan discounts and incentives, loan repayment, repayment
relief, loan default, loan rehabilitation, loan discharge, and loan forgiveness. A glossary of
selected financial terms is included in Appendix A.
This report describes currently effective provisions of the FFEL and DL programs and reflects
amendments that have been enacted through January 2012, including those made under the
College Cost Reduction and Access Act (CCRAA; P.L. 110-84),6 the Ensuring Continued Access
to Student Loans Act (ECASLA; P.L. 110-227),7 the Higher Education Opportunity Act (HEOA;
P.L. 110-315),8 the 2009 technical corrections to the HEA (P.L. 111-39), the Patient Protection
and Affordable Care Act (P.L. 111-148), the SAFRA Act, part of the Health Care and Education
Reconciliation Act of 2010 (HCERA; P.L. 111-152),9 the Budget Control Act of 2011 (BCA; P.L.
112-25),10 and the Consolidated Appropriations Act, FY2012 (P.L. 112-74).
5 Department of Education, Fiscal Year 2012 Justification of Appropriation Estimates to the Congress, Volume II,
“Student Loans Overview,” February 2011, at http://www2.ed.gov/about/overview/budget/budget12/justifications/s-
loansoverview.pdf.
6 For additional information on changes made to the FFEL and DL programs under the CCRAA, see CRS Report
RL34077, Student Loans, Student Aid, and FY2008 Budget Reconciliation, by Adam Stoll, David P. Smole, and
Charmaine Mercer.
7 For additional information on changes made to the FFEL and DL programs under the ECASLA, see CRS Report
RL34452, The Ensuring Continued Access to Student Loans Act of 2008, by David P. Smole.
8 For additional information on changes made to the FFEL and DL programs under the HEOA, see CRS Report
RL34654, The Higher Education Opportunity Act: Reauthorization of the Higher Education Act, by David P. Smole
et al.
9 For additional information on changes made to the FFEL and DL programs under the SAFRA Act, see CRS Report
(continued...)
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
FFEL and DL Program Loan Types
The following types of federally sponsored student loans are available through the DL program
and, until June 30, 2010, were available through the FFEL program: Subsidized Stafford Loans,
Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans. (Loans made under the DL
program are officially referred to as Federal Direct Stafford Loans; Federal Direct Unsubsidized
Stafford Loans; Federal Direct PLUS Loans; and Federal Direct Consolidation Loans.)11 A
common feature of all of these loans is that the federal government (as either the guarantor or
lender) assumes the risk for losses that may occur through borrower default, and pays for the
discharge of loans in cases of borrower death, disability, and other limited instances. Another
common feature shared by these loans is that, for each type of loan, maximum interest rates and
fees that may be charged to borrowers are established by statute.
Subsidized Stafford Loans
These loans are need-based loans and are available to undergraduate, graduate, and professional
students. To qualify for a Subsidized Stafford Loan, a student must establish financial need. The
federal government “subsidizes” these loans by paying the interest on the loans while the
borrower is enrolled in an eligible program on at least a half-time basis, and during grace
periods12 and deferment periods.13 Subsidized Stafford Loans for which the first disbursement is
made on or after July 1, 2006, are fixed interest rate loans. The interest rate applicable to
Subsidized Stafford Loans depends on the type of student borrowing the loan and the date on
which the first disbursement of the loan is made. Subsidized Stafford Loans to undergraduate
students for which the first disbursement is made on or after July 1, 2011, and before July 1,
2012, have a fixed interest rate of 3.4%. (Different interest rates apply to loans made to
undergraduate students during other periods; and these rates are presented later in this report.)
Subsidized Stafford Loans to graduate and professional students for which the first disbursement
is made on or after July 1, 2006, have a fixed interest rate of 6.8%. All Subsidized Stafford Loans
made on or after July 1, 2012, will have a fixed interest rate of 6.8%. For periods of instruction
beginning on or after July 1, 2012, Subsidized Stafford Loans will no longer be available to
graduate and professional students.
(...continued)
R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation , coordinated by Cassandria
Dortch.
10 For additional information on changes made to the FFEL and DL programs under the BCA, see CRS Report R41965,
The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan.
11 For purposes of simplicity, in this report where Subsidized Stafford Loans and Unsubsidized Stafford Loans share
the same characteristics, they will be referred to jointly as “Stafford Loans”; and in instances where loans made under
the FFEL program and those made under the DL program share the same characteristics, the “Federal Direct” identifier
will be omitted.
12 A grace period is a six-month period beginning immediately after a student first ceases to be enrolled in school on at
least a half-time basis. During the grace period, borrowers are not required to begin repaying their loans. According to
amendments made by P.L. 112-74, there will no interest subsidy during the grace period on Subsidized Stafford Loans
disbursed between July 1, 2012, and June 30, 2014.
13 Deferment periods (discussed later in this report) are periods during which borrowers are able to suspend loan
repayment (e.g., if they are pursuing additional postsecondary studies, are performing qualifying military service, or are
experiencing an economic hardship).
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Unsubsidized Stafford Loans
These loans are non-need-based loans and are available to undergraduate, graduate, and
professional students. The federal government does not pay the interest on these loans while the
borrower is in school, nor during deferment and grace periods. The fixed interest rate on all
Unsubsidized Stafford loans made on or after July 1, 2006, is 6.8%.
PLUS Loans
These loans are non-need-based loans and are available to parents of dependent undergraduate
students and to graduate and professional students. The federal government does not pay the
interest on PLUS Loans while the student on whose behalf the loan is made is in school, nor
during deferment and grace periods. The fixed interest rate on DL program PLUS Loans for
which the first disbursement is made on or after July 1, 2006, is 7.9%. (The fixed interest rate on
FFEL program PLUS Loans for which the first disbursement was made on or after July 1, 2006,
and before July 1, 2010, is 8.5%.)
Consolidation Loans
These loans allow borrowers with existing federal student loans to combine their loan obligations
into a single loan and to extend their repayment period. The Consolidation Loans currently being
disbursed are fixed rate loans. The interest rate for Consolidation Loans is based on the weighted
average interest rate of the loans being consolidated, rounded up to the nearest higher one-eighth
of 1%, with a maximum interest rate of 8.25%. Borrowers can qualify for Consolidation Loans
regardless of financial need.
Special Direct Consolidation Loans
Special Direct Consolidation Loans will be available during the period from January 17, 2012,
through June 30, 2012, to borrowers who have one or more student loans made through the FFEL
program and held by a commercial lender, and who also have one or more loans made through
either the DL program or the FFEL program and held by ED. Eligible borrowers may consolidate
their commercially held FFEL program loans into a Special Direct Consolidation Loan, and in
doing so simplify the repayment of their loans by having them all serviced by a single entity. A
number of special repayment incentives are available to borrowers who consolidate their loans
under this program.14
Stafford Loans and PLUS Loans
This section discusses borrower eligibility requirements, loan limits, interest rates, and allowable
fees for Subsidized Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans.
14 Additional information on Special Direct Consolidation Loans is presented below in the section on Consolidation
Loans. Also, see U.S. Department of Education, Federal Student Aid, “Special Direct Consolidation Loans,” at
http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Eligibility Requirements
In General
In general, to be eligible for any new loan under the DL program, a student borrower must meet
certain eligibility requirements. These include (1) being enrolled on at least a half-time basis as a
regular student in an eligible program at a participating eligible IHE or in a preparatory program
necessary for enrollment in an eligible program (for up to one year), or in a teacher certification
program; (2) not being incarcerated; (3) being a U.S. citizen or national, U.S. permanent resident,
or other eligible non-citizen; (4) maintaining satisfactory academic progress as defined by the
school; (5) not being in default on a federal student loan nor owe a refund on a grant or loan made
under Title IV without having made arrangements for repayment;15 (6) having on file at the
institution attended a statement of educational purpose stating that the loan will be used solely for
educational expenses; and (7) meeting applicable Selective Service registration requirements.
PLUS Loans
PLUS Loans may be borrowed by one or both parents of a dependent undergraduate student to
help finance the postsecondary education of a child who meets the basic eligibility criteria cited
above. Parent borrowers must also meet the same citizenship and residency requirements as
student borrowers; and 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 arrangements for repayment. For
purposes of borrowing a PLUS Loan for a dependent student, eligible parents include biological
parents, adoptive parents, and—if their income and assets are taken into account in determining a
student’s expected family contribution (EFC)—stepparents. Legal guardians may not borrow
PLUS Loans as parent borrowers.
To be eligible to borrow a PLUS Loan as a parent borrower or a graduate or professional student
borrower, an individual may not have an adverse credit history, as determined pursuant to ED
regulations. According to regulations, at least one credit report must be obtained on all applicants
for PLUS Loans; and unless extenuating circumstances exist, an applicant is considered to have
an adverse credit history if the applicant is 90 days or more delinquent on a debt payment; or if,
within the past five years, the applicant “has been the subject of a default determination,
bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a
Title IV debt.”16 Regulations also require the retention of a record of the basis for determining
that extenuating circumstances exist for any borrower, such as an updated credit report, or
documentation from the creditor that the borrower has made satisfactory arrangements to repay
the debt.17 Dependent undergraduate students whose parents are unable to obtain a PLUS Loan
due to an adverse credit history are eligible to borrow increased Unsubsidized Stafford Loan
amounts (discussed below).
15 Title IV of the HEA authorizes most federal student aid programs, including the FFEL and DL programs. Students
who default on loans made under the FFEL, DL, or Federal Perkins Loan programs may have their eligibility for Title
IV aid restored through rehabilitation provisions that may vary by program. Reinstatement is only available once.
16 34 C.F.R. §§682.201(c)(2)(ii) and 685.200(c)(2)(vii).
17 34 C.F.R. §682.201(c)(2)(v).
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Factors That Affect Eligibility to Borrow
A student’s dependency status and grade level, demonstration of financial need, and the cost of
attendance (COA)18 of the school attended affect eligibility to borrow particular types of loans,
the amount that may be borrowed, and the applicable interest rate. These factors are briefly
discussed below.
Dependency Status and Grade Level
A student’s dependency status and grade level determine the types of loans available to be
borrowed and limit the amount that may be borrowed. Dependency status is determined by a
student’s responses to questions on the Free Application for Federal Student Aid (FAFSA), which
is completed and submitted to ED by students applying for federal student aid. A student is
deemed to be independent of his parents’ support if the student
• is 24 years of age or older by December 31 of the award year;
• is an orphan, in foster care, or a ward of the court, at any time when the
individual is 13 years of age or older;
• 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;
• is a veteran of the Armed Forces of the United States or is currently serving on
active duty in the Armed Forces for other than training purposes;
• is a graduate or professional student;
• is a married individual;
• has legal dependents other than a spouse;
• 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.
Grade level is based on student 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 Stafford Loans does not necessarily correspond to the start of a new academic year. For
instance, a student who continues to make satisfactory academic progress, but does not progress
to the next grade level could, for instance, receive Stafford Loans more than once as a first-year
student. Once the student accrues enough credits to progress to the next higher grade level, the
student would become eligible for the higher borrowing limits available to second-year students.
To be eligible to borrow Stafford Loans or PLUS Loans as a graduate student, an individual must
be enrolled in a program above the baccalaureate level or one that leads to a first professional
18 Cost of attendance is defined at HEA, §472. It generally includes tuition and fees, an allowance for books, supplies
and transportation, room and board, and other expenses related to school attendance.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
degree, must have completed at least three years of full-time study at an IHE, and must not be
concurrently receiving Title IV aid as an undergraduate student.19
Dependency status and grade level are important because they determine the type of borrowing
available to students and their families, which in turn affects the borrowing limits (discussed
below) available to them. Of particular importance with regard to undergraduate students is the
fact that PLUS Loans—the loans with the most flexible borrowing limits—are only available to
the parents of dependent students. At the same time, undergraduate independent students are
extended higher personal borrowing limits than dependent students.20 The operating assumption
is that the postsecondary education expenses of dependent students will be financed by students
and their parents, whereas independent students will be financing their expenses without parental
assistance. The types of loans available to undergraduate students and their families align with
this assumption.
Graduate students, all of whom are independent, are extended the highest personal borrowing
limits of any students. In addition to being able to borrow both Subsidized Stafford Loans (for
programs of instruction beginning before July 1, 2012) and Unsubsidized Stafford Loans,
graduate students are also eligible to borrow PLUS Loans, provided that they do not have an
adverse credit history.
Dependency status also determines which set of income and assets is included in need analysis
calculations (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,21 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).
Need Analysis
Although dependency status and grade level determine the types of loans and loan limits that
generally may be made available to students, federal student aid need analysis procedures
determine specific amounts that individuals may borrow in need-based Subsidized Stafford
Loans, up to annual loan limits (described below).
Subsidized Stafford Loans. Applicants seeking to borrow Subsidized Stafford Loans must
undergo a “need test” through which the expected family contribution to be made by the student
and the student’s family toward paying college expenses is determined based on the financial
resources available to the student. According to federal student aid need analysis procedures, the
student’s EFC is calculated and subtracted from the estimated COA of the institution the student
attends to determine the amount of need-based financial aid that an applicant is eligible to
receive. Additional calculations are then performed to determine the composition of the student’s
19 34 CFR §682.200(b).
20 Dependent undergraduates may be eligible to borrow Stafford Loans up to the larger combined Stafford Loan limits
available to independent undergraduate students (displayed in Table 1) in instances where a financial aid administrator
determines that their parent(s) is unable to borrow PLUS Loans due to certain exceptional circumstances. Exceptional
circumstances may apply in instances of a student whose parent is unable to qualify to borrow PLUS Loans due to an
adverse credit history, whose parent’s only income is from public assistance or disability benefits, whose parent is
incarcerated, whose parent’s whereabouts are unknown, or whose parent is not a U.S. citizen or permanent resident.
21 Parental income and assets can be defined in a variety of ways in cases where a student’s parents are not married to
each other. See the Free Application for Federal Student Aid (FAFSA) for additional information.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
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 Stafford
Loan. This is designed to first provide maximum grant aid to needy students before they incur
student loan debt.
Separate calculations are performed to determine the mix of Subsidized Stafford Loan and
Unsubsidized Stafford Loan aid that an applicant is eligible to receive. The maximum Subsidized
Stafford Loan amount a student is eligible to borrow is determined by summing the student’s EFC
and estimated financial assistance from other sources (EFA), and then subtracting this amount
from the estimated COA. Subsidized Stafford Loan borrowing is capped by applicable annual
loan limits. The calculation for determining Subsidized Stafford Loan eligibility is shown below:
Subsidized Stafford Loan eligibility =
min[(COA-(EFC + EFA)), Subsidized Stafford Loan limit]
In general, for purposes of federal student aid need analysis, a student’s EFA is comprised of all
scholarships, grants, loans, or other assistance known to the institution at the time the
determination of the student’s need is made. The EFA includes assistance made available through
other federal student aid programs, and national service educational awards provided under Title I
of the National and Community Service Act of 1990, but excludes all veterans’ education
benefits. However, national service education awards are excluded from the EFA for purposes of
determining eligibility for Subsidized Stafford Loans. The result of this calculation is the amount
which may be borrowed through a Subsidized Stafford Loan.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are non-need-based loans. Students
are eligible to borrow Unsubsidized Stafford Loans irrespective of their EFC in amounts up to the
annual total Stafford Loan limit, less any amount borrowed through a Subsidized Stafford Loan.
Specifically, the amount students may borrow in Unsubsidized Stafford Loans is limited to the
lesser of (1) the result of subtracting the student’s EFA (including any amount borrowed through a
Subsidized Stafford Loan) from COA, or (2) the result of subtracting the amount borrowed
through a Subsidized Stafford Loan from the annual total Stafford Loan limit. This calculation is
shown below:
Unsubsidized Stafford Loan eligibility =
min[(COA-EFA),(total Stafford Loan Limit-Subsidized Stafford Loan amount)]
PLUS Loans. Like Unsubsidized Stafford Loans, PLUS Loans are non-need-based loans.
Graduate and professional students and parents of dependent undergraduate students may borrow
PLUS Loans irrespective of their EFC. The amount that may be borrowed in PLUS Loans is
limited to the result of subtracting the EFA (including any amount borrowed through Stafford
Loans) of the student on whose behalf the loan is being made, from COA. The calculation for
determining PLUS Loan eligibility is shown below:
PLUS Loan eligibility = COA-EFA
For dependent undergraduate students, the total PLUS Loan eligibility amount may be borrowed
by one parent, or it may be divided among more than one parent (including non-custodial parents)
and borrowed separately. In general, it is not necessary that students complete a Free Application
for Federal Student Aid (FAFSA) for their parents to be eligible to borrow parent PLUS Loans on
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
their behalf. Graduate and professional students, however, are required to complete a FAFSA as a
condition for becoming eligible to borrow PLUS Loans.
Loan Limits
Annual Loan Limits
Separate annual borrowing limits apply to the amount that students may borrow through
Subsidized Stafford Loans and the total amount that students may borrow through Subsidized
Stafford Loans and Unsubsidized Stafford Loans, combined. There is no specified limit to the
amount that may be borrowed through PLUS Loans. Annual loan limits apply to the maximum
principal amount that may be borrowed; and any fees that the borrower is required to pay
(described below) are included in the amount subject to these limits. Borrowing limits for
Stafford Loans vary by borrower dependency status and grade level.
Borrowing limits for students enrolled for less than one year are prorated based on the fraction of
the academic year for which they are 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
Limits are also placed on the total amount of outstanding Stafford Loan debt (i.e., unpaid
principal) that undergraduate, graduate, and professional students may accrue. For each borrower
type, one limit applies to the total amount that may be borrowed in Subsidized Stafford Loans and
another limit applies to the total amount that may be borrowed in Subsidized Stafford Loans and
Unsubsidized Stafford Loans, combined. No aggregate limits are placed on PLUS Loans.
Annual and aggregate loan limits applicable to most borrowers, by borrower dependency status
and grade level, are presented in Table 1 for Subsidized Stafford Loans, total Stafford Loans (i.e.,
Subsidized Stafford Loans and Unsubsidized Stafford Loans, combined), and PLUS Loans. As
described above, the amount that may be borrowed through Subsidized Stafford Loans is also
limited to the amount of a student’s financial need as determined by need analysis procedures;
and the amounts that may be borrowed through total Stafford Loans and PLUS Loans are limited
to the difference between the student’s cost of attendance and estimated financial assistance.22
22 In addition, recipients of TEACH Grants who fail to meet the requirements of the program may be required to repay
the amount of their TEACH Grant award in the form of an Unsubsidized Stafford Loan. For such individuals, this
Unsubsidized Stafford Loan amount is determined separately from otherwise applicable annual borrowing limits.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table 1. Annual and Aggregate Loan Limits for
Borrowers of Stafford Loans and PLUS Loans,
by Dependency Status and Grade Level
Borrower
Total Subsidized &
Dependency Status
Subsidized
Unsubsidized
PLUS
and Grade Level
Stafford Loans
Stafford Loans
Loans
($)
($)
($)
Dependent Undergraduate
Annual loan limits
1st year
3,500
5,500
n.a.
2nd year
4,500
6,500
n.a.
3rd year and above
5,500
7,500
n.a.
Aggregate loan limitsa
All 23,000
31,000
n.a.
Independent Undergraduateb
Annual loan limits
1st year
3,500
9,500
n.a.
2nd year
4,500
10,500
n.a.
3rd year and above
5,500
12,500
n.a.
Aggregate loan limitsa
All 23,000
57,500
n.a.
Independent Graduate and Professional
Annual loan limits
In general
8,500
20,500
Up to COA-EFA
Aggregate loan limitsc
In general
65,000
138,500
Not limitedd
Parents of Dependent Undergraduate Students
Annual loan limits
All borrowers
n.a.
n.a.
Up to COA-EFA
Aggregate loan limits
All
borrowers n.a. n.a.
Not
limitedd
Sources: HEA, §§428 and 428H; 34 CFR 682.204; and Department of Education, Office of Postsecondary
Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08.
Note: “n.a.” means not applicable.
a. Accrued interest and other charges that have not been capitalized do not count toward aggregate loan
limits. Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits
for Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the
Consolidation Loan.
b. These loan limits also apply to dependent undergraduate students whose parents are unable to obtain PLUS
Loans.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
c. Accrued interest and other charges that have not been capitalized do not count toward aggregate loan
limits. Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits
for Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the
Consolidation Loan. Loan limits for graduate and professional students include amounts borrowed for
undergraduate loans.
d. There is no statutory borrowing limit for PLUS Loans; however, borrowers must be credit-worthy.
A comprehensive listing of currently applicable annual and aggregate loan limits for all types of
borrowers (including borrowers with special circumstances), by dependency status and grade
level is presented in Table B-1 (see Appendix B). Historical listings of annual and aggregate loan
limits are presented in Table B-2 and Table B-3, respectively (see Appendix B).
Interest Rates
Stafford Loans
The interest rates applicable to Stafford Loans are established by statute.23 Applicable interest
rates have changed numerous times throughout the history of the federal student loan programs,
including changes between fixed interest rates and variable interest rate formulas. This section
discusses the interest rates that are applicable to the majority of loans currently in repayment,
loans that are currently being disbursed, and loans to be disbursed in future years.
Stafford Loans disbursed on or after October 1, 1992, and before July 1, 2006, are variable rate
loans, on which rates adjust annually.24 The formula used to calculate the variable interest rate for
these loans, many of which are still outstanding, is determined by statute and stays in effect from
the time the loan is disbursed through the life of the loan (provided that the loan is not
consolidated into a fixed-rate Consolidation Loan).25 The rates for these Stafford Loans are
determined every June 1, and become effective July 1 for the following 12-month period. The
variable rate is calculated based upon the bond equivalent rate of the 91-day Treasury bill, plus a
premium which differs depending on whether the borrower is in school, or in repayment.26 For
loans made from July 1, 1998, through June 30, 2006, the borrower interest rate is based on the
91-day Treasury bill plus 1.7 percentage points for borrowers who are in school; and the 91-day
Treasury bill plus 2.3 percentage points for borrowers who are in repayment.27 The maximum
interest rate that may apply to Stafford Loans disbursed during this period is capped at 8.25%.
23 These interest rates are maximum authorized rates. The statutory rates are generally the rates charged to borrowers,
although in the FFEL program some lenders may have voluntarily made loans with lower interest rates.
24 For all Stafford Loans first disbursed on or after July 1, 1994, the applicable interest rate, and whether the rate is
fixed or variable, depends on the date the first disbursement of a borrower’s loan is made. Previously, applicable
interest rates depended largely on whether a borrower had outstanding loans at the time of borrowing an additional
loan.
25 If a variable rate loan is consolidated into a new Consolidation Loan, the interest rate becomes fixed. At present, the
interest rate on Consolidation Loans is the weighted average of the interest rates in effect on the underlying loans, at the
time of consolidation, rounded up to the nearest higher one-eighth of 1%, and capped at 8.25%. Previously, other rate
setting formulas applied to Consolidation Loans (see Table B-9 in Appendix B).
26 Interest rates are adjusted annually based on the bond equivalent rate of the 91-day Treasury bill at the final auction
held prior to June 1.
27 A differential rate is provided for those in school and in repayment because loan servicing costs are lower during the
in-school period, when no payments are required.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Stafford Loans for which the first disbursement is made on or after July 1, 2006, are fixed interest
rate loans. For all Subsidized Stafford Loans and Unsubsidized Stafford Loans disbursed on or
after July 1, 2006, and before July 1, 2008, a 6.8% interest rate applies. Lower fixed interest rates
apply to Subsidized Stafford Loans made to undergraduate students on or after July 1, 2008, and
before July 1, 2012. During this period, the 6.8% fixed interest rate continues to apply to
Subsidized Stafford Loans to graduate and professional students, and to all Unsubsidized Stafford
Loans. Also, under current law, the 6.8% fixed interest rate will apply to all Stafford Loans
disbursed on or after July 1, 2012. Interest rates on Stafford Loans first disbursed on or after July
1, 2006, are presented in Table 2.
Table 2. Stafford Loan Interest Rates
Fixed Interest Rate in Effect
Disbursement Period
Subsidized
Unsubsidized
Stafford Loans
Stafford Loans
(%)
(%)
July 1, 2006-June30, 2008
Undergraduate students
6.8
6.8
Graduate and professional students
6.8
6.8
July 1, 2008-June 30, 2009
Undergraduate students
6.0
6.8
Graduate and professional students
6.8
6.8
July 1, 2009-June 30, 2010
Undergraduate students
5.6
6.8
Graduate and professional students
6.8
6.8
July 1, 2010-June 30, 2011
Undergraduate students
4.5
6.8
Graduate and professional students
6.8
6.8
July 1, 2011-June 30, 2012
Undergraduate students
3.4
6.8
Graduate and professional students
6.8
6.8
On or after July 1, 2012
Undergraduate students
6.8
6.8
Graduate and professional students
n.a.
6.8
Source: HEA §§427A, 428, and 455(b); (20 U.S.C. §§1077a, 1078 and 1087e(b)).
Note: “n.a.” means not applicable.
A history of Stafford Loan interest rates and interest rate formulas that have been in effect since
the initial GSL program was launched in 1965 is presented in Table B-4 (see Appendix B). A
history of the actual interest rates in effect on fixed rate and variable rate Stafford Loans, by
borrower cohort, for the period from 1992-1993 onward is presented in Table B-5 (see Appendix
B).
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
PLUS Loans
PLUS Loans disbursed from the time of their introduction in 1981, through June 30, 1987, are
fixed interest rate loans. Those disbursed on or after July 1, 1987, and before July 1, 2006, are
variable rate loans, on which rates adjust annually. The formula used to calculate the variable
interest rate for these PLUS Loans is specified in statute and stays in effect from the time the loan
is disbursed through the life of the loan (provided that the loan is not consolidated into a fixed-
rate Consolidation Loan). Interest rates on these PLUS Loans are determined every June 1, and
become effective July 1 for the following 12-month period.28 The interest rate formula for “new”
PLUS loans that were disbursed from July 1, 1998, through June 30, 2006, is the bond equivalent
rate of the 91-day Treasury bill plus a premium of 3.1 percentage points, capped at 9%.
PLUS Loans disbursed on or after July 1, 2006, are fixed rate loans. Those made under the DL
program have a fixed interest rate of 7.9%, while those made under the FFEL program before
July 1, 2010, have a fixed interest rate of 8.5%. In the 107th Congress, a fixed interest rate of
7.9% had been established prospectively for PLUS loans disbursed on or after July 1, 2006, under
both the FFEL and DL programs.29 Under the Higher Education Reconciliation Act (HERA),30 the
interest rate for PLUS Loans made under the FFEL program—but not those made under the DL
program—was increased to 8.5% before the 7.9% interest rate would have gone into effect.31 The
7.9% interest rate for DL program PLUS Loans remains in effect.
A history of PLUS Loan interest rates and interest rate formulas is presented in Table B-6 (see
Appendix B). The actual interest rates in effect on fixed rate and variable rate PLUS Loans, by
borrower cohort, for the period from 1992-1993 onward are presented in Table B-7 (see
Appendix B).
Borrower Fees
In addition to being responsible for repaying loan principal and interest, borrowers of Stafford
Loans and PLUS Loans are responsible for paying loan origination fees and default fees. (At one
time, these had been referred to as loan insurance fees.) These borrower fees help offset federal
subsidy costs. In essence, these fees pass along some of the federal cost of insuring and
subsidizing loans to the borrowers.
Loan origination fees are calculated as a proportion of the loan principal borrowed and are
deducted proportionately from each disbursement of the loan proceeds to the borrower. (The
principal amount borrowed is often referred to as the gross disbursement amount; and the amount
28 For PLUS Loans with a Treasury bill index, rates are adjusted annually based on the bond equivalent rate of the
Treasury bill at the final auction held prior to June 1. For loans based on the one-year constant maturity Treasury yield,
the rates are adjusted annually based on the weekly average one-year constant maturity Treasury yield, as published by
the Board of Governors of the Federal Reserve System for the last calendar week ending before June 26.
29 This provision was enacted under P.L. 107-139.
30 The HERA was enacted as Title VIII, Subtitle A of P.L. 109-171, the Deficit Reduction Act of 2005. For additional
information on student loan provisions enacted under the HERA, see CRS Report RS22308, Student Loans and FY2006
Budget Reconciliation, by Adam Stoll.
31 It is generally accepted that a drafting error led to the differential interest rates in the final reconciliation measure,
and that an 8.5% rate was intended for both programs. See “Bill Would Repeal Loan Provision,” Chronicle of Higher
Education, June 23, 2006, for details.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
the borrower actually receives, after the deduction of borrower fees, to be applied toward
education expenses is often referred to as the net disbursement amount.) Under the FFEL
program, for Stafford Loans and PLUS Loans for which the first disbursement was made on or
after July 1, 1994, and before July 1, 2006, the origination fee was limited to not more than 3% of
the loan amount. In addition, during that period in the FFEL program, guaranty agencies could
assess a loan insurance premium of not more than 1% on Stafford Loans and PLUS Loans. In the
DL program, borrowers paid a 4% origination fee to the federal government until ED reduced the
origination fees for Stafford Loans to 3%, effective August 15, 1999.32
Changes to borrower fees were enacted under the HERA for FFEL and DL program loans. Under
the FFEL program, all loans disbursed on or after July 1, 2006, were subject to a default fee of up
to 1%, which replaced the 1% insurance premium. The origination fee on FFEL program Stafford
Loans was reduced to 2% on loans for which the first disbursement was made on or after July 1,
2006, and before July 1, 2007. For subsequent years, the origination fee was incrementally
reduced by 0.5 percentage point per year and, had lending under the FFEL program not ceased,
would have been phased out for loans first disbursed on or after July 1, 2010. The origination fee
for FFEL program PLUS Loans remained at 3%.
The HERA also established specific origination fees for DL program loans in statute. For DL
program Stafford Loans, a 3% origination fee was specified for Stafford Loans for which the first
disbursement was made on or after July 1, 2006, and before July 1, 2007. The DL program
Stafford Loan origination fee was reduced by 0.5 percentage points each subsequent year, until it
reached the current amount of 1% for Stafford Loans disbursed on or after July 1, 2010. The
origination fee for DL program PLUS Loans remains at 4%. Borrower fees on FFEL and DL
program Stafford Loans and PLUS Loans disbursed on or after July 1, 2006, are presented in
Table 3. Historical borrower fees on Stafford Loans and PLUS Loans are presented in Table B-8
(see Appendix B).
Table 3. Borrower Fees on Stafford Loans and PLUS Loans, by Loan Program: Loans
Disbursed On or After July 1, 2006, by Disbursement Period
FFEL Program Loans
DL Program Loans
Disbursement Period
Stafford Loans
PLUS Loans
Stafford Loans
PLUS Loans
(%)
(%)
(%)
(%)
July 1, 2006-June 30, 2007
Origination
Fee
(%)
2.0 3.0 3.0 4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
July 1, 2007-June 30, 2008
Origination
Fee
(%)
1.5 3.0 2.5 4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
32 See U.S. Department of Education, Office of Federal Student Aid, Direct Loan Bulletin, “Reduction in the Loan
Origination Fee for Direct Loan Borrowers,” DLB 99-36, June 16, 1999, at http://www.ifap.ed.gov/dlbulletins/
attachments/dlb9936a.pdf. Some controversy surrounded the Secretary of Education’s authority to make this reduction.
See Education Daily, June 18, 1999, p. 3.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
FFEL Program Loans
DL Program Loans
Disbursement Period
Stafford Loans
PLUS Loans
Stafford Loans
PLUS Loans
(%)
(%)
(%)
(%)
July 1, 2008-June 30, 2009
Origination
Fee
(%)
1.0 3.0 2.0 4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
July 1, 2009-June 30, 2010
Origination
Fee
(%)
0.5 3.0 1.5 4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
On or after July 1, 2010
Origination Fee (%)
n.a.
n.a.
1.0
4.0
Default
Fee
(%)
n.a. n.a. n.a. n.a.
Source: HEA, §§428(b), 438(c), and 455(c).
Note: “n.a.” means not applicable.
Consolidation Loans
Consolidation Loans enable borrowers to simplify the repayment of their federal student loans by
combining multiple loans into a single loan. Depending on the amount owed, loan consolidation
may also provide borrowers the opportunity to repay their loans over an extended period of time,
which reduces the monthly payment amount (although it increases the total amount that must be
paid due to the longer period over which interest accrues). In addition, with Consolidation Loans
currently being made through the DL program, borrowers are afforded the opportunity to lock in a
fixed interest rate on their student loans, based on the weighted average of the interest rates in
effect on the loans being consolidated, rounded up to the nearest higher one-eighth of 1%, but
capped at 8.25%. Borrowers are not assessed origination fees on Consolidation Loans.
Eligibility Requirements
In general, to be eligible to obtain a Consolidation Loan under the DL program, a borrower must
have an outstanding principal balance on at least one loan made under either the FFEL or DL
programs that is eligible for inclusion in a Consolidation Loan (described below). A
Consolidation Loan must be comprised of at least one eligible FFEL or DL program loan, and
may contain other types of federal student loans. The types of FFEL and DL program loans
eligible for inclusion in a Consolidation Loan are Subsidized Stafford Loans, Unsubsidized
Stafford Loans, PLUS Loans, and in certain instances Consolidation Loans (discussed below).
Certain other types of federal student loans made outside of the FFEL and DL programs are also
eligible for inclusion in Consolidation Loans. These loan types (some of which are no longer
being disbursed), 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); and Public Health Service Act Health Professions Student Loans (HPSL), Loans for
Disadvantaged Students (LDS), and Nursing Loans.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
In general, an applicant for a Consolidation Loan must be either (1) in repayment status, (2) in the
grace period before entering repayment, or (3) in default, but have made satisfactory repayment
arrangements for their loans, or have agreed to repay according to the income-based repayment
plan or the income-contingent repayment plan. For a borrower with a defaulted loan, making
“satisfactory repayment arrangements” for purposes of obtaining a Consolidation Loan means
that the defaulted borrower has made at least three consecutive voluntary full monthly payments
within 15 days of the due date. However, a borrower who is in default and who is subject to a
court judgment or wage garnishment is not eligible to obtain a Consolidation Loan. Borrowers
may not consolidate defaulted loans into Special Direct Consolidation Loans.
In general, a set of loans may be consolidated only once. However, in select circumstances a
Consolidation Loan may be “reconsolidated.” Loans made to borrowers within 180 days prior to
or after the date of obtaining a Consolidation Loan may be added to the Consolidation Loan.
Borrowers of existing Consolidation Loans who have other eligible loans that have not been
consolidated, or who subsequently obtain other eligible loans, may consolidate those loans with
their existing Consolidation Loans for purposes of obtaining new Consolidation Loans.
Borrowers of existing FFEL program Consolidation Loans whose loans have been referred to a
guaranty agency for default aversion assistance may reconsolidate into the DL program for
purposes of repaying according to the ICR or IBR plans. Finally, borrowers of existing FFEL
program Consolidation Loans may reconsolidate into the DL program for the purposes of
applying for loan forgiveness through Loan Forgiveness for Public Service Employees program
under the DL program, or for receiving the no accrual of interest for active duty servicemembers
benefit available to borrowers of DL program loans.
Interest Rates
At present, interest rates on Consolidation Loans are determined by taking the weighted average
of the interest rates on the loans being consolidated, and rounding the result up to the nearest
higher one-eighth of 1%, with a cap of 8.25%. This Consolidation Loan interest rate formula was
established under the Higher Education Amendments of 1998 for both the FFEL and DL
programs. Previously, the interest rate formulas used in the FFEL and DL programs differed. A
history of the interest rate formulas for Consolidation Loans that have been in effect over the
course of the FFEL and DL programs is presented in Table B-9 (see Appendix B).
Loan Consolidation During the Grace Period
Borrowers are able to consolidate their loans while in the six-month grace period after ceasing to
be enrolled on at least a half-time basis. Consolidating during the grace period provides
borrowers of variable-rate Stafford Loans (which were disbursed between October 1, 1992, and
June 30, 2006) the opportunity to use the grace period interest rate (which is 0.6 percentage points
lower than the repayment rate) in the “weighted average calculations” used to determine the fixed
rate for the Consolidation Loan.
Special Direct Consolidation Loans
Several benefits are being made available to borrowers of Special Direct Consolidation Loans. In
addition to obtaining the conveniences of having all of their federal student loans services by a
single entity, the following repayment incentives are also available:
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
• Interest rate reduction and fixed rate. Borrowers receive a 0.25 percentage
point reduction from the interest rate in effect on their commercially held FFEL
program loans, as of the date of consolidation. The maximum rate is 8.25%. All
variable rate loans are also converted to fixed rate loans.33
• Retention of repayment term. Borrowers may retain the same repayment term
that is in effect on the FFEL program loans being consolidated. With traditional
Direct Consolidation Loans, the loans being consolidated are discharged upon
consolidation. The repayment term is then reset, with the length of the term based
on the borrower’s combined loan balance at the time of consolidation. With
Special Direct Consolidation Loans, the repayment term on the loans being
consolidated is retained.
• Credit for previous IBR payments. Borrowers who have made payments on
their FFEL program loans prior to consolidation may credit those payments
toward the 25 years of IBR payments that may qualify a borrower for loan
forgiveness under the IBR plan.
• Eligibility for the Public Service Loan Forgiveness (PSLF) program.
Borrowers become eligible for the PSLF program. To be eligible for loan
forgiveness, borrowers must make 120 payments on their Special Direct
Consolidation Loan according to certain repayment plans, while concurrently
employed full-time in public service.
Loan Consolidation and Borrower Benefits
Borrowers of Consolidation Loans must be provided with a disclosure of whether consolidation
of their FFEL or DL program loans would result in the loss of any loan benefits, including loan
forgiveness, cancellation, or deferment; and that the consolidation of a Perkins Loan will result in
a loss of the in-school deferment benefit and loan cancellation benefits.
Borrowers who consolidate Subsidized Stafford Loans with other types of unsubsidized loans
retain the interest subsidies applicable to Subsidized Stafford Loans on the portion of the
Consolidation Loan represented by Subsidized Stafford Loans. For borrowers of these loans, the
Secretary of Education (the Secretary) pays the interest that accrues while they are in school, and
during grace deferment periods. This benefit has always been afforded to borrowers of DL
program Consolidation Loans, and was extended to borrowers of FFEL program Consolidation
Loans under the Emergency Student Loan Consolidation Act of 1997 (part of P.L. 105-78, the
Departments of Labor, Health and Human Services, and Education, and Related Agencies
Appropriations Act for 1998).
Student Loan Discounts and Repayment Incentives
As described above, the maximum interest rates and fees that may be paid by borrowers of FFEL
and DL program loans are established by statutory and regulatory provisions. In the FFEL
33 As with all DL program loans, borrowers of Special Direct Consolidation Loans may also receive a 0.25 percentage
point reduction in their interest rate if they repay under the electronic debit account (EDA) repayment option. EDA
repayment is described below.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
program, the lender was required to pay the origination fee to the federal government; and the
lender could choose whether or not to pass the entire fee on to the borrower, within certain
limitations.34 The default fee (which defrays federal default costs) was paid to the guaranty
agency for the guarantor’s locally held federal reserve fund. If the default fee was paid by the
borrower, it was required to have been deducted proportionally from the proceeds of the loan
prior to payment to the borrower. The default fee also could have been paid by other non-federal
sources (e.g., by the lender or the guarantor).
Lenders in the FFEL program often used to compete for borrowers by offering different packages
of interest rate and fee discounts. To attract borrowers, lenders might have paid origination fees or
default fees without passing on the cost to students. Similarly, to attract loan business, guaranty
agencies might have opted to pay the default fee. The practice of waiving fees may have started
as the FFEL loan industry began experiencing competition from the DL program, although
lenders also competed with each other for business.
Under the DL program, the Secretary is authorized to offer borrowers interest rate reductions as a
means of encouraging on-time repayment.35 Any such reductions made under the DL program
must be cost neutral to the government. This section briefly describes examples of the types of
loan discounts and interest rebates that were commonly offered in the past to borrowers of loans
made under the FFEL program and those that continue to be offered to borrowers of loans made
under the DL program.36 According to amendments made by the BCA, the authority of the
Secretary to offer most types of repayment incentives under the DL program terminates June 30,
2012.
Loan Discounts Under the FFEL Program
FFEL program lenders had broad discretion in whether to offer loan discounts and in how they
structured these benefits. While relatively few loan discounts were made available in the final
years of FFEL program lending, in past years a wide variety of student loan discounts were
typically offered by lenders—for example, fees being paid on behalf of a borrower, and
reductions in interest rates. Some benefits were structured such that they may only be realized if
the borrower successfully makes a specified number of consecutive on-time payments (e.g., 12,
24, or 36). Benefits that are not provided until well into the repayment period, however, might not
be beneficial to borrowers who desire to pay off their loans early or who consolidate their loans,
as in such instances, these benefits may be lost. Some of the most common types of loan
discounts that were offered by FFEL program lenders are described below.37
34 FFEL lenders that charge an origination fee must generally assess the same fee to all borrowers. An exception to this
rule is that a lender may assess a lesser origination fee for a borrower whose EFC is equal to or less than the maximum
qualifying EFC for a Pell Grant. See 34 C.F.R. §682.202(c).
35 HEA, §455(b)(8); 34 C.F.R. §685.211(b).
36 The student loan discounts and repayment incentives described in this section were permitted to be made available to
borrowers, but were not required to have been provided.
37 For additional examples of student loan discounts offered by lenders, see FinAid.org, “Student Loan Discounts,” at
http://www.finaid.org/loans/studentloandiscounts.phtml; and Greentree Gazette, “Online Student Loan Buying Guide,”
at http://studentloanlistings.com/.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Origination Fee and/or Default Fee Paid by Lender
Sometimes, lenders would pay the loan origination fee on behalf of borrowers; and sometimes
either lenders or guaranty agencies would also pay the 1% default fee. This allowed borrowers to
apply a greater percentage (up to 100%) of the amount borrowed toward their education
expenses. Otherwise, as described above, when borrowers were required to pay origination and
default fees on their loans, their net disbursement, or the amount of loan proceeds that could be
applied toward education expenses, was less than their gross disbursement, or the total amount
borrowed which must be repaid.
Interest Rate Reductions
Some lenders offered interest rate reductions to borrowers for reaching certain milestones. For
example, a lender may have offered to provide a borrower an interest rate reduction at graduation,
or an interest rate reduction after making a specified number of consecutive on-time payments
(e.g., a one percentage point reduction after making a certain number of on-time payments).
Interest rate reductions were also offered to borrowers for signing up for electronic debit account
(EDA) repayment, whereby loan payments are automatically deducted from their checking or
savings account (e.g., a 0.25 percentage point interest rate reduction for EDA repayment).
Principal Balance Reductions
Some lenders offered principal balance reductions or account credits to borrowers for reaching
certain milestones. For example, a principal balance reduction of a certain amount (e.g., 1%)
might be granted upon graduation or upon entering repayment. Some lenders also offered
principal balance reductions upon the borrower making a series consecutive of on-time payments
(e.g., 1% after 12, 24, and 36 on-time payments).
Forgiveness of Last Several Payments
Some lenders offered to forgive the last several payments on a borrower’s loan (e.g., the last six
payments).38 This type of benefit may have been structured so that it only applied to payments
115 through 120 of a 120-payment schedule. (Thus, borrowers who consolidate or repay their
loans in less than 115 payments would not realize this benefit.)
Repayment Incentives Under the DL Program
Currently, two repayment incentive programs are offered to borrowers of Stafford Loans and
PLUS Loans made under the DL program: (1) an up-front interest rebate; and (2) an interest rate
reduction for EDA repayment. Borrowers may take advantage of either or both. However, in
accordance with BCA amendments, the only repayment incentive that may be offered on loans
first disbursed on or after July 1, 2012, is the interest rate reduction for EDA repayment.
38 The discharge of student loan indebtedness, such as through the forgiveness of loan payments or principal balance
reductions, generally results in the amount forgiven or repaid being considered taxable income under the Internal
Revenue Code (IRC). For additional information on this topic, see “Exclusion of Income Attributable to the Discharge
of Certain Student Loan Debt and NHSC Educational Loan Repayments,” pp. 455-458 in S.Prt. 109-072, Tax
Expenditures: Compendium of Background Material on Individual Provisions, 2006.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Up-Front Interest Rebate
Borrowers of Stafford Loans made under the DL program on or after July 1, 2010, and before
July 1, 2012, pay an origination fee of 1.0% and receive a 0.5% up-front interest rebate.
Borrowers of PLUS Loans made before July 1, 2012, pay an origination fee of 4% and receive an
up-front interest rebate of 1.5%. The rebate is equal to a percentage of the principal loan amount
borrowed and it is applied by increasing the borrower’s loan proceeds, or the borrower’s net
disbursement.39 To retain the interest rebate amount, the borrower must make the first 12 monthly
payments on time. If not all of the first 12 monthly payments are made on time, the rebate amount
is added back to the borrower’s loan principal, increasing the loan amount that must be repaid.
Interest Rate Reduction for EDA Repayment
Borrowers may opt to make payments on their student loans using EDA repayment. Under this
option, student loan payments are automatically deducted from a borrower’s checking or savings
account. This option helps ensure that borrowers make their student loan payments on time.
While repaying under the EDA repayment option, borrowers receive a 0.25 percentage point
interest rate reduction on their student loans. The interest rate reduction for EDA repayment does
not apply during in-school, grace, deferment, or forbearance periods.
Loan Repayment
In General
Beginning of Repayment
The repayment period for Stafford Loans begins six months and one day after the borrower first
ceases to be enrolled on at least a half-time basis in an eligible program. (This six-month period is
commonly referred to as the six-month grace period.)40 The repayment period for PLUS Loans
and Consolidation Loans begins the day the loan is fully disbursed. The repayment period for
Stafford Loans, PLUS Loans, and Consolidation Loans excludes any periods of authorized
deferment and forbearance (described below). The first payment on Stafford Loans, PLUS Loans,
and Consolidation Loans is due no later than 60 days after the beginning of the repayment period.
For a borrower who is exiting a period of deferment or forbearance, the first or next subsequent
payment is due no later than 60 days after the end of the deferment or forbearance period.
39 For details on the DL up-front interest rebate, see U.S. Department of Education, Direct Loan Bulletin (DLB) 01-19,
“Implementing Up-front Interest Rebate in Disbursement Calculations,” June 2001, at http://www.ifap.ed.gov/
dlbulletins/dlb0119.html.
40 The six-month 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, as well as
any additional period necessary for such a borrower to resume enrollment at the next available regular enrollment
period.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Treatment of Interest Before Entering Repayment
For borrowers of Subsidized Stafford Loans, the federal government pays the interest that accrues
while the borrower is enrolled in school on at least a half-time basis, during a six-month grace
period thereafter, and during periods of authorized deferment (discussed below). In contrast,
borrowers of Unsubsidized Stafford Loans and PLUS Loans are responsible for paying this
interest. Borrowers of Unsubsidized Stafford Loans and PLUS Loans may pay the interest that
accrues while they are enrolled in school and during the six-month grace period, either on a
monthly or quarterly basis; otherwise, this interest is capitalized, or added to the loan principal.
Prepayment
Borrowers of FFEL and DL program loans may repay their loans ahead of schedule and may not
be assessed a penalty for doing so.
Repayment Plans
Borrowers of FFEL and DL program loans are given the opportunity to choose from among a
selection of repayment plan options for the repayment of their loans. The particular repayment
plans available to borrowers depend on the type of loan borrowed and the program under which
the loan was made. The availability of certain repayment plans to individual borrowers also may
depend on when they became new borrowers or when they entered repayment.
The standard repayment plan, graduated repayment plan, extended repayment plan, and income-
based repayment (IBR) plan41 options are available to borrowers of both FFEL and DL program
loans. (However, parent borrowers of PLUS Loans and borrowers of Consolidation Loans
containing PLUS Loans made to parent borrowers are not eligible to repay according to the IBR
plan.) The income-sensitive repayment (ISR) plan is available only to borrowers of FFEL
program loans. The income-contingent repayment (ICR) plan and alternative repayment plans are
available only to borrowers of DL program loans.
Prior to the enactment of the HERA, there were many differences between the repayment plans
available to borrowers of FFEL program loans and the corresponding repayment plans available
to borrowers of DL program loans.42 Those repayment plans that are available both to borrowers
of FFEL program loans and borrowers of DL program loans—standard repayment, graduated
repayment, extended repayment, and IBR—are now aligned to be consistent across both loan
programs.
If a borrower fails to select a repayment plan, the borrower is provided a standard repayment
plan. Borrowers of FFEL program loans may switch to another repayment plan once annually;
and borrowers of DL program loans may switch plans at any time.43 No repayment plan may
41 The IBR plan became available to borrowers July 1, 2009.
42 Changes enacted under the HERA to the repayment plans for DL program loans became effective September 10,
2007. For additional information on these changes and the characteristics of pre-HERA repayment plans for DL
program loans, see U.S. Department of Education, Direct Loan Bulletin, “New Direct Loan Repayment Plans and
Changes in the Treatment of Consolidated PLUS Loans and Federal Perkins Loans,” DLB-07-16, July 31, 2007, at
http://www.ifap.ed.gov/dlbulletins/DLB0716.html.
43 The Secretary may require a borrower who has defaulted on an FFEL or DL program loan to repay according to the
(continued...)
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
require a borrower to repay a loan in less than five years, unless the borrower specifically
requests a shorter period. Under the standard, graduated, extended, and income-sensitive
repayment plans, payment amounts may not be less than the interest due.44
Under the FFEL program, to the extent practicable, all loans borrowed by an individual from a
particular lender must be combined into a single account and repaid according to the same
repayment plan. Under the DL program, all of a borrower’s DL program loans must be repaid
according to the same repayment plan; except that a borrower of PLUS Loans may repay those
loans under a different repayment plan than used to repay his other loans. The repayment plans
available to borrowers of FFEL and DL program loans are discussed below.
Standard Repayment Plan
Repayment according to a standard repayment plan presents a borrower with a predictable
monthly payment amount. According to the standard repayment plan, borrowers of Subsidized
Stafford Loans, Unsubsidized Stafford Loans, and PLUS Loans make fixed monthly payments of
no less than $50,45 for a period of up to 10 years.46 For loans with variable interest rates, the loan
holder may annually adjust either the monthly payment amount or the length of the repayment
period. If the repayment amount remains the same on a variable rate loan, and the change in the
interest rate would result in a borrower being unable to complete repayment within the 10-year
maximum, the loan holder must provide administrative forbearance for a maximum of three years
(effectively extending the repayment period).
For borrowers of Consolidation Loans, a minimum monthly payment of $50 applies, however,
longer repayment periods may be applicable depending on the borrower’s outstanding loan
balance at the time of entering repayment.47 The repayment period on a Consolidation Loan is
based on the combined balances of the Consolidation Loan and all other federal student loans
owed by the borrower. (However, for purposes of determining the repayment period, the balance
of other federal student loans may not exceed the balance of the Consolidation Loan.) Repayment
periods for Consolidation Loans repaid according to the standard repayment plan are shown in
Table 4. (The repayment periods shown also apply to the graduated and income-sensitive
repayment plans.)
(...continued)
ICR plan or the IBR plan.
44 Income-contingent repayment, income-based repayment, and alternative repayment plans permit negative
amortization (see glossary for definition).
45 The last payment may be for less than $50.
46 Under the standard repayment plan, a repayment period of up to 10 years also applies to DL program Consolidation
Loans for borrowers who entered repayment before July 1, 2006.
47 The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program
Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. The 10-year repayment period applies
to borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay
according to the standard repayment plan.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table 4. Repayment Periods for Consolidation Loans Repaid According to the
Standard, Graduated, and Income-Sensitive Repayment Plans
Combined Loan Balance at Repayment
Maximum Repayment Period
Less than $7,500
10 years
$7,500, but less than $10,000
12 years
$10,000, but less than $20,000
15 years
$20,000, but less than $40,000
20 years
$40,000, but less than $60,000
25 years
$60,000 or more
30 years
Source: HEA, §§428C(c)(2) and 451.
Graduated Repayment Plan
Repayment according to a graduated repayment plan is structured so that a borrower’s monthly
payment amount changes over the course of the repayment period. In general, payments will
increase over time, consistent with the assumption that a borrower’s income will generally
increase over the duration of the repayment period. Thus, when repaying according to a graduated
repayment plan, a borrower makes smaller payments at first, and larger payments later on. The
range of monthly payment amounts is limited so that no payment may be more than 3 times the
amount of any other.48 This is to avoid offering very low initial payment amounts and excessively
high ending payment levels which could contribute to borrower default. For Stafford Loans and
PLUS Loans, monthly payments may be no less than the greater of $50, or the interest that
accrues between payments; and repayment must occur within 10 years. For loans with variable
interest rates, the loan holder may annually adjust either the monthly payment amount or the
length of the repayment period. In a manner similar to the standard repayment plan, if the
repayment amount remains the same on a variable rate loan, and the change in the interest rate
would result in a borrower being unable to complete repayment within the 10-year maximum, the
loan holder must provide administrative forbearance for a maximum of three years.
For Consolidation Loans repaid according to a graduated repayment plan, monthly payment
amounts may be adjusted over a period of time ranging from 10 to 30 years, depending on the
borrower’s outstanding loan balance at the time of entering repayment.49 Similar to the standard
repayment plan, determination of the repayment period is based on the combined balances of the
Consolidation Loan and all other federal student loans owed by the borrower. Repayment periods
for Consolidation Loans repaid according to the graduated repayment plan are shown in Table 4.
Extended Repayment Plan
Repayment according to an extended repayment plan affords borrowers with larger total loan
balances the opportunity to make lower monthly payments over a longer repayment period.
48 See 34 CFR §682.209(a)(7)(ii); and 685.209.
49 The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program
Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. A 10-year repayment period applies to
borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay according
to the standard repayment plan.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Extended repayment plans are available to individuals who are new borrowers on or after October
7, 1998; and who, after that date, accumulate an outstanding loan balance totaling more than
$30,000 under either the FFEL program or the DL program.50 Borrowers of Stafford Loans, PLUS
Loans, and Consolidation Loans repaying according to the extended repayment plan must make
fixed or graduated monthly payments of at least $50; and the repayment period may not exceed
25 years.
Income-Sensitive Repayment Plan
Under an income-sensitive repayment plan, monthly payment amounts are adjusted annually
according to the borrower’s income. Income-sensitive repayment plans are available only to
borrowers of FFEL program loans. For Stafford Loans and PLUS Loans, monthly payments may
be no less than the greater of $50, or the interest that accrues between payments; and repayment
must occur within 10 years. Similar to the graduated repayment plan, no payment may be more
than three times the amount of any other. However, if a borrower’s income is too low to make
payments in amounts to repay the loan within 10 years, the loan holder must provide
administrative forbearance for a period of up to five years. For variable interest rate loans, the
loan holder may annually adjust either the monthly payment amount or the length of the
repayment period. In addition, if the repayment amount remains the same on a variable rate loan,
and the change in the interest rate would result in a borrower being unable to complete repayment
within the 10-year maximum, the loan holder must provide administrative forbearance for a
maximum of five years.
For Consolidation Loans repaid according to an income-sensitive repayment plan, monthly
payment amounts may be adjusted based changes in a borrower’s income over a period of time
that may range from 10 to 30 years, depending on the borrower’s outstanding loan balance at the
time of entering repayment.51 Similar to the standard repayment plan, determination of length of
the repayment period is based on the combined balances of the Consolidation Loan and all other
federal student loans owed by the borrower. Repayment periods for Consolidation Loans repaid
according to the income-sensitive repayment plan are shown in Table 4.
Income-Contingent Repayment Plan
Repayment according to the ICR plan affords borrowers the opportunity to make payment
amounts based on the relationship between their student loan debt and their income. It also
affords borrowers who experience prolonged periods with low incomes the prospect of debt
forgiveness. The ICR plan is available to borrowers of Stafford Loans, graduate and professional
student borrowers of PLUS Loans, and most borrowers of Consolidation Loans. Parent borrowers
of PLUS Loans are not eligible to repay according to the ICR plan.
50 Prior to September 10, 2007, a different extended repayment plan was available to all borrowers of DL program
loans. Under this prior version of the extended repayment plan, the repayment period ranged from 12 to 30 years,
depending on the borrower’s student loan debt.
51 The repayment periods discussed here are applicable to FFEL program Consolidation Loans and to DL program
Consolidation Loans to borrowers who enter repayment on or after July 1, 2006. The 10-year repayment period applies
to borrowers of DL program Consolidation Loans who entered repayment before July 1, 2006, and who repay
according to the standard repayment plan.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Under the ICR plan, annual payments (which are divided by 12 for the monthly amount) are
adjusted annually based on the borrower’s outstanding loan balance at the time of entering
repayment, adjusted gross income (AGI), and family size according to criteria established by the
Secretary in regulations.52 Consistent with these criteria, payment amounts are the lesser of (1)
the amount calculated according to a 12-year repayment period, multiplied by an income
percentage factor that corresponds to the borrower’s AGI;53 or (2) 20% of the amount by which
the borrower’s AGI exceeds the poverty line.54 Monthly payment amounts may range from $0 for
borrowers with incomes at or below the poverty line to amounts more than sufficient to repay the
loan in 12 years for borrowers with high incomes. Thus, a borrower at the poverty level or below
would not be required to make any payment. For borrowers whose monthly payment amount is
greater than $0, but less than $5, a $5 minimum monthly payment is required.
Under the ICR plan formula, it is possible that a borrower’s monthly payment amount may be
less than the accrued interest on his loan. When this happens, the unpaid interest is capitalized.
(This is also referred to as negative amortization.) The rules for the ICR plan specify that
capitalization of unpaid interest may not result in the balance of the loan exceeding 110% of the
original principal amount. If this occurs, any additional interest that accrues will not be
capitalized, but must still be paid by the borrower.
The ICR plan has a maximum repayment period of 25 years. If after 25 years of repaying
according to the ICR plan (not including time in deferment or forbearance) a borrower still has a
loan balance, the remaining unpaid balance of the loan will be discharged or forgiven.
As a condition of repaying according to the ICR plan, borrowers must provide written consent for
the Internal Revenue Service (IRS) to disclose their taxpayer identity information, their tax filing
status, and their AGI to ED.55 For purposes of the ICR plan, AGI includes the income of the
borrower and the borrower’s spouse, if applicable.
Pay-As-You-Earn Repayment Plan
The Obama Administration intends to establish a new Pay-As-You Earn (PAYE) repayment plan
for certain borrowers of DL program loans.56 It appears that the PAYE plan will share many
characteristics with the income-based repayment (IBR) plan, as amended by the SAFRA Act (see
52 34 C.F.R. §685.209. A special characteristic of the ICR plan is that two married borrowers of DL program loans may
repay their loans jointly based on their combined loan balances. Payment amounts are credited to each borrower’s
account in proportion to their outstanding loan balance.
53 Income percentage factors range from 50.52% to 200%, depending on income and income tax filing status. See U.S.
Department of Education, Electronic Announcement—Direct Loans, “2009 HHS Poverty Guidelines and Income
Percentage Factors,” May 22, 2009, at http://www.ifap.ed.gov/eannouncements/
052209PovertyguidelinesandIncomefactors.html. For additional information on the ICR Plan formula, see U.S.
Department of Education, Office of Federal Student Aid, “Notice of the annual updates to the Income Contingent
Repayment (ICR) plan formula for 2007,” 72 Federal Register, 26803-26808.
54 HHS Poverty Guidelines for All States (except Alaska and Hawaii) and the District of Columbia, 2011, at
http://aspe.hhs.gov/poverty/11poverty.shtml. In 2011, for a family of one, the HHS poverty guideline is $10,890; for a
family of two it is $14,710; for a family of three it is $18,530; and for a family of four it is $22,350.
55 34 C.F.R. §685.209(c)(7).
56 The White House, Office of the Press Secretary, “We Can’t Wait: Obama Administration to Lower Student Loan
Payments for Millions of Borrowers,” October 25, 2011, at http://www.whitehouse.gov/the-press-office/2011/10/25/
we-cant-wait-obama-administration-lower-student-loan-paymentsmillions-b.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
below), and that it will be made available to borrowers earlier than the amended IBR plan is
scheduled to be implemented. The establishment of the PAYE plan is being considered as part of
ED’s current round of negotiated rulemaking and it appears that the PAYE plan will be
established under the Secretary’s authority to offer an income-contingent repayment plan
established through the regulatory process.57
Income-Based Repayment Plan
The IBR plan is the most recently authorized repayment plan. Like the ISR and ICR plans, it is
designed to present borrowers the opportunity to make monthly payment amounts based on the
relationship between their student loan debt and their income. Also, like the ICR plan, it affords
borrowers who experience prolonged periods of low income the prospect of debt forgiveness. The
IBR plan is available to borrowers of loans made under both the FFEL and DL programs; whereas
the ISR is only available to borrowers of FFEL program loans, and the ICR plan is only available
to borrowers of DL program loans. Also, in contrast to other repayment plans which are generally
available to borrowers, a borrower must be experiencing a “partial financial hardship” (described
below) in order to qualify to repay according to the IBR plan. Several characteristics of the IBR
plan were amended under the SAFRA Act for new borrowers of DL program loans on or after
July 1, 2014.
The IBR plan is available to borrowers of FFEL and DL program loans (except parent borrowers
of PLUS Loans, and borrowers of Consolidation Loans that are used to repay PLUS Loans made
to parent borrowers) during any period in which they demonstrate having a partial financial
hardship. Borrowers are determined to have a partial financial hardship if their total annual
payments on eligible FFEL and DL program loans are greater than 15% of the amount by which
their AGI exceeds 150% of the poverty line, 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.
For example, based on the 2011 HHS Poverty Guidelines, 150% percent of the poverty line for a
family of one is $16,335.58 Thus, a single borrower with an adjusted gross income of $40,000
would have a partial financial hardship if his annual student loan payments were greater than
$3,550, or $296 per month. ($3,550 is 15% of the result of subtracting $16,335 from $40,000.)
While repaying according to the IBR plan, monthly amounts due on borrowers’ loans may range
from $0, for borrowers with incomes at or below 150% of the poverty line, to a maximum of one-
twelfth of 15% of any amount by which their AGI exceeds 150% of the poverty line. If borrowers
repaying according to the IBR plan no longer demonstrate a partial financial hardship or no
longer desire to repay according to the IBR plan, then their maximum required monthly payment
amounts may not exceed the “initial” monthly amount due, as calculated according to a standard
10-year repayment period based on their loan balance at the time of their election to begin
repaying according to the IBR plan. Accordingly, repayment periods for such borrowers may
exceed 10 years.
57 HEA, § 455(e), codified as amended at 20 U.S.C. § 1087e(e).
58 For additional information on poverty guidelines, see U.S. Department of Health and Human Services, “2010 HHS
Poverty Guidelines,” at http://aspe.hhs.gov/poverty/11poverty.shtml.
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
For a married borrower who files a joint federal income tax return, the payment amounts under
the IBR plan are based on the applicable borrower’s student loan debt and both spouses’
combined AGI. However, for a married borrower who files a separate federal income tax return,
the payment amount under the IBR plan is based solely on that individual’s student loan debt and
AGI. Since July 1, 2010, married borrowers have been able to elect to repay their loans jointly
according to the IBR plan based on their combined loan balances and combined AGI. For married
borrowers repaying jointly according to the IBR plan, individual payment amounts will be
determined in proportion to the amount owed by each borrower.
Payments made by borrowers repaying under the IBR plan must first be credited to interest due
on the loan, then to any fees, and then to principal. If a borrower’s required payment is not
sufficient to cover the interest that accrues on a subsidized Stafford Loan (or the subsidized
portion of a Consolidation Loan), the interest not covered is paid by the Secretary for a period not
to exceed three years.59 Any unpaid interest that accrues on an unsubsidized loan,60 or on a
Subsidized Stafford Loan after the three-year period, is capitalized (i.e., added to the principal
balance of the loan) at the time a borrower no longer demonstrates a partial hardship or elects to
no longer repay according to the IBR plan. If a borrower’s required monthly payment is not
sufficient to repay the amount of principal due, then the payment of any principal due will be
postponed until the borrower no longer has a partial financial hardship or leaves the IBR plan.
Borrowers who at any time participate in the IBR plan become eligible to have any balance on
their eligible loan or loans that remains after 25 years (or a period equivalent to 25 years of
payments) in repayment or economic hardship deferment forgiven by the Secretary if, during that
25 year period, they
• made reduced monthly payments according to the IBR plan while experiencing a
partial financial hardship;
• made recalculated monthly payments after leaving the IBR plan, or upon no
longer having a partial financial hardship;
• made monthly payments on all outstanding FFEL and DL program loans in
repayment (other than parent PLUS Loans) under a repayment plan other than
IBR of not less than the amount required under the standard repayment plan,
based on a 10-year repayment period;
• made payments under the ICR plan; or
• received an economic hardship deferment.
IBR plan for New Borrowers On or After July 1, 2014
The SAFRA Act amends two aspects of the IBR plan for individuals who, on or after July 1,
2014, are new borrowers of DL program loans. First, the thresholds used in determining whether
borrowers have a partial financial hardship and in determining their maximum monthly payment
amounts while they have a partial financial hardship are reduced from 15% to 10% of the portion
59 Periods during which a borrower receives a deferment for economic hardship are excluded from this three-year
period.
60 Unsubsidized loans include Unsubsidized Stafford Loans, PLUS Loans, and portions of Consolidation Loans
attributable to the repayment of such loans.
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of their AGI that exceeds 150% of the poverty line applicable to their family size. Second, the
period over which borrowers repaying according to the IBR plan must remain in repayment status
or economic hardship deferment before having the remainder of their federal student loan balance
forgiven is reduced from 25 years to 20 years.
Alternative Repayment Plans
The Secretary may establish alternative repayment plans for borrowers of DL program loans who
demonstrate that they are unable to repay according to other available repayment plans due to
exceptional circumstances. If the Secretary agrees to permit a borrower to repay according to an
alternative repayment plan, the Secretary notifies the borrower in writing of the terms of the plan,
and the borrower may either accept those terms or select one of the other available repayment
plans discussed above. Under an alternative repayment plan, the borrower may be provided up to
30 years to repay, not including periods of deferment and forbearance. Alternative repayment
plans may permit a borrower to make monthly payments for less than the amount of the accrued
interest on the loan, with any unpaid interest being capitalized. Capitalization of unpaid interest
may not result in the balance of the loan exceeding 110% of the original principal amount. If this
occurs, any additional interest that accrues must be paid by the borrower.
Borrower Repayment Relief
Several forms of repayment relief are available to borrowers of loans made under the FFEL and
DL programs who may be experiencing difficulty in making payments on their student loans.
These benefits are broadly categorized as deferments, forbearance, and interest rate benefits for
active duty servicemembers.
Deferment and forbearance are the primary means through which borrowers may be temporarily
relieved of their obligation to make scheduled loan payments. Periods during which borrowers are
in deferment or forbearance are generally excluded from the repayment period. (An exception
applies in the case of the IBR plan, for which periods in economic hardship deferment are
included in the 25-year repayment period, after which borrowers become eligible for loan
forgiveness.) In addition, interest rate benefits may be available to certain categories of active
duty servicemembers. Deferments, forbearance, and interest rate benefits may help borrowers
avoid defaulting on their loans, as well as help prevent student loan debt and the accrual of
interest and fees from inhibiting their pursuit of further studies. These forms of borrower
repayment relief are described below.
Deferments
A deferment is the temporary cessation of a borrower’s obligation to repay loan principal and
interest, usually limited by law to a specific period of time, and contingent upon the borrower
meeting certain conditions. Deferments enable borrowers to suspend loan repayment while they,
or the individual on whose behalf the loan was made (for parent borrowers of PLUS Loans), are
pursuing additional postsecondary education, during periods of unemployment or economic
hardship, and during certain periods of military service.
In general, deferments are borrower-specific—that is, once a borrower has received a deferment
for the period specified in law (if limited), the borrower is not eligible to receive an additional
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deferment for the same condition, even if subsequently borrowing additional loans. Because of
frequent amendments, the types of deferment for which borrowers are eligible can vary according
to when the loan is disbursed, the type of loan, and whether the borrower has an outstanding
balance on other loans. The Higher Education Amendments of 1992 (P.L. 102-325) made major
changes to deferments by consolidating the terms according to which borrowers may qualify. In
general, until July 1, 1993, one set of conditions for deferments applied.61 Beginning July 1, 1993,
new conditions became applicable to new borrowers, who prior to that date had no outstanding
balance on FFEL or DL program loans. Subsequently, additional types of deferments with
different effective dates have been made available. Finally, some types of deferments have
recently been made available to borrowers irrespective of when they became a new borrower.
For Subsidized Stafford loans (and the portion of Consolidation Loans attributable to the
repayment of Subsidized Stafford Loans), the federal government pays the interest that accrues
during the deferment period. For all other loans, the borrower is responsible for the payment of
accrued interest—either by making such payments monthly or quarterly, or by having the interest
added to their principal balance (i.e., capitalized) at the end of period of deferment.
The following types of deferments are available to borrowers of loans currently being disbursed.
In-School Deferment
Borrowers are eligible for an in-school deferment for any period during which they are pursuing
at least a half-time course of study as determined by the eligible institution attended.
In-School and Grace Period Deferment for PLUS Loans
Parent borrowers of PLUS Loans for which the first disbursement is 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. Also, parent borrowers and graduate
and professional student borrowers of PLUS Loans first disbursed on or after July 1, 2008, are
eligible for a deferment 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
This deferment is available to borrowers while pursuing a course of study pursuant to a graduate
fellowship program approved by the Secretary. Graduate fellowship deferments are not available
to borrowers who are serving in medical residency or internship programs, except for residency
programs in dentistry.
61 Borrowers with outstanding loan balances prior to July 1, 1993 remain eligible to defer repayment of their loans—
including loans borrowed after that date—under a broader set of criteria than are available to individuals who first
borrowed after that date. For instance, they may defer loans during periods of service in the U.S. Armed Forces, the
Peace Corps, VISTA, or the Public Health Service; while serving as a medical intern or resident; or while teaching in
shortage areas. Eligibility criteria for deferments for borrowers with outstanding loan balances prior to July 1, 1993 are
specified in regulations codified at 34 C.F.R. §682.210.
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Rehabilitation Training Program Deferment
This deferment is available to borrowers while pursuing a course of study pursuant to a
rehabilitation training program for disabled individuals approved by the Secretary.
Unemployment Deferment
This type of deferment is available to borrowers who are unemployed, as evidenced by receipt of
unemployment benefits, or their inability to secure employment after registering with a public or
private employment agency. Borrowers are not required to have been previously employed to
qualify for an unemployment deferment. A borrower may receive an unemployment deferment
for a maximum cumulative period of three years. This may include one or more episodes of
unemployment.
Economic Hardship Deferment
This type of deferment is available to borrowers of loans made under the FFEL and DL
program if
• the borrower has been granted an economic hardship deferment under the FFEL,
DL, or 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, Supplemental Security
Income, Food Stamps, or state general public assistance);
• the borrower is working full-time and has a monthly income that does not exceed
the greater of (1) the minimum wage rate, or (2) an amount equal to 150% of the
poverty line applicable to the borrower’s family size (as calculated on a monthly
basis); or
• the borrower is serving as a volunteer in the Peace Corps.
A borrower may receive an economic hardship deferment for periods of up to one year at a time,
for a maximum cumulative period of three years.
Military Service Deferment
This type of deferment is available to all borrowers who are serving on active duty, or performing
qualifying National Guard duty, during a war or other military operation or national emergency.
The deferment is available for the period of qualifying service and for 180 days following the
demobilization date for such service.
Post-Active Duty Student Deferment
This type of deferment is available to borrowers of FFEL and DL program loans who are
members of the National Guard or other reserve component of the Armed Forces (or a member in
retired status) and who are called or ordered to active duty while enrolled in an eligible
institution, or within six months of being enrolled. The deferment is limited to borrowers who
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were serving on active duty on October 1, 2007, or who began active duty service after that date.
Eligible borrowers may receive a post-active duty service deferment for the 13-month period
following the conclusion of active duty service (or until re-enrollment). 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.
Forbearance
Forbearance is the practice under which lenders grant borrowers temporary relief from their
obligation to repay because the borrower is willing but unable to meet regular payment
obligations. A lender may provide forbearance by temporarily relieving a borrower from making
payments, by extending the time for making payments, or by temporarily accepting payments in
reduced amounts. Forbearance is usually used to prevent a loan from defaulting, but holders of
defaulted loans may also use forbearance during collection on a defaulted loan.
Unlike deferments for Subsidized Stafford Loans for which the interest is paid by the federal
government, any borrower who has been granted forbearance is liable for all the interest that
accrues during the forbearance period. Any interest that accrues is capitalized at the end of the
forbearance period. Also, unlike deferments, forbearance is typically granted at the option of the
loan holder as opposed to being mandated, although in certain instances mandatory forbearance is
required.
Borrowers must apply for forbearance, although they are not required to request forbearance in
writing. For certain types of forbearance, borrowers must provide supporting documentation.
Forbearance is usually granted in 12 month intervals, and borrowers must reapply each year.
Maximum time limits depend on the type of forbearance granted. No adverse credit information
may be provided to a consumer reporting agency solely because the borrower has been granted
forbearance.
Mandatory Forbearance
Lenders are required to provide forbearance to borrowers in certain circumstances. Mandatory
forbearance is available to borrowers
• who are medical or dental interns or residents and who do not or no longer
qualify for a deferment, for the duration of their internship or residency;
• whose total federal student loan payments equal or exceed 20% of their monthly
income, for up to three years;
• who are serving in a national service position for which the borrower receives an
AmeriCorps national service educational award;
• whose federal student loan interest is being paid under a Department of Defense
Armed Forces Student Loan Repayment program;
• who are teachers who would qualify for loan repayment under the FFEL and DL
Teacher Loan Forgiveness programs, for up to five years of required service; and
• who are members of the National Guard who qualify for a post-active duty
student deferment, but do not qualify for a military service deferment or other
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deferment, and are engaged in active state duty service for 30 or more
consecutive days.
Mandatory Administrative Forbearance
Administrative forbearance is available to borrowers under limited conditions as authorized by
the Secretary. As discussed earlier, administrative forbearance is available to borrowers for up to
three years if changes to variable interest rates preclude a borrower’s ability to repay the loan in
10 years under the standard or graduated repayment plans, and for up to five years if a borrower’s
income precludes the ability to repay in 10 years under the income-sensitive repayment plan.
Interest Rate Benefits for Active Duty Servicemembers
In certain instances, active duty servicemembers may be eligible for interest rate benefits on their
FFEL and DL program loans.
Servicemembers Civil Relief Act (SCRA)
Section 207 of the SCRA provides that for individuals who borrow loans after August 14, 2008,
and who later enter military service, the interest rate on those loans must be capped at 6% for the
duration of their military service.62 Creditors must forgive interest above the rate of 6% and may
not accelerate repayment of the loans.
No Accrual of Interest on DL Program Loans for Certain Active
Duty Servicemembers
For DL program loans first disbursed on or after October 1, 2008, (including Direct Consolidation
Loans used to repay the portion of FFEL program loans first disbursed on or after October 1,
2008) interest will not accrue during any period of up to 60 months while the borrower is serving
on active duty or performing qualifying National Guard duty in an area of hostilities during a war
or national emergency.
Loan Default and its Consequences for Borrowers
As defined for purposes of the FFEL and DL programs, a defaulted loan is one on which the
borrower has failed to make a required payment when due, or on which the borrower has
otherwise violated the terms of the promissory note for 270 days (or 330 days if the loan is
repayable in installments less frequent than monthly) if it is reasonable to conclude that the
borrower no longer intends to repay the obligation.63
Defaulted student loans are a significant problem both for the federal government and for
borrowers. Losses due to defaults constitute a major cost component in the federal student loan
62 For additional information on the SCRA, see CRS Report RL34575, The Servicemembers Civil Relief Act (SCRA):
An Explanation, by R. Chuck Mason.
63 34 C.F.R. §§682.200; and 685.102.
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programs. From the borrower’s perspective, defaulting on a student loan can ruin credit and
otherwise present a major obstacle to future economic well-being. The consequences of default
for borrowers are discussed below.
Consequences of Default for Borrowers
When a loan goes into default, the borrower effectively loses certain rights and privileges
associated with the loan (e.g., deferments and loan forgiveness). In addition, the agency in charge
of collections (i.e., the FFEL guaranty agency or the DL contractor) can demand payment in full
of all principal and interest due, as well as payment of collection costs.64 There is no statute of
limitations on student loan collections. All borrowers must be informed of the consequences of
default as part of entrance counseling they receive when initially borrowing their loans. In
addition, as part of its due diligence requirements, the agency in charge of collecting on a
defaulted loan must apprise the defaulter of some of the major consequences of defaults. This
section summarizes elements of the law designed to improve collections of defaulted loans.
Report to Consumer Reporting Agencies
By law, loan holders and the agencies in charge of collection are required to enter into agreements
with national consumer reporting agencies to exchange information relating to student borrowers.
Such agreements require the guaranty agency to report a loan default and the status of collections
on that note. Consumer reporting agencies are authorized to report information on the status of a
defaulter’s account for seven years from the date the default claim is paid or, if the borrower
reenters repayment after defaulting and subsequently defaults, for seven years from the date of
the subsequent default.
Offset of Tax Refund
Defaulters are liable for any federal tax refund due them to be attached by the Internal Revenue
Service (IRS) as repayment on their student loan. A number of states also attach refunds due on
state income taxes to collect student loans.
Offset of Social Security Benefits
Social Security benefits are subject to being offset by up to 15% of the monthly benefit amount.
Wage Garnishment
Notwithstanding any state law to the contrary, guaranty agencies, or the Secretary in the case of
loans held by ED, may garnish up to 15% of a defaulter’s disposable pay to repay a defaulted
student loan. “Disposable pay” is defined as that part of compensation remaining after deducting
amounts required by law to be withheld. Defaulters must be given written notice of the intent to
garnish and have rights to examine the debt record, have a hearing concerning the existence and
amount of the debt or repayment terms, and to establish a repayment schedule before garnishment
64 At present, borrowers may be charged up to 18.5% of the outstanding principal balance for collection costs.
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begins. In the past, garnishment has particularly been used as a tool against defaulters who are
federal employees.
Ineligibility for Federal Student Aid
Students who have defaulted on an FFEL or DL program loan are ineligible for federal student
aid under Title IV. Student loan defaulters who make six consecutive monthly payments on their
defaulted FFEL and DL loans may have their Title IV eligibility restored, but an individual
borrower may benefit from this provision only once.
Civil Lawsuit
The ultimate tool used to collect on a defaulted student loan is litigation under which the agency
in charge of collection sues the defaulter to compel repayment of the loan. Such civil suits are
required to be instituted under the due diligence regulations unless the note is assigned to ED for
collection through the IRS offset program, the lawsuit costs would exceed those of the likely
recovery, or the borrower does not have the funds to satisfy the judgment on the debt or a large
portion of it.
Loan Rehabilitation
Loan rehabilitation offers student loan defaulters an opportunity to have their loan reinstated as an
active loan and to have their borrower benefits and privileges restored. If, during a period of 10
consecutive months, a borrower who has defaulted on a loan makes nine monthly payments
within 20 days of the due date according to a payment plan agreed to by the borrower and
guaranty agency (or the Secretary), the loan may be sold to another lender, or (in the case of DL
loans) reinstated. At this point, the loan is considered rehabilitated and the borrower again
becomes eligible for full borrower privileges, such as deferments and loan forgiveness. In
implementing these provisions, the guarantor or ED must require a monthly payment that is
“reasonable and affordable” based on the borrower’s financial circumstances. Borrowers whose
defaulted loans are assigned to ED are offered the opportunity to obtain DL program
Consolidation Loans.
Loan Discharge and Forgiveness
Loan Discharge
In accordance with the terms and conditions of loans made under the FFEL and DL programs, in
certain circumstances borrowers may have all or a portion of their debt discharged or repaid by
the federal government. These are described below.
Death or Disability
Liability for FFEL and DL program loans is discharged in the case of borrowers who die, who
become permanently and totally disabled, or who are unable to engage in any substantial gainful
activity due to a physical or mental impairment that can be expected to result in death or that has
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lasted continuously or can be expected to last continuously for 60 months. Borrowers who have
been determined by the Secretary of Veterans Affairs to be unemployable due to a service-
connected condition shall be considered permanently and totally disabled for purposes of student
loan discharge.
Bankruptcy
In most instances, federal student loans may not be discharged through personal bankruptcy
actions brought under either Chapter 7 or Chapter 13 of the bankruptcy code.65 However, if after
filing for bankruptcy, a borrower successfully petitions a bankruptcy court and the court finds that
repayment constitutes an undue hardship on the borrower and his dependents, federal student
loans may be discharged in bankruptcy.66
Other
A borrower’s liability for a loan (including any interest and collection fees owed by the borrower)
may be discharged under any of the following circumstances if the borrower received the loan on
or after January 1, 1986. Loans may be discharged if the student borrower (or the student on
whose behalf a parent borrowed) was unable to complete an educational program because the
school closed. Any period of the student’s attendance at the institution at which the student was
unable to complete the course of study because of closure is not counted against the total period
of the student’s eligibility for additional student aid. Borrowers are eligible for loan discharge if
the school falsely certified the student’s eligibility to borrow, including loans falsely certified as a
result of identity theft. All or a portion of a borrower’s loan liability may be discharged if an
institution fails to refund the appropriate amount of loan proceeds to a lender or to the Secretary
on behalf of a borrower. In addition, Title IV eligibility is restored for borrowers who may have
defaulted on a loan discharged under any of the above circumstances. Finally, the Third Higher
Education Extension Act of 2006 (P.L. 109-292) authorized the discharge of the outstanding
balance of loans made to individuals who were the spouses or parents67 of individuals who died
or became permanently and totally disabled as a result of the September 11, 2001, terrorist
attacks.
Loan Forgiveness
The HEA authorizes several programs through which borrowers may have some portion of their
FFEL or DL program loans forgiven, cancelled, or repaid as an incentive for entering certain
occupations or professions, or for performing certain types of public service. Some loan
forgiveness provisions are entitlements to qualified borrowers, meaning that mandatory funding is
provided for loan forgiveness. Other loan forgiveness and repayment programs are discretionary
and subject to the availability of funds made available in annual appropriations acts. In addition,
borrowers may also be eligible to have their loans repaid through other non-HEA programs. Loan
65 See 11 U.S.C. §§523 and 1328.
66 For additional information on federal student loans and bankruptcy, see U.S. Department of Education, Federal
Student Aid Ombudsman, “Bankruptcy,” at http://www.ombudsman.ed.gov/bankruptcy.html.
67 Parents were eligible for the discharge of PLUS Loans borrowed on behalf of a child who was a victim of the
September 11, 2001, terrorist attacks, and Consolidation Loans used to repay such loans.
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forgiveness and repayment programs authorized under Title IV, Parts B and D of the HEA are
described below.
Loan Forgiveness for Teachers
Loan forgiveness for teachers is authorized for borrowers of FFEL and DL program Stafford
Loans.68 Under the program, new borrowers, who had no outstanding balance on Title IV loans
on or after October 1, 1998,69 may be granted loan forgiveness after having served as a full-time
teacher for five consecutive70 complete school years in certain low-income schools or locations.71
At least one of these school years must be after the 1997-1998 school year. Forbearance is
available to borrowers during their five years of qualifying teaching service. Teacher loan
forgiveness is an entitlement available to qualified borrowers. Two levels of loan forgiveness are
available.
In General
Up to $5,000 in loan forgiveness is available to Stafford Loan borrowers who have been
employed for five consecutive complete school years as a full-time teacher in certain low-income
schools or locations. Borrowers whose five-year period of service began on or after October 30,
2004, must be highly qualified teachers, as defined in the Elementary and Secondary Education
Act (ESEA), Section 9101.
Mathematics, Science, and Special Education Teachers
Up to $17,500 in loan forgiveness is available to Stafford Loan borrowers who meet the general
requirements described above and whose teaching service is as a full-time teacher of mathematics
or science in a secondary school; or as a special education teacher.
DL Program Loan Forgiveness for Public Service Employees
Loan forgiveness for public service employees is available to borrowers of DL program loans
who are employed full-time in certain public service jobs for 10 years during the repayment of
their loans.72 To qualify for loan forgiveness, borrowers must make 120 monthly payments on or
after October 2, 2007, according to the ICR plan, the IBR plan, or either of the standard,
graduated, or extended repayment plans in amounts equal to or greater than the monthly amount
68 Loan forgiveness for teachers was enacted under the Higher Education Amendments of 1998 (P.L. 105-244).
69 Thus, an individual with an outstanding loan balance on a Title IV loan before October 1, 1998 is ineligible for this
program, unless the loan balance is paid in full before again borrowing under the FFEL or DL program.
70 Breaks in service are authorized for borrowers who return to school to pursue additional education related to the
qualifying teaching service, who have a condition covered under the Family and Medical Leave Act of 1993, or who
are called or ordered to active duty for more that 30 days in a reserve component of the Armed Forces.
71 These schools are defined as low-income for purposes of loan cancellation under the Federal Perkins Loan program.
A Teacher Loan Forgiveness Low Income Directory is available at https://www.tcli.ed.gov/CBSWebApp/tcli/
TCLIPubSchoolSearch.jsp.
72 Loan forgiveness for public service employees was enacted under the CCRAA and was amended under the HEOA.
For additional information on the program see CRS Report RS22762, Loan Forgiveness for Public Service Employees
Under the William D. Ford Direct Loan Program, by David P. Smole.
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due as calculated according to a standard 10-year repayment period, while concurrently being
employed full-time in public service jobs. After having made 120 qualifying payments, a
borrower’s remaining loan balance will be forgiven. Loan forgiveness for public service
employees is available to new and existing borrowers of DL program loans and is an entitlement
to qualified borrowers.
For purposes of the program, a public service job is defined as a full-time job in emergency
management, government (excluding service as a Member of Congress), military service, public
safety, law enforcement, public health (including nurses, nurse practitioners, and health care
practitioners), public education, social work in a public child or family service agency, public
interest law services (including prosecution or public defense or legal advocacy in low-income
communities at a nonprofit organization), early childhood education, 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 the IRC and exempt from taxation under Section 501(a); or teaching as a full-time
faculty member at a Tribal College or University as defined in Section 316(b) of the HEA and
other faculty teaching in high-needs areas, as determined by the Secretary.
Loan Forgiveness for Service in Areas of National Need
Under this program, borrowers of FFEL or DL program loans who are employed full-time in an
occupation specified as an area of national need may qualify to have a portion of their outstanding
loan balance forgiven by the Secretary. Up to $2,000 in FFEL or DL program student loan debt
may be forgiven for each school, academic, or calendar year of full-time employment in an area
of national need completed on or after August 14, 2008. A maximum of $10,000 may be forgiven
for five years of service. Specified areas of national need are early childhood educators; nurses;
foreign language specialists; librarians; certain highly qualified teachers; child welfare workers;
speech-language pathologists and audiologists; school counselors; certain public sector
employees; nutrition professionals; medical specialists; mental health professionals; dentists;
employees in science, technology, engineering, and mathematics (STEM) fields; physical
therapists; superintendents, principals, and other (school) administrators; occupational therapists;
and allied health professionals. PLUS Loans obtained by parent borrowers on behalf of a
dependent student and Consolidation Loans used to repay such loans are not eligible to be
forgiven under the program. The program is authorized to be funded annually at such sums as
may be necessary for through FY2014 and, subject to the appropriation of funds, will be available
to borrowers on a first come, first served basis.73
Loan Repayment for Civil Legal Assistance Attorneys
Under this program, borrowers of federal student loans may qualify to have a portion of the
outstanding balance of their loans repaid if they enter into agreements with the Secretary to serve
as a full-time civil legal defense attorney for a period of not less than three years. In return for
their service, the Secretary will assume the obligation to make payments of up to $6,000 per year,
and up to $40,000 in the aggregate, on federal student loans made under FFEL, DL, and Perkins
73 The Loan Forgiveness for Service in Areas of National need program was enacted under the HEOA. The program is
established at §428K of the HEA and replaces the Loan Forgiveness for Child Care Providers program, which has been
repealed.
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Loan programs. Loan repayment made available under the program may not be used to repay a
PLUS Loan obtained by a parent borrower on behalf of a dependent student, nor the portion of a
Consolidation Loan used to repay such a loan. The program is authorized to be funded annually at
such sums as may be necessary through FY2014. Subject to the appropriation of funds, loan
repayment will be available to borrowers on a first come, first served basis.74
74 The Loan Repayment for Civil Legal Assistance Attorneys program was enacted under the HEOA.
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Appendix A. Glossary of Financial Terms
Amortization: To provide for the gradual reduction and ultimate elimination of a debt through
periodic payments sufficient in size to cover interest due and reduce the amount of principal owed
over a specified repayment period.
Bond Equivalent Rate: The interest rate on Treasury bills is commonly reported on a “bank
discount basis,” a measure that is calculated based upon the face value of a Treasury bill at
maturity (as opposed to the purchase price). The bond equivalent rate is the interest payment
determined as a percentage of purchase price.
Capitalizing Interest: To add accumulating interest to the loan principal thereby increasing the
total amount of the loan on which interest is charged. Capitalization of accrued interest would
typically occur at one or more intervals when a borrower is not required to make regular interest
payments.
Interest: A charge for borrowed money, generally a percent of the amount borrowed.
Negative Amortization: When required payments on a loan are not sufficient in size to cover
accrued interest and unpaid interest is added to loan principal—increasing the borrower’s debt (a
scenario that can occur under income-contingent repayment).
Principal: The amount of money borrowed.
91-day Treasury bill: A short term promissory note issued by the U.S. Treasury, secured by the
full faith and credit of the United States. Treasury bills are issued by the federal government as a
means of financing deficits and managing cash flows and are generally viewed as risk-free
investments. A 91-day Treasury bill has a maturity of 13 weeks, and the rate for 91-day Treasury
bills is determined when the Treasury auctions the 91-day Treasury bill, typically on the first
business day of the week.
Variable Interest: Rate of interest on a loan that is tied to an index (such as the 91-day Treasury
bill), and adjusted periodically in accordance with changes in the index.
Congressional Research Service
39
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Appendix B. Detailed Tables on Selected
Characteristics of FFEL and DL Program Loans
Table B-1. Annual Loan Limits for Borrowers of Stafford Loans and PLUS Loans,
by Dependency Status and Grade Level
Borrower
Total Subsidized
Dependency Status And
Subsidized
& Unsubsidized
Grade Level
Stafford Loans
Stafford Loans
PLUS Loans
($)
($)
($)
Dependent Undergraduate
Annual loan limits
1st year
3,500
5,500
n.a.
2nd year
4,500
6,500
n.a.
3rd year and above
5,500
7,500
n.a.
Preparatory coursework for undergraduate
2,625 2,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 5,500 n.a.
professional programa
Teacher certificationa 5,500
5,500
n.a.
Aggregate loan limitsbc
In general
23,000
31,000
n.a.
Independent Undergraduated
Annual loan limits
1st year
3,500
9,500
n.a.
2nd year
4,500
10,500
n.a.
3rd year and above
5,500
12,500
n.a.
Preparatory coursework for undergraduate
2,625 8,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 12,500 n.a.
professional programa
Teacher certificationa 5,500
12,500
n.a.
Aggregate loan limitsbc
In general
23,000
57,500
n.a.
Congressional Research Service
40
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Borrower
Total Subsidized
Dependency Status And
Subsidized
& Unsubsidized
Grade Level
Stafford Loans
Stafford Loans
PLUS Loans
($)
($)
($)
Graduate and Professional
Annual loan limits
In general
8,500
20,500
Up to COA-EFCe
Health professions programsf
8,500
40,500 to 47,167
Up to COA-EFAe
Health professions programsg
8,500
33,000 to 37,167
Up to COA-EFAe
Aggregate loan limitsbch
In general
65,500
138,500
Not limitede
Health professions programs
65,500
224,000
Not limitede
Parents of Dependent Undergraduate Students
Annual loan limits
All
n.a.
n.a.
Up to COA-EFCe
Aggregate loan limitsbc
In general
n.a.
n.a.
Not limitede
Sources: HEA, §§428 and 428H; 34 CFR 682.204; and Department of Education, Office of Postsecondary
Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08.
Note: “n.a.” means not applicable.
a. For individuals who have obtained a baccalaureate degree.
b. Accrued interest and other charges that have not been capitalized do not count toward aggregate loan
limits.
c. Stafford Loans that have been included in Consolidation Loans are attributed to the aggregate limits for
Subsidized Stafford Loans and Total Stafford Loans according to their proportionate amount of the
Consolidation Loan.
d. These loan limits also apply to dependent undergraduate students whose parents are unable to obtain PLUS
Loans.
e. There is no statutory borrowing limit for PLUS Loans; however, borrowers must be credit-worthy and all
aid combined may not exceed COA.
f.
Students enrolled in programs in the following disciplines are eligible to borrow an additional $20,000 more
than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an
additional $26,667 for programs with 12-month academic years: Doctor of Allopathic Medicine, Doctor of
Osteopathic Medicine, Doctor of Dentistry, Doctor of Veterinary Medicine, Doctor of Optometry, Doctor
of Podiatric Medicine; and effective May 1, 2005, Doctor of Naturopathic Medicine, and Doctor of
Naturopathy. (Amounts are prorated for 10- and 11-month programs.)
g. Students enrolled in programs in the following disciplines are eligible to borrow an additional $12,500 more
than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an
additional $16,667 for programs with 12-month academic years: Doctor of Pharmacy, Graduate in Public
Health, Doctor of Chiropractic, Doctoral Degree in Clinical Psychology, Masters or Doctoral Degree in
Health Administration. (Amounts are prorated for 10- and 11-month programs.)
h. Aggregate loan limits for graduate and professional students include amounts borrowed for undergraduate
loans.
Congressional Research Service
41
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-2. History of Annual Loan Limits for Stafford Loans and PLUS Loans,
by Borrower Type
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
Nov. 8, 1965-Feb. 28, 1973
Dependent undergraduate studentsb
In general
1,000
n.a.
n.a.
Independent undergraduate studentsb
In general
1,000
n.a.
n.a.
Graduate and professional students
In general
1,500
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Mar. 1, 1973-Sep. 30, 1976
Dependent undergraduate students
In general
2,500
n.a.
n.a.
Independent undergraduate students
In general
2,500
n.a.
n.a.
Graduate and professional students
In general
2,500
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Oct. 1, 1976-Sep. 30, 1980
Dependent undergraduate students
In general
2,500
n.a.
n.a.
Independent undergraduate students
In general
2,500
n.a.
n.a.
Graduate and professional students
In general
5,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Oct. 1, 1980-Sep. 30, 1981c
Dependent undergraduate students
In general
2,500
n.a.
n.a.
Congressional Research Service
42
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
Independent undergraduate students
In general
3,000
n.a.
n.a.
Graduate and professional students
In general
5,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
3,000
Oct. 1, 1981-Dec. 31, 1986c
Dependent undergraduate students
In general
2,500
n.a.
n.a.
Independent undergraduate students
In general
2,500
n.a.
n.a.
Graduate and professional students
In general
5,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
3,000
Jan. 1, 1987-Sep. 30, 1992d
Dependent undergraduate students
1st two years
2,625
n.a.
n.a.
3rd year and above
4,000
n.a.
n.a.
Independent undergraduate students
1st two years
2,625
n.a.
n.a.
3rd year and above
4,000
n.a.
n.a.
Graduate and professional students
In general
7,500
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
4,000
Oct. 1, 1992-Sep. 30, 1993
Dependent undergraduate students
1st year
2,625
2,625
n.a.
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Independent undergraduate students
1st year
2,625
2,625
n.a.
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Congressional Research Service
43
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
Graduate and professional students
In general
7,500
7,500
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
Oct. 1, 1993-June 30, 1994de
Dependent undergraduate students
1st year
2,625
2,625
n.a.
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Independent undergraduate students
1st year
2,625
2,625
n.a.
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Graduate and professional students
In general
8,500
8,500
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
July 1, 1994-Oct. 1, 1998f
Dependent undergraduate students
1st year
2,625
2,625
n.a.
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Independent undergraduate students
1st year
2,625
6,625
n.a.
2nd year
3,500
7,500
n.a.
3rd year and above
5,500
10,500
n.a.
Graduate and professional students
In general
8,500
18,500
n.a.
Health professions programsg
8,500
38,500 to 45,167
n.a.
Health professions programsh
8,500
31,000 to 35,167
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
Oct. 1, 1998-Jun. 30, 2007
Dependent undergraduate students
1st year
2,625
2,625
n.a.
Congressional Research Service
44
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
2nd year
3,500
3,500
n.a.
3rd year and above
5,500
5,500
n.a.
Preparatory coursework for undergraduate
degree or certificate program
2,625 2,625 n.a.
Preparatory coursework for graduate or
5,500 5,500 n.a.
professional program
Teacher certification
5,500
5,500
n.a.
Independent undergraduate students
1st year
2,625
6,625
n.a.
2nd year
3,500
7,500
n.a.
3rd year and above
5,500
10,500
n.a.
Preparatory coursework for undergraduate
2,625 6,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 10,500 n.a.
professional program
Teacher certification
5,500
10,500
n.a.
Graduate and professional students
In general
8,500
18,500
n.a.
Health professions programsg
8,500
38,500 to 45,167
n.a.
Health professions programsh
8,500
31,000 to 35,167
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
Jul. 1, 2007-Jun. 30, 2008
Dependent undergraduate students
1st year
3,500
3,500
n.a.
2nd year
4,500
4,500
n.a.
3rd year and above
5,500
5,500
n.a.
Preparatory coursework for undergraduate
2,625 2,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 5,500 n.a.
professional program
Teacher certification
5,500
5,500
n.a.
Independent undergraduate students
1st year
3,500
7,500
n.a.
2nd year
4,500
8,500
n.a.
3rd year and above
5,500
10,500
n.a.
Preparatory coursework for undergraduate
2,625 6,625 n.a.
degree or certificate program
Congressional Research Service
45
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
Preparatory coursework for graduate or
5,500 10,500 n.a.
professional program
Teacher certification
5,500
10,500
n.a.
Graduate and professional students
In general
8,500
20,500
Up to COA-EFA
Health professions programsg
8,500
40,500 to 47,167
Up to COA-EFA
Health professions programsh
8,500
33,000 to 37,167
Up to COA-EFA
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
July 1, 2008-June 30, 2012
Dependent undergraduate students
1st year
3,500
5,500
n.a.
2nd year
4,500
6,500
n.a.
3rd year and above
5,500
7,500
n.a.
Preparatory coursework for undergraduate
2,625 2,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 5,500 n.a.
professional program
Teacher certification
5,500
5,500
n.a.
Independent undergraduate students
1st year
3,500
9,500
n.a.
2nd year
4,500
10,500
n.a.
3rd year and above
5,500
12,500
n.a.
Preparatory coursework for undergraduate
2,625 8,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 12,500 n.a.
professional program
Teacher certification
5,500
12,500
n.a.
Graduate and professional students
In general
8,500
20,500
Up to COA-EFA
Health professions programsg
8,500
40,500 to 47,167
Up to COA-EFA
Health professions programsh
8,500
33,000 to 37,167
Up to COA-EFA
Parents of dependent undergraduate students
In general
n.a.
n.a.
Up to COA-EFA
On or after July 1, 2012
Dependent undergraduate students
1st year
3,500
5,500
n.a.
Congressional Research Service
46
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized
Subsidized
& Unsubsidized
Stafford Loansa
Stafford Loansa
PLUS Loans
Borrower type and class level or program
($)
($)
($)
2nd year
4,500
6,500
n.a.
3rd year and above
5,500
7,500
n.a.
Preparatory coursework for undergraduate
2,625 2,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 5,500 n.a.
professional program
Teacher certification
5,500
5,500
n.a.
Independent undergraduate students
1st year
3,500
9,500
n.a.
2nd year
4,500
10,500
n.a.
3rd year and above
5,500
12,500
n.a.
Preparatory coursework for undergraduate
2,625 8,625 n.a.
degree or certificate program
Preparatory coursework for graduate or
5,500 12,500 n.a.
professional program
Teacher certification
5,500
12,500
n.a.
Graduate and professional students
In general
n.a.
20,500
Up to COA-EFA
Health professions programsg
n.a.
40,500 to 47,167
Up to COA-EFA
Health professions programsh
n.a.
33,000 to 37,167
Up to COA-EFA
Parents of dependent undergraduate
students
In general
n.a.
n.a.
Up to COA-EFA
Source: HEA, §§428, 428A, 428B, and 428H; P.L. 89-329; P.L. 90-575; P.L. 92-318; P.L. 92-391; P.L. 94-482; P.L.
95-566; P.L. 96-374; P.L. 97-35; P.L. 99-498; P.L. 100-297; P.L. 102-325; P.L. 102-325; P.L. 103-66; P.L. 103-208;
P.L. 105-244; P.L. 109-171; P.L. 110-227; Department of Education, Office of Postsecondary Education, Dear
Colleague Letters GEN-96-14; GEN-97-14, GEN-05-09, and GEN-08-08; 45 C.F.R. §177.14(a)(3) (1967 edition).
Note: “n.a.” means not applicable
a. Subsidized Stafford Loans were referred to as Guaranteed Student Loans until July 1, 1988. Prior to
November 1, 1978, interest subsidies on Guaranteed Student Loans were available only borrowers whose
family income was below specified income ceilings. Effective November 1, 1978, income ceilings on
Guaranteed Student Loans were removed. In addition, since the enactment of the HEA in 1965, federal
student loans have been authorized under a parallel loan program, the Federally Insured Student Loan (FISL)
program. FISL program loans are not currently being made; however, during many periods throughout the
history of the program, FISL loan limits paralleled those for GSLs and Stafford Loans.
b. Undergraduate students first became categorized as either dependent or independent students effective
October 1, 1980.
c. For the period from January 1, 1981, to December 31, 1986, federal student loans were also available to
independent undergraduate and graduate and professional students under a separate loan program called
the Auxiliary Loans to Assist Students (ALAS) program. The annual loan limit for ALAS program loans was
$2,500. This loan limit was separate from the limit on Guaranteed Student Loans.
Congressional Research Service
47
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
d. From the period from January 1, 1987, to June 30, 1994, federal student loans were also available under a
separate loan program called the Supplemental Loans for Students (SLS) program. During the period from
January 1, 1987, to June 30, 1993, the annual loan limit for SLS program loans was $4,000.
e. For SLS program loans, during the period from July 1, 1993, until June 30, 1994, annual loan limits were
$4,000 for undergraduate students in their first or second year of studies, $5,000 for undergraduate
students in their third or higher year of studies, and $10,000 for graduate and professional students. The
SLS program was repealed effective June 30, 1994.
f.
In accordance with authority provided the Secretary under P.L. 104-134, effective July 1, 1996, increased
Unsubsidized Stafford Loan borrowing limits were extended to students who became unable to borrow
under the Health Education Assistance Loan (HEAL) program.
g. Students enrolled in programs in the following disciplines are eligible to borrow an additional $20,000 more
than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an
additional $26,667 for programs with 12-month academic years: Doctor of Allopathic Medicine, Doctor of
Osteopathic Medicine, Doctor of Dentistry, Doctor of Veterinary Medicine, Doctor of Optometry, Doctor
of Podiatric Medicine; and effective May 1, 2005, Doctor of Naturopathic Medicine, and Doctor of
Naturopathy. (Amounts are prorated for 10- and 11-month programs.)
h. Students enrolled in programs in the following disciplines are eligible to borrow an additional $12,500 more
than regular students in Unsubsidized Stafford Loans for programs with nine-month academic years, and an
additional $16,667 for programs with 12-month academic years: Doctor of Pharmacy, Graduate in Public
Health, Doctor of Chiropractic, Doctoral Degree in Clinical Psychology, Masters or Doctoral Degree in
Health Administration. (Amounts are prorated for 10- and 11-month programs.)
Congressional Research Service
48
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-3. History of Aggregate Loan Limits for Stafford Loans and PLUS Loans,
by Borrower Type
Total Subsidized &
Subsidized
Unsubsidized
Borrower type and class level or
Stafford Loansa
Stafford Loansa
PLUS Loans
program
($)
($)
($)
Nov. 8, 1965-Feb. 28, 1973
Dependent undergraduate studentsb
In general
7,500
n.a.
n.a.
Independent undergraduate studentsb
In general
7,500
n.a.
n.a.
Graduate and professional students
In general
7,500
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Mar. 1, 1973-Sep. 30, 1976
Dependent undergraduate students
In general
7,500
n.a.
n.a.
Independent undergraduate students
In general
7,500
n.a.
n.a.
Graduate and professional students
In general
10,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Oct. 1, 1976-Sep. 30, 1980
Dependent undergraduate students
In general
7,500
n.a.
n.a.
Independent undergraduate students
In general
7,500
n.a.
n.a.
Graduate and professional students
In general
15,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
n.a.
Congressional Research Service
49
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized &
Subsidized
Unsubsidized
Borrower type and class level or
Stafford Loansa
Stafford Loansa
PLUS Loans
program
($)
($)
($)
Oct. 1, 1980-Sep. 30, 1981c
Dependent undergraduate students
In general
12,500
n.a.
n.a.
Independent undergraduate students
In general
15,000
n.a.
n.a.
Graduate and professional students
In general
25,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
15,000
Oct. 1, 1981-Dec. 31, 1986c
Dependent undergraduate students
In general
12,500
n.a.
n.a.
Independent undergraduate students
In general
12,500
n.a.
n.a.
Graduate and professional students
In general
25,000
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
15,000
Jan. 1, 1987-Sep. 30, 1992d
Dependent undergraduate students
In general
17,250
n.a.
n.a.
Independent undergraduate students
In general
17,250
n.a.
n.a.
Graduate and professional students
In general
54,750
n.a.
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
20,000
Oct. 1, 1992-June 30, 1993d
Dependent undergraduate students
In general
23,000
23,000
n.a.
Independent undergraduate students
In general
23,000
23,000
n.a.
Graduate and professional students
In general
65,500
65,500
n.a.
Congressional Research Service
50
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized &
Subsidized
Unsubsidized
Borrower type and class level or
Stafford Loansa
Stafford Loansa
PLUS Loans
program
($)
($)
($)
Parents of dependent undergraduate students
In general
n.a.
n.a.
20,000
July 1, 1993-June 30, 1994d
Dependent undergraduate students
In general
23,000
23,000
n.a.
Independent undergraduate students
In general
23,000
23,000
n.a.
Graduate and professional students
In general
65,500
65,500
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Not limited
July 1, 1994-June 30, 2007e
Dependent undergraduate students
In general
23,000
23,000
n.a.
Independent undergraduate students
In general
23,000
46,000
n.a.
Graduate and professional students
In general
65,500
138,500
n.a.
Health Professions
65,500
189,125
n.a.
Parents of dependent undergraduate students
In general
n.a.
n.a.
Not limited
July 1, 2007-June 30, 2008f
Dependent undergraduate students
In general
23,000
23,000
n.a.
Independent undergraduate students
In general
23,000
46,000
n.a.
Graduate and professional students
In general
65,000
138,500
Not limited
Health professions
65,000
189,125
Not limited
Parents of dependent undergraduate students
In general
n.a.
n.a.
Not limited
Congressional Research Service
51
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Total Subsidized &
Subsidized
Unsubsidized
Borrower type and class level or
Stafford Loansa
Stafford Loansa
PLUS Loans
program
($)
($)
($)
July 1, 2008-present
Dependent undergraduate students
In general
23,000
31,000
n.a.
Independent undergraduate students
In general
23,000
57,500
n.a.
Graduate and professional students
In general
65,500
138,500
Not limited
Health professions
65,500
224,000
Not limited
Parents of dependent undergraduate students
In general
n.a.
n.a.
Not limited
Source: HEA, §§428, 428A, 428B, and 428H; P.L. 89-329; P.L. 90-575; P.L. 92-318; P.L. 92-391; P.L. 94-482; P.L.
95-566; P.L. 96-374; P.L. 97-35; P.L. 99-498; P.L. 100-297; P.L. 102-325; P.L. 102-325; P.L. 103-66; P.L. 105-244;
P.L. 109-171; P.L. 110-227; Department of Education, Office of Postsecondary Education, Dear Colleague Letters
GEN-96-14; GEN-97-14, GEN-05-09, and GEN-08-04; 45 C.F.R. §177.14(a)(3) (1967 edition).
Note: ”n.a.” means not applicable
a. Subsidized Stafford Loans were referred to as Guaranteed Student Loans until July 1, 1988. Prior to
November 1, 1978, interest subsidies on Guaranteed Student Loans were available only borrowers whose
family income was below specified income ceilings. Effective November 1, 1978, income ceilings on
Guaranteed Student Loans were removed. In addition, since the enactment of the HEA in 1965, federal
student loans have been authorized under a parallel loan program, the Federally Insured Student Loan (FISL)
program. FISL program loans are not currently being made; however, during many periods throughout the
history of the program, FISL loan limits paralleled those for GSLs and Stafford Loans.
b. Undergraduate students first became categorized as either dependent or independent students effective
October 1, 1980.
c. From the period from January 1, 1981, to December 31, 1986, federal student loans were also available to
independent undergraduate and graduate and professional students under a separate loan program called
the Auxiliary Loans to Assist Students (ALAS) program. ALAS program loans had a career loan limit of
$12,500. This loan limit was separate from the limit on Guaranteed Student Loans.
d. For the period from January 1, 1987 to June 30, 1994, federal student loans were also available under a
separate loan program called the Supplemental Loans for Students (SLS) program. The aggregate loan limit
for SLS program loans was $20,000.
e. In accordance with authority provided the Secretary under P.L. 104-134, effective July 1, 1996, increased
Unsubsidized Stafford Loan borrowing limits were extended to students who became unable to borrow
under the Health Education Assistance Loan (HEAL) program. On December 1, 1997, aggregate loan limits
of $189,500 were established for borrowers enrolled in certain health professions programs.
f.
In accordance with authority provided the Secretary under P.L. 104-134, effective July 1, 1996, increased
Unsubsidized Stafford Loan borrowing limits were extended to students who became unable to borrow
under the Health Education Assistance Loan (HEAL) program. Effective April 14, 2008, aggregate loan limits
of $224,000 were established for borrowers enrolled in certain health professions programs.
Congressional Research Service
52
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-4. History of Stafford Loan Fixed Interest Rates and Variable Interest Rate
Formulas
Fixed Interest Rate or Variable Interest Rate
Formula in Effecta
Disbursement Period
Subsidized
Unsubsidized
Stafford Loans
Stafford Loansb
November 8, 1965-August 2, 1968
In general
6% fixed ratec n.a.
August 3, 1968-December 31, 1980
In general
7% fixed ratec n.a.
January 1, 1981-June 30, 1988
In general
9% or 8% fixed rated n.a.
July 1, 1988-September 30, 1992
First 48 months
8% fixed rate
8% fixed rate
Remaining payment period
10% fixed rate
10% fixed rate
October 1, 1992-June 30, 1994
In general
91-day T-bill + 3.1%
91-day T-bill + 3.1%
(capped at 9%)
(capped at 9%)
July 1, 1994-June 30, 1995
In general
91-day T-bill + 3.1%
91-day T-bill + 3.1%
(capped at 8.25%)
(capped at 8.25%)
July 1, 1995-June 30, 1998
In-school, grace, and deferment
91-day T-bill + 2.5%
91-day T-bill + 2.5%
periods
(capped at 8.25%)
(capped at 8.25%)
91-day T-bill + 3.1%
91-day T-bill + 3.1%
For repayment periods
(capped at 8.25%)
(capped at 8.25%)
July 1, 1998-June 30, 2006
In-school, grace, and deferment
91-day T-bill + 1.7%
91-day T-bill + 1.7%
periods
(capped at 8.25%)
(capped at 8.25%)
91-day T-bill + 2.3%
91-day T-bill + 2.3%
For repayment periods
(capped at 8.25%)
(capped at 8.25%)
July 1, 2006-June 30, 2008
In general
6.8% fixed rate
6.8% fixed rate
July 1, 2008-June 30, 2009
Undergraduate students
6.0% fixed rate
6.8% fixed rate
Graduate and professional students
6.8% fixed rate
6.8% fixed rate
Congressional Research Service
53
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Fixed Interest Rate or Variable Interest Rate
Formula in Effecta
Disbursement Period
Subsidized
Unsubsidized
Stafford Loans
Stafford Loansb
July 1, 2009-June 30, 2010
Undergraduate students
5.6% fixed rate
6.8% fixed rate
Graduate and professional students
6.8% fixed rate
6.8% fixed rate
July 1, 2010-June 30, 2011e
Undergraduate students
4.5% fixed rate
6.8% fixed rate
Graduate and professional students
6.8% fixed rate
6.8% fixed rate
July 1, 2011-June 30, 2012e
Undergraduate students
3.4% fixed rate
6.8% fixed rate
Graduate and professional students
6.8% fixed rate
6.8% fixed rate
On or after July 1, 2012e
Undergraduate students
6.8% fixed rate
6.8% fixed rate
Graduate and professional students
n.a.
6.8% fixed rate
Source: HEA §§427A, 428, and 455(b); (20 U.S.C. §§1077a, 1078 and 1087e(b)).
Note: “n.a.” means not applicable.
a. Interest rates shown are rates for new borrowers with no outstanding loan balance at the time of
disbursement. Prior to July 1, 1994, different procedures for determining interest rates applied to new
borrowers and existing borrowers.
b. Unsubsidized Stafford Loans first became available October 1, 1992.
c. For loans made prior to December 15, 1968, borrowers whose adjusted family income was less than
$15,000 at the time of disbursement were eligible to have 3 percentage points of their interest paid on their
behalf by the federal government.
d. During this period, loans to new borrowers were made at a 9% interest rate, unless for any 12-month
period beginning on or after January 1, 1981, the average bond equivalent rate of 91-day Treasury bills
auctioned during that 12-month period is less than 9%, in which case loans were made at an 8% interest
rate. (Also during this period, loans to existing borrowers of loans with interest rates that did not exceed
7% were made at a 7% interest rate.)
e. Effective July 1, 2010, Stafford Loans are only available through the DL program.
Congressional Research Service
54
Table B-5. Stafford Loan Interest Rates in Effect, by Borrower Cohort:
1992-1993 to 2012-2013
Interest Rate Period (July 1 to June 30)
Borrower Cohort and
Loan Description
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Nov. 8, 1965-Aug. 2, 1968
6%
loans
6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00
Aug. 3, 1968-Dec. 31, 1981
7%
loans
7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00
Converted 7% loansa
— 6.22 7.00 7.00 7.00 7.00 7.00 7.00 7.00 6.79 4.86 4.22 4.17 6.10 7.00 7.00 5.01 3.28 3.27 3.16 TBD
Jan. 1, 1981-June 30, 1998
9%
loans
9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00
Converted 9% loansa
— 6.22 7.43 8.92 8.26 8.26 8.26 7.72 8.99 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
8%
loans
8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00
Converted 8% loansa
— 6.22 7.43 8.00 8.00 8.00 8.00 7.72 8.00 6.79 4.86 4.22 4.17 6.10 7.94 8.00 5.01 3.28 3.27 3.16 TBD
July 1, 1988-Sep. 30, 1992
Converted 8/10% loans
1st
48
months
8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00
49th month & afterb
10.00 6.37 7.58 9.07 8.41 8.41 8.41 7.87 9.14 6.94 5.01 4.37 4.32 6.25 8.09 8.17 5.16 3.43 3.42 3.31 TBD
Converted 8/10% loansa
1st
48
months
— 6.22 7.43 8.00 8.00 8.00 8.00 7.72 8.00 6.79 4.86 4.22 4.17 6.10 7.94 8.00 5.01 3.28 3.27 3.16 TBD
49th
month
&
after
— — — — — 8.26 8.26 7.72 8.99 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
Oct. 1, 1992-June 30, 1994
91-day T-bill + 3.1%
6.94 6.22 7.43 8.92 8.26 8.26 8.26 7.72 8.99 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
(capped at 9%)
CRS-55
Interest Rate Period (July 1 to June 30)
Borrower Cohort and
Loan Description
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
July 1, 1994-June 30, 1995
91-day T-bill + 3.1%
— — 7.43 8.25 8.25 8.25 8.25 7.72 8.25 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
(capped at 8.25%)
July 1, 1995-June 30, 1998
In-school, grace, and deferment periods
91-day T-bill + 2.5%
— — — 8.25 7.66 7.66 7.66 7.12 8.25 6.19 4.26 3.62 3.57 5.50 7.34 7.42 4.41 2.68 2.67 2.56 TBD
(capped at 8.25%)
Repayment periods
91-day T-bill + 3.1%
— — — 8.25 8.25 8.25 8.25 7.72 8.25 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
(capped at 8.25%)
July 1, 1998-June 30, 2006
In-school, grace, and deferment periods
91-day T-bill + 1.7%
— — — — — — 6.86 6.32 7.59 5.39 3.46 2.82 2.77 4.70 6.54 6.62 3.61 1.88 1.87 1.76 TBD
(capped at 8.25%)
Repayment periods
91-day T-bill + 2.3%
— — — — — — 7.46 6.92 8.19 5.99 4.06 3.42 3.37 5.30 7.14 7.22 4.21 2.48 2.47 2.36 TBD
(capped at 8.25%)
July 1, 2006-June 30, 2008
All Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — 6.80
6.80
6.80
6.80
6.80
6.80
6.80
July 1, 2008-June 30, 2009
Subsidized Stafford Loans to Undergraduate Students
6.0%
loans
— — — — — — — — — — — — — — — — 6.00
6.00
6.00
6.00
6.00
All other Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — — — 6.80
6.80
6.80
6.80
6.80
CRS-56
Interest Rate Period (July 1 to June 30)
Borrower Cohort and
Loan Description
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
July 1, 2009-June 30, 2010
Subsidized Stafford Loans to Undergraduate Students
5.6%
loans
— — — — — — — — — — — — — — — — — 5.60
5.60
5.60
5.60
All other Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — — — — 6.80
6.80
6.80
6.80
July 1, 2010-June 30, 2011c
Subsidized Stafford Loans to Undergraduate Students
4.5%
loans
— — — — — — — — — — — — — — — — — — 4.50
4.50
4.50
All other Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — — — — — 6.80
6.80
6.80
July 1, 2011-June 30, 2012c
Subsidized Stafford Loans to Undergraduate Students
3.4%
loans
— — — — — — — — — — — — — — — — — — — 3.40
3.40
All other Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — — — — — — 6.80
6.80
On or after July 1, 2012c
All Stafford Loans
6.8%
loans
— — — — — — — — — — — — — — — — — — — — 6.80
Sources: U.S. Department of Education, Office of Federal Student Aid, FFEL historical Variable Interest rate Publications and historical Direct Loan Bulletins; and National
Council of Higher Education Loan Programs, “History of Variable Interest Rates-Non-Converted Stafford Loans,” and “History of Converted Stafford Loans Interest Rates.”
Note: “TBD” means to be determined at a future date.
a. Subsequent Stafford Loans disbursed on or after July 23, 1992.
b. These variable rates apply beginning with the 49th month of repayment.
c. Effective July 1, 2010, Stafford Loans are only available through the DL program.
CRS-57
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-6. History of PLUS Loan Fixed Interest Rates and
Variable Interest Rate Formulas
Disbursement Period
Fixed Interest Rate or Variable Interest
Rate Formula in Effect
January 1, 1981-September 30, 1981
In general
9% fixed rate
October 1, 1981-October 31, 1982
In general
14% fixed rate
November 1, 1982-June 30, 1987
In general
12% fixed rate
July 1, 1987-September 30, 1992
In general
52-week T-bill + 3.25%
(capped at 12%)a
October 1, 1992-June 30, 1994
In general
52-week T-bill + 3.1%
(capped at 10%)a
July 1, 1994-June 30, 1998
In general
52-week T-bill + 3.1%
(capped at 9%)a
July 1, 1998-June 30, 2006
In general
91-day T-bill + 3.1%
(capped at 9%)
On or after July 1, 2006
FFEL program loans
Loans disbursed through June 30, 2010
8.5% fixed rate
DL program loans
7.9% fixed rate
Source: HEA §§427A, and 455(b); (20 U.S.C. §§1077a, and 1087e(b)).
a. The Consolidated Appropriations Act for FY2001 (P.L. 106-554) includes an amendment to the HEA that
changed the index used in the formulas that determine interest rates for PLUS Loans disbursed between
July 1, 1987, and June 30, 1998. The amendment substituted the one-year constant maturity Treasury yield
for the 52-week Treasury bill. This change, which affects interest rate adjustments made for any 12-month
period beginning on or after July 1, 2001, became necessary because the Department of Treasury stopped
issuing 52-week Treasury bills.
Congressional Research Service
58
Table B-7. PLUS Loan Interest Rates in Effect, by Borrower Cohort: 1992-1993 to 2012-2013
Interest Rate Period (July 1 to June 30)
Borrower Cohort and
Loan Description
1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Jan. 1, 1981-Sep. 30, 1981
9%
loans
9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00 9.00
Oct. 1, 1981-Oct. 31, 1982
14%
loans
14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00
Nov. 1, 1982-June 30, 1987
12%
loans
12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00
July 1, 1987-Sep. 30, 1992
52-wk. T-bill + 3.25% 7.51 6.79 8.53 9.13 8.87 9.13 8.68 8.13 9.63 6.71 5.38 4.20 5.41 6.65 8.49 8.20 5.82 3.73 3.54 3.42 TBD
(capped at 12%)
Oct. 1, 1992-June 30, 1994
52-wk. T-bill + 3.1%
7.36 6.64 8.38 8.98 8.72 8.98 8.53 7.98 9.48 6.56 5.23 4.05 5.26 6.50 8.34 8.05 5.67 3.58 3.39 3.27 TBD
(capped at 10%)
July 1, 1994-June 30, 1998
52-wk. T-bill + 3.1%
— — 8.38 8.98 8.72 8.98 8.53 7.98 9.00 6.56 5.23 4.05 5.26 6.50 8.34 8.05 5.67 3.58 3.39 3.27 TBD
(capped at 9%)
July 1, 1998-June 30, 2006
91-day T-bill + 3.1%
— — — — — — 8.26 7.72 8.99 6.79 4.86 4.22 4.17 6.10 7.94 8.02 5.01 3.28 3.27 3.16 TBD
(capped at 9%)
On or after July 1, 2006
FFEL program: 8.5%a — — — — — — — — — — — — — — 8.50
8.50
8.50
8.50
8.50
8.50
8.50
DL
program:
7.9% — — — — — — — — — — — — — — 7.90
7.90
7.90
7.90
7.90
7.90
7.90
Sources: U.S. Department of Education, Office of Federal Student Aid, FFEL historical Variable Interest rate Publications and historical Direct Loan Bulletins; and National
Council of Higher Education Loan Programs, “History of Variable Interest Rates-PLUS Loans.”
Notes: “TBD” means to be determined at a future date.
a. PLUS Loans disbursed through June 30, 2010.
CRS-59
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-8. History of Borrower Fees on Stafford Loans and PLUS Loans
FFEL Program Loans
DL Program Loans
Disbursement Period
Stafford Loans
PLUS Loans
Stafford Loans
PLUS Loans
(%)
(%)
(%)
(%)
Nov. 8, 1965-Aug. 13, 1975
Origination Fee (%)
0.0
n.a.
n.a.
n.a.
Default Fee (%)a
Up to 0.5% per
n.a. n.a. n.a.
year of unpaid
principal balance
Aug. 14, 1975-Aug. 23, 1981
Origination Fee (%)
0.0
n.a.
n.a.
n.a.
Default Fee (%)a
Up to 1% per
n.a. n.a. n.a.
year until loan
enters
repayment
Aug. 23, 1981-June 30, 1987
Origination Fee (%)
5.0b n.a. n.a. n.a.
Default Fee (%)a
Up to 1% per
n.a. n.a. n.a.
year until loan
enters
repayment
July 1, 1987-Sep. 30, 1992
Origination Fee (%)
5.0b 5.0 n.a. n.a.
Default Fee (%)a 3.0
3.0
n.a.
n.a.
Oct. 1, 1992-June 30, 1994
Origination Fee (%)
Sub Stafford
5.0
n.a.
n.a.
n.a.
Unsub. Stafford
6.5c n.a. n.a. n.a.
PLUS n.a.
5.0
n.a.
n.a.
Default Fee (%)a
Sub Stafford
3.0
n.a.
n.a.
n.a.
Unsub. Stafford
0.0b n.a. n.a. n.a.
PLUS n.a.
3.0
n.a.
n.a.
July 1, 1994-June 30, 2006
Origination Fee (%)
3.0
3.0
4.0
4.0
Default Fee (%)a 1.0
1.0
n.a.
n.a.
July 1, 2006-June 30, 2007
Origination Fee (%)
2.0
3.0
3.0
4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
Congressional Research Service
60
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
FFEL Program Loans
DL Program Loans
Disbursement Period
Stafford Loans
PLUS Loans
Stafford Loans
PLUS Loans
(%)
(%)
(%)
(%)
July 1, 2007-June 30, 2008
Origination Fee (%)
1.5
3.0
2.5
4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
July 1, 2008-June 30, 2009
Origination Fee (%)
1.0
3.0
2.0
4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
July 1, 2009-June 30, 2010
Origination Fee (%)
0.5
3.0
1.5
4.0
Default Fee (%)
1.0
1.0
n.a.
n.a.
On or after July 1, 2010
Origination Fee (%)
n.a.
n.a.
1.0
4.0
Default Fee (%)
n.a.
n.a.
n.a.
n.a.
Source: HEA, §§428(b), 438(c), and 455(c); P.L. 89-329; P.L. 97-35; P.L. 99-498; P.L. 102-325; P.L. 103-66; P.L.
109-171; P.L. 110-227; 45 C.F.R. §177.12 (1967 through 1975 editions).
Notes: “n.a.” means not applicable.
a. Prior to July 1, 2006, the default fee was referred to as an insurance premium.
b. Pursuant to P.L. 99-177, the Balanced Budget and Emergency Deficit Control Act of 1985, origination fees
were increased by 0.5% to 5.5% for loans disbursed between March 1, 1986, and September 30, 1986, and
again between October 1, 1989, and December 31, 1989.
c. During the period from October 1, 1992, through June 30, 1994, the combined origination fee and
insurance premium (default fee) on Unsubsidized Stafford Loans was 6.5%.
Congressional Research Service
61
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Table B-9. History of Consolidation Loan Interest Rate Formulas
Disbursement Period
Consolidation Loan Interest Rate
and Loan Program
Formula in Effect
October 17, 1986-June 30, 1994
FFEL program
Fixed rate:
the greater of the weighted average of interest rates on the
loans consolidated, rounded to the nearest whole percent,
or 9%
DL program
n.a.
July 1, 1994-June 30, 1995
FFEL program
Fixed rate:
the weighted average of the interest rates on the loans
consolidated, rounded upward to the nearest whole percent
DL program
Direct Stafford Consolidations
Variable rate:
91-day T-bill + 3.1% (capped at 8.25%)
Direct PLUS Consolidations
Variable rate:
52-week T-bill + 3.1% (capped at 9%)a
July 1, 1995-November 12, 1997
FFEL program
Fixed rate:
the weighted average of the interest rates on the loans
consolidated, rounded upward to the nearest whole percent
DL program
Stafford Consolidation Loans
Variable rate:
In-school, grace, and deferment periods
91-day T-bill + 2.5%
(capped at 8.25%)
Repayment periods
91-day T-bill + 3.1%
(capped at 8.25%)
PLUS Consolidation Loans
Variable rate:
52-week T-bill + 3.1% (capped at 9%)a
November 13, 1997-June 30, 1998
FFEL program
Variable rate:
91-day T-bill + 3.1% (capped at 8.25%)b
DL program
Stafford Consolidation Loans
Variable rate:
In-school, grace, and deferment periods
91-day T-bill + 2.5%
(capped at 8.25%)
Repayment periods
91-day T-bill + 3.1%
(capped at 8.25%)
PLUS Consolidation Loans
Variable rate:
52-week T-bill + 3.1% (capped at 9%)a
Congressional Research Service
62
Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Disbursement Period
Consolidation Loan Interest Rate
and Loan Program
Formula in Effect
July 1, 1998-September 30, 1998
FFEL program
Variable rate:
91-day T-bill + 3.1% (capped at 8.25%)b
DL program
Stafford Consolidation Loans
Variable rate:
In-school, grace, and deferment periods
91-day T-bill + 1.7%
(capped at 8.25%)
Repayment periods
91-day T-bill + 2.3%
(capped at 8.25%)
PLUS Consolidation Loans
Variable rate:
52-week T-bill + 3.1% (capped at 9%)a
October 1, 1998-present
FFEL program
Loans disbursed through 6/30/2010
Fixed rate:
the weighted average of interest rates on the loans
consolidated, rounded to the nearest higher one-eighth of
1% (capped at 8.25%)b
DL program
Applications received 10/1/98 to 1/31/99
Variable Rate:
91-day T-bill + 2.3% (capped at 8.25%)
Applications received on or after 2/1/1999
Fixed rate:
the weighted average of the interest rates on the loans
consolidated, rounded to the nearest higher one-eighth of
1% (capped at 8.25%)
Source: HEA §§427A (20 U.S.C. §1077a), 428C (20 U.S.C. §1078-3), 455(b) (20 U.S.C. §1087e(b)); and 34 C.F.R.
§685.202(a)(3).
Note: “n.a.” means not applicable.
a. For outstanding Federal Direct PLUS Consolidation Loans with rate setting formulas tied to the 52-week
Treasury bill, for periods beginning July 1, 2001, the average weekly one-year constant maturity Treasury
yield was substituted for the bond equivalent rate of 52-week Treasury bills. This change became necessary
because the Department of Treasury decided to stop issuing 52-week Treasury bills.
b. The interest rate applicable to the portion of an FFEL program Consolidation Loan represented by a HEAL
loan(s) is the average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter
prior to July 1, plus 3 percentage points, with no cap.
Congressional Research Service
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Federal Student Loans Made Under the FFEL and DL Programs: Terms and Conditions
Author Contact Information
David P. Smole
Specialist in Education Policy
dsmole@crs.loc.gov, 7-0624
Acknowledgments
This report is adapted from CRS Report RL33673, Federal Family Education Loan Program and William
D. Ford Direct Loan Program Student Loans: Terms and Conditions for Borrowers, by Adam Stoll.
Congressional Research Service
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