Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers

Updated October 15, 2024

Congressional Research Service

https://crsreports.congress.gov

R45931

Congressional Research Service

SUMMARY

Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers

The William D. Ford Federal Direct Loan (Direct Loan) program is the single largest source of federal financial assistance to support students’ postsecondary educational pursuits. The U.S. Department of Education estimates that in FY2025, $93.1 billion in new loans will be made through the program. As of the end of the third quarter of FY2024, $1.4 trillion in principal and interest on Direct Loan program loans, borrowed by or on behalf of 37.5 million individuals, remained outstanding.

For many individuals, borrowing a federal student loan through the Direct Loan program may be among their first experiences in incurring a major financial obligation. Upon obtaining a loan, a borrower assumes a contractual obligation to repay the debt over a period that may span a decade or more.

Loans were first made through the Direct Loan program in 1994. Since then, Congress has periodically made changes to the program and the terms and conditions of loans. Changes have impacted program aspects such as the availability of loan types, interest rates, loan repayment, loan discharge and forgiveness, and the consequences of default. Over time, the accumulation of changes—many of which are differentially applicable to borrowers or loan types—has resulted in a set of loan terms and conditions that are voluminous and complex. Congress may contemplate making future changes to loan terms and conditions.

This report has been prepared to provide Congress with a comprehensive description of the terms and conditions and borrower benefits that are applicable to loans made through the Direct Loan program. Emphasis is placed on discussing loan types, provisions related to borrower eligibility, amounts that may be borrowed, interest and fees, loan repayment, repayment relief, loan forgiveness benefits, the consequences of default, and the methods used to ensure borrowers are informed about the terms and conditions of their loans and their obligation to repay them.

Direct Loan Types

Four types of loans are available through the Direct Loan program. Direct Subsidized Loans are available only to undergraduate students with financial need. Direct Unsubsidized Loans are available both to undergraduate students and graduate students. Direct PLUS Loans may be borrowed by graduate students and by the parents of undergraduate students dependent on them for financial support. Direct Consolidation Loans allow borrowers to combine debt from multiple existing federal student loans into a single new loan.

Eligibility and Amounts That May Be Borrowed

Whether an individual may borrow a loan, and the amount they may borrow, are determined by the interaction of many factors. Eligibility to borrow varies by loan type, borrower characteristics, program level, and class level. The amount an individual may borrow is subject to annual and aggregate borrowing limits, and federal need analysis and packaging procedures. Loans are made available in amounts constrained by program rules, but—with the exception of Direct PLUS Loans—without consideration of a borrower’s ability to repay. Eligibility to borrow a Direct PLUS Loan depends on an individual’s creditworthiness.

Interest on Direct Loan Program Loans

Procedures for calculating interest vary by loan type, repayment status, and the period during which a loan was made. In limited circumstances, the federal government subsidizes, or does not charge, interest that would otherwise accrue. Interest subsidies are mostly limited to Direct Subsidized Loans; however, certain interest subsidies may be provided on all loan types.

Loan Repayment Plans

Numerous repayment plans, each with different payment structures and maximum durations, are available. Among the various plans, income-driven repayment (IDR) plans cap monthly payments at a specific percentage of a borrower’s

R45931

October 15, 2024

Alexandra Hegji Specialist in Social Policy

Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program

Congressional Research Service

discretionary income. For most repayment plans, monthly payments must cover the interest that accrues; however, the IDR plans allow for negative amortization, in which case monthly payments may be for less than the interest that accrues.

Deferment and Forbearance

Periods of deferment and forbearance offer a borrower temporary relief from the obligation to make monthly payments. In certain instances, interest subsidies may be provided during periods of deferment; however, with limited exceptions, interest subsidies are not available during periods of forbearance.

Loan Discharge and Loan Forgiveness

A borrower may be relieved of the obligation to repay their loans in certain circumstances. Student loan debt may be discharged on the basis of borrower adversity (e.g., death, total and permanent disability, school closure) or may be forgiven following an extended period of repayment according to an IDR plan or completion of a period of public service.

Loan Default, Its Consequences, and Resolution

If a borrower defaults, the loan becomes due in full and the borrower loses eligibility for many benefits, as well as access to other forms of federal student aid. The government also uses numerous means to collect on defaulted student loan debt. A limited set of options is available for a borrower to bring a defaulted loan back into good standing.

Loan Counseling and Disclosures

Student borrowers must undergo financial counseling, which is designed to provide them with comprehensive information on the terms and conditions of their loans as well as the rights and the responsibilities they assume as borrowers. Loan terms and conditions are specified in a promissory note, which is a contract that establishes the borrower’s obligation to repay the loan, and in a plain language disclosure document that uses simplified terms to explain a loan’s terms and conditions and the borrower’s rights and responsibilities.

Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program

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Contents

Introduction ..................................................................................................................................... 1 Background on the Direct Loan Program ........................................................................................ 2

Direct Loan Types ........................................................................................................................... 4 Eligibility and Amounts That May Be Borrowed ............................................................................ 6

Factors Affecting Eligibility to Borrow..................................................................................... 6

General Student-Based Eligibility Criteria ......................................................................... 6 Student Dependency Status ................................................................................................. 7

Program Level ..................................................................................................................... 8

Undergraduate Class Level ................................................................................................. 9 Financial Need .................................................................................................................... 9 Eligibility Requirements for Direct PLUS Loans ............................................................. 10 Eligibility Requirements for Direct Consolidation Loans ................................................. 11

Amounts That May Be Borrowed ........................................................................................... 14

Annual Loan Limits .......................................................................................................... 14 Aggregate Loan Limits ..................................................................................................... 14 Limits on Borrowing Determined by Need Analysis and Packaging ............................... 16

Interest on Direct Loan Program Loans ........................................................................................ 19

Interest Rates ........................................................................................................................... 19

Procedures for Setting Student Loan Interest Rates .......................................................... 19

Interest Accrual ....................................................................................................................... 22 Subsidized Interest .................................................................................................................. 23

Interest Subsidy on Direct Subsidized Loans ................................................................... 23 Interest Rate Reduction for Automatic Debit Repayment................................................. 24 Interest Subsidies on Eligible Loans Repaid According to Certain Income-Driven

Repayment (IDR) Plans During Negative Amortization ............................................... 24

No Accrual of Interest on Loans of Certain Active Duty Servicemembers ...................... 25 SCRA 6% Interest Rate Cap on Loans of Borrowers Who Enter Military Service .......... 25 Interest Subsidy on All Loan Types During Cancer Treatment Deferment ...................... 26

Deferred Payment of Accrued Interest .................................................................................... 26

Negative Amortization ...................................................................................................... 27

Interest Capitalization ............................................................................................................. 27

Loan Origination Fees ................................................................................................................... 27 Loan Repayment ............................................................................................................................ 28

Grace Period ............................................................................................................................ 29

Loan Repayment Period .......................................................................................................... 29

Loan Repayment Plans ............................................................................................................ 30

Fixed Repayment Plans..................................................................................................... 39 Income-Driven Repayment (IDR) Plans ........................................................................... 42

Prepayment .............................................................................................................................. 61

Application of Payments on Delinquent Loans ....................................................................... 63

Deferment and Forbearance .......................................................................................................... 63

Deferments .............................................................................................................................. 63

In-School Deferment ......................................................................................................... 64

Graduate Fellowship Deferment ....................................................................................... 65 Rehabilitation Training Program Deferment ..................................................................... 65

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Unemployment Deferment ................................................................................................ 66

Economic Hardship Deferment ......................................................................................... 66

Military Service Deferment .............................................................................................. 67 Post-Active Duty Student Deferment ............................................................................... 67 Cancer Treatment Deferment ............................................................................................ 67

Dislocated Military Spouse Deferment ............................................................................. 68

Forbearance ............................................................................................................................. 68

General (Discretionary) Forbearance ................................................................................ 69

Mandatory Forbearance .................................................................................................... 69 Administrative Forbearance .............................................................................................. 71

Forbearance to Permit Borrower to Resume Honoring an Agreement to Repay a

Defaulted Loan .............................................................................................................. 72

Loan Discharge and Loan Forgiveness.......................................................................................... 73

Loan Discharge for Borrower Adversity ................................................................................. 73

Discharge Due to Death .................................................................................................... 73 Total and Permanent Disability Discharge ........................................................................ 74

Closed School Discharge .................................................................................................. 75 False Certification and Unauthorized Payment Discharges .............................................. 77

Unpaid Refund Discharge ................................................................................................. 78

Borrower Defense to Repayment Discharge ..................................................................... 78

Bankruptcy Discharge ....................................................................................................... 80

Loan Forgiveness Following IDR Plan Repayment ................................................................ 80

Loan Forgiveness for Public Service....................................................................................... 81

Teacher Loan Forgiveness Program .................................................................................. 81

Public Service Loan Forgiveness (PSLF) Program .......................................................... 82

Tax Treatment of Discharged and Forgiven Debt ................................................................... 85

Loan Default, Its Consequences, and Resolution .......................................................................... 87

Consequences of Default for Borrowers ................................................................................. 87 Resolution of Default .............................................................................................................. 90

Loan Rehabilitation ........................................................................................................... 90

Loan Consolidation ........................................................................................................... 92

Calculated $0 Monthly Payment under an IDR Plan ........................................................ 93

Loan Counseling and Disclosures ................................................................................................. 93

Entrance Counseling ............................................................................................................... 94 PLUS Loan Credit Counseling For Borrowers with Adverse Credit ...................................... 95 Master Promissory Note and Plain Language Disclosure ....................................................... 95 Exit Counseling ....................................................................................................................... 96

Additional Information on Loan Terms and Conditions ......................................................... 97

Figures

Figure 1. Direct Loan Repayment Plan ......................................................................................... 31

Tables

Table 1. Annual and Aggregate Loan Limits, by Borrower Type and Program Level: July

1, 2012, to Present ...................................................................................................................... 15

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Table 2. Interest Rates on Loans Made Through the Direct Loan Program: July 1, 2023,

through June 30, 2024, and July 1, 2024, through June 30, 2025 .............................................. 22

Table 3. Origination Fees on Loans Made Through the Direct Loan Program, FY2024 and

FY2025 ....................................................................................................................................... 28

Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to

Borrowers: Fixed Repayment Plans, Income-Driven Repayment Plans, and Alternative Repayment Plans ........................................................................................................................ 33

Table 5. Repayment Periods: Standard Repayment Plan (34 C.F.R. §685.208(c)) and

Graduated Repayment Plan (34 C.F.R. §685.208(h))................................................................. 39

Table 6. Repayment Periods: Extended Repayment Plan (34 C.F.R. §685.208(d)) and

Graduated Repayment Plan (34 C.F.R. §685.208(f)) ................................................................. 40

Table 7. 2024 Poverty Guidelines for the 48 Contiguous States and the

District of Columbia ................................................................................................................... 43

Table 8. SAVE Repayment Plan Maximum Repayment Periods and

Monthly Payment Numbers ....................................................................................................... 55

Table 9. Maximum Repayment Period and Equivalent Number of Monthly Payments ............... 81

Table C-1. History of Annual and Aggregate Loan Limits for Direct Loan Program

Loans, by Borrower Type and Academic Level ....................................................................... 103

Table C-2. History of Interest Rate Formulas for Direct Subsidized Loans, Direct

Unsubsidized Loans, and Direct PLUS Loans ......................................................................... 108

Table C-3. History of Interest Rate Formulas for Direct Consolidation Loans ............................ 110

Table C-4. History of Interest Rates in Effect for Direct Loan Program Loans ........................... 111

Table C-5. History of Direct Loan Origination Fees ................................................................... 122

Appendixes

Appendix A. Directory of Resources ............................................................................................. 98

Appendix B. Glossary of Terms .................................................................................................... 99 Appendix C. Historical Tables on Selected Loan Terms and Conditions .................................... 103

Appendix D. COVID-19 Flexibilities ......................................................................................... 123

Contacts

Author Information ...................................................................................................................... 128

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Introduction

The William D. Ford Federal Direct Loan (Direct Loan) program makes several types of federal student loans available to individuals to assist them with financing postsecondary education expenses. It represents the single largest source of federal financial assistance to support students’ postsecondary educational pursuits. The U.S. Department of Education (ED) estimates that in FY2025, 14.9 million new loans totaling $93.1 billion, will be made through the Direct Loan program to undergraduate and graduate students, and to the parents of undergraduate students.¹ In addition, ED estimates that 875,000 Direct Consolidation Loans,² totaling $41.5 billion, will be made to existing borrowers of federal student loans.³ As of the end of the third quarter of FY2024, $1.4 trillion in principal and interest on Direct Loan program loans (including Direct Consolidation Loans), borrowed by or on behalf of 37.5 million individuals, remained outstanding.⁴

This report presents a comprehensive overview of the terms and conditions that apply to federal student loans made through the Direct Loan program.⁵ It begins by providing background information on the history of the Direct Loan program. This is followed by a brief description of the various types of loans that are offered through the program. The report then presents a thorough description of the terms and conditions for loans made through the Direct Loan program. In identifying and describing loan terms and conditions, it focuses on provisions that are generally applicable to loans regardless of special circumstances (e.g., not temporarily in place due to a national emergency) and applicable to loans that are currently being made or that have been made in recent years. Emphasis is placed on discussing Direct Loan program provisions that relate to borrower eligibility, amounts that may be borrowed, interest rates and fees, procedures for loan repayment, repayment relief, the availability of loan discharge and loan forgiveness benefits, and the consequences of defaulting. The final section of the report provides a summary of the methods that are used to ensure that borrowers are informed about the terms and conditions of the loans they obtain and their obligation to repay them.

1 U.S. Department of Education, FY2025 Justification of Appropriation Estimates to the Congress, Volume II, “Student Loans Overview,” p. 25, https://www.ed.gov/sites/ed/files/about/overview/budget/budget25/justifications/t- sloverview.pdf. In some instances, more than one loan will be borrowed by a student or on the student’s behalf.

2 Direct Consolidation Loans allow individuals who have at least one loan borrowed through either the Direct Loan program or the Federal Family Education Loan program to refinance their eligible federal student loan debt by borrowing a new loan and using the proceeds to pay off their existing federal student loan obligations.

3 U.S. Department of Education, FY2025 Justification of Appropriation Estimates to the Congress, Volume II, “Student Loans Overview,” p. 25, https://www.ed.gov/sites/ed/files/about/overview/budget/budget25/justifications/t- sloverview.pdf.

4 U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Federal Student Aid Portfolio Summary,” FY2024 Q3, https://studentaid.gov/sa/sites/default/files/fsawg/datacenter/library/ PortfolioSummary.xls.

5 This report focuses on describing the terms and conditions of federal student loans made through the Direct Loan program as specified by the Higher Education Act of 1965 (HEA) and other laws and their implementing regulations. In addition to the generally applicable loan terms and conditions that are summarized in this report, the Higher Education Relief Opportunities for Students (HEROES) Act authorizes a number of waivers and regulatory flexibilities that may be used to extend benefits to certain classes of borrowers. The waivers and flexibilities made available by the HEROES Act are beyond the scope of this report. For additional information, see CRS Report R42881, Education- Related Regulatory Flexibilities, Waivers, and Federal Assistance in Response to Disasters and National Emergencies. Additionally, in response to the current COVID-19 pandemic, Congress and the Administration provided additional student loan relief measures to Direct Loan program borrowers. These measures are briefly described in Appendix D. For additional information, see CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.

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

Appendix A to this report contains a directory of resources on topics relating to loans made through the Direct Loan program. Appendix B consists of a glossary of terms.⁶ Appendix C contains a set of tables that present historical information on borrowing limits, interest rates, and fees that have applied to loans made through the Direct Loan program. Appendix D briefly describes temporary Direct Loan program flexibilities and debt relief that were made available to borrowers in light of the COVID-19 pandemic.

Background on the Direct Loan Program

The Direct Loan program is authorized under Title IV, Part D of the Higher Education Act of 1965 (HEA; P.L. 89-329 , as amended). It was established by the Student Loan Reform Act of 1993 (SLRA), Title IV of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).⁷ Federal student loans were first made through the Direct Loan program in 1994.

In the Direct Loan program, loans are made by the government using federal capital (i.e., funds from the U.S. Treasury), and once made, outstanding loans constitute an asset of the federal government. Some important characteristics of loans made through the Direct Loan program are that the federal government assumes the risk for losses that may occur as a result of borrower default, and that it pays for the discharge of loans in cases of borrower death, total and permanent disability, and other instances. The federal government also assumes the cost of loans that are not required to be paid in full due to borrowers satisfying criteria that make them eligible to have a portion or all of the balance of their loans discharged under any of several loan forgiveness programs. For federal budgeting purposes, the program is classified as a direct loan program, which is a type of federal credit program for which mandatory spending authority is provided.⁸

ED’s Office of Federal Student Aid (FSA) is the primary entity tasked with administering the Direct Loan program. The institutions of higher education (IHEs) that participate in the Direct Loan program originate loans to borrowers through FSA’s Common Origination and Disbursement (COD) system. Contractors hired by ED service and collect on the program’s loans.⁹

When the Direct Loan program was first established, it was intended to expand gradually and then ultimately fully replace the Federal Family Education Loan (FFEL) program, a guaranteed

6 In the process of describing loans made through the Direct Loan program, numerous terms with precise meanings are used. When some of these terms are introduced, it is not always practical to fully describe or define the term, as a subsequent section in the report may be better suited to providing a detailed description. Definitions for selected terms are presented in the Glossary in Appendix B.

7 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 Direct Loan program that was enacted under P.L. 103-66.

8 Federal credit may be extended in the form of a direct loan or a loan guarantee. For additional information, see CRS Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for Congress.

9 For more detailed information on the administration of the Direct Loan program, see CRS Report R44845, Administration of the William D. Ford Federal Direct Loan Program.

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student loan program authorized under Title IV, Part B of the HEA, and through which most federal student loans were being made.¹⁰ The FFEL program had descended from the Guaranteed Student Loan (GSL) program, which was enacted under Title IV of the HEA in 1965 to enhance access to postsecondary education for students from low- and middle-income families by providing them access to low-interest federal student loans. In the FFEL program, loan capital was provided by private lenders who also originated and serviced loans. The federal government guaranteed lenders against loss due to factors such as borrower default, death, total and permanent disability, and in certain instances, bankruptcy. State and nonprofit guaranty agencies administered the federal guarantee. The federal government was also responsible for making several different types of payments to lenders and guaranty agencies to support the operation of the program. The FFEL program was administratively complex and the Direct Loan program was established with the aims of streamlining the federal student loan delivery system and achieving cost savings.¹¹

Several years into the implementation of the Direct Loan program, the Higher Education Amendments of 1998 (P.L. 105-244) repealed statutory provisions specifying that it ultimately succeed the FFEL program.¹² From 1994 to 2010, the Direct Loan program and the FFEL program operated side-by-side. During this period, IHEs could elect to participate in the program of their choice. As this decision was made at the institutional level, the program through which an individual could borrow federal student loans was dependent upon the program participation decisions made by the institution a student attended.

During the period while loans were being made through both the FFEL and Direct Loan programs, from the perspective of the borrower, the terms and conditions of loans offered through the programs were similar in most respects. However, the degree of similarity varied over time. Notable differences included certain characteristics of the repayment plans offered and, beginning in 2008, the availability of the Public Service Loan Forgiveness (PSLF) program only to borrowers of loans made through the Direct Loan program.¹³

The SAFRA Act, Title II of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152) terminated the authority to make loans through the FFEL program, effective July 1,

10 At the time the Direct Loan program was established, federal student loans were also being made through the Federal Perkins Loan program, authorized by HEA, Title IV, Part E, and through several smaller health education loan programs authorized under the Public Health Services Act (PHSA). These other loan programs are beyond the scope of this report. For additional information on the loan programs authorized under the PHSA, see CRS Report R46720, Student Loan Programs Authorized by the Public Health Service Act: An Overview.

11 See CRS Report 95-110 EPW, The Federal Direct Student Loan Program, October 16, 1996 (available to congressional clients upon request).

12 During the early years of implementation of the Direct Loan program, concerns were raised about the capacity of ED to transition from overseeing lending through the FFEL guaranteed loan program to lending completely through the Direct Loan program. For additional information, see U.S. Congress, Senate Committee on Labor and Human Resources, Subcommittee on Education, Arts and Humanities, Oversight of the Direct Student Loan Program, 104^th Cong., 1^st sess., March 30, 1995, S.Hrg. 104-28 (Washington, DC: GPO, 1995).

13 When the PSLF program was enacted, it was made available only through the Direct Loan program, with the expectation that it would encourage increased borrowing through the Direct Loan program at the expense of the FFEL program. The legislative history of the College Cost Reduction and Access Act of 2008 (CCRAA; P.L. 110-84) shows that when the establishment of a program of “loan forgiveness for certain public service jobs” was approved in the House-passed version of H.R. 2669, it was estimated that the costs of establishing such a program would be offset with savings that would result from borrowers switching from the FFEL program to the Direct Loan program for purposes of taking advantage of loan forgiveness benefits. U.S. Congress, House Committee on Education and Labor, College Cost Reduction Act of 2007, H.R. 2669, 110^th Cong., 1^st sess., June 25, 2007, H.Rept. 110-210 (Washington, DC: GPO, 2007), pp. 71-72.

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2010.¹⁴ While loans are no longer being made through the FFEL program, as of the end of the third quarter of FY2024, $169 billion in principal and interest on FFEL program loans, borrowed by or on behalf of 7.5 million students, remained outstanding and due to be repaid over the coming years.¹⁵

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

Direct Loan Types

Individuals currently may borrow the following types of loans through the Direct Loan program:

• Direct Subsidized Loans. These loans are available only to undergraduate students¹⁶ who demonstrate financial need. Direct Subsidized Loans are characterized by having an interest subsidy (i.e., interest that is not charged, or is only partially charged) that applies during an in-school period when a borrower is enrolled in an eligible program on at least a half-time basis, during a six-month grace period that borrowers receive prior to entering repayment on their loans, during periods of authorized deferment, and during certain other periods. The Direct Subsidized Loans currently being made have a fixed interest rate that remains constant for the duration of the loan.¹⁷

• Direct Unsubsidized Loans. These loans are available to undergraduate students, graduate students, and professional students, without regard to the student’s financial need. Direct Unsubsidized Loans generally do not have an interest subsidy. The Direct Unsubsidized Loans currently being made have a fixed interest rate that remains constant for the duration of the loan. The interest rate on loans made to graduate and professional students is higher than the rate on loans made to undergraduate students.

• Direct PLUS Loans. These loans are available to graduate and professional students, and to the parents of undergraduate students who are dependent on them for financial support. They are available without regard to financial need and generally do not have an interest subsidy. The Direct PLUS Loans currently being made have a fixed interest rate, which remains constant for the duration of

14 For additional information on changes made to the FFEL and Direct Loan programs by the SAFRA Act, see CRS Report R41127, The SAFRA Act: Education Programs in the FY2010 Budget Reconciliation (available to congressional clients upon request).

15 U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Federal Student Aid Portfolio Summary,” FY2024 Q2, https://studentaid.gov/sites/default/files/fsawg/datacenter/library/ PortfolioSummary.xls.

16 Direct Subsidized Loans were once available to graduate and professional students for periods of instruction beginning prior to July 1, 2012. The Budget Control Act of 2011 (BCA; P.L. 112-25) eliminated the availability of Direct Subsidized Loans to graduate and professional students for periods of instruction beginning on or after July 1, 2012.

17 Procedures for setting interest rates on Direct Loan program loans have varied over the years, as specified in statute. At some points in time, Direct Loan program loans have been made with variable interest rates, while at other points in time, they have been made with fixed interest rates. See “Procedures for Setting Student Loan Interest Rates” for additional information.

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the loan; and the interest rate is higher than the rate on both Direct Subsidized Loans and Direct Unsubsidized Loans.

• Direct Consolidation Loans.¹⁸ These loans allow individuals who have at least one loan borrowed through either the Direct Loan program or the FFEL program to borrow a new loan and use the proceeds to pay off their existing federal student loan obligations, including loans that are in default. This is essentially a form of debt refinancing. Direct Consolidation Loans are available without regard to financial need. The Direct Consolidation Loans currently being made have fixed interest rates. In general, the interest rate for a Direct Consolidation Loan is determined by calculating the weighted average of the interest rates on the loans that are consolidated, and rounding the result up to the next higher one- eighth of a percentage point. For a Direct Consolidation Loan that was the result of the separation of a Joint Consolidation Loan (JCL), the interest rate is equal to the interest rate on the JCL as of the date before the separation of the JCL.¹⁹ Typically, when an individual obtains a Direct Consolidation Loan, a new repayment period begins, which may be for a longer period than applied to the loans originally borrowed.²⁰ A Direct Consolidation Loan may have a subsidized component²¹ and an unsubsidized component.²²

18 A number of variations of Direct Consolidation Loans were once available. Married individuals who both had federal student loans were once able to obtain Joint Direct Consolidation Loans for purposes of repaying their combined student loan debt. Borrowers of these loans became jointly and severally liable for the debt—even in the event of divorce. The authority to make new Joint Direct Consolidation Loans was repealed effective July 1, 2006, under the Higher Education Reconciliation Act of 2005 (HERA; P.L. 109-171). Also, Special Direct Consolidation Loans were available during a limited period from January 17, 2012, through June 30, 2012, to borrowers who had both (1) one or more student loans made through the FFEL program and held by a commercial lender, and (2) one or more loans made through either the Direct Loan program or made through the FFEL program and held by ED. Eligible borrowers were afforded the opportunity to 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 were available to borrowers who consolidated their loans under this program. U.S. Department of Education, Office of Postsecondary Education, “Special Direct Consolidation Loan Information - Short-Term Consolidation Opportunity Offered from January - June 30, 2012,” October 26, 2011, https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2011-10-26/loans-subject-special-direct- consolidation-loan-information-short-term-consolidation-opportunity-offered-january-june-30-2012.

19 HEA §455(g)(2)(B)(i)(II). Prior to October 11, 2022, a JCL could not be separated, even if the individuals who borrowed the loan were no longer married. The Joint Consolidation Loan Separation Act (P.L. 117-200) authorized borrowers of JCLs to separate those loans into two new Direct Consolidation Loans, one for each borrower of the JCL. Beginning September 30, 2024, borrowers may apply to separate their JCLs into separate Direct Consolidation Loans. U.S. Department of Education, “Update on Implementation of the Joint Consolidation Loan Separation Act for FFEL Loan Holders and Servicers,” Electronic Announcement, LOANS-24-10, October 1, 2024, https://fsapartners.ed.gov/ knowledge-center/library/electronic-announcements/2024-10-01/update-implementation-joint-consolidation-loan- separation-act-ffel-loan-holders-and-servicers.

20 Loan consolidation is essentially a form of debt refinancing. Under current law, borrowers may use the proceeds of a Direct Consolidation Loan to pay off debt owed on one or more previously borrowed federal student loans and to begin a new repayment period of up to 30 years. Doing so may allow borrowers to lower their required monthly payment amount. Borrowers may not, however, obtain a lower interest rate on their federal student loan debt as a result of loan consolidation.

21 The subsidized component of a Direct Consolidation Loan (also referred to as a Direct Subsidized Consolidation Loan) is the portion of a Direct Consolidation Loan attributable to the following loan types (some of which may have been made through programs authorized under Title IV, Part B of the HEA): (1) Subsidized Federal Stafford Loans, (2) Guaranteed Student Loans, (3) Federal Insured Student Loans, (4) Direct Subsidized Loans, (5) Direct Subsidized Consolidation Loans, and (6) the portion of a Federal Consolidation Loan that is eligible for interest benefits during a period of deferment. 34 C.F.R. §685.220(c)(1).

22 The unsubsidized component of a Direct Consolidation Loan (also referred to as a Direct Unsubsidized Consolidation (continued...)

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Eligibility and Amounts That May Be Borrowed

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

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

Factors Affecting Eligibility to Borrow

For an individual to be eligible to borrow a loan through the Direct Loan program, the student borrower, or the student on whose behalf a parent borrower would obtain a Direct PLUS Loan, must meet a number of eligibility requirements. A broad set of general eligibility criteria applies to students who may benefit from a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan. An additional set of requirements applies specifically to applicants seeking to borrow a Direct PLUS Loan. Still other requirements apply to applicants for Direct Consolidation Loans. Eligibility to borrow various types of loans is also affected by a student’s dependency status, program level (e.g., undergraduate, graduate, or professional), undergraduate class level, financial need, cost of attendance (COA)²³ of the academic program, estimated financial assistance (EFA) they expect to receive from other sources, and certain other factors. Factors that affect eligibility to borrow through the Direct Loan program are discussed below.

General Student-Based Eligibility Criteria

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

• be enrolled on at least a half-time basis as a regular student in either an eligible program at a participating eligible IHE²⁴, a preparatory program necessary for

Loan) is the portion of a Direct Consolidation Loan attributable to the following loan types (some of which may have been made through programs authorized under Title IV, Part B and Part E of the HEA and Title VII and Title VIII of the Public Health Service Act [PHSA]): (1) Federal Perkins Loans, (2) National Direct Student Loans, (3) National Defense Student Loans, (4) Federal PLUS Loans, (5) Parent Loans for Under Graduate Students (PLUS), (6) Direct PLUS Loans, (7) Direct PLUS Consolidation Loans, (8) Unsubsidized Federal Stafford Loans, (9) Federal Supplemental Loans for Students (SLS), (10) Direct Unsubsidized Loans, (11) Direct Unsubsidized Consolidation Loans, (12) Auxiliary Loans to Assist Students (ALAS), (13) Health Professions Student Loans (HPSL), (14) Loans for Disadvantaged Students (LDS), (15) Health Education Assistance Loans (HEAL), (16) Nursing Loans, and (17) the portion of a Federal Consolidation Loan that is ineligible for interest benefits during a period of deferment. 34 C.F.R. §685.220(c)(2). Furthermore, the term Direct PLUS Consolidation Loan refers to the portion of a Direct Consolidation Loan attributable to (1) Direct PLUS Loans, (2) Direct PLUS Consolidation Loans, (3) Federal PLUS Loans, and (4) Parent Loans for Undergraduate Students that were repaid by the Direct Consolidation Loan.

23 Cost of attendance is defined at HEA §472. COA is determined by the IHE attended and generally includes tuition and fees, an allowance for books, supplies and transportation, room and board, and other expenses related to school attendance.

24 For additional information on institutional and program eligibility requirements for participation in the HEA Title IV (continued...)

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enrollment in an eligible program (for up to one year), or a teacher certification program;²⁵

• not be incarcerated;

• be a U.S. citizen or national, U.S. permanent resident, or other eligible noncitizen;²⁶

• have a high school diploma or recognized equivalent, such as a general education development (GED) certificate, or meet other academic requirements;²⁷

• maintain satisfactory academic progress as defined by the school and in accordance with the HEA;²⁸

• not be in default on a federal student loan, nor owing a refund on a grant or loan made under HEA, Title IV without having made satisfactory repayment arrangements; and

• have on file at the IHE attended a statement of educational purpose stating that the loan will be used solely for educational expenses.²⁹

Student Dependency Status

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

A student is considered an independent student if they

• are, or will be, 24 years of age or older before January 1 of the award year;

• are married at the time of completing the FAFSA;

• will be a graduate or professional student at the start of the award year;

• are currently serving on active duty in the Armed Forces for other than training purposes;

• are a veteran of the U.S. Armed Forces;

• have legal dependents other than a spouse;

student financial aid programs, see CRS Report R43159, Institutional Eligibility for Participation in Title IV Student Financial Aid Programs.

25 Loans may be obtained through the Direct Loan program for purposes of financing postsecondary expenses at both domestic and foreign institutions. The Direct Loan program is the only HEA, Title IV program that makes federal student aid available for purposes of enrolling in a foreign institution.

26 Individuals who are citizens of the Freely Associated States (the Federated States of Micronesia, the Republic of Palau, and the Republic of the Marshall Islands) are ineligible to borrow Direct Loans. 34 C.F.R. §668.33(b).

27 For additional information, see U.S. Department of Education, 2024-2025 Federal Student Aid Handbook, vol. 1, p. 7-12 (hereinafter, “FSA Handbook”).

28 See also 34 C.F.R. §668.34. For example, in part, “if a student is enrolled in an educational program of more than two academic years, the policy specifies that at the end of the second academic year, the student must have a GPA of at least a ‘C’ or its equivalent, or have academic standing consistent with the institution’s requirements for graduation.”

29 Prior to award year 2021-2022, students were ineligible if they did not meet applicable Selective Service System requirements or if they had been convicted of a federal or state offense of selling or possessing illegal drugs that occurred during a period of enrollment for which the student was receiving federal student aid and their eligibility had not been otherwise restored under specified circumstances. The FAFSA Simplification Act of 2020 (Title VII, Division FF of P.L. 116-260, Consolidated Appropriations Act, 2021) eliminated these eligibility restrictions.

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• were an orphan, in foster care, or a ward of the court, at any time since age 13;

• are an emancipated minor or are in legal guardianship as determined by a court of competent jurisdiction in the individual’s state of legal residence, or were when reaching the age of majority;

• are an unaccompanied youth who is homeless, or self-supporting and at risk of being homeless; or

• are 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.³⁰

A student who does not satisfy any of the criteria to qualify as an independent student is classified as a dependent student.³¹

Dependency status determines the types of loans students and their families may borrow, which in turn affects the amounts that may be borrowed. Of particular importance with regard to undergraduate students is the fact that Direct PLUS Loans—the loans with the most flexible borrowing limits—are available to the parents of dependent students but not to the parents of independent students. However, independent undergraduate students are extended higher personal borrowing limits than are dependent students.³² These differential borrowing limits are predicated on the expectation that the postsecondary education expenses of dependent students will be financed by some combination of students and their parents, whereas the postsecondary education expenses of independent students will typically be financed without parental assistance.

Dependency status also determines which individuals in a student’s family will have their income and assets considered in need analysis calculations for the student (discussed below). Need analysis calculations for a dependent student are based on the income and assets of both the student and the student’s parents,³³ whereas need analysis calculations for an independent student are based on the income and assets of the student (and if applicable, the student’s spouse).

Program Level

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

30 HEA, §480(d); U.S. Department of Education, 2024-2025 Handbook, Application and Verification Guide, pp. 12-16. Effective July 1, 2023, institutions may use a documented determination of independence made by another institution in the same or a prior award year. U.S. Department of Education, Dear Colleague Letter GEN-22-15, “FAFSA Simplification Act Changes for Implementation in 2023-24,” November 04, 2022, https://fsapartners.ed.gov/ knowledge-center/library/dear-colleague-letters/2022-11-03/fafsar-simplification-act-changes-implementation-2023- 24.

31 34 C.F.R. §668.2(b).

32 Dependent undergraduates may be eligible to borrow additional amounts in the form of Direct Unsubsidized Loans up to the larger loan limits available to independent undergraduate students (displayed in Table 1) in instances where a financial aid administrator determines that the student’s parents are unable to borrow Direct PLUS Loans due to certain exceptional circumstances. Exceptional circumstances may apply in instances of a student whose parent is unable to qualify to borrow Direct PLUS Loans due to having 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. 34 C.F.R. §685.203(c).

33 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. For additional information, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected Family Contribution.

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Undergraduate Studies

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

Graduate and Professional Studies

Graduate and professional students may borrow Direct Unsubsidized Loans and Direct PLUS Loans. To be eligible to borrow as a graduate or professional student, an individual must be enrolled in a program above the baccalaureate level or in one that leads to a first professional degree, must have completed at least the equivalent of three years of full-time study either prior to entering the program or as part of it, and must not be concurrently receiving Title IV aid as an undergraduate student.³⁴ Graduate and professional students, all of whom are classified as independent students, are extended higher borrowing limits than undergraduate students.

Undergraduate Class Level

For undergraduates, a student’s class level determines the maximum amount the student may borrow on an annual basis. A student’s class level is based on their progression according to the academic standards of the school the student attends. For undergraduate students, progression to a higher grade level for purposes of awarding a loan through the Direct Loan program does not necessarily correspond to the start of a new academic year (AY). For instance, a student who continues to make satisfactory academic progress but does not progress to the next grade level due to having completed an insufficient number of credits could borrow a loan through the Direct Loan program more than once as a first-year student. Once the student accrues enough credits to progress to the next higher grade level, they would become eligible for the higher borrowing limits available to second-year students, and so on.³⁵

Financial Need

Direct Subsidized Loans are need-based and may only be borrowed by students who demonstrate having financial need according to federal need analysis procedures.³⁶ Applicants seeking to borrow Direct Subsidized Loans must undergo a need test through which a student’s student aid

34 34 C.F.R. §668.2(b).

35 34 C.F.R. §685.203.

36 From July 1, 2013, to August 13, 2021, a student who had no outstanding balance of principal or interest on a Direct Loan program or FFEL program loan on July 1, 2013, or on the date the borrower obtained a loan after July 1, 2013, could only borrow Direct Subsidized Loans for a period not to exceed 150% of the published length of the academic program in which they were enrolled (the maximum eligibility period). In addition, if a Direct Subsidized Loan borrower subject to this rule remained enrolled in the same program for which the loan was obtained, or another undergraduate academic program of equal or shorter length beyond the applicable maximum eligibility period, the borrower would lose the interest subsidy otherwise available on their Direct Subsidized Loans and would become responsible for paying the interest that accrued on their Direct Subsidized Loans after the date that the maximum eligibility period was exceeded. These rules were known as Subsidized Usage Limit Applies (SULA) and were repealed by the FAFSA Simplification Act of 2020 (Title VII, Division FF of P.L. 116-260). For additional information, see U.S. Department of Education, “Repeal of the William D. Ford Federal Direct Loan Program Subsidized Usage Limit Restriction,” 86 Federal Register 31432-31438, June 14, 2021.

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index (SAI)³⁷ is calculated. The SAI is the amount of funds a student, and, if applicable, a student’s family, is expected to pay toward the student’s postsecondary education expenses as determined on the basis of the financial resources available to the student. According to federal student aid need analysis procedures, the sum of the student’s SAI and the amount of estimated financial assistance (EFA) they expect to receive from sources other than programs authorized under Title IV of the HEA is subtracted from the estimated COA of the institution the student attends to determine the amount of need-based financial aid that they are eligible to receive.

Additional procedures are followed to determine the composition of the student’s federal student aid package. For instance, undergraduate students must receive a determination of their eligibility to receive a Federal Pell Grant³⁸ (a form of need-based aid available only to undergraduates) prior to being certified by their school as being eligible to borrow a Direct Subsidized Loan. This procedure is designed to first provide maximum grant aid to low-income students before they incur student loan debt. The amount a student may borrow with a Direct Subsidized Loan may not exceed the amount of the student’s unmet financial need after other forms of need-based federal student aid available under HEA, Title IV have been awarded. (For additional information, see the “Limits on Borrowing Determined by Need Analysis and Packaging” section.) Since July 1, 2012, only undergraduate students have been eligible to borrow Direct Subsidized Loans.

Eligibility Requirements for Direct PLUS Loans

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

Parent Borrower Eligibility Criteria

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

For a parent to be eligible to borrow a Direct PLUS Loan on behalf of a dependent undergraduate student, the student must have completed a FAFSA. A parent borrower is not required to complete a separate FAFSA. The eligibility of a noncustodial parent to borrow a Direct PLUS Loan on behalf of their child is not impacted by that parent’s financial information not appearing on the student’s FAFSA.³⁹

37 Prior to award year 2024-2025, the SAI was called the expected family contribution (EFC). The FAFSA Simplification Act (Title VII, Division FF of P.L. 116-260) made significant changes to the underlying processes and methodologies for determining federal student aid eligibility, including renaming EFC to SAI. For additional information on need analysis, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected Family Contribution. For additional information on the FAFSA Simplification Act, see CRS Report R46909, The FAFSA Simplification Act.

38 For additional information on the Federal Pell Grant program, see CRS Report R45418, Federal Pell Grant Program of the Higher Education Act: Primer.

39 U.S. Department of Education, 2023-2024 Federal Student Aid Handbook, vol. 8, p. 5 (hereinafter, “2023-2024 FSA Handbook”).

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Creditworthiness Requirements to Borrow Direct PLUS Loans

Eligibility for an individual to borrow a Direct PLUS Loan also depends on that individual’s creditworthiness. Only individuals who do not have an adverse credit history, as determined according to procedures specified in regulations, may borrow Direct PLUS Loans.⁴⁰ The creditworthiness criteria apply to both parent borrowers and to graduate and professional student borrowers. Creditworthiness is assessed on the basis of a credit report on the applicant obtained from at least one consumer reporting agency. An applicant is considered to have an adverse credit history if they either

• have one or more debts totaling more than $2,085 that are 90 days or more delinquent as of the date of the credit report, or that have been placed in collection or been charged off by the creditor as a loss within the two years prior to the credit report;⁴¹ or

• have been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a debt under HEA, Title IV within the five years prior to the credit report.

An applicant who is determined to have an adverse credit history may not obtain a Direct PLUS Loan unless they either obtain an endorser⁴² or demonstrate that extenuating circumstances exist with regard to the applicant’s credit history.⁴³ Extenuating circumstances may include an updated credit report or a letter from a creditor stating that the applicant has made satisfactory repayment arrangements on a derogatory debt.⁴⁴ In addition, to obtain a Direct PLUS Loan an applicant who has an adverse credit history must also complete credit counseling. (See the “PLUS Loan Credit Counseling For Borrowers with Adverse Credit” section) An applicant may not, however, be rejected for a Direct PLUS Loan on the basis of having no credit history.

A dependent undergraduate student whose parents are unable to obtain a Direct PLUS Loan due to their having an adverse credit history may borrow a larger amount in the form of a Direct Unsubsidized Loan.⁴⁵ In such a case, the student may borrow up to the borrowing limit applicable to a similarly situated independent undergraduate student. (These amounts are discussed in the “Amounts That May Be Borrowed” section.)

Eligibility Requirements for Direct Consolidation Loans

Two differing sets of borrower eligibility criteria apply for Direct Consolidation Loans. One set generally applies across borrowers seeking Direct Consolidation Loans, while another set applies to borrowers seeking to separate their Joint Consolidation Loans into one or two Direct Consolidation Loans.

40 34 C.F.R. §685.200.

41 Regulations specify that the $2,085 threshold will periodically be adjusted for inflation “when the Secretary determines that an inflation adjustment … would result in an increase of $100 or more.” It appears the Secretary has not adjusted the threshold since the regulations’ implementation in 2015. 34 C.F.R. §685.200(c)(2)(viii)(C).

42 An endorser is an individual who does not have an adverse credit history, who signs a promissory note, and who agrees to repay the loan should the borrower not do so. 34 C.F.R. §685.102(b).

43 A dependent student on whose behalf the loan would be made to a parent borrower may not be an endorser. 2023- 2024 FSA Handbook, vol. 8, p. 5.

44 34 C.F.R. §685.200(c)(2)(viii)(G).

45 34 C.F.R. §685.203(c)(iii).

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General Direct Consolidation Loan Criteria

In general, to be eligible to obtain a Direct Consolidation Loan, a borrower must have an outstanding principal balance on at least one loan that was made through either the Direct Loan program or the FFEL program. In addition, with respect to the loans being consolidated, the applicant must be (1) in the grace period prior to entering repayment; (2) in repayment status, but not in default; or (3) in default, but having made satisfactory repayment arrangements.⁴⁶

For the purposes of including a defaulted loan in a Direct Consolidation Loan, making “satisfactory repayment arrangements” means that the defaulted borrower has made at least three consecutive voluntary full monthly payments within 20 days of the due date, or has agreed to repay according to one of the Income-Driven Repayment (IDR) plans (described below).⁴⁷ A borrower of a defaulted loan who is subject to a court judgment or wage garnishment is ineligible to obtain a Direct Consolidation Loan.

In general, a set of loans may be consolidated only once.⁴⁸ However, in select circumstances a borrower may add additional loans to their preexisting Direct Consolidation Loan or may use a Direct Consolidation Loan to repay a previously obtained Direct Consolidation Loan or a FFEL Consolidation Loan. Loans made to borrowers within 180 days prior to or after the date of obtaining a Direct Consolidation Loan may be added to that Direct Consolidation Loan. A borrower who has an existing Direct Consolidation Loan and also has other eligible loans that have not been consolidated, or who subsequently obtains other eligible loans, may consolidate those loans with their existing loans for purposes of obtaining a new Direct Consolidation Loan. A borrower who has an existing FFEL Consolidation Loan and whose loan is in default or has been referred to a guaranty agency for default aversion assistance⁴⁹ may consolidate their loan into a Direct Consolidation Loan for purposes of repaying according to one of the IDR plans. A borrower who has an existing FFEL Consolidation Loan may consolidate that loan into a Direct Consolidation Loan for the purposes of applying for loan forgiveness through the PSLF Program or to receive the No Accrual of Interest on Loans of Certain Active Duty Servicemembers benefit that is only available to borrowers of loans made through the Direct Loan program. Borrowers with a JCL made under either the FFEL or the Direct Loan program may apply to separate that loan into two new Direct Consolidation Loans or one new Direct Consolidation Loan and a remaining JCL, depending on the circumstances (see the ““Criteria to Separate a Joint Consolidation Loan into One or More Direct Consolidation Loans”” section).

A Direct Consolidation Loan must consist of at least one eligible loan made through either the Direct Loan or FFEL programs, and may also contain other types of federal student loans.⁵⁰ The eligible types of federal student loans made through the Direct Loan and FFEL programs include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, Direct Consolidation Loans, FFEL Subsidized Stafford Loans, FFEL Unsubsidized Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans.⁵¹ The eligible types of federal student loans made outside of the Direct Loan and FFEL programs are Federal Perkins Loans, Guaranteed Student Loans, Federal

46 HEA §428C(a).

47 34 C.F.R. §685.102(b).

48 HEA §428C(a)(3)(B).

49 Default aversion activities are means of assistance provided by a guaranty agency to a lender that holds a delinquent loan prior to the loan legally entering default status. HEA §§422(h)(8) and 422B(d).

50 HEA §428C(a)(4).

51 Over the history of the Direct Loan program and the FFEL program, the terminology used to refer to various types of loans has changed. A complete listing of loan types eligible for inclusion in a Direct Consolidation Loan is specified in regulations at 34 C.F.R. §685.220(b).

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Insured Student Loans, National Direct Student Loans, National Defense Student Loans, Supplemental Loans for Students (SLS), Auxiliary Loans to Assist Students (ALAS), Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Loans for Disadvantaged Students (LDS), and Nurse Faculty Loans, and Nursing Student Loans.⁵²

Criteria to Separate a Joint Consolidation Loan into One or More Direct Consolidation Loans

Between October 1, 1992, and July 1, 2006, married borrowers who each had eligible FFEL program and/or Direct Loan program student loans could consolidate their debt into a single JCL. To do so, each spouse was required to agree “to be held jointly and severally liable for the repayment of the consolidation loan, without regard to the amounts of the respective loan obligations” that were to be consolidated and without regard to any subsequent change in the couple’s marital status.⁵³

On October 11, 2022, the Joint Consolidation Loan Separation Act (P.L. 117-200) was enacted to enable borrowers of FFEL and Direct Loan program JCLs to separate their loans into one or two new Direct Consolidation Loans. Each new Direct Consolidation Loan is to be in an amount equal to the proportion of the unpaid principal, interest, and fees of the JCL attributable to the loans of the individual borrower for whom the separate, new Direct Consolidation Loan is being made. The portion of the JCL attributable to the loans of an individual borrower is to be determined on the basis of the original loan obligation of the borrower as of the date the JCL was made, or if requested by both borrowers, on the basis of the debt’s distribution described in a divorce decree, court order, settlement agreement, or other document. For a Direct Consolidation Loan that was the result of a separation of a JCL, the interest rate is to be equal to the interest rate on the JCL as of the date before the separation of the JCL.

Under the Joint Consolidation Loan Separation Act, borrowers may separate JCLs in one of two ways. First, a married couple (or two individuals who were previously a married couple) may each apply to ED to separate the loan. Second, an individual borrower in a married couple (or previously married couple) may apply to separate the loan without regard to whether the other individual borrower in the married couple (or previously married couple) applies for the separation of the loan. To do so, the applicant borrower must certify to ED that they have experienced an act of domestic violence or economic abuse from the other borrower⁵⁴ or are “unable to reasonably reach or access the loan information from the other individual borrower.”⁵⁵ If an individual borrower receives a new Direct Consolidation Loan after separating the JCL without application from the other borrower, the nonapplicant borrower becomes solely liable for any remaining balance of the JCL following the loan separation.

Unlike a general Direct Consolidation Loan, a JCL for which a borrower(s) seeks separation may be in default and applicants need not have entered into a satisfactory repayment arrangement to be eligible to separate a JCL.

52 Several of these loan types were once made through programs that have since been discontinued.

53 20 U.S.C. §1078-3 (2018), “Editorial Notes.”

54 Domestic abuse and economic abuse are defined in 34 U.S.C. §12291.

55 ED is also authorized to permit borrowers to apply individually to separate their JCLs if doing so would be in the best fiscal interest of the federal government.

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Beginning September 30, 2024, borrowers may apply to separate their JCLs into separate Direct Consolidation Loans.⁵⁶

Amounts That May Be Borrowed

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

Annual Loan Limits

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

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

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

Borrowing limits for a student who is enrolled for less than one year are prorated based on the fraction of the academic year for which the student is enrolled. An academic year is defined in statute as a minimum of 30 weeks of instruction for courses of study measured in credit hours, or 26 weeks for courses of study measured in clock hours and during which a full-time student is expected to complete a minimum of 24 semester or trimester hours, 36 quarter hours, or 900 clock hours.⁵⁷

Aggregate Loan Limits

Aggregate loan limits cap the total cumulative amount of outstanding loans that a student may borrow through certain loan types. One limit applies to the total amount that may be borrowed in Direct Subsidized Loans and another limit applies to the total combined amount that may be borrowed in Direct Subsidized Loans and Direct Unsubsidized Loans.⁵⁸ No aggregate limits are

56 U.S. Department of Education, “Update on Implementation of the Joint Consolidation Loan Separation Act for FFEL Loan Holders and Servicers,” Electronic Announcement, LOANS-24-10, October 1, 2024, https://fsapartners.ed.gov/ knowledge-center/library/electronic-announcements/2024-10-01/update-implementation-joint-consolidation-loan- separation-act-ffel-loan-holders-and-servicers.

57 HEA §481(a)(2)(A).

58 Aggregate loan limits for Direct Subsidized Loans also include Subsidized Stafford Loan amounts borrowed through (continued...)

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placed on Direct PLUS Loan borrowing. The aggregate loan limits apply only to the aggregate outstanding principal balance (OPB) of the loans a student has borrowed. They do not apply to accrued or capitalized interest.⁵⁹ Annual and aggregate limits that have applied to loans made through the Direct Loan program since July 1, 2012, are presented in Table 1.

Table 1. Annual and Aggregate Loan Limits,

by Borrower T ype and Program Level: July 1, 2012, to Present

(dollars)

Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans,

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

Undergraduate Students

Annual Loan Limits

Preparatory coursework for an undergraduate program

2,625 2,625 8,625^a n.a.

1^st year 3,500 5,500 9,500^a n.a.

2^nd year 4,500 6,500 10,500^a n.a.

3^rd year and above 5,500 7,500 12,500^a n.a.

Preparatory coursework for a graduate program^b

5,500 5,500 12,500^a n.a.

Teacher certification^b 5,500 5,500 12,500^a n.a.

Aggregate Loan Limits^c,d n.a.

In general^e 23,000 31,000 57,500^a n.a.

Graduate Students

Annual Loan Limits

In general n.a. n.a. 20,500^f Up to COA-EFA^g

Health professions programs^h n.a. n.a. 40,500

to 47,167^f

Up to COA-EFA^g

Health professions programsⁱ n.a. n.a. 33,000

to 37,167^f

Up to COA-EFA^g

Aggregate Loan Limits^c,d,j

In general 65,000^k n.a. 138,500 Not limited^g

Health professions programs^e,h,i

65,000^k n.a. 224,000 Not limited^g

Parents of Dependent Undergraduate Students

Annual Loan Limits

the FFEL program. Aggregate loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans, combined, also include Subsidized Stafford Loans and Unsubsidized Stafford Loans, combined, borrowed through the FFEL program.

59 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 a Direct Unsubsidized Loan. For such individuals, this Direct Unsubsidized Loan amount is determined separately from otherwise applicable annual borrowing limits.

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Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans,

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

All n.a. n.a. n.a. Up to COA-EFA^g

Aggregate Loan Limits^c,d

In general n.a. n.a. n.a. Not limited^g

Source: HEA, §§428, 428H, 451, and 455; 34 C.F.R. §685.203; and U.S. Department of Education, Office of Postsecondary Education, Dear Colleague Letters GEN-05-09, GEN-08-04, and GEN-08-08. Notes: “n.a.” means not applicable. “COA” means cost of attendance. “EFA” means estimated financial assistance. a. These loan limits also apply to dependent undergraduate students whose parents are unable to obtain a Direct PLUS Loan.

b. Applies to individuals who have obtained a baccalaureate degree.

c. Accrued interest and capitalized interest do not count toward aggregate loan limits.

d. If a borrower has a Direct Consolidation Loan, any Direct Subsidized Loans or Direct Unsubsidized Loans that have been included in the Direct Consolidation Loan remain attributable to the aggregate limits for Direct Subsidized Loans and Total Direct Subsidized Loans and Direct Unsubsidized Loans combined, in accordance with their proportionate share of the Direct Consolidation Loan. Aggregate loan limits also include amounts of comparable loan types borrowed through the FFEL program (e.g., Subsidized Stafford Loans, Unsubsidized Stafford Loans).

e. Includes Subsidized Stafford Loans and Unsubsidized Stafford Loans borrowed through the FFEL program.

f. Direct Subsidized Loans are not currently available to graduate students.

g. There is no statutorily specified dollar limit on borrowing amounts for Direct PLUS Loans; however, all aid combined may not exceed COA.

h. Students enrolled in programs in the following disciplines are eligible to annually borrow an additional $20,000 more than regular students in Direct Unsubsidized Loans for programs with 9-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.

i. Students enrolled in programs in the following disciplines are eligible annually to borrow an additional $12,500 more than regular students in Direct Unsubsidized Loans for programs with 9-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, and Masters or Doctoral Degree in Health Administration. Amounts are prorated for 10- and 11-month programs.

j. Aggregate loan limits for graduate and professional students include amounts borrowed for undergraduate study.

k. The aggregate loan limit for Direct Subsidized Loans to graduate and professional students applies to loans borrowed for programs of instruction beginning before July 1, 2012.

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

Limits on Borrowing Determined by Need Analysis and Packaging

The process of awarding one or more forms of federal student aid to a student in accordance with federal student aid need analysis procedures and individual program rules is referred to as packaging. Financial aid administrators at IHEs are afforded a degree of discretion in determining how aid is packaged. The packaging of aid may affect the amounts and types of Direct Loans that a student (or parent on behalf of a student) may borrow. The process for packaging aid provided

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through the Direct Loan program is briefly described below. The following terms are instrumental in describing this process.

• Cost of Attendance (COA). This is an institution-determined amount indicative of a student’s educational expenses for a period of enrollment (e.g., an academic year) at the IHE. It is determined by the institution a student attends and may include tuition and fees, and allowances for room and board, books, supplies, transportation, loan fees, personal expenses, child or dependent care, and other costs.⁶⁰ For the Direct Loan program, a student’s COA represents an absolute limit on the maximum amount of aid they may receive during an academic year.

• Student Aid Index (SAI).⁶¹ This is the dollar amount a student and the student’s family (e.g., parents or spouse) are expected to contribute toward their education expenses for a year.⁶² A student’s SAI is calculated according to procedures specified in law using information supplied by the student on the FAFSA.⁶³ The formula for calculating a student’s SAI takes into account myriad factors including taxed and untaxed income, financial assets, and family size.

• Other Financial Assistance (OFA). This is the amount of aid anticipated to be made available to a student from federal, state, institutional, or other sources for a period of enrollment.⁶⁴ It includes grant, scholarship, fellowship, loan, and need- based employment assistance. For purposes of need analysis and packaging, two variations of OFA are relevant: (1) OFA not received under HEA, Title IV programs, and (2) OFA from all sources. OFA does not include qualifying federal veterans’ education benefits (e.g., GI Bill benefits); payments and services received under Title IV, Part E of the Social Security Act to a child or youth in foster care, or formerly in foster care (e.g., Education and Training Vouchers); and emergency financial assistance provided to students for unexpected expenses. For purposes of awarding Direct Subsidized Loans, OFA does not include Segal AmeriCorps Education Awards.⁶⁵

• Financial Need. This is the amount determined by subtracting a student’s SAI and OFA not received under HEA, Title IV from the student’s COA.⁶⁶

• Unmet Financial Need. This is the amount determined by subtracting the sum of a student’s SAI and OFA from the student’s COA.⁶⁷

60 HEA §§472 and 479A. For additional information on COA, see FSA Handbook, vol. 3, Chapter 2—Cost of Attendance (Budget).

61 The FAFSA Simplification Act makes significant changes to the underlying processes and methodologies for determining federal student aid eligibility, including renaming EFC as the student aid index (SAI). The act’s general effective date is July 1, 2024, although some provisions of the act may be implemented before then. For additional information on need analysis, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected Family Contribution. For additional information on the FAFSA Simplification Act, see CRS Report R46909, The FAFSA Simplification Act.

62 HEA Title IV, Part F—Need Analysis. For additional information on the EFC, see CRS Report R44503, Federal Student Aid: Need Analysis Formulas and Expected Family Contribution.

63 For additional information, see HEA, Title IV, Part F, and FSA Handbook, Application and Verification Guide, Chapter 3—Student Aid Index (SAI) and Pell Grant Eligibility.

64 HEA §§480(i), 428(2)(a)(C)(ii)(I)(aa), and 455(a)(1).

65 For additional information on the EFA, see HEA, §§428(a)(2)(C)(ii) and 480(j), 34 C.F.R. §685.102(b), and FSA Handbook, vol. 3, Chapter 3—Packaging Aid.

66 HEA §471.

67 For additional information, see FSA Handbook, vol. 3, pp. 40-43.

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

Direct Subsidized Loans

Direct Subsidized Loans are need-based. They may be awarded to satisfy a student’s unmet financial need. Students are eligible to borrow Direct Subsidized Loans in amounts up to the lesser of (1) the results of subtracting the sum of the student’s SAI and OFA from COA, or (2) the statutorily specified applicable annual loan limits. The calculation shown in the text box below is used to determine the amount that a student may borrow through a Direct Subsidized Loan.

Direct Subsidized Loan Eligibility

Direct Subsidized Loan eligibility = min[(COA - (SAI + OFA)), Direct Subsidized Loan limit⁶⁸]

Direct Unsubsidized Loans

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

Direct Unsubsidized Loan Eligibility

Direct Unsubsidized Loan eligibility = min[(COA - OFA), (total Direct Loan limit⁶⁹ - Direct Subsidized Loan amt.)]

Direct PLUS Loans

Direct PLUS Loans are non-need-based. Graduate and professional students and the parents of dependent undergraduate students may borrow Direct PLUS Loans irrespective of the student’s SAI. The amount that may be borrowed through a Direct PLUS Loan is limited to the result of subtracting the OFA (including any amount borrowed through a Direct Subsidized Loan or a Direct Unsubsidized Loan) of the student on whose behalf the loan will be made from the COA of

68 For information on Direct Subsidized Loan limits, see Table 1.

69 For information on loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans, combined, see Table 1.

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the institution attended. The calculation shown in the text box below is used to determine the amount that a student or a parent may borrow through a Direct PLUS Loan.

Direct PLUS Loan Eligibility

Direct PLUS Loan eligibility = COA - OFA

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

Interest on Direct Loan Program Loans

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

Interest Rates

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

Procedures for Setting Student Loan Interest Rates

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

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Unsubsidized Loans, and Direct PLUS Loans (Table C-2); the procedures that have been used to set the interest rates that apply to Direct Consolidation Loans (Table C-3); and the interest rates that have been in effect on these loans on a year-by-year basis (Table C-4).

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

At the inception of the Direct Loan program in 1994, all loan types were made with variable interest rates that would adjust once per year on July 1.⁷⁰ On variable rate loans, the applicable interest rate is determined according to a formula specified in statute. For each 12-month period that extends from July 1 through June 30, the applicable interest rate is indexed to the bond equivalent rate of 91-day U.S. Treasury bills (or other short-term U.S. Treasury securities) auctioned at the final auction held prior to the preceding June 1.⁷¹ An interest rate add-on increases the rate above the rate of the index. Different interest rate add-ons may apply to loans depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the status of the loan (e.g., in school, grace, repayment), and when the loan was made. An interest rate cap of 8.25% applies to variable rate Direct Subsidized Loans and Direct Unsubsidized Loans⁷² and the portion of a variable rate Direct Consolidation Loan attributable to such loans. An interest rate cap of 9.0% applies to variable rate Direct PLUS Loans⁷³ and the portion of a variable rate Direct Consolidation Loan attributable to a PLUS Loan. Direct Consolidation Loans were made with variable interest rates through January 31, 1999, while all other types of Direct Loan program loans continued to be made with variable interest rates through June 30, 2006.

Fixed Interest Rates on Direct Consolidation Loans

Since February 1, 1999, Direct Consolidation Loans have been made with fixed interest rates that remain in effect for the duration of the loan.⁷⁴ In general, the applicable interest rate on a fixed- rate Direct Consolidation Loan is determined by calculating the weighted average of the interest rates in effect on the loans being consolidated, and rounding the result up to the nearest higher one-eighth of 1%.⁷⁵ If a borrower obtains a Direct Consolidation Loan to repay one or more loans having a variable interest rate, the weighted average of the interest rates in effect on the loans being consolidated will be used to set the fixed rate that will apply for the duration of the new Direct Consolidation Loan.⁷⁶ For Direct Consolidation Loans made during the period from

70 See HEA §455(b)(1).

71 The practice of using the rate of the final auction held prior to the preceding June 1 provides approximately one month of lead time for ED to determine interest rates for particular loan types and to communicate this information to current and prospective borrowers and loan servicers.

72 HEA §455(b)(1).

73 HEA §455(b)(4).

74 For Direct Consolidation Loans, the determination of whether certain terms and conditions apply to a given loan (e.g., which interest rate setting formula applies) is based on the date when the application for the Direct Consolidation Loan is received by the loan servicer.

75 See HEA §455(b)(6)(D) &(7)(C). For variable rate loans made through the FFEL program and the Direct Loan program during the period from July 1, 1995, through June 30, 2006, interest rates are 0.6 percentage points lower during in-school and grace periods than during repayment periods. A borrower may apply to obtain a Direct Consolidation Loan during the six-month grace period after ceasing to be enrolled on at least a half-time basis, and by doing so may lock in the lower grace period interest rate.

76 During the period when Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans were made with variable rates and Direct Consolidation Loans were made with fixed interest rates, the availability of fixed rate Direct Consolidation Loans essentially provided borrowers with an option to lock in rates determined according to the variable interest rate formula (rounded to the nearest higher one-eighth of 1%) that a borrower may have considered to (continued...)

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February 1, 1999, through June 30, 2013, the maximum interest rate was capped at 8.25%.⁷⁷ For a Direct Consolidation Loan that was the result of a separation a JCL, the interest rate is to be equal to the interest rate on the JCL as of the date before the separation of the JCL.⁷⁸ There is no maximum interest rate for Direct Consolidation Loans made on or after July 1, 2013.⁷⁹

Fixed Interest Rates Specified in the HEA

During the period from July 1, 2006, through June 30, 2013, all loans made through the Direct Loan program, with the exception of Direct Consolidation Loans, were made with fixed interest rates that were determined by Congress and specified in statute.⁸⁰ Different fixed interest rates applied depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan), the program level for which it was borrowed (e.g., undergraduate, graduate), and the academic year for which the first disbursement of the loan was made (e.g., AY2007-2008, AY2008-2009). For these loans, the interest rate that was in effect when the loan was made remains in effect for the duration of the loan.

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

With the exception of Direct Consolidation Loans, all loans made through the Direct Loan program on or after July 1, 2013, have market-indexed fixed interest rates.⁸¹ For these loans, the applicable interest rate is set according to a formula specified in statute and remains in effect for the duration of the loan. For new loans made during each 12-month period that extends from July 1 through June 30, the applicable interest rate is indexed to the bond equivalent rate of 10-year U.S. Treasury notes auctioned at the final auction held prior to the preceding June 1.⁸² An interest rate add-on increases the applicable borrower rate above the rate of the index. Different interest rate add-ons apply depending on the type of loan (e.g., Direct Subsidized Loan, Direct PLUS Loan) and the program level for which it was borrowed (e.g., undergraduate, graduate). An interest rate cap of 8.25% applies to Direct Subsidized Loans and to Direct Unsubsidized Loans made to undergraduate students; a cap of 9.5% applies to Direct Unsubsidized Loans made to graduate and professional students; and a cap of 10.5% applies to all Direct PLUS Loans. The interest rates applicable to loans being made through the Direct Loan program for loans first disbursed July 1, 2023, through June 30, 2024, and for loans first disbursed July 1, 2024, through June 30, 2025, are presented below in Table 2.

be advantageous. The approximate one-month lead between when future interest rates become known and when they go into effect provided borrowers a window during which they could evaluate whether to obtain a Direct Consolidation Loan at the then-current rate (should rates for the next year be scheduled to increase) or defer the option to consolidate for another year (should rates for the next year be scheduled to decrease).

77 HEA §455(b)(6)(D). During the period when the 8.25% interest rate cap was in effect, a borrower who had one or more loans with an interest rate that was greater than the cap (e.g., a FFEL PLUS Loan made with an 8.5% interest rate) could lower the applicable interest rate by including the loan(s) in a Direct Consolidation Loan.

78 HEA §455(g)(2)(B)(i)(II).

79 HEA §455(b)(8)(D).

80 HEA §455(b)(7).

81 HEA §455(b)(8).

82 The final auction held prior to the preceding June 1 is generally held in May. See U.S. Department of the Treasury, Treasury Direct, “General Auction Timing,” https://www.treasurydirect.gov/instit/auctfund/work/auctime/ auctime.htm#:~:text=20%2Dyear%20bond%20and%2030,September%2C%20October%2C%20and%20December (accessed June 13, 2024).

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Table 2. Interest Rates on Loans Made Through the Direct Loan Program:

July 1, 2023, through June 30, 2024, and July 1, 2024, through June 30, 2025

(percentage)

Fixed Interest Rate in Effect

Borrower Type

Direct

Subsidized

Loans

Direct

Unsubsidized

Loans

Direct

PLUS Loans

Direct Loans disbursed July 1, 2023-June 30, 2024

Undergraduate students 5.50 5.50 n.a.

Graduate and professional students n.a. 7.05 8.05

Parents of dependent undergraduate students n.a. n.a. 8.05

Direct Loans disbursed July 1, 2024-June 30, 2025

Undergraduate students 6.53 6.53 n.a.

Graduate and professional students n.a. 8.08 9.08

Parents of dependent undergraduate students n.a. n.a. 9.08

Source: HEA §455(b); 20 U.S.C. §1087e(b); U.S. Department of Education, Office of Federal Student Aid, “FY23 Interest Rates for Direct Loans First Disbursed Between July 1, 2023 and June 30, 2024,” Electronic Announcement, DL-23-03, May 16, 2023, https://fsapartners.ed.gov/knowledge-center/library/electronic- announcements/2023-05-16/interest-rates-direct-loans-first-disbursed-between-july-1-2023-and-june-30-2024; and U.S. Department of Education, Office of Federal Student Aid, “Interest Rates for Direct Loans First Disbursed Between July 1, 2024 and June 30, 2025,” DL-24-03, May 14, 2024, https://fsapartners.ed.gov/ knowledge-center/library/electronic-announcements/2024-05-14/interest-rates-direct-loans-first-disbursed- between-july-1-2024-and-june-30-2025. Note: “n.a.” means not applicable.

Interest Accrual

Interest accrual is the process through which interest accumulates over time. In the Direct Loan program, the accrual of interest is calculated using a simple daily interest formula.⁸³ With this formula, interest accrues only on the OPB of the loan. This is in contrast to a compound interest formula, in which interest accrues on both the OPB of the loan and any interest that has accrued during a prior period. In a limited set of circumstances, accrued interest that has not been paid by a borrower may be capitalized, or added to the OPB of the loan. (This is discussed below in the “Interest Capitalization” section.)

According to the simple daily interest formula used in the Direct Loan program, the amount of interest that accrues over a certain period of time is determined by first calculating the daily interest (per diem) that accrues on a loan. The per diem is computed by dividing the applicable interest rate by the number of days in a year (365.25) and multiplying the resulting quotient by the OPB of the loan.⁸⁴ The per diem is then multiplied by the number of days of interest being calculated (e.g., days since the last payment was made). The result of this calculation is the

83 U.S. Department of Education, Office of Federal Student Aid, “Understand how interest is calculated and what fees are associated with your federal student loan: How is interest calculated?,” https://studentaid.gov/understand-aid/types/ loans/interest-rates#how-calculated (accessed June 13, 2024).

84 The per diem is calculated out to five decimal places and truncated. U.S. Department of Education, Office of Federal Student Aid, “Business Operations Servicing Requirements: Attachment 01,” version 0.0.5, February 23, 2023.

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amount of interest that has accrued during the applicable time period.⁸⁵ An example of the calculation of accrued interest over a 30-day period is provided in the text box below.

Simple Daily Interest Formula: Example of the Calculation of Accrued Interest

Days since last payment: 30 Outstanding principal balance: $4,500 Per diem:

Applicable interest rate: 0.0653 Days in a year: 365.25

Accrued Interest = [30 x $4,500 x (0.0653 ÷ 365.25)] = $24.13

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

Subsidized Interest

In certain circumstances, the federal government subsidizes some or all of the interest that would otherwise accrue on loans made through the Direct Loan program.⁸⁶ During periods when an interest subsidy is provided, borrowers are not required to pay the interest that would accrue. The availability of an interest subsidy depends on factors such as the type of loan borrowed, eligibility for an authorized deferment, the repayment plan selected, and the borrower’s status as a servicemember in the Armed Forces.⁸⁷ Interest subsidies that may be available on loans made through the Direct Loan program are described below.⁸⁸

Interest Subsidy on Direct Subsidized Loans

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

85 The result of the calculation is truncated at two decimal places and “shall not be rounded up.” U.S. Department of Education, Office of Federal Student Aid, “Business Operations Servicing Requirements: Attachment 01,” version 0.0.5, February 23, 2023,

86 In this report, the terms subsidized interest and interest subsidy refer to the government not charging a borrower for some or all of the interest that would otherwise accrue on a loan during a specified period of time. These terms are not used to refer to the interest rate on a loan made through the Direct Loan program being below the market rate that would typically be available on unsecured credit extended to a borrower without regard to the borrower’s employment, income, assets, or credit history. These terms are also in contrast to the term loan subsidy, which is used for budgeting purposes and is the estimated present value of the cash flows from the government (e.g., loan disbursements), excluding administrative expense, less the estimated present value of the cash flows to the government (e.g., repayments of principal and interest), resulting from a direct loan or loan guarantee, discounted to the time when the loan is disbursed, and taking into account estimated effects of defaults, prepayments, fees, penalties, loan deferments, loan forgiveness, etc.

87 In addition, in response to the COVID-19 pandemic, for March 13, 2020 through July 31, 2023, the accrual of interest on all types of Direct Loan program loans is suspended. This can be viewed as a limited-time interest subsidy.

88 In addition to the Direct Loan program interest subsidies described here, a student loan interest deduction is made available through the federal tax code. For information on this interest subsidy, see CRS Report R41967, Higher Education Tax Benefits: Brief Overview and Budgetary Effects.

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during the grace period on Direct Subsidized Loans disbursed between July 1, 2012, and June 30, 2014.⁸⁹

Interest Rate Reduction for Automatic Debit Repayment

The HEA authorizes the Secretary of Education (the Secretary) to offer borrowers of loans made through the Direct Loan program an interest rate reduction as an incentive for having loan payments automatically debited from a bank account.⁹⁰ The Secretary currently offers a 0.25 percentage point interest rate reduction for automatic debit repayment. This option helps ensure that borrowers make their student loan payments on time. The interest rate reduction for automatic debit repayment does not apply during in-school, grace, deferment, or forbearance periods.

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

Interest subsidies are provided on certain types of loans repaid according to several of the IDR plans—both of the Income-Based Repayment (IBR) plans, the Pay As You Earn (PAYE) repayment plan, and the Saving on a Valuable Education (SAVE) repayment plan⁹¹—during periods when a borrower’s loans are in negative amortization.⁹² (Details of these IDR plans are described in the “Loan Repayment Plans” section.) A common characteristic of these IDR plans is that an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans for a maximum of the first three consecutive years that the borrower repays according to the applicable IBR plan. In addition, in the SAVE repayment plan an extended, interest subsidy is provided on all eligible loan types. These IDR plan interest subsidies are described in greater detail below.

89 Between July 1, 2013, and August 13, 2021, individuals who were first-time borrowers on or after July 1, 2013, had their eligibility to both borrow a Direct Subsidized Loan and to receive the interest subsidy on such previously obtained loans limited to a period that could not exceed 150% of the published length of the academic program in which the student was enrolled (the maximum eligibility period). Borrowers subject to these limitations who remained enrolled beyond the maximum eligibility period would lose the interest subsidy and become responsible for paying the interest that accrued on their Direct Subsidized Loans after the date that they exceeded the maximum eligibility period. The FAFSA Simplification Act of 2020 (P.L. 116-260) repealed these limitations. Thus, for borrowers with Direct Subsidized Loans first disbursed on or after July 1, 2021, these limitations do not apply. In addition, for borrowers with Direct Subsidized Loans outstanding as of July 1, 2021, and on which the borrower was responsible for paying interest because they exceeded the maximum eligibility period, ED was to “adjust their account to remove the interest that accrued and reapply the borrower’s payments accordingly.” U.S. Department of Education, “Repeal of the William D. Ford Federal Direct Loan Program Subsidized Usage Limit Restriction,” 86 Federal Register 31433, June 14, 2021.

90 HEA, §455(b)(9); 34 C.F.R. §685.211(b). Until June 30, 2012, the Secretary was authorized to offer a variety of interest rate reductions to borrowers as a means of encouraging on-time repayment. These incentives were required to be cost neutral to the government.

91 Prior to June 30, 2023, the SAVE repayment plan was named the Revised Pay As You Earn (REPAYE) plan. Regulations now specify that the REPAYE repayment plan may also be referred to as the SAVE repayment plan. ED made this change as part of a series of updates to the REPAYE repayment plan’s terms. U.S. Department of Education “Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program,” 88 Federal Register 43820, July 10, 2023 (SAVE Plan Final Rule).

92 Negative amortization is a period of time during which a borrower’s monthly payment amount is less than the amount of interest that accrues on their loans.

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

The structure of the IBR and PAYE repayment plans provide that in certain instances, a borrower’s required monthly payment amount may be insufficient to pay all of the interest that has accrued on the borrower’s Direct Subsidized Loans or on the subsidized component of a Direct Consolidation Loan. In such instances, the Secretary provides the borrower with an interest subsidy (i.e., does not charge the borrower) for the amount of the accrued interest that exceeds the applicable monthly payment amount (referred to as the remaining accrued interest) for a period of up to the first three years from the date the borrower began repaying according to one of those plans. For borrowers who switch repayment plans and repay their loans sequentially according to more than one of the IBR or PAYE repayment plans, a cumulative three-year limit on receipt of the interest subsidy applies to periods of repayment made under those plans.⁹³ Any periods during which the borrower receives an economic hardship deferment and during which an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans do not count toward the three-year eligibility limit. Periods during which the borrower receives an interest subsidy under the SAVE repayment plan do not count toward the three-year eligibility limit.⁹⁴

Interest Subsidy on All Eligible Loan Types Repaid According to the SAVE Repayment Plan During Negative Amortization

In the instance that a borrower’s required monthly payment amount is insufficient to pay all of the interest that has accrued on their loans, the SAVE repayment plan provides a subsidy equal to the remaining accrued interest for all periods of repayment on all Direct Loan types.⁹⁵

No Accrual of Interest on Loans of Certain Active Duty Servicemembers

For all types of loans made through the Direct Loan program that were first disbursed on or after October 1, 2008, no interest accrues during a period of up to 60 months while the borrower is serving on active duty in the Armed Forces or is performing qualifying National Guard duty in an area of hostilities during a war or national emergency. For Direct Consolidation Loans, the interest subsidy applies only to the portion of the loan that was used to repay other loans that were first disbursed on or after October 1, 2008.⁹⁶

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

The Servicemembers Civil Relief Act (SCRA) provides that for individuals who borrow loans after August 14, 2008, but prior to their entrance into military service, the interest rate on their loans must be capped at a rate of 6% for the duration of their military service.⁹⁷ The federal government, as the creditor on loans made through the Direct Loan program, must forgive interest above the 6% rate and may not accelerate repayment of the loans. Loan servicers are required to

93 34 C.F.R. §685.209(h)(2). See also SAVE Plan Final Rule, 43870. With regard to Direct Consolidation Loans, the three-year period also includes periods during which an interest subsidy was provided on the underlying loans while they were being repaid according to an IDR plan during periods of negative amortization.

94 34 C.F.R. §685.209(h)(2).

95 34 C.F.R. §685.209(h)(2).

96 HEA §455(o).

97 SCRA §207; HEA §§428(d) and 455(a). For additional information on the SCRA, see CRS Report R45283, The Servicemembers Civil Relief Act (SCRA): Section-by-Section Summary.

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regularly check with the U.S. Department of Defense Manpower Data Center (DMDC) to determine whether borrowers qualify for the SCRA 6% interest rate cap and to extend the benefit to borrowers. Borrowers also have the option of completing an SCRA Interest Rate Limitation Request and submitting it to their loan servicer to document their eligibility for the 6% interest rate cap.⁹⁸

SCRA 6% Interest Rate Cap and Direct Consolidation Loans

If a borrower repays one or more loans on which the interest rate has been reduced to 6% under the SCRA with a Direct Consolidation Loan, the 6% interest rate is required to be used as the applicable interest rate on those loans for purposes of determining the weighted average interest rate of the new Direct Consolidation Loan.⁹⁹ In such an occurrence, because Direct Consolidation Loans are currently being made with fixed interest rates, the 6% rate would essentially be locked in and would remain in effect beyond the end of the borrower’s period of military service.

Interest Subsidy on All Loan Types During Cancer Treatment Deferment

A Cancer Treatment Deferment is provided during periods while a borrower is receiving treatment for cancer and for the six months thereafter. During periods while a borrower receives this deferment, no interest accrues on their qualifying loans. The Cancer Treatment Deferment is available on all types of Direct Loan program loans that are either made on or after September 28, 2018, or that had entered repayment status on or before September 28, 2018.¹⁰⁰ This benefit does not appear to be available for loans that were made prior to September 28, 2018, but had not yet entered repayment prior to that date.

Deferred Payment of Accrued Interest

In certain instances, the obligation of a borrower to pay the interest that accrues on the outstanding principal balance of loans made through the Direct Loan program may be deferred. For instance, during in-school, grace, deferment, and forbearance periods, borrowers are not required to make payments of either principal or the interest that accrues on the OPB. Also, for a borrower whose loans are in repayment status and who is repaying according to any IDR plan except the SAVE repayment plan,¹⁰¹ if the amount of their required monthly payment is less than the amount of interest that has accrued on the loans, the payment of any accrued interest owed that is in excess of the required monthly payment amount may be deferred. Nonetheless, except to the extent that a borrower is receiving an interest subsidy, interest continues to accrue on their loans during periods while repayment of accrued interest is deferred.

98 U.S. Department of Education, Office of Federal Student Aid, Servicemembers Civil Relief Act (SCRA): Interest Rate Limitation Request, OMB No. 1845-0135, https://fsapartners.ed.gov/sites/default/files/attachments/2020-01/ 011020RenewalSCRAIntRateLimitRequestAttach.pdf.

99 34 C.F.R. §685.202(a)(10)(i)(F); U.S. Department of Education, Dear Colleague Letter GEN-16-20, “Retroactive Adjustments for Servicemembers Civil Relief Act (SCRA) from August 14, 2008, Onward,” November 15, 2016, https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2016-11-15/gen-16-20-subject-retroactive- adjustments-servicemembers-civil-relief-act-scra-august-14-2008-onward.

100 HEA, §455(f)(3); U.S. Department of Education, Office of Federal Student Aid, Cancer Treatment Deferment Request, OMB No. 1845-0154, https://studentaid.gov/sites/default/files/CancerTreatmentDeferment.pdf.

101 Under the SAVE repayment plan, unpaid accrued interest is not charged to the borrower.

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Negative Amortization

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

Interest Capitalization

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

• Exit from or Failure to Recertify Income and Family Size in the IBR Plan. Any unpaid interest that has accrued on a borrower’s loan during a period when they were repaying according to the IBR plan is capitalized at the time the borrower changes to a different repayment plan and when they fail to recertify their income and family size for purposes of annually determining their monthly payments under the plan.¹⁰²

• End of Partial Financial Hardship in IBR Plans. Any unpaid interest that has accrued on a borrower’s loan during a period when they were repaying according to the IBR plan and had a partial financial hardship is capitalized when the borrower is determined to no longer have a partial financial hardship.¹⁰³

• End of Deferment. In general, any unpaid interest that has accrued on a borrower’s Direct Unsubsidized Loans, Direct PLUS Loans, or portion of a Direct Consolidation Loan used to repay such loans during a period of deferment is capitalized at the expiration of the deferment period.¹⁰⁴

• Loan Consolidation. Any interest that has accrued on a borrower’s loan and remains unpaid when the borrower includes the loan in a Direct Consolidation Loan is capitalized upon consolidation.¹⁰⁵

Loan Origination Fees

Loan origination fees are charged to borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. No fees are charged to borrowers of Direct Consolidation Loans.

102 34 C.F.R. §685.209(j)(2)(iii); U.S. Department of Education, “Income-Driven Repayment (IDR) Plan Request,” OMB. No. 1845-0102, https://studentaid.gov/sites/default/files/IncomeDrivenRepayment-en-us.pdf.

103 34 C.F.R. §685.209(j)(2)(ii). Under the IBR and PAYE repayment plans, a borrower is determined to have a partial financial hardship if the total annual payments for all of their eligible loans, as calculated according to a standard repayment plan with a maximum 10-year term, are greater than a specified percentage (15% or 10%, depending on the plan) of the borrower’s income that is in excess of 150% of the poverty guideline applicable to their family size. For additional information, see the discussion of the IBR and PAYE repayment plans in the “Income-Driven Repayment (IDR) Plans” section.

104 34 C.F.R. §685.202(b)(2).

105 HEA §§428C(b)(1)(C) and 455(a)(1).

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These fees help offset federal loan subsidy costs by passing along some of the costs to borrowers.¹⁰⁶ Loan origination fees are calculated as a proportion of the loan principal borrowed and are deducted proportionately from the proceeds of each loan disbursement to the borrower.

The amount to be charged for loan origination fees is specified in statute. For Direct Subsidized Loans and Direct Unsubsidized Loans made on or after July 1, 2010, the HEA specifies a loan origination fee of 1%.¹⁰⁷ (Higher loan origination fees were charged on loans made prior to July 1, 2010.) Since the inception of the Direct Loan program, the HEA has specified a loan origination fee of 4% for Direct PLUS Loans.¹⁰⁸

During periods when a budget sequestration order that applies to direct (or mandatory) spending programs is in effect, such as for the Direct Loan program, special rules apply to loan origination fees.¹⁰⁹ In instances where the first disbursement of a loan is made during a period that is subject to a sequestration order, the loan origination fee is required to be increased by the uniform percentage sequestration amount that is applicable to nondefense, mandatory spending programs. Loan origination fees that apply to loans made during FY2024 and FY2025 (periods of budget sequestration) are presented below in Table 3. A history of loan origination fees that previously applied to loans made through the Direct Loan program is presented in Table C-1.

Table 3. Origination Fees on Loans Made Through the Direct Loan Program,

FY2024 and FY2025

(percentage)

Disbursement Period

Direct

Subsidized

Loans

Direct

Unsubsidized

Loans

Direct

PLUS Loans

October 1, 2023-September 30, 2024 1.057 1.057 4.228

October 1, 2024-September 30, 2025 1.057 1.057 4.228

Source: HEA §455(c); Balanced Budget and Emergency Deficit Control Act (BBEDCA), §256(b); U.S. Department of Education, Office of Federal Student Aid, “Interest Rates and Fees for Federal Student Loans,” https://studentaid.gov/understand-aid/types/loans/interest-rates (accessed June 27, 2024).

Loan Repayment

Borrowers are required to make payments on loans made through the Direct Loan program during a repayment period that, depending on the loan type, begins either when the loan is fully disbursed (Direct PLUS Loans and Direct Consolidation Loans made on or after July 1, 2006) or after a six-month grace period (Direct Subsidized Loans, Direct Unsubsidized Loans, and pre- July 1, 2006, Direct Consolidation Loans). Borrowers may choose from among a selection of loan repayment plan options to repay their loans. The repayment plan selected is a determining factor

106 When the Direct Loan program was established, the terms and conditions of loans were designed to be substantially similar to those of loans that were being offered through the FFEL program. At that time, borrowers of FFEL program loans were responsible for paying a loan origination fee and a default fee (which at one time had been referred to as a loan insurance fee). In the Direct Loan program, the loan origination fee was initially set at 4%, which equaled the sum of the FFEL loan origination fee and the FFEL default fee.

107 HEA §455(c)(2)(E).

108 HEA §455(c)(1).

109 For additional information on how budget sequestration affects federal student loans, see CRS Report R42050, Budget “Sequestration” and Selected Program Exemptions and Special Rules.

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in the duration of the repayment period. Borrowers may prepay all or any part of a loan made through the Direct Loan program at any time without being subject to a prepayment penalty.¹¹⁰

Grace Period

A grace period is a six-month period beginning immediately after a borrower of a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a pre-July 1, 2006, Direct Consolidation Loan first ceases to be enrolled in an eligible program on at least a half-time basis. The grace period excludes any period of up to three years during which a borrower who is a member of a reserve component of the Armed Forces is called or ordered to active duty for a period of more than 30 days and thus ceases to be enrolled on at least a half-time basis, as well as any additional period necessary for such a borrower to resume enrollment at the next available regular enrollment period.¹¹¹

The grace period is distinct from and not part of the repayment period. A loan on which a grace period is provided does not enter repayment status until the day after the grace period ends. If a borrower desires to enter repayment on loans that have a grace period immediately after completing school or ceasing to be enrolled on at least a half-time basis, they may consolidate those loans into a Direct Consolidation Loan during the grace period and enter repayment on the Direct Consolidation Loan upon its disbursement.¹¹²

Loan Repayment Period

In the Direct Loan program, the repayment period is the period during which borrowers are obligated to repay their loans. The repayment period for Direct Subsidized Loans, Direct Unsubsidized Loans, and pre-July 1, 2006, Direct Consolidation Loans begins the day after the grace period ends. Thus, for these types of loans the loan repayment period begins six months and one day after the borrower first ceases to be enrolled in an eligible program on at least a half-time basis.¹¹³ The repayment period for Direct PLUS Loans and Direct Consolidation Loans made on or after July 1, 2006, begins the day the loan is fully disbursed.¹¹⁴ (This would be the day of the last disbursement if the loan has multiple disbursements.) For all loan types, the first payment is due no later than 60 days after the start of the repayment period.¹¹⁵

In general, the repayment period excludes any periods of authorized deferment and forbearance. However, in certain instances, when a borrower is repaying a loan according to an IDR plan, periods during which the borrower is receiving one of several types of deferment or forbearance specified in regulation may be considered as part of the repayment period.¹¹⁶ These types of deferment and forbearance include, for example, economic hardship deferment; military service deferment; and administrative forbearance for a period of 60 days necessary for ED to process

110 HEA §455(d)(1).

111 34 C.F.R. §685.207(b)(4), (c)(4), and (e)(2).

112 U.S. Department of Education, Office of Federal Student Aid, Public Service Loan Forgiveness Questions and Answers, “Can I waive the six-month grace period on my Direct Subsidized Loans and Direct Unsubsidized Loans and begin making qualifying PSLF payments early?,” https://studentaid.gov/help-center/answers/article/waiving-loan- grace-period-to-begin-pslf-payments (accessed June 28, 2024).

113 34 C.F.R. §685.207(b)(2), (c)(2), and (e).

114 34 C.F.R. §685.207(e)(1).

115 34 C.F.R. §685.207(a)(3).

116 34 C.F.R. §685.209(k)(4)(iv).

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documentation supporting a borrower’s request for a deferment or forbearance, or to process a borrower’s application for a consolidation loan.

Loan Repayment Plans

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

Fixed repayment plans require monthly payments amortized over a prescribed repayment period, based on the amount of a borrower’s loan debt and the loan’s interest rate. They are divided into three subtypes: standard repayment plans, extended repayment plans, and graduated repayment plans.

IDR plans require monthly payments based, in whole or in part, on a borrower’s income and family size and are divided into two subtypes: income-contingent repayment (ICR) plans and income-based repayment (IBR) plans. The ICR plans are the Income-Contingent Repayment plan, Pay-As-You-Earn (PAYE) repayment plan, and the Saving on a Valuable Education (SAVE) repayment plan. The IBR plans are the Original Income-Based Repayment plan, and the IBR plan for Post-July 1, 2014, New Borrowers.

The alternative repayment plans are provided to borrowers in situations in which a borrower demonstrates that the terms of the other repayment plans “are not adequate to accommodate the borrower’s exceptional circumstances.”¹¹⁹ One subtype of alternative repayment plan is provided to borrowers on a case-by-case basis,¹²⁰ while another is provided to borrowers who were enrolled in the SAVE repayment plan and failed to recertify their income and

family size for purposes of determining their monthly payment amounts.

Figure 1 depicts the broad categories of repayment plans and their subtypes.

117 SAVE Plan Final Rule.

118 Missouri v. Biden, No. 24-2332, 2024 WL 3738157, *4 (8th Cir. Aug. 9, 2024) (per curiam).

119 HEA §455(d)(4).

120 The subtype of alternative repayment plans that is provided to borrowers on a case-by-case basis can be broken down into four distinct plans: the alternative fixed repayment plan, alternative fixed term repayment plan, the alternative graduated repayment plan, and the alternative negative amortization repayment plan. (U.S. Department of Education, Office of Federal Student Aid, Loan Repayment Plans, “Alternative Repayment Plans,” p. 9, https://fsapartners.ed.gov/sites/default/files/attachments/presentations/41LoanRepaymentPlansV1.pdf.) ED indicated to CRS that these distinct plans were offered to borrowers as of March 16, 2023. (Email communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs, March 16, 2023.) Since that time, ED has updated its regulations addressing alternative repayment plans. Those updated regulations do not delineate distinct repayment plans (see 34 C.F.R. §685.221). CRS has asked ED whether it will continue to offer the four aforementioned alternative repayment plans following the regulations’ updates but has not yet received a response. As such, it is unclear whether these four alternative repayment plans are still offered by ED.

Income-Driven Repayment Plan Regulations Litigation

On July 10, 2023, ED published a Final Rule to modify significantly one of the existing IDR plans, the Revised Pay As You Earn (REPAYE) plan, renaming the modified plan the Saving on a Valuable Education (SAVE) plan. The Final Rule also made a number of more modest changes to the other IDR plans.¹¹⁷ The Final Rule took full effect July 1, 2024, but has since been enjoined by a federal court.¹¹⁸ This report details the various loan repayment plans as in effect July 1, 2024. It does not attempt to delineate which provisions have been enjoined by the federal court.

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Figure 1. Direct Loan Repayment Plan

(figure is interactive in the HTML version of this report)

Source: CRS analysis of HEA §§455(d)–(e) and 493C; 34 C.F.R. §§685.208, 685.209, and 685.22.

The particular repayment plans available to any individual borrower may depend on factors such as the type(s) of loans borrowed, the date of becoming a new borrower, or the date of entering repayment status. In general, all of a borrower’s loans made through the Direct Loan program must be repaid together according to the same repayment plan.¹²¹ However, if a borrower has some types of loans that may be repaid according to an IDR plan and some that may not, the borrower may repay the eligible loans according to an IDR plan and the ineligible loans according to a non-IDR plan. If a borrower fails to actively select a repayment plan, they are placed into the standard repayment plan that is applicable to the loans.¹²² In some instances, ED places a borrower who has been delinquent on their loans for at least 75 days or is in default on their loans into the IDR plan that results in the lowest monthly payment for the borrower.¹²³

In general, borrowers may change from one plan to another plan for which they are eligible at any time. However, a borrower may only switch to a non-IDR plan if doing so would not result in the

121 34 C.F.R. §685.210(a)(3).

122 HEA §455(d)(2).

123 34 C.F.R. §685.210(m).

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borrower having a remaining repayment period of fewer than zero months.¹²⁴ Additionally, regulations limit future enrollment in certain IDR plans.¹²⁵

Under the fixed repayment plans, payment amounts may not be less than the amount of accrued interest that is due; however, negative amortization is permitted in the IDR plans.¹²⁶ Also, for loans with variable interest rates (which had been made prior to July 1, 2006), monthly payment amounts or the length of the repayment period may be adjusted under the fixed repayment plans to take into account the effects of annual changes in the variable interest rate.¹²⁷

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

124 34 C.F.R. §685.210(b)(2). For fixed repayment plans and the alternative repayment plan, the remaining repayment period is calculated by subtracting the period of time since a loan has entered repayment (including any deferment or forbearance periods) from the maximum repayment period for the repayment plan the borrower is seeking to enter. Thus, for example, a borrower who had been in repayment on their loan for 15 years could not switch into a standard repayment plan with a 12-year maximum repayment period, as subtracting 15 from 12 would result in a remaining repayment period of fewer than zero months (i.e., -3 years).

125 34 C.F.R. §685.209(c).

126 Negative amortization also is permitted in the alternative negative amortization repayment plan. See footnote 120.

127 34 C.F.R. §685.208(b) and (d)-(g).

CRS-33

Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to Borrowers: Fixed Repayment Plans,

Income-Driven Repayment Plans, and Alternative Repayment Plans

Repayment Plan

Eligible Loan

Types^a

Payment

Structure

Subsidized

Interest

Negative

Amortization

Permitted

Maximum

Repayment

Period

Forgiveness

at End of

Repayment

Period

Fixed Repayment Plans

Standard Repayment Plans

Standard Repayment Plan (34 C.F.R. §685.208(b))

Subsidized Loans, Unsubsidized Loans, and PLUS Loans, regardless of when they entered repayment, and Consolidation Loans that entered repayment before July 1, 2006

Level payments based on amortization schedule

No No 10 years No

Standard Repayment Plan (34 C.F.R. §685.208(c))

Consolidation Loans that enter repayment on or after July 1, 2006

Level payments based on amortization schedule

No No 10 to 30 years, based on combined loan balance^b

No

Extended Repayment Plans

Extended Repayment Plan (34 C.F.R. §685.208(d))

Subsidized Loans, Unsubsidized Loans, PLUS Loans, and Consolidation Loans that entered repayment before July 1, 2006

Level payments based on amortization schedule

No No 12 to 30 years, based on loan balance^c

No

Extended Repayment Plan (34 C.F.R. §685.208(e))

Subsidized Loans, Unsubsidized Loans, PLUS Loans, and Consolidation Loans that enter repayment

Level payments based on amortization schedule or payments that increase

No No 25 years No

CRS-34

Repayment Plan

Eligible Loan

Types^a

Payment

Structure

Subsidized

Interest

Negative

Amortization

Permitted

Maximum

Repayment

Period

Forgiveness

at End of

Repayment

Period

on or after July 1, 2006^d

incrementally every 2 years

Graduated Repayment Plans

Graduated Repayment Plan (34 C.F.R. §685.208(f))

Subsidized Loans, Unsubsidized Loans, PLUS Loans, and Consolidation Loans that entered repayment before July 1, 2006

Payments increase incrementally every 2 years

No No 12 to 30 years, based on loan balance^c

No

Graduated Repayment Plan (34 C.F.R. §685.208(g)

Subsidized Loans, Unsubsidized Loans, and PLUS Loans that enter repayment on or after July 1, 2006

Payments increase incrementally every 2 years

No No 10 years No

Graduated Repayment Plan (34 C.F.R. §685.208(h))

Consolidation Loans that enter repayment on or after July 1, 2006

Payments increase incrementally every 2 years

No No 10 to 30 years, based on combined loan balance^b

No

Income-Driven Repayment Plans (34 C.F.R. §685.209)

Income-Contingent Repayment Plans

Income-Contingent Repayment (ICR) Plan

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans^e

Payments equal to lesser of • 12-year amortization, multiplied by an income percentage factor,^f or • 20% of AGI^g that exceeds 100% of federal poverty

No Yes 25 years Yes

CRS-35

Repayment Plan

Eligible Loan

Types^a

Payment

Structure

Subsidized

Interest

Negative

Amortization

Permitted

Maximum

Repayment

Period

Forgiveness

at End of

Repayment

Period

guideline applicable to the borrower’s family size

Pay As You Earn (PAYE) Repayment Plan

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans that did not repay a Parent PLUS Loan^h

Payment equal to lesser of • 10% of AGI^g that exceeds 150% of federal poverty guideline applicable to the borrower’s family size, or • Monthly payment according to 10-year amortization schedule based on original OPB and loan interest rate

Yes. All remaining accrued interest on Direct Subsidized Loans during negative amortization for first 3 years of repayment under the planⁱ

Yes 20 years Yes

Saving on a Valuable Education (SAVE) Repayment Plan^j

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans that did not repay a Parent PLUS Loan^h

Payment equal to the following percentages of AGI^g that exceeds 225% of federal poverty guideline applicable to the borrower’s family size • 5% for borrowers who borrowed exclusively for undergraduate education • 10% for borrowers who borrowed exclusively for graduate or professional education

Yes. All remaining accrued interest on all eligible Direct Loan types during negative amortization

Yes • 10 to 25 years, depending on composition of loans and loan balance.

Yes

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Repayment Plan

Eligible Loan

Types^a

Payment

Structure

Subsidized

Interest

Negative

Amortization

Permitted

Maximum

Repayment

Period

Forgiveness

at End of

Repayment

Period

• the weighted average of 5% and 10%, based on original OPB, for borrowers who borrowed for both undergraduate and graduate or professional education

Income-Based Repayment Plans

Original Income-Based Repayment (IBR) Plan

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans that did not repay a Parent PLUS Loan^h

Payment is the lesser of • 15% of AGI^g that exceeds 150% of federal poverty guideline applicable to the borrower’s family size, or • Monthly payment according to 10-year amortization schedule based on original OPB and loan interest rate

Yes. All remaining accrued interest on Direct Subsidized Loans during negative amortization for first 3 years of repayment under the planⁱ

Yes 25 years Yes

IBR Plan for Post-July 1, 2014, New Borrowers

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans that did not repay a Parent PLUS Loan^h

Payment is the lesser of • 10% of AGI^g that exceeds 150% of federal poverty guideline applicable to the borrower’s family size, or • Monthly payment according to 10-year amortization schedule

Yes. Remaining accrued interest on Direct Subsidized Loans during negative amortization for first 3 years of repayment under the planⁱ

Yes 20 years Yes

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Repayment Plan

Eligible Loan

Types^a

Payment

Structure

Subsidized

Interest

Negative

Amortization

Permitted

Maximum

Repayment

Period

Forgiveness

at End of

Repayment

Period

based on original OPB and loan interest rate

Alternative Repayment Plans

Case-by-Case Basis^k (34 C.F.R. §685.221)

Subsidized Loans, Unsubsidized Loans, PLUS Loans, and Consolidation Loans

Based on individual borrower circumstances

—^l Based on individual borrower circumstances

30 years No

SAVE Alternative Repayment Plan (34 C.F.R. §685.209(l)(9)(iii)

Subsidized Loans, Unsubsidized Loans, PLUS Loans to graduate and professional students, and Consolidation Loans that did not repay a Parent PLUS Loan^h,m

Level payments equal to the amount the borrower would pay according to a standard repayment plan with a 10-year repayment period, based on the OPB the borrower owes when they are placed into the plan and the loan interest rate

No No 10 years from placement into the plan

—ⁿ

Source: HEA, §§455 and 493C; 34 C.F.R. §§685.208, 685.209, and 685.221. Notes: AGI = adjusted gross income; OPB = outstanding principal balance. a. Eligibility for certain plans may be contingent on when an individual became a new borrower, the period during which a borrower obtained a loan, or when a borrower’s loan entered repayment status, and borrower’s previous participation in other IDR plans. For details, see the “Loan Repayment Plans” section of this report.

b. The combined loan balance represents the sum of (1) the outstanding balances on all of the borrower’s loans eligible to be included in the Direct Consolidation Loan, plus (2) the outstanding balance of other federal education loans and private education loans to the extent that the balance of the other education loans is not greater than the balance of the Direct Consolidation Loan, the other education loans are not in default, and the other education loans were not borrowed from an individual. For additional details, see Table 5.

c. The loan balance represents the total amount of the borrower’s loans made through the Direct Loan program. For additional details, see Table 6.

d. To be eligible to repay loans according to this repayment plan, a borrower’s outstanding Direct Loan balance must exceed $30,000.

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e. This plan is available for all Consolidation Loans for which an application was received on or after July 1, 2006, including those that repaid Parent PLUS Loans. (U.S. Department of Education, “Income-Driven Repayment (IDR) Plan Request,” OMB. No. 1845-0102, p.9 https://studentaid.gov/sites/default/files/ IncomeDrivenRepayment-en-us.pdf).

f. Income percentage factors range from 50.52% to 200%, depending on a borrower’s AGI and income tax filing status.

g. For a married borrower who files a joint federal tax return with their spouse, the AGI for both spouses is used; for a married borrower who files a separate federal tax return, only the borrower’s AGI used.

h. This plan is available for Direct Consolidation Loans disbursed before July 1, 2025, that repaid a Consolidation Loan that repaid a Direct Parent PLUS Loan or FFEL Parent PLUS Loan.

i. Periods during which a borrower has received an interest subsidy while qualifying for an economic hardship deferment (during which an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of a Direct Consolidation Loan) or while enrolled in the SAVE repayment plan are excluded from the three-year period.

j. Prior to June 30, 2023, the SAVE repayment plan was named the Revised Pay As You Earn (REPAYE) plan. Regulations specify that the REPAYE repayment plan may also be referred to as the SAVE repayment plan.

k. Plan is available for borrowers who demonstrate that the terms and conditions of the other repayment plans are “not adequate to accommodate [their] exceptional circumstances.” 34 C.F.R. §685.221(a). The alternative repayment plans that are provided to borrowers on a case-by-case basis can be broken down into four distinct plans: the alternative fixed repayment plan, alternative fixed term repayment plan, the alternative graduated repayment plan, and the alternative negative amortization repayment plan. (U.S. Department of Education, Office of Federal Student Aid, Loan Repayment Plans, “Alternative Repayment Plans,” p. 9, https://fsapartners.ed.gov/sites/default/files/attachments/presentations/41LoanRepaymentPlansV1.pdf.) ED indicated to CRS that these distinct plans were offered to borrowers as of March 16, 2023. (Email communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs, March 16, 2023.) Since that time, ED has updated its regulations addressing alternative repayment plans. Those updated regulations do not delineate distinct repayment plans (see 34 C.F.R. §685.221). CRS has asked ED whether it will continue to offer the four aforementioned alternative repayment plans following the regulations’ updates but has not yet received a response. As such, it is unclear whether these four alternative repayment plans are still offered by ED.

l. Information currently unavailable to CRS.

m. This plan is only available to borrowers who were repaying according to the SAVE repayment plan and who failed to recertify their income and family size for

purposes of determining their monthly payment amounts.

n. Up to 12 months of repayment according to the SAVE Alternative repayment plan may count toward the maximum repayment period to qualify for loan forgiveness under the SAVE repayment plan. It appears that all periods of repayment according to the SAVE Alternative repayment plan may count toward the maximum repayment period to qualify for loan forgiveness under all other IDR plans.

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Fixed Repayment Plans

Fixed repayment plans are plans with monthly payments that are based on the amount of a borrower’s student loan debt, their loan’s interest rate, and a prescribed repayment period. They are divided into three subtypes: standard repayment plans, extended repayment plans, and graduated repayment plans.

Standard Repayment Plans

Standard repayment plans allow borrowers to make level payments (i.e., monthly payments that remain the same over the life of the loan) on their loans over a defined period of time. Two standard repayment plans are offered.

Standard Repayment Plan (34 C.F.R. §685.208(b))

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, regardless of when they entered repayment, and borrowers of Direct Consolidation Loans who entered repayment prior to July 1, 2006, may select a standard repayment plan that has a maximum repayment period of 10 years. According to this plan, borrowers make fixed monthly payments of not less than $50 over a period of 10 years; however, loans with small balances may be repaid in a period that is shorter than 10 years.¹²⁸

Standard Repayment Plan (34 C.F.R. §685.208(c))

Borrowers of Direct Consolidation Loans who entered repayment on or after July 1, 2006, may select a standard repayment plan that has a repayment period of between 10 and 30 years. Under this plan, borrowers make fixed monthly payments of not than less than $50.¹²⁹ The duration of the repayment period is based on the combined balances of the Direct Consolidation Loan and all other federal and private education loans owed by the borrower.¹³⁰ However, for purposes of determining the repayment period, the combined balance of the other education loans may not be greater than the balance of the Direct Consolidation Loan. Repayment periods for the Standard Repayment Plan specified in 34 C.F.R. §685.208(c)are shown in Table 5. (The repayment periods shown also apply to the Graduated Repayment Plan specified in 34 C.F.R. §685.208(h), which is discussed in a later section.)

Table 5. Repayment Periods: Standard Repayment Plan (34 C.F.R. §685.208(c)) and

Graduated Repayment Plan (34 C.F.R. §685.208(h))

Borrowers who entered repayment on or after July 1, 2006

Combined Loan Balance^a

at Start of Repayment 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

128 The last payment may be for less than $50.

129 The last payment may be for less than $50.

130 For additional details, see 34 C.F.R. §§685.208(c) and (j), 685.220(i), and U.S. Department of Education, Office of Federal Student Aid, “Repayment Plans: Standard Plan,” https://studentaid.gov/manage-loans/repayment/plans/ standard (accessed July 5, 2024).

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Combined Loan Balance^a

at Start of Repayment Repayment Period

$40,000, but less than $60,000 25 years

$60,000 or more 30 years

Source: 34 C.F.R. §§685.208(c), (h), and (j), and 685.220(i). a. The combined loan balance represents the sum of (1) the outstanding balances on all of the borrower’s loans eligible to be included in the Direct Consolidation Loan, plus (2) the outstanding balance of other federal education loans and private education loans to the extent that the balance of the other education loans is not greater than the balance of the Direct Consolidation Loan, the other education loans are not in default, and the other education loans were not borrowed from an individual.

Extended Repayment Plans

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans may elect to repay according to an extended repayment plan. The extended repayment plans afford borrowers with large total loan balances the opportunity to make lower monthly payments in return for extending the repayment of their loans for a longer duration. By extending the repayment period, interest accrues over a longer period of time; as a consequence, a larger amount of interest is paid by the borrower under an extended repayment plan than would be paid according to a standard repayment plan with a 10-year term. There are two extended repayment plans. Eligibility to select an extended repayment plan is limited based on when a borrower’s loans entered repayment and the total outstanding principal balance owed on loans made through the Direct Loan program.¹³¹

Extended Repayment Plan (34 C.F.R. §685.208(d))

This extended repayment plan is available to borrowers of loans made through the Direct Loan program who entered repayment prior to July 1, 2006. Under this plan, borrowers make monthly payments in equal amounts over a period that may range from 12 to 30 years from the date their loans entered repayment status. The minimum monthly payment amount is $50, and the duration of the repayment period depends on the outstanding principal balance of the borrower’s loans made through the Direct Loan program.¹³² The extension of the repayment period results in monthly payment amounts being lower than they would be under a standard repayment plan with a 10-year term. Repayment periods for the extended repayment plan, by loan amount, are shown below in Table 6. (The repayment periods shown in this table also apply to the Graduated Repayment Plan specified in 34 C.F.R. §685.208(f), which is discussed in the next section.)

Table 6. Repayment Periods: Extended Repayment Plan (34 C.F.R. §685.208(d)) and

Graduated Repayment Plan (34 C.F.R. §685.208(f))

Borrowers who entered repayment prior to July 1, 2006

Outstanding

Principal Balance^a Repayment Period

Less than $10,000 12 years

131 For information on these plans, see U.S. Department of Education, Office of Federal Student Aid, “Repayment Plans: Extended Plan,” https://studentaid.gov/manage-loans/repayment/plans/extended (accessed July 5, 2024).

132 In contrast to the Standard Repayment plan for Direct Consolidation Loans, amounts owed on other federal student loans and private education loans are not considered for purposes of determining the duration of the repayment period under this plan.

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Outstanding

Principal Balance^a Repayment Period

$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: 34 C.F.R. §685.208(d), (f) and (i). Notes: These repayment plans are available to borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans who entered repayment prior to July 1, 2006. a. Total OPB of loans made through the Direct Loan program.

Extended Repayment (34 C.F.R. §685.208(e))

This repayment plan is available to individuals who are new borrowers on or after October 7, 1998,¹³³ who enter repayment on or after July 1, 2006, and who have an outstanding balance of more than $30,000 on loans made through the Direct Loan program. Under this plan, borrowers may make monthly payments in equal amounts, or in amounts that increase every two years, over a period of 25 years from the date their loans entered repayment status. This results in monthly payment amounts being lower than they would be under a standard repayment plan with a 10- year term. The minimum monthly payment amount is $50.

Graduated Repayment Plans

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

Graduated Repayment Plan (34 C.F.R. §685.208(f))

Borrowers of loans made through the Direct Loan program who entered repayment prior to July 1, 2006, may repay their loans according to a graduated repayment plan with a repayment period that can range from 12 to 30 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may not be less than either $25 or 50% of the amount that would be required under a standard repayment plan with a 10-year repayment period, and are capped at 150% of the amount that would be required under a standard repayment plan with a 10-year repayment period. The duration of the repayment period is determined based on the total outstanding principal balance of the borrower’s loans made through the Direct Loan program. Repayment periods for this graduated repayment plan vary by loan balance, and are shown above in Table 6.

Graduated Repayment Plan (34 C.F.R. §685.208(g))

All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans who entered repayment on or after July 1, 2006, may select a graduated repayment plan that has a

133 For purposes of this repayment plan, a new borrower is an individual who has no outstanding balance or principal or interest on their Direct Loans as of October 7, 1998, or on the date they obtained a Direct Loan on or after October 7, 1998.

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maximum repayment period of 10 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may be less than $50 to an amount that may not be greater than three times any other payment.¹³⁴

Graduated Repayment Plan (34 C.F.R. §685.208(h))

Borrowers of Direct Consolidation Loans who entered repayment on or after July 1, 2006, may select a graduated repayment plan that has a repayment period of between 10 and 30 years. Under this plan, monthly payment amounts increase incrementally every two years from an initial amount that may be less than $50 to an amount that may not be greater than three times any other payment. The duration of the repayment period is based on the combined balances of the Direct Consolidation Loan and all other federal and private education loans owed by the borrower. However, for purposes of determining the repayment period, the combined balance of the other education loans may not be greater than the balance of the Consolidation Loan. ¹³⁵ Repayment periods for the Graduated Repayment Plan for Direct Consolidation Loans are shown above in Table 5.

Income-Driven Repayment (IDR) Plans

Since its establishment, the Direct Loan program has included a requirement that ED make available to borrowers (other than to parent borrowers of Direct PLUS Loans) an income-driven repayment (IDR) plan under which a borrower’s monthly payment amounts are to vary according to their income.¹³⁶ Two types of IDR plans, each of which has multiple subtypes, are available to borrowers: income-contingent repayment (ICR) plans and income-based repayment (IBR) plans.

In 1993,¹³⁷ under HEA Section 455(d)(1)(D) and 455(e), Congress required that ED was to offer borrowers an ICR plan “with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years.” In 1995, in response to this new authorization, ED promulgated regulations specifying the parameters of the first IDR plan, the Income-Contingent Repayment plan.¹³⁸

About 12 years later in 2007, Congress authorized another type of IDR plan under HEA Section 493C, the IBR plan.¹³⁹ This authorization specified in greater detail than the authorization for the ICR plans the terms of the IBR plan. For example, the IBR plan authorization specified that borrowers may make monthly payments generally equal to one-twelfth of 15% of their discretionary income and that the maximum repayment period is 25 years. Three years later, Congress amended HEA Section 493C to authorize a second subtype of IBR plan,¹⁴⁰ which was available only to new borrowers¹⁴¹ and which specified that monthly payments are to equal one-

134 For additional details on this repayment plan, see U.S. Department of Education, Office of Federal Student Aid, “Repayment Plans: Graduated Plan,” https://studentaid.gov/manage-loans/repayment/plans/graduated (accessed October 1, 2024).

135 For additional details on this repayment plan, see U.S. Department of Education, Office of Federal Student Aid, “Repayment Plans: Graduated Plan,” https://studentaid.gov/manage-loans/repayment/plans/graduated (accessed October 3, 2024).

136 HEA, §455(d)(1)(D).

137 Student Loan Reform Act (Title IV-A of the Omnibus Budget Reconciliation Act of 1993; P.L. 103-66).

138 U.S. Department of Education, “William D. Ford Federal Direct Loan Program,” 60 Federal Register 61820, December 1, 1995.

139 College Cost Reduction and Access Act (P.L. 110-84).

140 The SAFRA Act (Title II of the Health Care and Education Reconciliation Act of 2010; P.L. 111-152).

141 For purposes of this repayment plan, a new borrower is an individual who has no outstanding balance on a Direct (continued...)

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twelfth of 10% of a borrower’s discretionary income and that the maximum repayment period is 20 years.

Since that time, under the ICR plan provisions authorized in HEA Section 455, ED has promulgated regulations specifying new, additional types of ICR plans.¹⁴²

Several IDR plans are currently available to borrowers. Three subtypes of ICR plans are available: the ICR plan, the Pay As You Earn (PAYE) repayment plan, and the Saving on a Valuable Education (SAVE) repayment plan. Two subtypes of IBR plans are available: the Income-Based Repayment plan for individuals who qualify as a new borrower on or after July 1, 2014, and the IBR plan for individuals who do not qualify as a new borrower as of that date.

All of the IDR plans afford borrowers the opportunity to make monthly payments in amounts that are capped at a specified share or proportion of their discretionary income over a repayment period that may not exceed a specified duration.¹⁴³ Discretionary income is defined as the portion of a borrower’s adjusted gross income (AGI) that is in excess of a specified multiple of the federal poverty guidelines applicable to the borrower’s family size. In general, a borrower’s family size includes the borrower, the borrower’s spouse, and the borrower’s children, and other individuals who both live with the borrower and receive more than half of their support from the borrower.¹⁴⁴ The portion of a borrower’s income that is below the federal poverty guideline multiple applicable to a particular IDR plan may be considered nondiscretionary income, or income that may be needed for purposes of meeting certain basic needs such as food and shelter. Multiples of the federal poverty guidelines that are applicable to the IDR plans are presented below in Table 7 for family sizes of one through eight persons.

Table 7. 2024 Poverty Guidelines for the 48 Contiguous States and the

District of Columbia

(selected multiples)

Number of Persons in Family or Household

Multiple 1 2 3 4 5 6 7 8

100% $15,060 $20,440 $25,820 $31,200 $36,580 $41,960 $47,340 $52,720

150% $22,590 $30,660 $38,730 $46,800 $54,870 $62,940 $71,010 $79,080

225% $33,885 $45,990 $58,095 $70,200 $82,305 $94,410 $106,515 $118,620

Source: U.S. Department of Health and Human Services, “Annual Update of the HHS Poverty Guidelines,” 88 Federal Register 2961, January 17, 2024. Notes: For families/households with more than eight persons, add $5,380 for each additional person. Separate, higher poverty guidelines apply to Alaska and Hawaii. For example, 100% of the poverty guideline for a one- person family/household is $18,810 in Alaska, and $17,310 in Hawaii. If a borrower is not a resident of a state, the poverty guidelines applicable to the 48 contiguous states and the District of Columbia are used. (34 C.F.R. §685.209(b)). Poverty guidelines are adjusted annually based on the percentage change in the Consumer Price Index for All Urban Consumers (CPI-U).

Loan program or FFEL program loan on July 1, 2014, or who has no outstanding balance on such a loan on the date they obtain a loan after July 1, 2014. HEA §493C(e).

142 For additional information on the history of IDR plans, see CRS Report R47418, The Department of Education’s Notice of Proposed Rulemaking on Improving Income-Driven Repayment for the Direct Loan Program: Frequently Asked Questions.

143 34 C.F.R. §685.209(b).

144 34 C.F.R. §685.209(b). Borrowers are required to certify their family size once per year. A borrower’s children may include unborn children expected to be born during the year the borrower certifies family size.

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The various IDR plans are primarily distinguished by (1) the multiple (e.g., 100%, 150%, 225%) of the federal poverty guideline used to define discretionary income, (2) the percentage of a borrower’s discretionary income (e.g., 5%, 10%, 20%) that is used to determine their monthly payment, (3) the maximum duration of the repayment period (e.g., 10 years/120 months, 20 years/240 months, 25 years/300 months). The IDR plans also share other common characteristics that include the following:

• Required certification of income and family size. The processes for determining IDR plan monthly payment amounts take into account a borrower’s income and family size. Consequently, to initially enroll in an IDR plan, borrowers must certify their income and family size to ED. Thereafter, borrowers must also annually recertify this information to remain in an IDR plan.¹⁴⁵ To certify this information, a borrower may provide approval for ED to obtain relevant federal income tax information (e.g., AGI, number of dependents) from the Internal Revenue Service (IRS).¹⁴⁶ If a borrower does not provide this approval, or if ED cannot obtain the relevant information from the IRS, a borrower must provide documentation of their income and family size to ED. If a borrower believes that the payment amount does not reflect their current income or family size (for example, if their income has decreased prior to their scheduled recertification date), they may request that ED recalculate their payment amount based on alternative income or family size documentation provided by the borrower.¹⁴⁷

• Potential automatic placement in an IDR plan. Because monthly payments under an IDR plan are based on a borrower’s income and can be as low as $0, these plans may be helpful to borrowers in avoiding loan default or in exiting default. ED places a borrower in the IDR plan that results in the lowest monthly payment based on the borrower’s income and family size if the borrower (1) is at least 75 days delinquent on their loan or is in default but is not subject to federal offset (e.g., offset of federal income tax returns), administrative wage garnishment, or judgment through litigation; (2) is otherwise eligible for the repayment plan; (3) has approved disclosure of tax information by the IRS to ED; and (4) as determined by ED, would have lower or equal monthly payments under the IDR plan when compared to the plan in which the borrower is currently enrolled.¹⁴⁸

• Removal from default. Under all IDR plans, a borrower’s monthly payment may be as low as $0. Thus, if a defaulted borrower provides ED with information necessary to calculate their monthly payment under an IDR plan, the calculated payment is $0, and the income information used to calculate the IDR payment

145 In light of the COVID-19 pandemic, ED has stated that borrowers will not be required to recertify their income until at least September 2024. U.S. Department of Education, Office of Federal Student Aid, “Coronavirus and Forbearance Info for Students, Borrowers, and Parents,” https://studentaid.gov/announcements-events/covid-19/income-driven- repayment#when-to-recertify (accessed July 1, 2024).

146 HEA §§455(e)(8) and 493C(c)(2). A borrower may provide this approval as part of the process for completing a Direct Loan Master Promissory Note, a Direct Consolidation Loan Application and Promissory Note, or an application for an IDR plan. 34 C.F.R. §685.209(f)(1).

147 34 C.F.R. §685.209(l)(10).

148 34 C.F.R. §685.209(m).

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includes the date on which the loan defaulted, ED “no longer considers a borrower in default” on the loan.¹⁴⁹

• Potential negative amortization. IDR plan payment amounts are generally equal to a certain proportion of a borrower’s discretionary income. As a result, in some circumstances required payment amounts may be less than the amount of interest that accrues, which may lead to a borrower’s loan(s) becoming negatively amortized.¹⁵⁰

• Potential availability of loan forgiveness. All the IDR plans make available the prospect of eventual loan forgiveness. To receive forgiveness, a borrower must make, according to one or more of the IDR plans, the equivalent number of monthly payments that correspond to the plan’s maximum repayment period. For example, if a borrower is repaying their loan according to the PAYE repayment plan with a maximum repayment period of 20 years, they would be required to make 240 months’ worth of qualifying payments over a period of at least 20 years to be eligible for forgiveness. A borrower’s remaining outstanding loan balance, including any unpaid interest, is forgiven once they have fulfilled this requirement.¹⁵¹

Each of the IDR plans are described in detail below.

In April 2022, in response to the COVID-19 pandemic and to address “historical failures in the administration of the federal student loan programs,”¹⁵² ED announced a one-time adjustment to borrower loan accounts to revise the number of IDR-qualifying payments for the purposes of satisfying the maximum repayment period for IDR plans. For information on this adjustment, see Appendix D.

Income-Contingent Repayment (ICR) Plans

Under HEA Section 455(d)(1)(D), ED is to make available to borrowers an ICR plan “with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years.”¹⁵³ Asserting this authority, ED has crafted several types of ICR plans, all of which tie a borrower’s monthly payment amount to a specified percentage of their discretionary income (i.e., the amount by which their AGI exceeds a specified multiple of the federal poverty guidelines) and offer forgiveness of a borrower’s remaining loan and unpaid interest balance after making payments for a maximum repayment period. Currently three ICR plans are available: the Income-Contingent repayment plan, the Pay As You Earn repayment plan, and the Saving on a Valuable Education repayment plan.

149 34 C.F.R. §685.209(n).

150 To offset some of the adverse effects of negative amortization, all of the IDR plans except the ICR plan offer some form of interest subsidy to borrowers whose loans are in a period of negative amortization.

151 Forgiven, or discharged, indebtedness may be subject to being included as part of a borrower’s gross income for federal, and possibly state, income tax purposes. For additional information, see the “Tax Treatment of Discharged and Forgiven Debt” section.

152 U.S. Department of Education, “Department of Education Announces Actions to Fix Longstanding Failures in the Student Loan Programs,” press release, April 19, 2022, https://www.ed.gov/about/news/press-release/department-of- education-announces-actions-fix-longstanding-failures.

153 See also HEA §455(e).

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The Income-Contingent Repayment Plan

Under the Income-Contingent Repayment plan, borrowers make payments on eligible student loans in amounts that are determined according to procedures that take into account a borrower’s AGI and family size. Any loan balance that remains unpaid after 25 years of repayment according to the ICR plan and other qualified plans will be forgiven. By and large, specifications for the ICR plan are established by the Secretary in regulations.¹⁵⁴

Eligibility. The ICR plan is available to borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate and professional students, and Direct Consolidation Loans.¹⁵⁵ Direct PLUS Loans made to parent borrowers are not eligible to be repaid according to the ICR plan; however, parent borrowers of Direct PLUS Loans may qualify to repay those loans according to the ICR plan by consolidating them into a Direct Consolidation Loan.¹⁵⁶ Defaulted loans may not be repaid according to this plan. Borrowers are eligible to repay according to the ICR plan if they were repaying under the plan on July 1, 2024. A borrower who was repaying under the ICR plan on July 1, 2024, and who changes to another repayment plan may not re-enroll in the ICR plan unless they are repaying a Direct Consolidation Loan disbursed on or after July 1, 2006, that repaid a Parent PLUS Loan. Effective July 1, 2025, the ICR is the only IDR plan for which Direct Consolidation Loans that repaid a Consolidation Loan that included a Parent PLUS Loan are eligible.¹⁵⁷ A borrower’s eligibility to repay according to the ICR plan is not limited by specific income restrictions.

Payment Amounts. Under the ICR plan, monthly payment amounts are calculated according to procedures that take into account factors including the outstanding loan balance at the time the borrower began repaying under the ICR plan, the interest rates applicable to those loans, the amount of any unpaid accrued interest, the borrower’s AGI and family size, and an income percentage factor. For a married borrower who files a joint federal tax return with their spouse, the AGI for both spouses is used¹⁵⁸; for a married borrower who files a separate federal tax return, only the AGI of the borrower is used. Consistent with these criteria, monthly payment amounts are the lesser of

• a monthly payment amount calculated according to a 12-year amortization schedule, based on the outstanding principal balance at the time the borrower began repaying under the ICR plan, multiplied by an income percentage factor that corresponds to the borrower’s AGI and tax filing status;¹⁵⁹ or

154 Unless otherwise noted, the description of the ICR plan hereafter is based on 34 C.F.R. §685.209, as in effect July 1, 2024.

155 The repayment of Direct Consolidation Loans according to the ICR plan is not restricted based on the types of loans that have been included in a Direct Consolidation Loan such as Parent PLUS Loans.

156 HEA §455(d)(1)(D).

157 In some instances, Parent PLUS Loans may have been consolidated into a Consolidation Loan. The resulting Consolidation Loan could then be consolidated into another Consolidation Loan (sometimes referred to as reconsolidation), which, due to ED data limitations, enabled some borrowers of Parent PLUS Loans ultimately to enroll in several other IDR plans. SAVE Plan Final Rule, 43821.

158 For a married borrower who jointly files a federal tax return with their spouse and who certifies that they are currently separated from their spouse or “are currently unable to reasonably access their spouse’s income,” only the borrower’s AGI is used. 34 C.F.R. §685.209(e)(1)(ii)(A).

159 Income percentage factors range from 50.52% to 200%, depending on a borrower’s AGI and income tax filing status. Income percentage factors for selected AGI amounts and tax filing statuses are specified in a table published annually by ED; and for borrowers whose AGI falls between amounts listed in the table, linear interpolation is used to determine their income percentage factor. See U.S. Department of Education, Office of Federal Student Aid, “Annual Updates to the Income Contingent Repayment (ICR) Plan Formula for 2024—William D. Ford Federal Direct Loan Program,” 89 Federal Register, 23990, April 5, 2024.

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• one-twelfth of 20% of the borrower’s discretionary income, which is defined as the borrower’s AGI that exceeds 100% of the federal poverty guideline applicable to the borrower’s family size for purposes of the ICR plan (see Table 7).

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

Joint ICR Plan Repayment for Married Borrowers. Borrowers of loans made through the Direct Loan program who are married may elect to repay their loans jointly. Under this option, the sum of the outstanding loan balances of each borrower, as of the time they elect joint repayment, and the combined income of each borrower, is used to determine their combined monthly payment amount according to the procedures described above for the ICR plan. In general, payments made by married borrowers repaying jointly are applied to each borrower’s loans in proportion to each borrower’s share of the combined outstanding balance; however, the combined payment is credited toward the outstanding interest on any loan being repaid under the plan before the payment is credited toward principal.¹⁶⁰

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

Application of Payments. Payments made by borrowers under the ICR plan are first applied to any outstanding charges or collection costs, then to outstanding interest due on the loan, and then to principal.¹⁶¹ Under the ICR plan formula, it is possible that a borrower’s monthly payment amount may be for less than the amount of interest that has accrued since the last payment. Should this occur, ED is to continue to charge the amount of unpaid accrued interest to the borrower.

Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to the ICR plan, borrowers must annually certify their income and family size to ED as described above in “Income-Driven Repayment (IDR) Plans.” If the borrower does not provide annual certification of income or family size, their monthly payment amount will be recalculated to equal the amount the borrower would have paid according to the standard repayment plan with a 10- year repayment period, based on the amount owed at the time they first elected to repay according to the ICR plan. The repayment period according to the recalculated payment amount may exceed 10 years.

Maximum Repayment Period and Loan Forgiveness. The ICR plan has a maximum repayment period of 25 years. If after making the equivalent of 300 qualifying monthly payments on a nondefaulted loan over a period of at least 25 years according to the ICR plan, a borrower still has an outstanding balance or unpaid accrued interest, the remaining balance will be discharged (i.e., forgiven). Borrowers receive credit toward the maximum repayment period for qualifying monthly payments under the ICR plan for periods during which they

• made monthly payments (including payments of $0) according to any IDR plan;

160 34 C.F.R. §685.209(b)(2).

161 34 C.F.R. §685.211(a)(1)(i).

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• made monthly payments according to the standard repayment plan with a 10-year repayment period;

• made monthly payments under a repayment plan with payments that are at least as much as they would have been under the standard repayment plan with a 10- year repayment period;

• made monthly payments under the SAVE Alternative repayment plan

• received a cancer treatment deferment;

• received a rehabilitation training program deferment;

• received an unemployment deferment;

• received an economic hardship deferment, which includes volunteer service in the Peace Corps;

• received a military service deferment;

• received a post-active duty student deferment;

• received a national service forbearance on or after July 1, 2024;

• received a National Guard duty forbearance on or after July 1, 2024;

• received a Department of Defense Student Loan Repayment forbearance on or after July 1, 2024;

• received an administrative forbearance due to a national military mobilization or other loan or national emergency on or after July 1, 2024;

• received an administrative forbearance for periods necessary for ED to collect and process documentation supporting a borrower’s request for a deferment, forbearance, change in repayment plan, or loan consolidation on or after July 1, 2024;

• received a bankruptcy forbearance on or after July 1, 2024, if the borrower made required payments on a “confirmed bankruptcy plan”¹⁶² or

• had monthly payments suspended under the COVID-19 payment pause (see Appendix D).

For periods of deferment or forbearance not listed above (e.g., an in-school deferment), borrowers may make “catch-up payments” to receive credit toward the ICR maximum repayment period for any months spent in such deferments and forbearances. To do so, a borrower must, within three years of the end of the applicable deferment or forbearance period, make additional payments on their loans equal to or greater than the monthly payment amount under their current IDR plan (including payments of $0). Borrowers may only make catch-up payments for deferment or forbearance periods that occur after July 1, 2024.

To earn credit towards the maximum repayment period, during periods when the required monthly payment is greater than $0, a borrower must pay at least the full scheduled amount due for the month but may do so in multiple installments.¹⁶³ Additionally, borrowers may make payments under any IDR plan or the standard repayment plan with a 10-year repayment period as a lump sum. That is, borrowers may make payments that are greater than the full scheduled amount of their monthly payment in advance of their scheduled payment due date for a period of

162 34 C.F.R. §685.209(k)(4)(iv)(K).

163 34 C.F.R. §§685.209(k)(4)(v) and 685.219(c)(2)(ii). For example, if a borrower’s monthly payment amount was $100, they could make two $50 payments to satisfy their monthly payment requirement.

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up to 12 months at a time and would receive credit toward the maximum repayment period for those corresponding months.¹⁶⁴

Payments made on Consolidation Loans that meet the criteria above count toward the Consolidation Loan’s ICR maximum repayment period. Each borrower of a JCL that is later separated into individual Consolidation Loans would receive credit toward forgiveness on their new individual Consolidation Loans for the number of ICR qualifying months made on the JCL prior to separation.

Special rules apply to calculating a Consolidation Loan’s ICR qualifying payments when the loans repaid by the Consolidation Loan had ICR qualifying payments. Borrowers receive credit toward their Consolidation Loan’s maximum repayment period for payments made on Direct Loan program and FFEL program loans repaid by the Consolidation Loan if those payments were otherwise considered qualifying (including qualifying periods of deferment and forbearance) for purposes of the ICR plan.¹⁶⁵ If the prior loans repaid by the Consolidation Loan had different qualifying payment counts, a borrower receives credit toward their Consolidation Loan maximum repayment period for the weighted average of qualifying payments made on the prior loans, based on each prior loans’ OPB, and rounded up to the nearest whole month. An example of the calculation to determine the number of ICR qualifying payments on Consolidation Loans is provided in the text box below.

Calculating Consolidation Loan ICR Qualifying Payments: Weighted Average of

Qualifying Payments

Loan #1, Amount Outstanding at Consolidation and Number of ICR Qualifying Payments: $20,000 and 60 Loan #2, Amount Outstanding at Consolidation and Number of ICR Qualifying Payments: $40,000 and 10 ICR Qualifying Payments Weighted Averaged = [($20,000 x 60) + ($40,000 x 10)/($20,000 + $40,000)= 27

Pay As You Earn (PAYE) Repayment Plan

The Pay As You Earn (PAYE) repayment plan is another type of ICR plan and is substantially similar to the IBR plan for post-July 1, 2014, New Borrowers (see below). The plan permits borrowers to repay eligible loans according to procedures that limit monthly payment amounts based on criteria that take into account a borrower’s AGI, family size, and monthly payment amount as calculated according to a standard repayment plan with a 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 they elect to repay according to the PAYE repayment plan. For borrowers who repay according to this plan, any loan balance that remains after 20 years of

164 34 C.F.R. §§685.209(k)(4)(v) and 685.219(c)(2)(iii).

165 Specifically qualifying payments and periods on FFEL program loans that could be credited toward a borrower’s Direct Consolidation Loan include those in which a borrower (1) made reduced monthly payments (including payments of $0) according to an IBR plan—the only IDR plan for which FFEL program loans are eligible—while experiencing a partial financial hardship; (2) made reduced monthly payments after no longer having a partial financial hardship or after ceasing to make income-based payments as specified in 34 C.F.R. §682.21(d)(1); (3) made monthly payments according to any repayment plan in amounts not less than the amount required under the standard repayment plan with a 10-year repayment period, based on the amount owed at the time the loans initially entered repayment; (4) made monthly payments according to the standard repayment plan with a 10-year repayment period; or (5) received an economic hardship deferment. 34 C.F.R. §685.209(k)(4)(vi)(A).

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repayment will be forgiven.¹⁶⁶ The plan became available to eligible borrowers on December 21, 2012.¹⁶⁷

The PAYE repayment plan was established by the Obama Administration through the rulemaking process under authority provided in the HEA for the Secretary to establish an income-contingent repayment plan.¹⁶⁸ With the establishment of the PAYE repayment plan, a set of benefits substantially similar to those that had been extended to a specific class of borrowers through the enactment of legislation (the IBR Plan for post-July 1, 2014, New Borrowers) was extended to a broader class of borrowers through the rulemaking process.

Eligibility. The PAYE repayment plan is available to individuals who (1) are new borrowers on or after October 1, 2007; (2) have received a disbursement on a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS Loan to graduate and professional students on or after October 1, 2011, or a Direct Consolidation Loan based on an application received by ED on or after October 1, 2011; and (3) have a partial financial hardship (PFH) (see below).¹⁶⁹ Borrowers are eligible to repay according to the PAYE repayment plan if they were repaying under the plan on July 1, 2024. A borrower who was repaying under the PAYE repayment plan on July 1, 2024, and who changes to another repayment plan may not re-enroll in the PAYE repayment plan.

In general, eligible borrowers may use the plan to repay loans made through the Direct Loan program, excluding Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans used to repay either Direct PLUS Loans or FFEL PLUS Loans that had been made to parent borrowers.¹⁷⁰ Defaulted loans may not be repaid according to this plan.

Partial Financial Hardship. In general, a borrower is considered to have a PFH if the total of their annual payments on all eligible loans,¹⁷¹ as calculated according to a standard repayment plan with a 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 they elect to repay according to the PAYE repayment plan, is greater than 10% of the amount by which the borrower’s AGI exceeds 150% of the poverty line applicable to their family size (i.e., discretionary income for purposes of the PAYE repayment plan). That is, a borrower is considered to have a PFH if they would pay more annually on their loans under a standard repayment plan with a 10-year repayment period than they would under the PAYE repayment plan.

If a borrower is single or is married and files an individual federal tax return, their PFH status is determined as specified above based on the total annual payments for all of the borrower’s

166 Unless otherwise noted, the description of the PAYE repayment plan hereafter is based on 34 C.F.R. §685.209, as in effect July 1, 2024.

167 U.S. Department of Education, “William D. Ford Federal Direct Loan Program,” 77 Federal Register 72960, December 7, 2012.

168 HEA, §455(d)(1)(D) and (e); 34 C.F.R. §685.209(a).

169 For purposes of this repayment plan, a new borrower is an individual who (1) has no outstanding balance of principal or interest on a Direct Loan or FFEL program loan as of October 1, 2007, or on the date they obtained a Direct Loan or FFEL program loan on or after October 1, 2007, and (2) receives a disbursement of a Direct Loan program loan on or after October 1, 2011. However, an individual is not considered a new borrower if their Direct Consolidation Loan repaid a loan that would otherwise make the borrower ineligible under (1) above.

170 This plan is available for Direct Consolidation Loans disbursed before July 1, 2025, that repaid a Consolidation Loan that repaid a Direct Parent PLUS Loan or FFEL Parent PLUS Loan. See footnote 157 for additional information.

171 While loans made through the FFEL program may not be repaid according to the PAYE repayment plan, all loans made on or after October 1, 2007, through the Direct Loan program and the FFEL program (with the exceptions of Direct PLUS Loans or FFEL PLUS Loans made to parent borrowers, and Direct Consolidation Loans or FFEL Consolidation Loans that include such loans) are considered eligible loans for purposes of determining whether a borrower has a partial financial hardship and for adjusting monthly payment amounts.

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eligible loans and the borrower’s AGI. If a borrower is married and files a joint federal tax return, their PFH status is determined as specified above based on the total annual payments for all of the borrower’s eligible loans and, if applicable, their spouse’s eligible loans and the couple’s combined AGI.¹⁷² If the total annual payments for all of the borrower’s (and their spouse’s, if applicable) eligible loans, as calculated according to the standard repayment plan with a 10-year period, do not exceed 10% of their (and their spouse’s, if applicable) discretionary income, the borrower is no longer considered as having a PFH.

Payment Amounts. During periods while a borrower has a PFH and repays according to the PAYE repayment plan, monthly amounts due on a borrower’s loans may range from $0, for those with incomes at or below 150% of the poverty line, to a maximum of one-twelfth of 10% of their discretionary income.

If a borrower who is repaying according to the plan no longer demonstrates having a PFH or no longer wants to make payments based on income, they may remain in the PAYE repayment plan, but their monthly payment amount will no longer be calculated using the formula above. Instead, their required payment will be equal to the monthly payment amount due as calculated according to a standard repayment plan with a 10-year repayment period based on the borrower’s loan balance at the time they elected to begin repaying according to the PAYE repayment plan. However, the duration of the repayment period may exceed 10 years.

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

For purposes of calculating monthly payment amounts under the PAYE repayment plan, if the borrower is unmarried or is married but files a separate federal tax return, the borrower’s AGI is used. In general, if the borrower is married and files a joint federal tax return with their spouse, the AGI of both the borrower and their spouse is used. If a borrower is married and certifies that they are separated from their spouse, or is unable to access information on the income of their spouse, then only the borrower’s AGI is used. Additionally, if a borrower’s monthly payment is based on both the borrower’s and their spouse’s income and the spouse also owes a Direct Loan program or FFEL program non-Parent PLUS Loan (or Consolidation Loan used to repay a non- Parent PLUS Loan), then the borrower’s monthly payment under the PAYE repayment plan is further adjusted. Specifically, the borrower’s monthly payment is equal to the calculated payment amount multiplied by the percentage of the couple’s combined student loan debt attributable to the borrower.¹⁷³

Joint Repayment for Married Borrowers. Married borrowers may not repay their loans jointly under the PAYE repayment plan.

Subsidized Interest. An interest subsidy is available on subsidized loans during periods of negative amortization for a maximum of the first three consecutive years from the start of repayment according to the PAYE repayment plan. If a borrower’s calculated monthly payment is insufficient to pay all of the interest that accrues on a Direct Subsidized Loan (or the subsidized

172 For a married borrower who jointly files a federal tax return with their spouse and who certifies that they are currently separated from their spouse or “are currently unable to reasonably access their spouse’s income,” only the borrower’s AGI and eligible student loans are used to determine PFH. 34 C.F.R. §685.209(e)(1)(i)(A) and (2)(i).

173 Similarly, when a borrower has outstanding eligible FFEL program loans, the borrower’s monthly payment amount on Direct Loans being repaid under the PAYE repayment plan is adjusted by multiplying it by the portion of their total outstanding loan debt attributable to their Direct Loan program loans.

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component of a Direct Consolidation Loan), the portion of the accrued interest that is not covered by their monthly payment is subsidized (i.e., not charged) for a period not to exceed three years. Periods during which a borrower has received an interest subsidy while qualifying for an economic hardship deferment (during which an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of a Direct Consolidation Loan) are excluded from the three-year eligibility period.

Application of Payments. Payments made by borrowers repaying according to the PAYE repayment plan are first applied to any outstanding charges or collection costs, then to outstanding interest due on the loan, and then to principal.¹⁷⁴ If a borrower’s required monthly payment is for an amount that is less than the amount of interest that accrues, the unpaid accrued interest will accumulate, but not be capitalized.

Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to the PAYE repayment plan, borrowers must annually provide certification of their income and family size to ED, as described in “Income-Driven Repayment (IDR) Plans.” If annual certification of income or family size is not provided, the borrower’s monthly payment amount will be recalculated to equal the amount the borrower would have paid according to the standard repayment plan with a 10-year repayment period, based on the amount owed at the time they first elected to repay according to the plan. The repayment period based on the recalculated payment amount may exceed 10 years.

Maximum Repayment Period and Loan Forgiveness. The PAYE repayment plan has a maximum repayment period of 20 years. If after making the equivalent of 240 qualifying monthly payments on a nondefaulted loan over a period of at least 20 years according to the PAYE plan, any outstanding balance of principal and unpaid interest will be forgiven. Borrowers receive credit for qualifying monthly payments toward the maximum repayment period under the PAYE plan for the same periods and under the same circumstances for which they receive credit under the ICR plan, as described in the “The Income-Contingent Repayment Plan” section. Borrowers may make catch-up payments to receive credit toward the PAYE maximum repayment period for certain nonqualifying periods and for Consolidation Loans in the same manner as under the ICR plan.

Saving on a Valuable Education (SAVE) Repayment Plan

The Saving on a Valuable Education (SAVE) repayment plan permits borrowers to repay eligible loans made through the Direct Loan program according to procedures that limit monthly payment amounts based on criteria that take into account a borrower’s AGI and family size. The maximum repayment period varies from 10 to 25 years, depending on the original principal balance of all loans being repaid under the SAVE repayment plan and whether a borrower is repaying loans made exclusively for undergraduate education or whether they are repaying any loans for graduate or professional education. Any loan balance that remains after the maximum repayment period will be forgiven.¹⁷⁵

The Obama Administration established the SAVE repayment plan’s predecessor—the Revised Pay As You Earn (REPAYE) repayment plan through the rulemaking process under authority provided under HEA Sections 455(d)(1)(D) and 455(e) for the Secretary to establish an income-

174 34 C.F.R. §685.211(a)(1).

175 Unless otherwise noted, the description of the SAVE repayment plan hereafter is based on 34 C.F.R. §685.209, as in effect July 1, 2024.

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contingent repayment plan.¹⁷⁶ The REPAYE repayment plan had a number of characteristics that were similar to the other IDR plans. In 2023, the Biden Administration made a number of amendments to the REPAYE plan, including renaming it the SAVE repayment plan.¹⁷⁷

Eligibility. In general, the SAVE repayment plan is available to borrowers of loans made through the Direct Loan program except for Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans used to repay either Direct PLUS Loans or FFEL PLUS Loans that had been made to parent borrowers.¹⁷⁸ The plan is available to borrowers irrespective of when they became a new borrower. A borrower’s eligibility to repay according to the SAVE repayment plan is not limited based on factors that take into account the relationship between their student loan debt and discretionary income (i.e., borrowers need not demonstrate anything akin to having a partial financial hardship to repay according to the SAVE repayment plan). Defaulted loans may not be repaid according to this plan.¹⁷⁹

Payment Amounts. While repaying according to the SAVE repayment plan, monthly amounts due on borrowers’ loans may range from $0, for those with incomes at or below 225% of the federal poverty line, to a maximum of one-twelfth of 10% of any amount by which a borrower’s AGI exceeds 225% of the poverty line (the definition of discretionary income for purposes of the SAVE repayment plan). Specifically, individuals who borrowed exclusively for undergraduate education have monthly payment amounts equal to one-twelfth of 5% of their discretionary income. Individuals who borrowed exclusively for graduate or professional education have monthly payment amounts equal to one-twelfth of 10% of their discretionary income. Individuals who borrowed for both undergraduate and graduate or professional education have monthly payment amounts equal to the weighted average of 5% and 10%, as applicable, based on the original principal balances of the respective loans.

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

For purposes of calculating monthly payment amounts under the SAVE repayment plan, if the borrower is unmarried or is married but files a separate federal tax return, the borrower’s AGI is used. In general, if the borrower is married and files a joint federal tax return with their spouse, the AGI of both the borrower and their spouse is used. If a borrower is married and certifies that they are separated from their spouse or is unable to access information on the income of their spouse, then only the borrower’s AGI is used. Additionally, if a borrower’s monthly payment is based on both the borrower’s and their spouse’s income and the spouse also a Direct Loan program or FFEL program non-Parent PLUS Loan (or Consolidation Loan used to repay a non- Parent PLUS Loan), then the borrower’s monthly payment under the SAVE repayment plan is

176 U.S. Department of Education, “Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program,” 80 Federal Register 67204, October 30, 2015.

177 SAVE Plan Final Rule.

178 This plan is available for Direct Consolidation Loans disbursed before July 1, 2025, that repaid a Consolidation Loan that repaid a Direct Parent PLUS Loan or FFEL Parent PLUS Loan. See footnote 157 for additional information.

179 A borrower who made payments under the IBR plan and successfully completed rehabilitation of their defaulted loan may choose to pay according to the SAVE repayment plan when their loan is returned to current status. Additionally, ED may place a borrower in the SAVE repayment plan if the borrower rehabilitated their loan on or after July 1, 2024, and if the borrower’s minimum payment amount under the SAVE repayment plan would be equal to or less than the minimum payment amount under the IBR Plan. 34 C.F.R. §§685.210(b)(3) and 685.211(d)(13) and see SAVE Plan Final Rule, p. 43864.

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further adjusted. Specifically, the borrower’s monthly payment is equal to the calculated payment amount multiplied by the percentage of the couple’s combined student loan debt attributable to the borrower.¹⁸⁰

Joint Repayment for Married Borrowers. Married borrowers may not repay their loans jointly under the SAVE repayment plan.

Subsidized Interest. Under the SAVE repayment plan, an interest subsidy is available on all loans being repaid under the plan during all periods of negative amortization. If a borrower’s calculated monthly payment is not sufficient to pay all of the interest that accrues, 100% of the portion of the accrued interest that is not covered by their monthly payment is subsidized (i.e., not charged).

For graduate students who borrow Direct PLUS Loans, in lieu of receiving an in-school deferment in which interest would accrue at the otherwise applicable interest rate, such borrowers may be able to qualify for the interest subsidy and instead, may not be charged interest while in school. Specifically, for Direct PLUS Loans, the repayment period begins the day the loan is fully disbursed. However, borrowers who are enrolled on at least a half-time basis qualify for and typically receive an in-school deferment during which they are not required to make payments, but during which interest accrues. Student borrowers are placed in an in-school deferment upon requesting such a deferment or the Secretary receiving notification from the borrower’s school or the National Student Loan Data System (NSLDS) that the student is enrolled on at least a half- time basis. Nonetheless, borrowers who receive an in-school deferment have the option to cancel it. While in school, borrowers’ AGI may be low enough to result in a monthly payment of $0 under the SAVE repayment plan. A $0 monthly payment would be insufficient to pay all of the interest that accrues on their loan. Thus, such borrowers may consider choosing to cancel the receipt of an in-school deferment in favor of receiving an interest subsidy on all of the interest that would accrue on their loans while in school at a $0 monthly payment.¹⁸¹

Application of Payments. Payments made by borrowers repaying according to the SAVE repayment plan are first applied to any outstanding charges or collection costs, then to outstanding interest due on the loan, and then to principal.¹⁸²

Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to the SAVE repayment plan, borrowers must annually provide certification of their income and family size to ED, as described in “Income-Driven Repayment (IDR) Plans.” Certification of income is normally satisfied by providing the borrower’s AGI. If a borrower fails to annually certify their income or family size, they will be placed in the SAVE Alternative repayment plan.

SAVE Alternative Repayment Plan. Borrowers repaying according to the SAVE repayment plan who fail to provide timely certification of their income and family size are removed from the SAVE repayment plan and placed into the SAVE Alternative repayment plan. Under the SAVE Alternative repayment plan, monthly payment amounts equal the amount the borrower would have paid under a standard repayment plan with a 10-year repayment period based on the borrower’s outstanding loan balance at the time they are placed in the SAVE Alternative

180 Similarly, when a borrower has outstanding eligible FFEL program loans, the borrower’s monthly payment amount on Direct Loans being repaid under the SAVE repayment plan is adjusted by multiplying it by the portion of their total outstanding loan debt attributable to their Direct Loan program loans.

181 Similarly, while in school, some graduate students who borrow PLUS Loans may have incomes high enough to result in a monthly payment that is greater than $0 but that is also insufficient to repay all of the interest that accrues on their loan. These individuals might also consider choosing to cancel the receipt of an in-school deferment in favor of receiving an interest subsidy on the portion of the interest that would not be covered by their monthly payment amount.

182 34 C.F.R. §685.211(a)(1)(i).

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repayment plan. Up to 12 months’ worth of payments made according to the SAVE Alternative repayment plan count as qualifying payments toward satisfying the maximum repayment period under the various IDR plans.

Maximum Repayment Period and Loan Forgiveness. In the SAVE repayment plan, the maximum repayment period ranges from 10 to 25 years, depending on the original principal balance of all loans beings repaid under the SAVE repayment plan and whether a borrower is repaying loans made exclusively for undergraduate education or whether they are repaying any loans for graduate or professional education. Individuals whose total original principal loan balance for all loans being paid under the SAVE repayment plan is less than or equal to $12,000, have a maximum repayment period of 10 years. The maximum repayment period increases by one year for each $1,000 borrowed above $12,000. Regardless of the amount of a borrower’s total original principal loan balance, the maximum repayment period is capped at 20 years for individuals who borrowed exclusively for undergraduate education and 25 years for individuals who borrowed any amount for graduate or professional education. Table 8 summarizes the maximum repayment periods under the SAVE repayment plan, as well as the number of monthly payments associated with those maximum repayment periods.

If after making a number of monthly payments according to the SAVE repayment plan equivalent to the applicable maximum repayment period on a nondefaulted loan for the duration of at least the applicable maximum repayment period (e.g., 240 qualifying monthly payments for at least 20 years), a borrower has an outstanding balance of principal and unpaid interest, that remaining unpaid balance will be forgiven. Borrowers receive credit for qualifying monthly payments under the SAVE repayment plan for the same periods and under the same circumstances for which they receive credit under the ICR plan, as described in the “Income-Contingent Repayment (ICR) Plans” section. Borrowers may make catch-up payments to receive credit toward the applicable SAVE maximum repayment period for certain nonqualifying periods and for Consolidation Loans in the same manner as under the ICR plan.

Table 8. SAVE Repayment Plan Maximum Repayment Periods and

Monthly Payment Numbers

By total original principal balance and level of education for which loans were obtained

Undergraduate Education Only

Graduate or

Professional Education^a

Total Original Principal

Balance (TOPB) Years

Monthly

Payments Years

Monthly

Payments

TOPB ≤ $12,000 10 120 10 120

$12,001 ≤ TOPB ≤ $13,000 11 132 11 132

$13,001 ≤ TOPB ≤ $14,000 12 144 12 144

$14,001 ≤ TOPB ≤ $15,000 13 156 13 156

$15,001 ≤ TOPB ≤ $16,000 14 168 14 168

$16,001 ≤ TOPB ≤ $17,000 15 180 15 180

$17,001 ≤ TOPB ≤ $18,000 16 192 16 192

$18,001 ≤ TOPB ≤ $19,000 17 204 17 204

$19,001 ≤ TOPB ≤ $20,000 18 216 18 216

$20,001 ≤ TOPB ≤ $21,000 19 228 19 228

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Undergraduate Education Only

Graduate or

Professional Education^a

$21,001 ≤ TOPB ≤ $22,000 20 240 20 240

$22,001 ≤ TOPB ≤ $23,000 20 240 21 252

$23,001 ≤ TOPB ≤ $24,000 20 240 22 264

$24,001 ≤ TOPB ≤ $25,000 20 240 23 276

$25,001 ≤ TOPB ≤ $26,000 20 240 24 288

$26,001 ≤ TOPB ≤ $27,000 20 240 25 300

$27,001 ≤ TOPB 20 240 25 300

Source: 34 C.F.R. §685.209(k)(1)-(3). a. Applies to individuals who borrowed at least one loan for graduate or professional education, regardless of whether they borrowed for their undergraduate education. However, TOPB is inclusive of loans borrowed for their undergraduate education.

The Income-Based Repayment (IBR) Plans

HEA Section 493C authorizes two Income-Based Repayment plans, which permit borrowers to repay eligible student loans according to procedures that limit monthly payment amounts based on criteria that take into account a borrower’s AGI, family size, and monthly payment amount as calculated according to a standard repayment plan with a 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 an IBR plan. Any loan balance that remains after the plans’ maximum repayment periods are satisfied will be forgiven. There are two IBR plans that function similarly. They are differentiated by (1) the date used to delimit borrower eligibility (July 1, 2014), (2) the percentage of discretionary income used to determine borrower eligibility for the plan and monthly payment amounts (15% or 10%), and (3) the maximum repayment period (25 years or 20 years).

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

Original Income-Based Repayment (IBR) Plan

Eligibility. In general, the Original IBR¹⁸³ plan is available to borrowers to repay loans made through the Direct Loan program except for Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans used to repay either Direct PLUS Loans or FFEL PLUS Loans made to parent borrowers.¹⁸⁴ To be eligible to begin repaying according to the plan, an individual must

183 Unless otherwise noted, the description of the Original IBR plan hereafter is based on 34 C.F.R. §685.209, as in effect July 1, 2024.

184 The Original IBR plan is also available to individuals of loans made through the FFEL program except for FFEL PLUS Loans made to parent borrowers and FFEL Consolidation Loans used to repay such either Direct PLUS Loans or (continued...)

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have a partial financial hardship (PFH). Borrowers who have made 60 or more qualifying payments under the SAVE repayment plan on or after July 1, 2024, may not enroll in the Original IBR plan. Unlike the ICR plans, a defaulted loan may be repaid according to the Original IBR plan. ED automatically will place into the Original IBR plan defaulted borrowers who are not subject to federal offset or administrative wage garnishment, who are otherwise eligible for the Original IBR plan, and who have approved the disclosure of their income tax information from the IRS to ED.¹⁸⁵

Partial Financial Hardship. A borrower is considered to have a PFH if the total of their annual payments on eligible loans, as calculated according to a standard repayment plan with a 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 they elect to repay according to the Original IBR plan, is greater than 15% of the amount by which the borrower’s AGI exceeds 150% of the federal poverty line applicable to their family size (i.e., annual discretionary income for purposes of the Original IBR plan). That is, a borrower is considered to have a PFH if they would pay more annually on their loans under a standard repayment plan with a 10-year repayment period than they would under the Original IBR plan.

If a borrower is single or is married and files an individual federal tax return, their PFH status is determined as specified above based on the total annual payments for all of the borrower’s eligible loans and the borrower’s AGI. If a borrower is married and files a joint federal tax return, their PFH status is determined as specified above based on the total annual payments for all of the borrower’s eligible loans and, if applicable, the borrower’s spouse’s eligible loans and the combined AGI of the borrower and their spouse.¹⁸⁶ If the total annual payments for all of the borrower’s (and their spouse’s, if applicable) eligible loans, as calculated according to the standard repayment plan with a 10-year repayment period, do not exceed 15% of their (and their spouse’s, if applicable) discretionary income, the borrower is no longer considered as having a PFH.

Payment Amounts. During periods while a borrower has a PFH and repays according to the Original IBR plan, monthly amounts due on their loans may range from $0, for those with an AGI that is at or below 150% of the poverty guideline, to a maximum of one-twelfth of the 15% of a borrower’s discretionary income.

If a borrower who is repaying according to the plan no longer demonstrates having a PFH or no longer wants to make payments based on income, they may remain in the plan, but their monthly payment amount will no longer be calculated according the formula described above. Instead, the required payment amount will be equal to the monthly amount due, as calculated according to a standard repayment plan with a 10-year repayment period based on the borrower’s loan balance at the time they elected to begin repaying according to the plan. However, in such a case the duration of the repayment period may exceed 10 years.

For a borrower whose calculated monthly payment results in an amount that is greater than or equal to $5 but less than $10, ED sets the monthly payment to $10. For a borrower whose calculated monthly payment results in an amount that is less than $5, ED sets the monthly

FFEL PLUS loans made to parent borrowers. This plan is available for Direct Consolidation Loans disbursed before July 1, 2025, that repaid a Consolidation Loan that repaid a Direct Parent PLUS Loan or FFEL Parent PLUS Loan. See footnote 157 for additional information.

185 34 C.F.R. §685.209(m) and SAVE Plan Final Rule, p. 43861.

186 For a married borrower who jointly files a federal tax return with their spouse and who certifies that they are currently separated from their spouse or “are currently unable to reasonably access their spouse’s income,” only the borrower’s AGI and eligible student loans are used to determine PFH. 34 C.F.R. §685.209(e)(1)(i)(A) and (2)(i).

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payment to $0. Monthly payment amounts are recalculated annually to take into account changes that may have occurred over the past year.

For purposes of calculating monthly payment amounts under the Original IBR plan, if the borrower is unmarried or is married but files a separate federal tax return, the borrower’s AGI is used. In general, if the borrower is married and files a joint federal tax return with their spouse, the AGI of both the borrower and their spouse is used. If a borrower is married and certifies that they are separated from their spouse, or is unable to access information on the income of their spouse, then the AGI of only the borrower is used. Additionally, if a borrower’s monthly payment is based on the borrower’s and their spouse’s income and the spouse also owes Direct Loan program or FFEL program non-Parent PLUS Loan (or Consolidation Loan used to repay a non- Parent PLUS Loan), then the borrower’s monthly payment under the Original IBR plan is further adjusted. Specifically, the borrower’s monthly payment is equal to the calculated payment amount multiplied by the percentage of the couple’s combined student loan debt attributable to the borrower.¹⁸⁷

Joint Repayment for Married Borrowers. Married borrowers may not repay their loans jointly under the Original IBR plan.

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

Application of Payments. Payments made by borrowers repaying under the Original IBR plan are applied in the following order, to: (1) accrued interest, (2) collection costs, (3) late charges, and (4) principal. If a borrower’s required monthly payment is for an amount that is less than the amount of interest that accrues on a loan other than a Direct Subsidized Loan or the subsidized component of a Direct Consolidation Loan, or that accrues on a subsidized loan type after the three-year interest subsidy period described above, the unpaid accrued interest will accumulate, but not be capitalized, so long as the borrower remains in the plan and continues to have a PFH or remains in the IBR plan. Upon a borrower either no longer having a PFH or electing to no longer repay according to an IBR plan, any accumulated unpaid accrued interest will be capitalized.

Changing Repayment Plans. In general, if a borrower chooses to leave the Original IBR plan, they must enroll in the standard repayment plan that is applicable to their loans.¹⁸⁸ The monthly payment amount due on the borrower’s loans must be calculated according to the applicable standard repayment plan based on the time remaining in the repayment period under such plan and the outstanding balance owed at the time the borrower ceased repaying according to the

187 Similarly, when a borrower has outstanding eligible FFEL program loans, the borrower’s monthly payment amount on Direct Loans being repaid under the Original IBR plan is adjusted by multiplying it by the portion of their total outstanding loan debt attributable to their Direct Loan program loans.

188 HEA §493C(b)(8).

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Original IBR plan.¹⁸⁹ A borrower who changes from the Original IBR plan to a standard repayment plan must make at least one monthly payment according to the standard repayment plan before in enrolling in another repayment plan for which the borrower may be eligible. However, borrowers may request a forbearance that permits the making of a smaller payment amount than otherwise would be required for the purposes of making the required one monthly payment according to a standard repayment plan.¹⁹⁰ The borrower may subsequently change to another repayment plan for which they are eligible, including an IDR plan. The borrower may change to a non-IDR plan, but only if doing so would not result in a remaining repayment period of fewer than zero months.

A borrower who is repaying a defaulted loan under the Original IBR plan may not enroll in another repayment plan unless the borrower (1) made required payments under the Original IBR plan in each of the three prior months or (2) was not required to make payments but made three reasonable and affordable payments (including payments made under the Original IBR plan) in each of the three prior months (see “Loan Rehabilitation”). In either case, ED must approve the request to change the repayment plan.¹⁹¹ Finally, borrowers who successfully rehabilitate their defaulted loan while making payments according to the Original IBR plan may choose to repay their loan according to the SAVE repayment plan if they are otherwise eligible for the SAVE repayment plan and the monthly payment under that plan would be equal to or less than their payment under the Original IBR plan.¹⁹²

Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to the Original IBR plan, borrowers must annually provide certification of their income and family size to ED, as described in “Income-Driven Repayment (IDR) Plans.” If the borrower fails to provide certification of income, any unpaid accrued interest will be capitalized and their monthly payment amount will be recalculated to equal the amount the borrower would have paid according to a standard repayment plan with a 10-year repayment period, based on the amount owed at the time they first elected to repay according to the Original IBR plan. The repayment period based on the recalculated payment amount may exceed 10 years.

Maximum Repayment Period and Loan Forgiveness. The maximum repayment period for the Original IBR plan is 25 years. If after making the equivalent of 300 qualifying monthly payments on a loan over a period of at least 25 years according to the Original IBR plan, a borrower has an outstanding balance of principal and unpaid accrued interest, the remaining unpaid balance will be forgiven. Borrowers receive credit for qualifying monthly payments under the Original IBR plan for the same periods and under the same circumstances for which they receive credit under the ICR plan, as described in the “The Income-Contingent Repayment Plan” section. Additionally, borrowers receive credit for qualifying monthly payments under the Original IBR plan for certain periods when their loan was in default. In such circumstances, a qualifying monthly payment includes

• a monthly payment made under an IBR plan (including a $0 monthly payment);

• a monthly payment made according to a standard repayment plan with a 10-year repayment period;

189 34 C.F.R. §685.210(b)(2). For fixed repayment plans and the alternative repayment plan, the remaining repayment period is calculated by subtracting the period of time since a loan has entered repayment (including any deferment or forbearance periods) from the repayment period for the plan the borrower is seeking to enter.

190 34 C.F.R. §685.210(b)(4).

191 34 C.F.R. §685.210(b)(1).

192 34 C.F.R. §685.210(b)(3).

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• an amount collected through administrative wage garnishment (AWG) or federal offset that is equivalent to the amount the borrower would owe under an IBR plan. The total number of monthly payment credits a borrower may receive under this may not exceed the number of months between when ED receives the collected amount and the borrower’s next annual IBR recertification date¹⁹³; and

• an amount collected through AWG or federal offset equivalent to the amount the borrower would owe under a standard repayment plan with a 10-year repayment period.

Borrowers may make catch-up payments to receive credit toward the Original IBR maximum repayment period for certain nonqualifying periods and for Consolidation Loans in the same manner as under the ICR plan.

IBR Plan for Post-July 1, 2014, New Borrowers

The IBR Plan for Post-July 1, 2014, New Borrowers is substantially similar to the Original IBR plan, with a few differences.¹⁹⁴ All terms of the Original IBR plan described above apply to the IBR Plan for Post-July 1, 2014, New Borrowers, with the following exceptions

• The IBR Plan for Post-July 1, 2014, New Borrowers is only available to individuals to repay qualifying loans if those individuals have no outstanding balance on a Direct Loan or FFEL program loan on July 1, 2014, or have no outstanding balance on such loans on the date the they obtain a loan after July 1, 2014.

• A borrower is determined to have a partial financial hardship if the total of their annual payments on eligible loans, as calculated according to a standard repayment plan with a 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 they elect to repay according to the IBR Plan for Post-July 1, 2014, New Borrowers, is greater than 10% of their annual discretionary income. Discretionary income is defined in the same manner as with the Original IBR plan.

• During periods while a borrower has a PFH, a borrower’s monthly payment is capped at one-twelfth of 10% of their discretionary income.

• The maximum repayment period is 20 years. If after making the equivalent of 240 qualifying monthly payments on a loan over a period of at least 20 years according to the plan, a borrower has an outstanding balance of principal and unpaid accrued interest remaining, the remaining unpaid balance will be forgiven.

Alternative Repayment Plans

The alternative repayment plans are available in more limited situations to borrowers who demonstrate that the terms of the other repayment plans “are not adequate to accommodate the

193 Depending on the circumstances, the amount collected through administrative wage garnishment or federal offset may exceed or be less than the monthly payment amount a borrower would owe under an IBR plan. ED would calculate the number of qualifying monthly payments from these collections in the same manner it would treat lump sum or partial payments for borrowers in repayment status under any of the IDR plans. For an example of how ED would calculate the number of qualifying monthly payments, see SAVE Plan Final Rule, p. 43863.

194 Unless otherwise noted, the description of the IBR Plan for Post-July 1, 2014, New Borrowers hereafter is based on 34 C.F.R. §685.209, as in effect July 1, 2024.

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borrower’s exceptional circumstances.”¹⁹⁵ One subtype of alternative repayment plan is provided to borrowers on a case-by-case basis, while another subtype is provided to borrowers who were enrolled in the SAVE repayment plan and failed to recertify their income and family size for purposes of determining their monthly payment amounts under the SAVE repayment plan (the SAVE Alternative repayment plan). This section discusses the former type of alternative repayment plan while the latter is described in the “Saving on a Valuable Education (SAVE) Repayment Plan” section.

Aside from the SAVE Alternative repayment plan, four variations of alternative repayment plans are available¹⁹⁶:

1. Alternative Fixed Payment Repayment, 2. Alternative Fixed Term Repayment, 3. Alternative Graduated Payment Repayment, and 4. Alternative Negative Amortization Repayment.

These alternative repayment plans are established in accordance with general guidelines specified in regulations. Details on specific provisions of these plans are communicated to eligible borrowers by loan servicers. An alternative repayment plan may have a maximum repayment period of up to 30 years, not including periods of deferment and forbearance. Monthly payments must be at least $5 and are capped at three times the amount of the smallest payment. Under the Alternative Negative Amortization Repayment plan, a borrower may make monthly payments of less than the amount of the interest that accrues on the loan for up to one year. Payments made according to any of these alternative repayment plans do not count toward periods of repayment that may qualify a borrower for loan forgiveness under the IDR plans or the PSLF program.¹⁹⁷

Loan servicers have discretion in determining what constitutes “exceptional circumstances” for purposes of permitting individual borrowers to repay according to any of the alternative repayment plans.¹⁹⁸ If a borrower is permitted to repay according to an alternative repayment plan, they are notified in writing of the terms of the plan and may either accept those terms or select one of the other available repayment plans discussed above.¹⁹⁹

Prepayment

The portion of any payment that is in excess of the amount due is considered a prepayment. Borrowers of loans made through the Direct Loan program may prepay all or any part of their loans at any time without penalty. Borrowers may obtain information from their Direct Loan

195 34 C.F.R. §685.221(a).

196 Descriptions of the distinct types of alternative repayment plans are based on U.S. Department of Education, Office of Federal Student Aid, Loan Repayment Plans, “Alternative Repayment Plans,” p. 9, https://fsapartners.ed.gov/sites/ default/files/attachments/presentations/41LoanRepaymentPlansV1.pdf and CRS communications with U.S. Department of Education, Office of Legislation and Congressional Affairs, March 16, 2023. ED indicated to CRS that these distinct plans were offered to borrowers as of March 16, 2023. Since that time, ED has updated its regulations on alternative repayment plans. Those updated regulations do not delineate distinct repayment plans. (see 34 C.F.R. §685.221) CRS has asked ED whether it will continue to offer the four aforementioned alternative repayment plans following the regulations’ updates but has not yet received a response. As such, it is unclear whether these four alternative repayment plans are still offered by ED.

197 See 34 C.F.R. §§685.209(k) and 685.219.

198 U.S. Department of Education, Office of Federal Student Aid, Loan Servicing and Collection—Frequently Asked Questions, “ARP-Q1: Are there any standard criteria for alternative repayment plans?,” https://fsapartners.ed.gov/ knowledge-center/faqs/loan-servicing-and-collection-frequently-asked-questions (accessed October 3, 2024).

199 34 C.F.R. §685.208(l)((3).

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servicer on how to provide prepayment, with instructions regarding the application of such payments. The procedures for applying prepayments to borrowers’ accounts are specified in regulations issued by ED.²⁰⁰

The procedures that apply for crediting a prepayment to a borrower’s loan balance depend on the size of the prepayment amount relative to the borrower’s scheduled monthly payment. A borrower with more than one loan who wants a prepayment to be applied to a certain loan or loans (e.g., the loan with the highest interest rate) must specify such when making the prepayment; otherwise, the prepayment will be applied in accordance with HEA regulations and guidelines, which, among other provisions, generally require all of a borrower’s loans to be repaid together and under the same repayment plan.²⁰¹

In general, if the amount of a prepayment is less than the next scheduled monthly payment amount according to the borrower’s repayment plan, the prepayment is applied in the following order: (1) to charges and collection costs,²⁰² (2) to accrued interest, and then (3) to outstanding principal. However, if the amount of the prepayment is less than the next scheduled monthly payment amount and the borrower is repaying according to one of the IBR plans, the prepayment is applied in the following order: (1) to accrued interest, (2) to collection costs, (3) to late charges, and then (4) to outstanding principal.²⁰³ For example, consider a borrower whose next scheduled monthly payment was $200 in January and who was current on making payments. If at the time of making the January payment the borrower made a payment of $300, this would result in a prepayment of $100. The $100 prepayment would be applied toward reducing the outstanding principal balance on the borrower’s loans, because they did not have any outstanding charges or accrued interest. The borrower’s next scheduled monthly payment of $200 would remain due in February.

If the amount of the prepayment is equal to or greater than the next scheduled monthly payment amount under the borrower’s repayment plan, the prepayment is applied in the same order as described above. In general, unless the borrower requests otherwise, the due date of the borrower’s next payment is advanced and they are notified of the due date for the next payment.²⁰⁴ For example, consider again a borrower whose next monthly payment was $200 in January and who was current on making payments. If at the time of making the January payment the borrower made a payment of $600, this would result in a prepayment of $400. Because this borrower did not have any outstanding charges or accrued interest, the $400 prepayment would be applied toward the next two payments due (i.e., the February and March payments) and the due date of the borrower’s next payment would be advanced to April. If the borrower instead wanted the $400 prepayment to be applied toward reducing the outstanding principal balance and the next scheduled payment to remain due in February, they would need to request this at the time

200 34 C.F.R. §685.211(a).

201 U.S. Department of Education, Office of Federal Student Aid, Master Promissory Note (MPN) for Direct Subsidized/ Unsubsidized Loans William D. Ford Federal Direct Loan Program, OMN No. 1845-007; and 34 C.F.R. §685.210(a)(3).

202 While the regulations permit the charging of late fees (see 34 C.F.R. §685.202(d)), in practice Direct Loan servicing has never assessed such fees or charges. U.S. Department of Education, Office of Legislation and Congressional Affairs (OLCA), email communication with the author, March 31, 2023.

203 34 C.F.R. §685.211(a)(4).

204 34 C.F.R. §685.211(a)(3).

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of making the prepayment.²⁰⁵ However, if a borrower’s scheduled monthly payment amount is $0, ED has instructed loan servicers not to advance the borrower’s due date.²⁰⁶

Application of Payments on Delinquent Loans

The loans of borrowers who fall behind on making payments are considered to be delinquent.²⁰⁷ In general, a federal student loan is considered delinquent when the full payment amount is not satisfied by the payment due date.²⁰⁸ A borrower may restore a delinquent loan to current status by making payments that are applied to past due amounts. When borrowers make payments on delinquent loans, their payments are generally credited first to the oldest past due amounts owed.²⁰⁹

Deferment and Forbearance

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

Deferments

A deferment is a temporary period during which a borrower’s obligation to make regular monthly payments of principal and interest is suspended, and during which an interest subsidy may be provided.²¹⁰ Deferments are available during periods while a student is pursuing postsecondary education, participating in a graduate fellowship program or a training program, unemployed or experiencing an economic hardship, performing or has recently completed military service, or receiving treatment for cancer. Deferments are not available to borrowers whose loans are in default status.²¹¹

205 The U.S. Department of Education’s loan servicers provide additional information to borrowers on the treatment of prepayments and on how to submit special payment instructions. For example, see MOHELA, Payment Information: How Payments Are Applied, https://www.mohela.com/DL/resourceCenter/HowPaymentsAreApplied.aspx#:~:text= Payments%20made%20over%20the%20required,then%20to%20the%20subsidized%20loan (accessed July 22, 2024).

206 U.S. Department of Education, Office of Federal Student Aid, “Business Process Operations Servicing Requirements: Attachment 01,” version 0.0.5, p. 39, February 23, 2023.

207 In general, a borrower who is 270 days or more delinquent on a loan is considered to be in default. (34 C.F.R. §685.102(b)) Once in default, the entire remaining balance of the loan becomes due immediately, and ED, via its contractors or other authorized means (e.g., the Treasury Offset Program) may attempt to recoup the entire outstanding balance of the loan.

208 See U.S. Department of Education, Office of Federal Student Aid, “When does a loan become delinquent,” https://studentaid.gov/help-center/answers/article/delinquent (accessed July 22, 2024).

209 See, for example, U.S. Department of Education, Office of Federal Student Aid, “Business Process Operations Servicing Requirements: Attachment 01,” version 0.0.5, p. 190, February 23, 2023.

210 34 C.F.R. §685.204(a).

211 34 C.F.R. §685.204(a)(3).

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In most instances, a borrower must proactively apply for and request a deferment. To qualify for it, the borrower (or, in certain instances, the individual on whose behalf the loan was made for parent borrowers of Direct PLUS Loans) must satisfy certain eligibility criteria.²¹² Several deferment types have no maximum period of eligibility, while other types are initially granted for a limited period of time and may be subsequently renewed up to a maximum period of eligibility for the deferment type. Periods of eligibility for deferments are specific to the borrower, as opposed to the borrower’s loans. Thus, for those deferment types that have a maximum period of eligibility, if a borrower exhausts their eligibility with one set of loans, no eligibility would remain to qualify for the same type of deferment on any other loans for which they had not received the deferment.

Unless an interest subsidy applies to a borrower’s loans, interest will continue to accrue during a period of deferment.²¹³ While in deferment status, borrowers have the option either to pay the interest as it accrues or pay it at a later time. If a borrower does not pay the interest that accrues during a deferment period, the unpaid interest is capitalized at the end of the deferment period.²¹⁴

The following types of deferments are available to borrowers of loans made through the Direct Loan program.²¹⁵

In-School Deferment

A borrower is eligible to receive an in-school deferment²¹⁶ for any period during which they are enrolled at an eligible institution on at least a half-time basis, as determined by the institution attended. Graduate student borrowers of Direct PLUS Loans first disbursed on or after July 1, 2008, (which enter repayment upon being fully dispersed) are also eligible to receive an in-school deferment while they are enrolled in school and during the six-month period after ceasing to be enrolled on at least a half-time basis.²¹⁷

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

Eligible borrowers are typically placed in an in-school deferment automatically on the basis of being enrolled in an eligible institution on at least a half-time basis. However, eligible borrowers may also proactively request an in-school deferment.²¹⁸ Borrowers who have been automatically placed in an in-school deferment have the option to cancel it. If these borrowers wish to do so, they have the option to pay any principal and interest that had already been deferred or they may

212 To qualify for a deferment of a Joint Consolidation Loan, both borrowers must meet the deferment eligibility criteria. U.S. Department of Education, Office of Federal Student Aid, “Business Process Operations Servicing Requirements: Attachment 01,” version 0.0.5, February 23, 2023, p. 125.

213 See 34 C.F.R. §85.204(a)(1) and (2).

214 HEA §455(f)(1)(B).

215 A borrower who had an outstanding balance on one or more loans that were made through the FFEL program prior to July 1, 1993, when the borrower first obtained a loan through the Direct Loan program may also be able to qualify for additional types of deferments. These additional deferments are specified at 34 C.F.R. §682.210(b).

216 34 C.F.R. §685.204(b).

217 34 C.F.R. §685.204(c)(1). As a grace period is not offered on Direct PLUS Loans, the six-month period corresponds to the grace period available on Direct Subsidized Loans and Direct Unsubsidized Loans.

218 U.S. Department of Education, Office of Federal Student Aid, “In-School Deferment Request,” OMB No. 1845- 0011, https://studentaid.gov/sites/default/files/GEN1602Attach18450011SCHFINAL.pdf.

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let the interest that had accrued on the deferred payments be capitalized upon cancellation of the deferment.²¹⁹

In-School Deferment for Parent Borrowers of Direct PLUS Loans

Parent borrowers of Direct PLUS Loans for which the first disbursement was made on or after July 1, 2008, are eligible for a deferment for any period during which the student on whose behalf the loan was made would qualify for an in-school deferment.²²⁰ This deferment is also available during the six-month grace period after the student on whose behalf the loan was made first ceases to be enrolled on at least a half-time basis.

Graduate Fellowship Deferment

A borrower may receive a deferment while pursuing a course of study in a graduate fellowship program.²²¹ Eligibility requirements include that the borrower has earned a bachelor’s degree, and that the program operates on a full-time basis, provides financial support for at least six months, and requires the applicant to submit a written statement of objectives and periodic progress reports. There is no maximum period of eligibility for this deferment. It is not available to borrowers who are serving in medical residency or internship programs, except for residency programs in dentistry.

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

Rehabilitation Training Program Deferment

A borrower may receive a deferment while pursuing a course of study in a rehabilitation training program for individuals with disabilities.²²² For a borrower to be eligible, the rehabilitation training program must be licensed, approved, certified, or recognized by a state agency or the U.S. Department of Veterans Affairs. It also must provide the borrower with rehabilitation services according to a written, individualized plan that specifies an expected completion date and that requires a substantial commitment by the borrower toward rehabilitation to the extent that it would normally prevent an individual from being employed full-time (i.e., 30 or more hours per week) for at least three months. There is no maximum period of eligibility for this deferment.

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

219 34 C.F.R. §685.204(b)(3).

220 34 C.F.R. §685.204(c)(2); U.S. Department of Education, Office of Federal Student Aid, “Parent PLUS Borrower Deferment Request,” OMB No. 1845-0011, https://studentaid.gov/sites/default/files/ ParentPLUSBorrowerDeferment.pdf.

221 34 C.F.R. §685.204(d); U.S. Department of Education, Office of Federal Student Aid, “Graduate Fellowship Deferment Request,” OMB No. 1845-0011, https://studentaid.gov/sites/default/files/ GraduateFellowshipDeferment.pdf.

222 34 C.F.R. §685.204(e); U.S. Department of Education, Office of Federal Student Aid, “Rehabilitation Training Deferment Request,” OMB No. 1845-0011, https://studentaid.gov/sites/default/files/ RehabilitationTrainingDeferment.pdf.

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Unemployment Deferment

A borrower who is seeking to obtain full-time employment and is either not employed or is employed less than full-time may be granted an unemployment deferment.²²³ To be eligible, a borrower must be either receiving unemployment benefits or must self-certify that they have registered with a public or private employment agency (if one is available within 50 miles) and are diligently seeking to obtain full-time employment. A borrower may receive the deferment for a maximum cumulative period of three years, which may include one or more episodes of unemployment. They are not required to have been employed previously to qualify for it.

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

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

Economic Hardship Deferment

A borrower may qualify for a deferment for periods during which they are experiencing an economic hardship.²²⁴ To qualify for this deferment on a loan made through the Direct Loan program, a borrower must satisfy at least one of the following criteria:

• the borrower has been granted an economic hardship deferment under the FFEL program or the Perkins Loan program for the same period of time for which the borrower requests an economic hardship deferment on their Direct Loan program loan;

• the borrower is receiving payments under a federal or state public assistance program (e.g., Temporary Assistance for Needy Families [TANF], Supplemental Security Income [SSI], Supplemental Nutrition Assistance Program [SNAP], state general public assistance, other means-tested benefits);

• the borrower is working full-time²²⁵ and has a monthly income that does not exceed an amount equal to 150% of the poverty line applicable to the borrower’s family size, (see Table 7) as calculated on a monthly basis; or

• the borrower is serving as a volunteer in the Peace Corps.

The deferment may be granted for periods of up to one year at a time, and may be extended up to a cumulative maximum of three years.²²⁶ During an economic hardship deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.

223 34 C.F.R. §685.204(f); U.S. Department of Education, Office of Federal Student Aid, “Unemployment Deferment Request,” OMB No. 1845-0011, https://studentaid.gov/sites/default/files/UnemploymentDeferment.pdf.

224 34 C.F.R. §685.204(g); U.S. Department of Education, Office of Federal Student Aid, “Economic Hardship Deferment Request,” OMB No. 1845-0011, https://studentaid.gov/sites/default/files/EconomicHardshipDeferment.pdf.

225 Full-time is defined as working at least 30 hours per week in a position expected to last at least three months. 34 C.F.R. §685.204(g)(3)(iii).

226 If a borrower qualifies for this deferment based on service in the Peace Corps, it may be granted for the lesser of the duration of their Peace Corps service, or the remainder of their period of eligibility under the three-year maximum without the borrower being required to request an extension.

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Military Service Deferment

A borrower may qualify for a military service deferment for periods during which they are serving on active duty or performing qualifying National Guard duty during a war or other military operation or national emergency.²²⁷ The deferment is provided for the entire period of qualifying military service, and for an additional 180 days following the completion of military service for borrowers whose period of qualifying service includes or began after October 1, 2007.

During a military service deferment, an interest subsidy is provided on Direct Subsidized Loans and on the subsidized component of Direct Consolidation Loans.²²⁸

Post-Active Duty Student Deferment

A borrower may qualify for a post-active duty student deferment if they are a member of the National Guard²²⁹ or other reserve component of the Armed Forces (or is a member in retired status) and is called or ordered to active duty while they are enrolled on at least a half-time basis at an eligible institution, or within six months of being enrolled.²³⁰ To qualify, the borrower must have been required to perform at least 30 consecutive days of active duty service on or after October 1, 2007. The deferment is available for a period of up to the lesser of 13 months following the completion of active duty service or until the borrower re-enrolls in an eligible institution on at least a half-time basis. If a borrower qualifies for both the military service deferment and the post-active duty student deferment, the 180-day post-demobilization period and the 13-month post-active duty service period apply concurrently.

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

Cancer Treatment Deferment

A borrower may receive a cancer treatment deferment on eligible loans during periods while they are receiving treatment for cancer and for the six months thereafter.²³¹ To qualify for the deferment, the borrower must submit an application on which a physician who is a Doctor of Medicine (M.D.) or a Doctor of Osteopathy (D.O.) certifies that the borrower is receiving treatment for cancer under the physician’s care.²³²

227 Qualifying National Guard duty is that which is full-time, performed for more than 30 consecutive days, and a call to active duty authorized by the President or the Secretary of Defense. It does not include National Guard active duty activated by the governor of a state. 34 C.F.R. §685.204(h); U.S. Department of Education, Office of Federal Student Aid, “Military Service and Post-Active Duty Student Deferment Request,” OMB No. 1845-0080, https://studentaid.gov/sites/default/files/MilitaryServiceandPostActiveDutyStudentDeferment.pdf.

228 In addition, for all types of loans made through the Direct Loan program that were first disbursed on or after October 1, 2008, no interest accrues during a period of up to 60 months while the borrower is serving on active duty or is performing qualifying National Guard duty in an area of hostilities during a war or national emergency.

229 Unlike military service deferment, Post-Active Duty Student Deferment qualifying service includes National Guard active duty activated by the governor of a state, as well as active duty authorized by the President or the Secretary of Defense.

230 34 C.F.R. §685.204(i); U.S. Department of Education, Office of Federal Student Aid, “Military Service and Post- Active Duty Student Deferment Request,” OMB No. 1845-0080, https://studentaid.gov/sites/default/files/ MilitaryServiceandPostActiveDutyStudentDeferment.pdf.

231 HEA §455(f)(3). The cancer treatment deferment is available for periods of cancer treatment occurring on or after September 28, 2018.

232 U.S. Department of Education, Office of Federal Student Aid, “Deferment for Cancer Treatment for Direct Loan, (continued...)

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During periods while a borrower receives a cancer treatment deferment, no interest accrues on the qualifying loans. Qualifying loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans that were either made on or after September 28, 2018, or had entered repayment status on or before September 28, 2018.²³³ Loans made prior to September 28, 2018, but had not yet entered repayment as of that date due to the borrower being enrolled in school on at least a half-time basis or being in the grace period, are not eligible for this deferment. However, as Direct Consolidation Loans made on or after September 28, 2018, are eligible for the deferment, borrowers of ineligible loans may consider including them in a Direct Consolidation Loan for purposes of qualifying for the deferment.

Dislocated Military Spouse Deferment

A borrower may qualify for a dislocated military spouse deferment if they are a spouse of a member of the Armed Forces who is serving on active duty and become unemployed due to a relocation for their spouse’s permanent change in duty station.²³⁴ To qualify, the borrower must provide ED with evidence (1) of their spouse’s status as a member of the Armed Forces serving on active duty, (2) that their spouse received a permanent change in duty station order, and (3) that the borrower is eligible for unemployment benefits due to their loss of employment resulting from a relocation for their spouse’s permanent change in duty station or a written certification or ED-approved equivalent that the borrower is registered with a public or private employment agency due to their loss of employment. The deferment is available for an aggregate period of 180 days.

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

This deferment was first authorized on December 22, 2023, under the National Defense Authorization Act for Fiscal Year 2024 (P.L. 118-31).²³⁵ ED has not yet implemented the deferment.²³⁶

Forbearance

Forbearance is permission for a borrower to temporarily cease making monthly student loan payments, to make payments in reduced amounts, or to make payments over an extended period of time.²³⁷ With limited exceptions, during periods of forbearance, no interest subsidies are provided and borrowers ultimately remain responsible for paying all of the interest that accrues on their loans. Unpaid accrued interest does not capitalize following periods of forbearance.²³⁸ In

FFEL, and Perkins Loan Program Borrowers,” August 22, 2019, https://fsapartners.ed.gov/knowledge-center/library/ electronic-announcements/2019-08-22/deferment-cancer-treatment-direct-loan-ffel-and-perkins-loan-program- borrowers; and U.S. Department of Education, Office of Federal Student Aid, “Cancer Treatment Deferment Request,” OMB No. 1845-0154, https://studentaid.gov/sites/default/files/CancerTreatmentDeferment.pdf.

233 The cancer treatment deferment does not appear to be available for loans that were made prior to September 28, 2019, but had not yet entered repayment prior to that date.

234 HEA §455(f)(4).

235 National Defense Authorization Act for Fiscal Year 2024 (P.L. 118-31), §1054.

236 CRS communication with U.S. Department of Education, Office of Legislation and Congressional Affairs, August 14, 2024.

237 34 C.F.R. §685.205(a).

238 See U.S. Department of Education, Office of Federal Student Aid, “Get Temporary Relief: Deferment and Forbearance,” https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief#how-deferment-forbearance- work, accessed July 23, 2024.

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most instances, borrowers must apply for forbearance; and for certain types of it, borrowers must provide supporting documentation to their loan servicer. Forbearance may be granted for an initial period of up to 12 months, and may be renewed upon the borrower’s request.²³⁹ Certain types of forbearance are limited to a maximum of 36 months.

Forbearance may be granted for a number of reasons. General (discretionary) forbearance may be granted at the discretion of the loan servicer to borrowers who are temporarily unable to make scheduled loan payments. Certain types of forbearance, referred to as mandatory forbearance, are required to be granted to borrowers who satisfy applicable eligibility criteria. Administrative forbearance is granted by the Secretary to borrowers during periods necessary to determine a borrower’s eligibility for a number of borrower benefits and for certain other reasons. Another type of forbearance is also available to borrowers to enable them to resume honoring their agreement to repay their loan after default.

Additionally, on occasion, ED has granted forbearance to borrowers to address a variety of circumstances not specified in statute or regulations, for example, to remedy loan servicing errors.²⁴⁰ These instances are not covered in this report.

General (Discretionary) Forbearance

A borrower may request a general forbearance on the basis of experiencing a temporary hardship due to financial difficulties, a change in employment, medical expenses, or other reasons.²⁴¹ A general forbearance may be granted at the discretion of a borrower’s loan servicer for an initial period of up to 12 months and may be extended in increments of 12 months. Although there is no statutory or regulatory limit for the duration of the forbearance, it appears that ED has implemented a three-year maximum duration that applies to individual loans (as opposed to borrowers).²⁴²

Mandatory Forbearance

Mandatory forbearances are those forbearance that loan servicers are required to grant to borrowers who satisfy applicable eligibility criteria.

Medical or Dental Internship or Residency Forbearance

A borrower who is a medical or dental intern or resident and does not or no longer qualifies for a deferment may receive mandatory forbearance. To qualify, the borrower must have been accepted into a medical or dental internship or residency program that either leads to a degree or certificate that is awarded by an IHE, a hospital, or a health care facility that offers postgraduate training, or

239 34 C.F.R. §685.205(c)(1).

240 U.S. Department of Education, “U.S. Department of Education Announces Withholding of Payment to Student Loan Servicer as Part of Accountability Measures for Harmed Borrowers,” press release, October 31, 2023, https://www.ed.gov/news/press-releases/us-department-education-announces-withholding-payment-student-loan- servicer-part-accountability-measures-harmed-borrowers.

241 34 C.F.R. §685.205(a)(1); CRS email communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs, March 31, 2023; U.S. Department of Education, “General Forbearance Request,” OMB No. 1845-0031, https://studentaid.gov/sites/default/files/GeneralForbearance.pdf; U.S. Department of Education, “Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application,” OMB No. 1845-0110, https://studentaid.gov/sites/default/files/public-service-application-for- forgiveness.pdf.

242 See U.S. Department of Education, U.S. Department of Education, Office of Federal Student Aid, “Business Process Operations Servicing Requirements: Attachment 01,” version 0.0.5, p. 127, February 23, 2023.

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that must be completed before the borrower may begin professional practice or service.²⁴³ This type of forbearance may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower’s internship or residency.

National Service Forbearance

A borrower who is serving in a national service position for which they receive a Segal AmeriCorps Education Award may receive mandatory forbearance (sometimes referred to as an “AmeriCorps forbearance”).²⁴⁴ It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower’s national service.

Whereas borrowers are normally responsible for paying the interest that accrues during forbearance, the National Service Trust will pay all or a portion of the interest that accrues during forbearance for a borrower who has earned a Segal AmeriCorps Education Award.²⁴⁵

Teacher Loan Forgiveness Program Forbearance

A borrower who is serving in a position that would qualify them for loan forgiveness under the Teacher Loan Forgiveness Program (described below) may receive mandatory forbearance. To be eligible, the borrower must be serving as a full-time teacher at an elementary school, secondary school, or educational service agency that serves low-income families. The borrower’s outstanding loan balance is also considered in determining eligibility. This forbearance may be granted “only if the Secretary believes, at the time of the borrower’s annual request, that the expected forgiveness amount [i.e., up to $5,000 or up to $17,500, as applicable] will satisfy the anticipated remaining outstanding balance on the borrower’s loan at the time of the expected forgiveness.”²⁴⁶ It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the five consecutive years of teaching service required to qualify for loan forgiveness.

Student Loan Debt Burden Forbearance

A borrower may receive a forbearance on the basis of having a federal student loan debt burden that equals or exceeds 20% of their monthly total income.²⁴⁷ To qualify, a borrower must demonstrate that their required monthly payments on federal student loans made under Title IV of the HEA (e.g., loans made under the Direct Loan program, the FFEL program, or the Perkins

243 34 C.F.R. §685.205(a)(3); U.S. Department of Education, Mandatory Forbearance Request, “Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program Forbearance William D. Ford Federal Direct Loan (Direct Loan Program) / Federal Family Education Loan (FFEL) Program,” OMB No. 1845-0018, https://studentaid.gov/sites/default/files/ MedicalorDentalInternshipResidencyNationalGuardandDoDStudentLoanRepayment.pdf.

244 34 C.F.R. §685.205(4). For additional information on AmeriCorps, see CRS Report RL33931, The Corporation for National and Community Service: Overview of Programs and Funding.

245 AmeriCorps, “Forbearance Overview,” https://my.americorps.gov/trust/help/member_portal/ forbearance_overview.htm (accessed July 23, 2024). This benefit should not be confused with subsidized interest. During periods while a borrower receives an AmeriCorps National Service Forbearance, interest continues to accrue on the borrower’s Direct Loans. The interest may be paid on the borrower’s behalf by the National Service Trust.

246 34 C.F.R. §685.205(a)(5); U.S. Department of Education, “Teacher Loan Forgiveness Forbearance Request,” OMB No. 1845-0059, https://studentaid.gov/sites/default/files/TeacherForbearance.pdf. This type of forbearance is offered to allow a borrower with a low loan balance to avoid losing the opportunity to receive the maximum loan forgiveness benefit available to the borrower due to paying down the borrower’s loan balance prior to satisfying the program eligibility criteria.

247 34 C.F.R. §685.205(a)(6).

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Loan program) equal or exceed 20% of their total monthly taxable income.²⁴⁸ This type of forbearance may be granted for an initial period of 12 months and may be extended in increments of 12 months for a maximum duration of 36 months.

National Guard Duty Forbearance

Mandatory forbearance is available to a borrower who is a member of the National Guard and qualifies for a post-active duty student deferment but does not qualify for a military service deferment or other deferment, and is engaged in active state duty service for 30 or more consecutive days.²⁴⁹ This type of forbearance may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower’s qualifying National Guard service.

Department of Defense Student Loan Repayment Program Forbearance

Mandatory forbearance is available during periods while a borrower is performing service that qualifies them for partial repayment under a U.S. Department of Defense student loan repayment program.²⁵⁰ Interest that accrues during this forbearance is not capitalized at the end of the forbearance period. It may be granted for an initial period of up to 12 months and may be extended in increments of up to 12 months for the duration of the borrower’s qualifying service.

Administrative Forbearance

Administrative forbearance is granted to borrowers during periods necessary to determine a borrower’s eligibility for a number of borrower benefits and for certain other reasons.²⁵¹ It may be granted for up to 60 days for the processing of requests for deferment, forbearance, change of repayment plan, and loan consolidation.²⁵² Administrative forbearance is also granted during periods necessary to determine a borrower’s eligibility for a student loan discharge (i.e., closed school,²⁵³ false certification, unauthorized payment, unpaid refund, bankruptcy, borrower defense

248 U.S. Department of Education, Mandatory Forbearance Request, “Student Loan Debt Burden,” OMB No. 1845- 0018, https://studentaid.gov/sites/default/files/StudentLoanDebtBurdenForbearance-en-us.pdf.

249 34 C.F.R. §685.205(a)(7); U.S. Department of Education, Mandatory Forbearance Request, “Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program Forbearance William D. Ford Federal Direct Loan (Direct Loan Program) / Federal Family Education Loan (FFEL) Program,” OMB No. 1845-0018, https://studentaid.gov/sites/default/files/ MedicalorDentalInternshipResidencyNationalGuardandDoDStudentLoanRepayment.pdf.

250 34 C.F.R. §685.205(a)(9); U.S. Department of Education, Mandatory Forbearance Request, “Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program Forbearance William D. Ford Federal Direct Loan (Direct Loan Program) / Federal Family Education Loan (FFEL) Program,” OMB No. 1845-0018, https://studentaid.gov/sites/default/files/ MedicalorDentalInternshipResidencyNationalGuardandDoDStudentLoanRepayment.pdf. P.L. 116-159 amended this provision to make active duty members of the National Oceanic and Atmospheric Administration’s Commissioned Officer Corps eligible for forbearance. For additional information on U.S. Department of Defense student loan repayment programs, see CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs.

251 34 C.F.R. §685.205(b).

252 34 C.F.R. §685.205(b)(9).

253 Additionally, when a school closes, ED mails borrowers who appear to be eligible for a closed school discharge an application for the discharge and suspends collection on their loans. If the borrower does not apply for a closed school discharge within 90 days of receipt of the application, ED resumes collection on the loan and grants the borrower a forbearance for the period during which collection was suspended. 34 C.F.R. §685.214(g)(4).

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to repayment) or for loan forgiveness through the Teacher Loan Forgiveness program²⁵⁴ and for periods after ED receives reliable information that a borrower has died²⁵⁵ or become totally and permanently disabled and until ED receives documentation of the death or total and permanent disability.²⁵⁶

ED also grants administrative forbearance for²⁵⁷

• a period during which the Secretary has authorized a forbearance in response to a national military mobilization or a local or national emergency;

• for up to three years, if changes to variable interest rates preclude the borrower’s ability to repay their loans in 10 years under the standard or graduated repayment plans;²⁵⁸

• for a properly granted period of deferment for which ED learns the borrower did not qualify²⁵⁹;

• the period for which payments are overdue at the beginning of an authorized period of deferment or forbearance²⁶⁰;

• a period beginning when a borrower entered repayment without ED’s knowledge until the first payment due date was established; and

• the period prior to a borrower’s filing of a bankruptcy petition.²⁶¹

While not strictly considered an administrative forbearance, ED also grants forbearance for the period of time necessary for it to process a borrower’s application for PSLF or Temporary Expanded PSLF.²⁶²

Forbearance to Permit Borrower to Resume Honoring an Agreement to Repay a Defaulted Loan

After a borrower has defaulted on a loan, the Secretary may grant a forbearance to permit the borrower to resume honoring their agreement to repay their loan.²⁶³ To qualify for this forbearance, a borrower must either sign a new agreement to repay the loan debt or orally or in writing affirm their obligation to repay the debt. An affirmation may include, but is not limited to

254 34 C.F.R. §685.205(b)(6).

255 In addition, certain eligible borrowers’ loans may be discharged due to their spouse or child having died or becoming totally and permanently disabled due to injuries suffered in the terrorist attacks on September 11, 2001. After a borrower notifies ED that they claim to qualify for such a discharge, ED suspends collection on the borrower’s eligible loans. If ED determines that the borrower does not qualify for discharge or ED did not receive a discharge application from the borrower within 60 days of their claim, ED puts the borrower’s loans in forbearance for the period during which collection was suspended. 34 C.F.R. §685.218(c)(3).

256 34 C.F.R. §685.205(b)(5).

257 34 C.F.R. §685.205(b)(1)-(4), (7), and (10).

258 34 C.F.R. §685.205(b)(7).

259 This could occur, for example, if a borrower was granted an in-school deferment because they intended to reenroll in an eligible program on at least a half-time basis during an academic period and ED later learns the borrower failed to reenroll.

260 This may be used to resolve a period of delinquency that precedes an authorized period of deferment or forbearance.

261 34 C.F.R. §685.205(b)(1)-(4) and (10).

262 34 C.F.R. §685.219(e)(8). U.S. Department of Education, “Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application,” OMB No. 1845-0110, https://studentaid.gov/sites/default/ files/public-service-application-for-forgiveness.pdf.

263 34 C.F.R. §685.205(a)(8).

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(1) a new signed repayment agreement or schedule, or other form of signed agreement to repay the debt; (2) oral acknowledgement and agreement to repay the debt documented by ED; or (3) payment made on the loan. If the forbearance is based on the borrower’s oral affirmation, it is limited to 120 days.²⁶⁴

Loan Discharge and Loan Forgiveness

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

Loan Discharge for Borrower Adversity

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

Discharge Due to Death

A borrower’s obligation to repay a loan is discharged if they die; and in the case of a Direct PLUS Loan made to a parent borrower, the obligation to repay is discharged if the student on whose behalf the loan was made dies.²⁶⁵ In the case of a Direct Consolidation Loan that repaid either a Direct PLUS Loan or a FFEL PLUS Loan that was borrowed by a parent on behalf of a student, if the student dies a proportionate share of the Direct Consolidation Loan attributable to the applicable Direct PLUS Loan or FFEL PLUS Loan is discharged.²⁶⁶ In the case of a Joint Direct Consolidation Loan borrowed by two married individuals, upon the death of one spouse a proportionate share of the loan attributable to the individual who died is discharged.²⁶⁷

264 Consecutive forbearances based on a borrower’s oral affirmation are not granted.

265 HEA, §§437 and 455(a)(1). In addition, in the case of a borrower who is the spouse of an individual who was an eligible public servant (i.e., a police officer, firefighter, other safety or rescue personnel, or a member of the Armed Forces) at the time of the September 11, 2001, terrorist attacks and remained so until the eligible public servant’s death due to injuries suffered in the attacks, the borrower’s obligation to repay a loan made through the Direct Loan program is discharged upon the death of the borrower’s spouse. A borrower’s obligation to repay the portion of a JCL attributable to the spouse who died due to the September 11, 2001, terrorist attacks is also discharged, regardless of whether the spouse was a public servant. If the borrower was a parent who borrowed a Parent PLUS Loan (or Consolidation Loan used to repay such a loan) on behalf of an individual who died to the September 11, 2001, terrorist attacks (regardless of whether the individual was a public servant), the borrower’s obligation to repay that loan is discharged. 34 C.F.R. §685.218.

266 34 C.F.R. §685.212(a).

267 34 C.F.R. §685.220(l)(3)(i).

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Total and Permanent Disability Discharge

A borrower’s liability to repay a loan is discharged if they have a total and permanent disability (TPD).²⁶⁸ A borrower may be determined to be have a total and permanent disability based on any of the following three criteria:²⁶⁹

1. Disability Certification. Certification by a state-licensed physician (M.D. or

D.O.), a certified psychologist at the independent practice level who is licensed to practice in the United States, or a state-licensed nurse practitioner or physician assistant that the borrower is unable to engage in any substantial gainful activity due to a physical or mental impairment that (1) can be expected to result in death, (2) has lasted continuously for at least 60 months, or (3) can be expected to last continuously for at least 60 months.

2. SSA Disability Determination. Documentation from the Social Security

Administration (SSA) that the borrower (1) qualifies for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits and that their next scheduled disability review will be within five to seven years from the date of the individual’s most recent SSA disability determination; (2) qualifies for SSDI or SSI benefits with a next scheduled disability review date of three years; (3) has a disability onset date for SSDI or SSI of, or has been receiving SSDI or SSI benefits based on a disability for, at least five years prior to the application for a TPD discharge; (4) qualifies for SSDI or SSI compassionate allowance²⁷⁰; or (5) is currently receiving SSA retirement benefits and met any of the other SSA documentation requirements prior to qualifying for SSA retirement benefits.²⁷¹ Acceptable documentation includes an SSA notice of award for SSDI or SSI benefits and an SSA Benefits Planning Query²⁷² (BPQY).²⁷³

268 HEA, §§437 and 455(a)(1). In addition, in the case of a borrower who is the spouse of an individual who was an eligible public servant (i.e., a police officer, firefighter, other safety or rescue personnel, or a member of the Armed Forces) at the time of the September 11, 2001, terrorist attacks who became permanently and totally disabled due to injuries suffered in such attacks, and who was treated within 72 hours of such attacks, the borrower’s obligation to repay a loan made through the Direct Loan program is discharged. A borrower’s obligation to repay the portion of a JCL attributable to the spouse who became totally and permanently disabled due to the September 11, 2001, terrorist attacks is also discharged, regardless of whether the spouse was a public servant. If the borrower was a parent who borrowed a Parent PLUS Loan (or Consolidation Loan used to repay such a loan) on behalf of an individual who became totally and permanently disabled due to the September 11, 2001, terrorist attacks (regardless of whether the individual was a public servant), the borrower’s obligation to repay that loan is discharged. 34 C.F.R. §685.218.

269 34 C.F.R. §§685.102(b) and 685.213.

270 SSA’s Compassionate Allowances “are a way to quickly identify diseases and other medical conditions that, by definition, meet Social Security’s standards for disability benefits.” U.S. Social Security Administration, “Compassionate Allowances,” https://www.ssa.gov/compassionateallowances/ (accessed July 26, 2024).

271 This occurs when SSA assigns an individual a Medical Improvement Not Expected (MINE) continuing disability review diary. For additional information, see Appendix B in CRS Report R44948, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI): Eligibility, Benefits, and Financing.

272 The Benefit Planning Query provides SSDI beneficiaries and SSI recipients about the status of their disability cash benefits, scheduled medical reviews, health insurance, and work history. Social Security Administration, Benefits Planning Query Handbook (BPQY), July 2023, version 2, p. 3, https://www.ssa.gov/disabilityresearch/documents/ BPQY_Handbook.pdf.

273 U.S. Department of Education, Office of Federal Student Aid, Total and Permanent Disability (TPD) Discharge, “TPD 101,” https://disabilitydischarge.com/tpd-101 (accessed July 26, 2024).

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3. VA Service-Connected Disability or Unemployability. Documentation from

the Department of Veterans Affairs (VA) that the borrower has a service- connected disability (or disabilities) that is 100% disabling or that they are totally disabled based on an individual unemployability rating.

On a periodic basis, ED obtains information (via a data match) from SSA and VA on borrowers who might qualify for a TPD discharge on the basis of an SSA disability determination or VA service-connected disability of unemployability determination, respectively, and contacts them to inform them of their potential eligibility.²⁷⁴ A borrower, or their authorized representative, may apply for a TPD discharge by submitting an application along with any required documentation of the borrower’s disability.²⁷⁵ A borrower who has been identified as eligible for a TPD discharge through data matches with SSA or VA will be granted a TPD discharge without needing to submit an application unless they decide to opt out of the process by a date specified by ED.²⁷⁶

If a borrower’s TPD discharge application is approved, they will be considered totally and permanently disabled as of the date of the disability certification, the date that ED received SSA documentation, or the effective date of the VA’s service-connected disability or unemployability determination, as applicable.²⁷⁷ Upon the determination of a borrower being totally and permanently disabled, their obligation to make any further payments on the loans will be discharged and any loan payments that were made after the aforementioned dates will be returned.

A TPD discharge approved on the basis of a disability certification or an SSA disability determination is granted on a conditional basis for a three-year period that begins on the date of discharge. During the three-year period, a borrower who has been granted a TPD discharge according to either of these two criteria is subject to having their loans reinstated if the borrower receives a new Direct Loan program loan (excluding Direct Consolidation Loans that included loans that were not discharged) or receives a new TEACH Grant.²⁷⁸ After the three-year period, the TPD discharge becomes permanent. A TPD discharge granted on the basis of a VA service- connected disability or unemployability is permanent upon being granted and is not subject to a post-discharge monitoring period.

Closed School Discharge

A borrower’s liability to repay a loan is discharged if the borrower (or the student on whose behalf a Direct PLUS Loan is made to a parent borrower) does not complete the program of study

274 U.S. Department of Education, “Privacy Act of 1974; Matching Program,” 89 Federal Register 2216, January 12, 2024 and U.S. Department of Education, “Privacy Act of 1974; Matching Program,” 88 Federal Register 74162, October 30, 2023.

275 U.S. Department of Education, Office of Federal Student Aid, Total and Permanent Disability (TPD) Discharge, “Forms,” https://disabilitydischarge.com/Forms (accessed July 27, 2024).

276 34 C.F.R. §685.213(e)(1). A borrower might consider opting out of a TPD discharge if the borrower is concerned about the potential for the discharged indebtedness to be included as part of the borrower’s taxable income under state tax law or if the borrower intends to subsequently obtain an additional loan through the Direct Loan program. (For such a borrower to subsequently obtain another loan, the borrower must (1) obtain certification from a physician that the borrower is able to engage in substantial gainful activity, and (2) sign a statement acknowledging that the new loan may not be discharged on the basis of any impairment present at the time it is made, unless the impairment becomes substantially worse. 34 C.F.R. §685.200.)

277 34 C.F.R. §685.213(b)(4)(i) and (c)(2)(i).

278 34 C.F.R. §685.213(b)(7). If a borrower’s loan is reinstated, the borrower is not responsible for paying any interest that would have accrued on the loan during the monitoring period. This may be considered as another of the various forms of subsidized interest available on loans made through the Direct Loan program.

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for which the loan was made because the school (institution) they attended has closed.²⁷⁹ In the case of a Direct Consolidation Loan, the portion of the loan attributable to loans borrowed to finance the program of study at the closed school is discharged.

For loans made before July 1, 2020, to qualify for a closed school discharge, a borrower generally must submit an application and certify that (1) the school they attended closed either while the student was enrolled or within 120 days of the student withdrawing,²⁸⁰ and (2) the student did not complete the program of study for which the loan was obtained through a teach-out agreement²⁸¹ at another school or by transferring credits earned at the closed school to another school to enroll in a comparable program. However, if based on information available to the Secretary, a borrower qualifies for a closed school discharge with respect to a school that closed on or after November 1, 2013, and before July 1, 2020, and the borrower did not subsequently re-enroll in any Title IV- eligible IHE within three years of the school’s closure, the Secretary is to discharge the borrower’s loan without the borrower needing to submit an application for a discharge.

For loans made on or after July 1, 2020, to qualify for a closed school discharge, a borrower must submit an application and certify that (1) the school attended closed either while the student was enrolled or within 180 days of the student withdrawing,²⁸² (2) that the student did not complete the program of study for which the loan was obtained through a teach-out agreement at another school or by transferring credits earned at the closed school to another school, and (3) that the student has not accepted the opportunity to complete the program of study or a comparable program at another school through either a teach-out plan performed by the closing school or a teach-out agreement at another school.²⁸³

In either case, upon being granted a closed school discharge, a borrower is reimbursed for any amounts they had already repaid on the loan. If the borrower had previously defaulted on the loan, upon being granted a closed school discharge their eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan.²⁸⁴

279 HEA, §437(c); 34 C.F.R. §§685.212 and 685.214 (2020).

280 ED may extend the 120-day look-back period if it determines that exceptional circumstances related to a school’s closing justify an extension. Exceptional circumstances may include, for example, the school’s loss of accreditation, discontinuation of the majority of its academic programs, action by a state to revoke the school’s license to operate or award academic credentials, or a finding by a federal or state government agency that the school violated federal or state law.

281 A teach-out agreement is “a written agreement between institutions that provides for the equitable treatment of students and a reasonable opportunity for students to complete their program of study if an institution, or an institutional location that provides one hundred percent of at least one program offered, ceases to operate before all enrolled students have completed their program of study.” 34 C.F.R. §600.3.

282 34 C.F.R. §685.214 (2021). ED may extend the 180-day look-back period if it determines that exceptional circumstances related to a school’s closing justify an extension. Exceptional circumstances may include, for example, the revocation or withdrawal of a school’s institutional accreditation; the revocation or withdrawal of a school’s state authorization to operate or award academic credentials; the termination by ED of a school’s participation in an HEA, Title IV program; the teach-out of a school’s educational program exceeding the 180-day look-back period; or a failure by the school responsible for the teach-out of the student’s educational program to perform the material terms of the teach-out plan or agreement.

283 HEA, §437(c); 34 C.F.R. §§685.212 and 685.214 (2021). A teach-out plan is “a written plan developed by an institution that provides for the equitable treatment of students if an institution, or an institutional location that provides one hundred percent of at least one program, ceases to operate before all students have completed their program of study, and may include, if required by the institution’s accrediting agency, a teach-out agreement between institutions.” 34 C.F.R. §600.3.

284 See, for example, 34 C.F.R. §685.214(b) (2020).

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On November 1, 2022, ED published a Final Rule, to take effect on July 1, 2023, that would make uniform the closed school discharge standards and procedures across Direct Loans, regardless of when a loan was first disbursed (the 2023 regulations).²⁸⁵ However, before the 2023 regulations could go into effect, a federal court issued an injunction delaying their effective date until litigation about them is resolved.²⁸⁶ Under the 2023 regulations, to qualify for a closed school discharge, a borrower would be required to submit an application and certify that (1) the school attended closed²⁸⁷ either while the student was enrolled or within 180 days of the student withdrawing,²⁸⁸ and (2) that the student did not complete the program of study for which a loan was obtained at another branch or location of the school or through a teach-out agreement at another school. If based on information available to the Secretary a borrower qualifies for a closed school discharge and the student did not complete their program of study at another branch campus or location of the closed school or through a teach-out agreement at another school within one year of the school’s closure, the Secretary would discharge the borrower’s loan without the borrower needing to submit an application for a discharge. Also, if a student accepts but did not complete a continuation of their program of study at another branch or location of the school or a teach-out agreement at another school, the Secretary would discharge the borrower’s loan one year after the student’s last date of attendance, as applicable.²⁸⁹ While the litigation regarding the 2023 regulations is being resolved, ED has stated it will not process any closed school discharge applications according to such regulations “unless and until the effective date is reinstated.” ED says it will continue to process closed school discharge applications under the prior rules.²⁹⁰

False Certification and Unauthorized Payment Discharges

A borrower’s liability to repay a loan is discharged if the eligibility of the borrower (or of the student in the case of a Direct PLUS Loan made to a parent borrower) to receive the proceeds of the loan was falsely certified by the IHE attended,²⁹¹ or if the loan proceeds were disbursed without their authorization (e.g., the IHE signed the borrower’s authorization for an electronic funds transfer without the borrower’s authorization).²⁹² In the case of a Direct Consolidation Loan, a borrower’s liability to repay the portion of the loan that is attributable to loans that were falsely certified by the IHE attended, or that were disbursed without their authorization, is

285 U.S. Department of Education, “Institutional Eligibility Under the Higher Education Act of 1965, as Amended; Student Assistance General Provisions; Federal Perkins Loan Program; Federal Family Education Loan Program; and William D. Ford Federal Direct Loan Program,” 87 Federal Register 65904, November 1, 2022.

286 Career Colleges and Schools of Texas v. Cardona, 98 F.4th 220 (5th Cir. 2024).

287 The 2023 regulations would also update the instances in which a school is considered to be closed. ED would consider a school to be closed on the earlier of (1) the date the school stopped providing educational instruction in programs in which most of its students were enrolled, or (2) a date determined by ED that reflects when the school stopped providing educational instruction to all of its students.

288 The 2023 regulations would also update the exceptional circumstances under which ED may extend the 180-day look-back period. Under the updated regulations, exceptional circumstances may include, for example, all of the exceptional circumstances currently applicable to loans made on or after July 1, 2020 (see footnote 280) as well as the school having discontinued a significant share of its academic programs, the school permanently closing all or most of its in-person locations while maintaining online programs, or ED placing the school on the heightened cash monitoring payment method applicable to the HEA Title IV student financial aid programs.

289 U.S. Department of Education, Final Rule, November 1, 2022.

290 U.S. Department of Education, Office of Federal Student Aid, “Closed School Discharge,” https://studentaid.gov/ manage-loans/forgiveness-cancellation/closed-school#q-and-a (accessed July 26, 2024).

291 Instances of false certification include, for example, if an IHE certified the Title IV eligibility of a student who reported not having a high school diploma or who did not satisfy ability to benefit (ATB) requirements for Title IV eligibility. For additional information on ATB requirements, see FSA Handbook, vol. 1, pp. 11-13.

292 HEA, §437(c); 34 C.F.R. §§685.212 and 685.215.

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discharged. A borrower must submit an application to ED that provides certifications and evidence relating to their eligibility for discharge. Upon being granted a false certification or unauthorized payment discharge, the borrower is reimbursed for any amounts they had already repaid on the loan. If the borrower had previously defaulted on the loan, upon being granted a false certification or unauthorized payment discharge their eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan.

Unpaid Refund Discharge

If a borrower is owed a refund by an IHE that has not been paid, their liability to repay an amount equal to the unpaid refund and any associated accrued interest and other charges is discharged.²⁹³ An unpaid refund discharge is only available in instances where a borrower is owed a refund by a school that has closed, or by an open IHE that the borrower (or the student on whose behalf a Direct PLUS Loan is made to a parent borrower) is no longer attending.

Borrower Defense to Repayment Discharge

A borrower’s liability to repay a loan is discharged in whole or in part, and previous loan payments are refunded, if the borrower (or the student on whose behalf a Direct PLUS Loan was made to a parent borrower) successfully asserts a defense to repayment of the loan. A borrower may assert certain acts or omissions by the IHE for which the loan was borrowed that relates to the making of the loan as a defense to repayment.²⁹⁴

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

For loans disbursed prior to July 1, 2017, a borrower defense to repayment “refers to any act or omission of the school attended ... that would give rise to a cause of action against the school under applicable State law.”²⁹⁵ For loans disbursed on or after July 1, 2017, and before July 1, 2020, a borrower may assert a defense to repayment on the basis of a nondefault, contested judgment against the school; a breach of contract by the school; or a substantial misrepresentation by the school to the borrower that the borrower had relied on to their detriment when they decided to attend or continue attending the school, or decided to borrow a loan.²⁹⁶

For loans disbursed on or after July 1, 2020, a borrower may assert a defense to repayment on the basis of a misrepresentation of material fact made by the borrower’s school about enrollment or the provision of educational services that the borrower relied upon in deciding to borrow a loan

293 HEA, §437(c); 34 C.F.R. §§685.212 and 685.216.

294 HEA, §437(c).

295 34 C.F.R. §685.206(c).

296 34 C.F.R. §685.222 and Part 668, Subpart F. A misrepresentation means “Any false, erroneous or misleading statement an eligible institution, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or to the Secretary.” 34 C.F.R. §668.71(c).

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and from which they suffered financial harm.²⁹⁷ For loans disbursed on or after July 1, 2020, a borrower must assert a defense to repayment within three years of ceasing to be enrolled at the IHE.

In the instance that a borrower had previously defaulted on a loan, upon being granted a defense to repayment discharge the borrower’s eligibility to receive additional Title IV federal student aid will be restored and consumer reporting agencies will be instructed to delete any adverse credit history related to the loan.²⁹⁸

On November 1, 2022, ED issued a Final Rule, to take effect on July 1, 2023, that would specify another set of circumstances under which a borrower could assert a defense to repayment that would apply to borrower defense applications received on or after July 1, 2023, and for applications pending with ED on July 1, 2023, regardless of the date an applicable loan was disbursed (the 2023 regulations).²⁹⁹ However, before the 2023 regulations could go into effect, a federal court issued an injunction delaying their effective date until litigation about them is resolved.³⁰⁰ Under the 2023 regulations, a borrower would be able to assert a defense to repayment on the basis of

• a substantial misrepresentation³⁰¹ by the school that misled the borrower;

• an omission of fact by the school;³⁰²

• a failure of the school to perform its obligations under a contract with the student;

• engagement by the school in aggressive and deceptive recruitment conduct;³⁰³

• ED actions against the school, including fines, limitations, suspension actions, denial of the school’s application for recertification to participate in the HEA Title IV programs, and the revocation of a school’s provisional program participation agreement for the HEA Title IV aid programs,³⁰⁴ all of which must be based on the school’s acts or omissions that could give rise to a borrower defense to repayment claim under the above-listed circumstances; or

• the borrower (as an individual or as a member of a class) or a governmental agency having obtained against the school a favorable judgment under federal or

297 34 C.F.R. §685.206(e). A misrepresentation means “a statement, act, or omission by an eligible school to a borrower that is false, misleading, or deceptive; that was made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth; and that directly and clearly relates to (1) enrollment or continuing enrollment at the institution, or (2) the provision of educational services for which the loan was made.” Financial harm means “the amount of monetary loss that a borrower incurs as a consequence of a misrepresentation” and excludes nonmonetary losses.

298 See, for example, 34 C.F.R. §685.206(e)(12).

299 U.S. Department of Education, “Institutional Eligibility Under the Higher Education Act of 1965, as Amended; Student Assistance General Provisions; Federal Perkins Loan Program; Federal Family Education Loan Program; and William D. Ford Federal Direct Loan Program,” 87 Federal Register 65904, November 1, 2022.

300 Career Colleges and Schools of Texas v. Cardona, 98 F.4th 220 (5th Cir. 2024).

301 Under the 2023 regulations, the definition of misrepresentation would largely mirror the definition used for borrower defense to repayment claims for loans disbursed on or after July 1, 2017, and before July 1, 2020, but would also include an omission of fact.

302 An omission of fact would mean a misrepresentation “if a reasonable person would have considered the omitted information in making a decision to enroll or continue attendance at the institution.” 34 C.F.R. §685.75 (2023).

303 This, as well as the three previously delineated bases, generally must have occurred in connection with the borrower’s decision to attend or continue attending the school, or the borrower’s decision to borrow a loan.

304 For additional information on program participation agreements, see CRS Report R43159, Institutional Eligibility for Participation in Title IV Student Financial Aid Programs.

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state law based on the school’s acts or omissions relating to the making of a loan, or the provision of educational services for which the loan was provided.

In addition, only for loans disbursed prior to July 1, 2017, and in limited circumstances, a borrower would be able to assert a defense to repayment on the basis of any act or omission of the school relating to the making of the loan for enrollment at the school or the provision of educational services for which the loan was provided that would give rise to a cause of action against the school under applicable state law.³⁰⁵ Under the 2023 regulations, upon successfully asserting a borrower defense to repayment, a borrower would receive a discharge of the full amount of their applicable loan and would be entitled to have the full amount of payments made on their applicable loans refunded. As under current standards, a borrower who had previously defaulted on an applicable loan and is granted a defense to repayment discharge would have their eligibility to receive additional Title IV federal student aid restored, and consumer reporting agencies would be instructed to delete any adverse credit history related to the loan.

While the litigation regarding the 2023 regulations is being resolved, ED has stated it will not adjudicate any borrower defense to repayment applications under the 2023 regulations “unless and until the injunction is lifted.” ED says it will continue to adjudicate borrower defense to repayment applications under the prior rules.³⁰⁶

Bankruptcy Discharge

Section 523(a)(8) of the Bankruptcy Code provides that student loans (e.g., loans made through the Direct Loan program) may not be discharged in bankruptcy proceedings, unless the debtor is able to demonstrate to the court that “excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor’s dependents.”³⁰⁷ In general, to discharge student loan debt in bankruptcy, a debtor must file a separate lawsuit against the holder of the debt and must prove by a preponderance of the evidence that repayment of the debt would impose an undue hardship.³⁰⁸ If a borrower’s liability to repay a loan made through the Direct Loan program is discharged in bankruptcy, the Secretary does not require the borrower to make payments on the loan.³⁰⁹

Loan Forgiveness Following IDR Plan Repayment

Under all of the Income-Driven Repayment (IDR) plans, ED relieves a borrower of the obligation to repay any remaining outstanding principal and interest after the borrower has made the equivalent number of monthly payments (e.g., monthly payments under one or more specified repayment plans and specified periods of deferment and forbearance) that correspond to the

305 This option would only be available to borrowers during any reconsideration process of a borrower defense to repayment claim denied under any of the other standards.

306 U.S. Department of Education, Office of Federal Student Aid, “Borrower Defense Updates,” https://studentaid.gov/ announcements-events/borrower-defense-update (accessed July 26, 2024).

307 11 U.S.C. §§523(a)(8) and 1328.

308 See CRS Report R45113, Bankruptcy and Student Loans. In November 2022, the Department of Justice (DOJ), in coordination with ED, developed new guidance to help “enhance consistent treatment of the discharge of federal student loans [in bankruptcy], reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate.” U.S. Department of Justice, “Justice Department and Department of Education Announce a Fairer and More Accessible Bankruptcy Discharge Process for Student Loan Borrowers,” press release, November 17, 2022, https://www.justice.gov/opa/pr/justice-department-and-department-education-announce- fairer-and-more-accessible-bankruptcy.

309 34 C.F.R. §685.212(c).

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plan’s maximum repayment period. Table 9 presents the maximum repayment period and equivalent number of monthly payments for each IDR plan.

Table 9. Maximum Repayment Period and Equivalent Number of Monthly Payments

by Income-Driven Repayment Plan

Repayment Plan

Maximum Repayment

Period (Years)

Equivalent Number of

Payments (Months)

Income-Contingent Repayment Plan 25 300

PAYE Repayment Plan 20 240

SAVE Repayment Plan

Borrowers with TOPB ≤ $12,000^a 10 120

Borrowers who only borrowed for undergraduate education with TOPB > $12,000

11-20, depending on

TOPB^b

132-240, depending on

TOPB^b

Borrowers who borrowed for graduate or professional education with TOPB > $12,000^c

11-25, depending on

TOPB^b

132-300, depending on

TOPB^b

Original IBR Plan 25 300

IBR Plan for Post-July 1, 2014, New Borrowers 20 240

Source: CRS analysis of 34 C.F.R. §685.209. Notes: TOPB = total original principal balance a. Applicable to borrowed regardless of the level of postsecondary education for which the loan(s) was borrowed.

b. See Table 8 for specific maximum repayment periods and equivalent number of payments by TOPB under the SAVE repayment plan.

c. Applies to individuals who borrowed at least one loan for graduate or professional education, regardless of whether they borrowed for their undergraduate education. However, TOPB is inclusive of loans borrowed for their undergraduate education.

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

Loan Forgiveness for Public Service

Under the Direct Loan program, borrowers who have engaged in certain types of public service for a specified period of time and meet program-specific requirements are eligible for loan forgiveness benefits.³¹⁰

Teacher Loan Forgiveness Program

Under the Teacher Loan Forgiveness program, a borrower who has completed five consecutive complete academic years of teaching service in a low-income school or educational service agency (ESA) is eligible for loan forgiveness benefits of up to a combined total of $5,000 for service as a highly qualified teacher, or $17,500 for service as a highly qualified special education

310 Borrowers of loans made through the Direct Loan program may also be able to qualify to receive loan repayment benefits through a number of federal programs. For information on such programs, see CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs.

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teacher or secondary school teacher of mathematics or science.³¹¹ Teacher Loan Forgiveness benefits are only available to borrowers who had no outstanding balance on any federal student loan made through the Direct Loan program (or the FFEL program) as of the date the borrower first obtained such a loan on or after October 1, 1998.

Student loan debt attributable to Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct Consolidation Loans (to the extent that the Direct Consolidation Loan repaid a Direct Subsidized Loan, a Direct Unsubsidized Loan, a FFEL Subsidized Stafford Loan, or a FFEL Unsubsidized Stafford Loan) may be forgiven. Loans must have been obtained prior to the end of a borrower’s fifth year of qualifying service and may not be in default, unless satisfactory repayment arrangements have been made. A borrower may receive Teacher Loan Forgiveness Program Forbearance for up to the five years of teaching service required to qualify for benefits.³¹²

A borrower becomes eligible for loan forgiveness benefits upon completion of the fifth year of qualifying service.³¹³ If a borrower’s student loan debt exceeds the amount to be forgiven, and unless otherwise requested by the borrower, loan forgiveness benefits are applied first to Direct Unsubsidized Loans, then to Direct Subsidized Loans, then to the unsubsidized component of Direct Consolidation Loans, and finally to the subsidized component of Direct Consolidation Loans. Loan forgiveness benefits may not be provided for the same service used to qualify for benefits under the PSLF program, the Loan Forgiveness for Service in Areas of National Need Program, or a Segal AmeriCorps Education Award.³¹⁴

Public Service Loan Forgiveness (PSLF) Program

Under the PSLF program, a borrower is eligible to have the remaining outstanding principal and interest of their loans forgiven if they (1) were employed full-time by a qualifying employer or serving full-time in an AmeriCorps or Peace Corps position (2) while concurrently having made 120 qualifying monthly payments or their equivalent (collectively referred to as “qualifying monthly payments”) on their Direct Loans on or after October 1, 2007, and at the time they apply for PSLF benefits.³¹⁵

311 HEA §460; 34 C.F.R. §§685.212(h) and 685.217. Breaks in service are authorized for borrowers who return to school on at least a half-time basis to pursue additional postsecondary education related to the qualifying teaching service, who have a condition covered under the Family and Medical Leave Act of 1993 (FMLA), or who are called or ordered to active duty for more than 30 days in a reserve component of the Armed Forces. An eligible school or ESA is an entity (1) that qualifies for funds under Title I of the Elementary and Secondary Education Act of 1965 (ESEA), (2) at which more than 30% of students qualify for Title I services, and (3) that is listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits (Teacher Cancellation Low-Income (TCLI) Directory), https://studentaid.gov/tcli/. Bureau of Indian Education (BIE) schools are considered eligible schools. Qualifying service may be completed at one or more eligible schools or ESAs.

312 ED will grant such a forbearance “only if the Secretary believes, at the time of the borrower’s annual [forbearance] request, that the expected forgiveness amount will satisfy the anticipated remaining outstanding balance on the borrower’s loan at the time of the expected forgiveness.” 34 C.F.R. §685.205(a)(5).

313 If the school or ESA at which a borrower taught met Teacher Loan Forgiveness program eligibility requirements for at least one year of the borrower’s five consecutive years of service and fails to meet those requirements in subsequent years, a borrower’s subsequent years of teaching at such school or ESA count toward the borrower’s qualifying Teacher Loan Forgiveness program service. 34 C.F.R. §685.217(c)(3).

314 A parallel Teacher Loan Forgiveness program is available for borrowers of FFEL program loans. If a borrower also has eligible loans made through the FFEL program, combined Teacher Loan Forgiveness program benefits received through the Direct Loan program and the FFEL program may not exceed $5,000 or $17,500, as applicable.

315 HEA, §455(m); 34 C.F.R. §§685.212(i) and 685.219. Unless otherwise noted, the description of the PSLF program hereafter is based on 34 C.F.R. §685.219.

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Qualifying employers include

• federal, state, local, or tribal government agencies, organizations, or entities;

• public child or family service agencies;

• tribal colleges and universities;

• nonprofit entities organized under Section 501(c)(3) of the Internal Revenue Code (IRC) that are tax-exempt under IRC Section 501(a); and

• other nonprofit organizations³¹⁶ that devote the majority of their full-time equivalent employees to work in one of the following areas: emergency management, civilian service to military personnel, military service, public safety, law enforcement, public interest law services, early childhood education, public service for individuals with disabilities and the elderly, public health, public education, public library services, and school library or other school-based services.

A borrower is considered employed by a qualifying employer if the borrower (1) receives an IRS Form W-2 from the organization or from an organization that has contracted with a qualifying employer to provide payroll services, including provision of the Form W-2, on behalf of the qualifying employer or (2) works as a contracted employee for a qualifying employer in a position that, under applicable state law, cannot be filled by a direct employee of the qualifying employer.

Full-time is defined as working

• a minimum of 30 hours per week;

• a minimum of 30 hours per week for a contractual or employment period that lasts at least 8 months in a 12-month period (e.g., elementary or secondary school teachers); or

• the equivalent of 30 hours per week “as determined by multiplying each credit or contact hour taught per week by at least 3.35 in non-tenure track employment at an institution of higher education.”³¹⁷

Borrowers may be simultaneously employed by more than one qualifying employer to meet the full-time employment requirements.

Loan forgiveness benefits may not be provided for the same service used to qualify for benefits under the Teacher Loan Forgiveness Program, the Civil Legal Assistance Attorney Loan Repayment Program, or the Loan Forgiveness for Service in Areas of National Need Program.³¹⁸

While completing PSLF-qualifying employment or service meeting PSLF employment or service, a borrower must also make 120 qualifying monthly payments on loans that are not in default. Qualifying monthly payments include payments of at least the full scheduled amount due or payments in multiple installments for the full scheduled amount due under a qualifying repayment plan. Qualifying repayment plans are any of the IDR plans, the standard repayment plan with a 10-year repayment period, and any other repayment plan if the scheduled monthly payment is not less than what would have been due under the standard repayment plan with a 10-

316 Labor unions and partisan political organizations are not considered nonprofit organizations for PSLF purposes.

317 34 C.F.R. §685.219(b). For example, if an adjunct professor taught a total of nine credit hours per week, they would be considered employed full-time (9 x 3.35 = 30.15).

318 For additional information on the latter two programs, see CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs.

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year repayment period. Monthly payments under alternative repayment plans are not eligible for the purposes of satisfying PSLF.

Borrowers may make lump sum payments (i.e., prepayments) for a period of months not to exceed the period (1) for borrowers in IDR plans, from when ED receives the payment to the borrower’s next annual IDR recertification date and (2) for borrowers in a standard repayment with a 10-year repayment period, equal to the lesser of 12 months or the period from when ED receives the payment to the date on which ED receives the borrower’s next PSLF application.³¹⁹

In addition, the following periods of deferment and forbearance are considered qualifying monthly payments

• cancer treatment deferment,

• economic hardship deferment,

• military service deferment,

• post-active duty student deferment,

• AmeriCorps service forbearance,

• National Guard duty forbearance,

• Department of Defense Student Loan Repayment Program forbearance,

• administrative forbearance authorized by ED due to a national military mobilization or other local or national emergency (including the COVID-19 payment pause), and

• administrative forbearance for a period necessary for ED to collect and process documentation supporting a borrower’s request for a deferment, forbearance, change in repayment plan, or Consolidation Loan.

For periods of deferment or forbearance not listed above, the borrower may obtain credit toward the 120 qualifying monthly payments for those periods if they make additional payments equal to or greater than the amount they would have paid under a qualifying repayment plan or otherwise qualified for a $0 payment under an IDR plan during such periods.

Some qualifying monthly payments on Direct Loans that are subsequently consolidated into a Direct Consolidation Loan may count toward satisfying the 120 qualifying monthly payments for PSLF for the new Direct Consolidation Loan. Specifically, if a borrower consolidates one or more Direct Loans into a Direct Consolidation Loan, the number of PSLF-qualifying payments credited toward the new Consolidation Loan is to equal the weighted average,³²⁰ of the number of otherwise PSLF-qualifying payments made on the Direct Loans prior to consolidation.³²¹

319 34 C.F.R. §685.2109(c)(iii)-(iv).

320 Here, the weight is based on the outstanding balance of the Direct Loans being consolidated at the time of consolidation. CRS communication with U.S. Department of Education, Office of Legislation and Congressional Affairs, June 4, 2024.

321 Payments made on non-Direct Loan program loans that are consolidated into a Direct Consolidation Loan are not considered PSLF qualifying and, therefore, do not count toward PSLF on the new Direct Consolidation Loan. In instances where a borrower consolidates both Direct Loan program and non-Direct Loan program loans into a Direct Consolidation Loan, the weighted average of qualifying payments made on all component (both Direct and non-Direct) loans would be calculated and applied to the resulting Consolidation Loan. For example, if a borrower consolidated a $20,000 Direct Loan with 60 PSLF qualifying payments and a $20,000 FFEL program loan with zero PSLF qualifying payments, the resulting Direct Consolidation Loan would have a PSLF-qualifying payment count of 30. CRS communication with U.S. Department of Education, Office of Legislation and Congressional Affairs, June 4, 2024.

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Temporary Expanded Public Service Loan Forgiveness (TEPSLF) Program

The TEPSLF program was established in response to concerns that some borrowers were experiencing difficulty in deciphering and complying with the requirements for establishing eligibility for loan forgiveness through the PSLF program.³²² A borrower who would qualify for loan forgiveness under the PSLF program except for the fact that, under certain circumstances, some or all of the required 120 monthly payments were nonqualifying may be relieved of the obligation to repay the balance of principal and interest that remains outstanding upon the borrower otherwise satisfying the requirements of the PSLF program as well as the following criteria:

• All of the borrower’s nonqualifying monthly payments must have been made according to any of the extended repayment plans, the graduated repayment plans, or a standard repayment plan with a repayment period that exceeds 10- years (for Consolidation Loans only) and were in amounts that were less than what the borrower would have been paid under the standard repayment plan with a 10-year repayment period.

• The amount of both the borrower’s most recent monthly payment and the monthly payment made 12 months prior to application for relief through the TEPLSF program must equal or exceed the monthly payment amount that would have been calculated under one of the IDR plans for which the borrower would have otherwise qualified. (An exception to this criterion is provided to a borrower who would otherwise qualify for TEPSLF benefits but over the past five years demonstrates an “unusual fluctuation of income.”³²³)

Benefits are available on a first-come, first-served basis and are subject to the availability of funds.³²⁴

Tax Treatment of Discharged and Forgiven Debt

The IRC provides that, in general, student loan debt (as well as other types of debt) that is discharged, forgiven, or repaid on a borrower’s behalf is included as part of the individual’s gross income for the purposes of federal income taxation.³²⁵ In certain instances, however, discharged or forgiven student loan debt may be excluded from an individual’s gross income and, therefore, exempted from consideration in determining federal income tax liability. If loan discharge or loan forgiveness benefits are not specifically excluded from an individual’s gross income, they may be responsible for paying any income tax liability associated with the benefits received. In the circumstances described below, discharged or forgiven student loan debt may be excluded from an individual’s gross income:

• Loan Discharge in General. Student loan debt that is discharged for almost any reason, if the discharge occurs after December 31, 2020, and before January 1,

322 For background, see U.S. Government Accountability Office (GAO), Public Service Loan Forgiveness: Education Needs to Provide Better Information for the Loan Servicer and Borrowers, GAO-18-547, 2918, https://www.gao.gov/ assets/700/694304.pdf.

323 P.L. 115-141.

324 Up to $500 million in loan forgiveness benefits was made available by P.L. 115-141, up to an additional $500 million was made available by P.L. 115-245, up to an additional $75 million was made available by P.L. 116-94, up to an additional $75 million was made available by P.L. 116-260, and up to an addition $75 million was made available by P.L. 117-103.

325 IRC §61(a)(11).

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2026. This could include, discharge due to death of the borrower (or due to the death of the student on whose behalf a Direct PLUS Loan was made to a parent borrower), discharge due to the total and permanent disability of the borrower, and loan forgiveness following IDR plan repayment.³²⁶

• Closed School Discharge. Student loan debt that is discharged on the basis of the school attended having closed while the student was enrolled or within a specified number of days of the student withdrawing, as detailed in regulations (see “Closed School Discharge”), and the student also having not completed the program of study for which the loan was obtained.³²⁷

• False Certification and Unauthorized Payment Discharges. Student loan debt that is discharged on the basis of the proceeds of the loan having been falsely certified by the IHE the borrower attended or having been disbursed without their authorization.³²⁸

• Unpaid Refund Discharge. Student loan debt that is discharged on the basis of a school that has closed or that a borrower no longer attends having not refunded amounts owed to the borrower.³²⁹

• Bankruptcy Discharge. Student loan debt that is discharged in bankruptcy proceedings.³³⁰

• Insolvency. Student loan debt that is discharged while an individual is insolvent.³³¹ Depending on an individual’s unique circumstances, it may be possible for a borrower who receives loan forgiveness following IDR plan repayment to be considered insolvent at the time of discharge.

• Loan Forgiveness for Public Service. Discharged or forgiven student loan debt may be excluded if a loan was made by certain types of lenders (e.g., the federal government), was borrowed to assist an individual in attending a qualified educational institution, and contains terms providing that some or all of the balance will be cancelled for work for a specified amount of time in certain professions or occupations and for any of a broad class of employers (e.g., public service organizations). Student loan debt that is discharged through the Teacher Loan Forgiveness program, the PSLF program, and the TEPSLF program may be excluded.³³²

326 IRC §108(f)(5).

327 HEA §§437(c)(4) and 465(a)(5).

328 HEA §§437(c)(4) and 465(a)(5).

329 HEA §§437(c)(4) and 465(a)(5).

330 IRC §108(a)(1)(A).

331 IRC §108(a)(1)(B). “For purposes of [IRC §108], the term ‘insolvent’ means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer’s assets and liabilities immediately before the discharge.” IRC §108(d)(3).

332 IRC §108(f), For additional information on this provision, see “Exclusion of Income Attributable to the Discharge of Certain Student Loan Debt and HSC and Certain State Educational Loan Repayments,” in CRS Committee Print CP10005, Tax Expenditures: Compendium of Background Material on Individual Provisions—A Committee Print Prepared for the Senate Committee on the Budget, 2022.

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Loan Default, Its Consequences, and Resolution

A loan made through the Direct Loan program is considered to be in default once the borrower has failed to make payments when due or has otherwise not adhered to the terms of the promissory note for 270 days.³³³ Defaulting on a federal student loan can result in a number of adverse consequences for the borrower. Upon default, the borrower’s obligation to repay the loan is accelerated (i.e., the entire unpaid balance of principal and accrued interest becomes due in full).³³⁴ In addition, upon defaulting a borrower loses eligibility for certain borrower benefits (e.g., deferment, forbearance, loan forgiveness), as well as eligibility to receive additional Title IV federal student aid.

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

Several options are available to borrowers to bring defaulted loans back into good standing. A borrower may resolve a loan’s default status by rehabilitating the loan, consolidating the loan into a new Direct Consolidation Loan, paying off the defaulted loan balance, or in certain circumstances, being determined to qualify for a $0 monthly payment according to an IDR plan by providing approval for the IRS to disclose their federal tax information to ED.

In response to the COVID-19 pandemic, involuntary collection practices (described below), which include administrative wage garnishment; offset of federal income tax returns, Social Security benefits, and certain other federal benefits; and civil litigation, have been temporarily suspended. In addition, in April 2022, ED announced a new policy “to eliminate the negative effects of default for borrowers who defaulted on their student loan prior to the [COVID-19] pandemic payment pause,”³³⁵ known as the Fresh Start Initiative. Although ED had previously specified that both of these flexibilities were effective through September 30, 2024, reports indicate that ED has stated “involuntary collections will not occur before 2025.”³³⁶ For information on both of these flexibilities, see Appendix D.

Consequences of Default for Borrowers

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

• Ineligibility for Federal Student Aid. The borrower becomes ineligible to receive federal student aid made under Title IV of the HEA.³³⁷ A defaulted borrower may regain eligibility by voluntarily making six consecutive, on-time,

333 34 C.F.R. §685.102.

334 34 C.F.R. §685.211(d).

335 U.S. Department of Education, Office of Postsecondary Education, “Federal Student Aid Eligibility for Borrowers with Defaulted Loans,” August 17, 2022, Dear Colleague Letter GEN-22-13, https://fsapartners.ed.gov/knowledge- center/library/dear-colleague-letters/2022-08-17/federal-student-aid-eligibility-borrowers-defaulted-loans.

336 U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Emergency Relief and Federal Student Aid,” https://studentaid.gov/announcements-events/covid-19, accessed October 3, 2024 and Michael Stratford, “Biden administration pushes collections of defaulted student loans to after election,” Politico, October 10, 2024.

337 HEA §484(a)(3). Ineligibility for Title IV aid also results from defaulting on a FFEL program loan or a Perkins Loan.

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full monthly payments (referred to as a satisfactory repayment arrangement). A borrower may restore eligibility for Title IV aid though this method only once.³³⁸

• Acceleration. The entire unpaid balance owed on the borrower’s loan becomes due in full.³³⁹

• Potential Placement in an IBR plan. ED automatically places borrowers who are in default on their loan in the IBR plan under the following conditions: they (1) are not subject to federal salary offset, the Treasury Offset Program, administrative wage garnishment, or judgment through litigation; (2) are otherwise eligible for the repayment plan (in the case of defaulted borrowers, the IBR plans); (3) have approved disclosure of tax information from the IRS to ED; and (4) have been determined by ED to have monthly payments under the IBR plan that are lower than or equal to monthly payments under the plan in which the borrower is currently enrolled.³⁴⁰

• Debt Collection. Prior to November 8, 2021, upon default, student loan accounts were initially transferred from the borrower’s student loan servicer to the Office of Federal Student Aid’s (FSA’s) Default Management and Collection System (DMCS), FSA’s management system for defaulted loans. FSA’s Default Resolution Group (DRG) served as the contact center for DMCS.³⁴¹ Following transfer from a loan servicer, the DMCS typically would transfer defaulted loans to private collection agencies (PCAs) that were under contract with FSA for collections.³⁴² The PCA would first contact the borrower before pursuing efforts to collect on the debt. The PCA could offer the borrower the opportunity to rehabilitate the loan or to enter into a voluntary repayment agreement. If the borrower accepted neither offer, or did not honor a voluntary repayment agreement, the PCA could seek to collect on the defaulted loans by means of administrative wage garnishment (AWG). The PCA could also refer defaulted loans for federal offset to the Treasury Offset Program (TOP) for collection, or could recommend litigation. On November 8, 2021, ED cancelled its contracts with PCAs and recalled all borrower accounts.³⁴³ FSA’s DRG, using the DMCS, is currently responsible for assisting borrowers with their defaulted loans. Thus, those borrowers who are currently in default on their Direct Loans may reach out to ED’s DRG to begin or continue default resolution arrangements (described below).³⁴⁴ The DRG does not perform the full scope of default collection (i.e., involuntary collection practices) due to the temporary suspension on collection activities in light of the

338 34 C.F.R. §685.102(b).

339 34 C.F.R. §685.211(d)(1).

340 34 C.F.R. §685.209(m).

341 This paragraph is adapted from CRS Report R44845, Administration of the William D. Ford Federal Direct Loan Program.

342 Beginning March 20, 2020, it was not possible for Direct Loan borrowers to default on their loans due to the COVID-19 payment pause. Thus, from that time to November 8, 2021, no new borrower accounts were assigned to PCAs; although PCAs were still responsible for assisting borrowers who sought to begin or continue default resolution arrangements.

343 Stephanie Eidelman, “The End of an Era: ED Officially Ends all Collection Agency Contracts; Recalls Accounts,” insideARM, November 9, 2021, https://www.insidearm.com/news/00047826-end-era-ed-officially-ends-all-collection/.

344 See CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.

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COVID-19 pandemic (see Appendix D). ED previously stated that when the Fresh Start Initiative ended (October 1, 2024), ED intended that debt collection work would function in much of the same way it did before the pandemic: with defaulted loans being assigned to a contracted entity to perform collection work, including offering borrowers the opportunity to rehabilitate their loan or enter into a voluntary repayment agreement and collecting debt via other means such as AWG, TOP, or recommendation for litigation.³⁴⁵ However, reports indicate that ED has since stated “involuntary collections will not occur before 2025.”³⁴⁶

• Assessment of Collection Charges. The borrower may be charged for the costs of collecting on the loan, including loan collection fees, TOP processing fees, court costs, and attorney’s fees.³⁴⁷

• Administrative Wage Garnishment (AWG). Up to 15% of the borrower’s disposable pay may be garnished to repay the defaulted student loan.³⁴⁸ Disposable pay is defined as that part of a borrower’s compensation that remains after deducting amounts required by law to be withheld. Defaulters must be given written notice of the intent to garnish wages; and they have rights to examine the debt record, have a hearing concerning the existence and amount of the debt or repayment terms, and establish a repayment schedule before garnishment begins.

• Federal Salary Offset. Similar to AWG, up to 15% of the disposable pay (including retirement pay) of a borrower who is a current or former federal employee may be offset to repay a defaulted student loan.³⁴⁹

• Federal Offset. Defaulters become subject to having their federal income tax returns, Social Security benefits, and certain other federal benefits offset through the Treasury Offset Program (TOP)³⁵⁰ as payment on their student loans. Up to 100% of federal tax refunds may be offset.³⁵¹ Social Security benefits may be offset in an amount up to the lesser of 15% of the borrower’s monthly benefit amount, or the amount that their monthly benefit exceeds $750.³⁵² Special rules apply with regard to the offset of Social Security Disability Insurance (SSDI) benefits. If a recipient has a disability rating of medical improvement not expected (MINE), the offset of SSDI benefits will be suspended. However, if a recipient’s disability benefits are converted to retirement benefits, the offset of Social Security benefits may resume.³⁵³

345 CRS communication with U.S. Department of Education, Office of Legislation and Congressional Affairs, March 24, 2023.

346 Michael Stratford, “Biden administration pushes collections of defaulted student loans to after election,” Politico, October 10, 2024.

347 34 C.F.R. §§30.60, 685.202(e), and 685.211(d)(2).

348 HEA, §488A; 34 C.F.R. Part 34.

349 30 C.F.R. Part 31 and Part 32.

350 U.S. Department of the Treasury, Bureau of the Fiscal Service, “Treasury Offset Program: What is the Treasury Offset Program?,” https://fiscal.treasury.gov/top/how-top-works.html (accessed March 24, 2023).

351 31 C.F.R. §285.2(b)(2).

352 31 U.S.C. §3716(c)(3)(A); 31 C.F.R. §285.4(e).

353 U.S. Department of Education, Office of Federal Student Aid, “Collections on Defaulted Loans,” https://studentaid.gov/manage-loans/default/collections#treasury-offset (accessed July 30, 2024).

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• Litigation. Litigation is employed as a last resort to collect on a defaulted loan. If this option is pursued, the U.S. Department of Justice may sue the defaulter, on behalf of the Office of Federal Student Aid, to compel repayment.

• Reporting to the Credit Alert Verification Reporting System (CAIVRS). CAIVRS is a shared database of individuals who have defaulted on their federal debts that is used to prescreen and verify applicant eligibility for various federal direct and guaranteed loans.³⁵⁴ ED may report information about a borrower’s default to CAIVRS.

• Reporting to Consumer Reporting Agencies. Information on student loans, including amounts borrowed, amounts owed, and repayment status, is regularly exchanged with consumer reporting agencies. Upon default, information about it will also be shared. Consumer reporting agencies may report information on the status of a borrower’s defaulted student loan for seven years from the date of the default.³⁵⁵

Resolution of Default

A number of options are available to borrowers to get out of default. As noted above, a borrower may: (1) rehabilitate the defaulted loan, (2) obtain a Direct Consolidation Loan and use the proceeds to pay off the defaulted loan, (3) pay the amount owed on the defaulted loan in full, (4) be determined by ED to be eligible for a $0 monthly payment according to an IDR plan by providing approval for the IRS to disclose their federal tax information to ED, or (4) in limited circumstances, enter into a compromise agreement.

Repaying a defaulted loan in full may be beyond the means of many borrowers. However, options to do so may include obtaining financing from outside the Direct Loan program to pay off the defaulted debt. A compromise agreement or debt settlement may permit a borrower to satisfy the debt by making a lump sum payment in an amount that is less than the full balance due.³⁵⁶ Compromise agreements and settlements are offered only after other repayment options have been exhausted.³⁵⁷

Loan rehabilitation and loan consolidation are more widely available to and used by borrowers than compromise agreements. It is unknown how prevalent a means for resolving loan default the option of being determined to be eligible for a $0 monthly payment according to an IDR plan through approval for the IRS to disclose their federal tax information to ED will be, as this option has just become available to borrowers as of July 1, 2024. Loan rehabilitation, consolidation, and eligibility for a $0 monthly payment under an IDR plan are described below.

Loan Rehabilitation

Loan rehabilitation offers borrowers who have defaulted on a student loan an opportunity to have their loan(s) reinstated as active and to have their borrower benefits and privileges restored. A

354 U.S. Department of Housing and Urban Development, “CAIVRS-Credit Alert Verification Reporting System,” https://www.hud.gov/program_offices/housing/sfh/caivrs (accessed July 30, 2024).

355 HEA, §§430A and 455(a)(1). If the borrower reenters repayment after having defaulted and then subsequently defaults, information may be reported for seven years from the date of the subsequent default.

356 34 C.F.R. §30.70.

357 U.S. Department of Education, Office of Federal Student Aid, “Loan Servicing and Collection Frequently Ask Questions,” SETC-Q1, https://fsapartners.ed.gov/knowledge-center/faqs/loan-servicing-and-collection-frequently- asked-questions (accessed July 31, 2024).

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defaulter must enter into a written loan rehabilitation agreement with ED.³⁵⁸ If during a period of 10 consecutive months a borrower voluntarily makes nine “reasonable and affordable” monthly payments on a defaulted loan within 20 days of the due date, the defaulted loan is rehabilitated.³⁵⁹

One of two methods may be used to determine what constitutes a reasonable and affordable payment amount for purposes of rehabilitating a defaulted loan. A reasonable and affordable monthly payment is initially determined as being an amount equal to the greater of either one- twelfth of 10% of any portion of the borrower’s AGI that is in excess of 150% of the poverty line applicable to the borrower’s family size (see Table 7), or $5.³⁶⁰ However, a borrower may object to the initial determination and instead elect to have the amount calculated according to an alternative formula that is based on an itemized accounting of their monthly income and expenses.³⁶¹ In either case, the borrower is required to provide documentation of income and, as applicable, expenses for purposes of determining a reasonable and affordable payment amount.

Only payments that are voluntarily made by a borrower may be counted as among the nine reasonable and affordable payments required for loan rehabilitation. Involuntary payments may continue to be collected (e.g., through administrative wage garnishment or federal offset) while a borrower pursues loan rehabilitation.³⁶²

Upon a loan being rehabilitated, the borrower again becomes eligible for full borrower privileges, such as deferments and loan forgiveness; other means of collecting on the loan while it was in default will cease. The borrower’s loan will then be transferred to a nondefault loan servicer.³⁶³ Consumer reporting agencies will also be instructed to remove any record of the default from the borrower’s credit history; however, records of late or missed payments that led to the loan defaulting will not be removed.³⁶⁴

A defaulted loan may be rehabilitated only once.³⁶⁵ Defaulted loans upon which a court judgement has been obtained through a civil lawsuit are not eligible to be rehabilitated.³⁶⁶

358 34 C.F.R. §685.211(f)(1)(iv).

359 34 C.F.R. §685.211(f)(1). Payments made according to a satisfactory repayment arrangement count toward the required payments for loan rehabilitation. 34 C.F.R. §685.211(f)(5).

360 34 C.F.R. §685.211(f)(1)(i) and SAVE Plan Final Rule, p. 43864.

361 34 C.F.R. §685.211(f)(3); U.S. Department of Education, “Loan Rehabilitation: Income and Expense Information,” OMB No. 1845-0120, https://fsapartners.ed.gov/sites/default/files/attachments/2020-07/ LoanRehabIncomeExpenseInfoFormOMB1845-0120.pdf.

362 Upon a borrower making five voluntary payments on a defaulted loan coincidental with collections through administrative wage garnishment, the Secretary may suspend AWG. 34 C.F.R. §685.211(f)(11).

363 Previously, when a defaulted loan was rehabilitated, the borrower’s loan was transferred to a nondefault loan servicer and placed in one of the alternative repayment plans for 90 days. The borrower could then apply for another repayment plan for which they were eligible. If they did not select a plan, the borrower was placed in a standard repayment plan. (U.S. Department of Education, Office of Federal Student Aid, “Loan Servicing and Collection Frequently Ask Questions” LRQ-12, https://fsapartners.ed.gov/knowledge-center/faqs/loan-servicing-and-collection- frequently-asked-questions.) During the Fresh Start Initiative, loan rehabilitation is not available to borrowers, as the Fresh Start Initiative provides borrowers with a more streamlined means to exit default than loan rehabilitation (see Appendix D). Additionally, the Final Rule establishing the SAVE repayment plan specifies that if a loan was rehabilitated on or after July 1, 2024, and if the borrower’s minimum calculated payment amount under the SAVE repayment plan would be equal to or less than the minimum payment amount under the IBR plan, ED may transfer the loan into the SAVE repayment plan. (34 C.F.R. §685.211(f)(13)). Given the transitional nature of these policies, as of the publication date of this report, it is unclear what the current practice is for enabling borrowers to select loan repayment plans following loan rehabilitation.

364 34 C.F.R. §685.211(f)(8). Late payments remain in a borrower’s credit report for seven years.

365 HEA §§428F(a)(5) and 455(a)(1).

366 34 C.F.R. §685.211(f)(9).

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Loan Consolidation

A borrower may use the proceeds of a new Direct Consolidation Loan to pay off one or more defaulted loans. To become eligible to do so, a borrower must make what are considered satisfactory repayment arrangements, which differ from satisfactory repayment arrangements for purposes of reestablishing HEA Title IV eligibility following loan default (see “Consequences of Default for Borrowers”).³⁶⁷

One approach is for the borrower, prior to consolidation, to make three voluntary, consecutive, on-time, full monthly payments that are considered reasonable and affordable, based on the borrower’s total financial circumstances. These payments must be made within 20 days of the due date and may not be involuntary payments (e.g., payments collected through administrative wage garnishment or federal offset). A borrower who chooses this approach may repay the new Direct Consolidation Loan according to any available repayment plan.³⁶⁸

Another approach is for the borrower to agree to repay the new Direct Consolidation Loan according to one of the IDR plans for which the borrower is eligible.³⁶⁹ If the borrower obtains a Direct Consolidation Loan for purposes of repaying a Direct PLUS Loan or a FFEL PLUS Loan made to a parent borrower, they must repay the new loan according to the Income-Contingent Repayment plan, which is the only IDR plan available to borrowers of parent loans.

Several restrictions limit the availability of loan consolidation as an option for borrowers to bring defaulted loans into good standing. If the borrower’s loan is subject to AWG, this must first be lifted for the loan to be eligible for consolidation. A loan on which a court judgment has been secured through litigation is not eligible for loan consolidation.³⁷⁰ If the borrower’s defaulted loan is a Direct Consolidation Loan, the borrower must include at least one other eligible loan in the new Direct Consolidation Loan.³⁷¹ If the borrower’s defaulted loan is a FFEL Consolidation Loan, the borrower may include the loan in a new Direct Consolidation Loan without including any other loans; however, the borrower must repay according to one of the IDR plans.³⁷²

If a borrower consolidates a loan out of default, collection fees will be assessed on the outstanding principal and interest of the defaulted loan, and these fees will be included as part of the original principal balance of the new Direct Consolidation Loan. Upon a defaulted loan being repaid by a Direct Consolidation Loan, the borrower regains eligibility for full borrower privileges, such as deferments and loan forgiveness, as well as eligibility for additional federal student aid. However, in contrast to loan rehabilitation, repaying a defaulted loan with a Direct Consolidation Loan will not remove the record of default from the borrower’s credit history.³⁷³

367 34 C.F.R. §§685.102(b) and 685.220(d)(1)(i)(A)(3).

368 U.S. Department of Education, Office of Federal Student Aid, “Getting Out of Default: Consolidate Your Loans,” https://studentaid.gov/manage-loans/default/get-out#loan-consolidation (accessed July 31, 2024).

369 34 C.F.R. §§685.102(b) and 685.220(d)(1)(i)(A)(3).

370 34 C.F.R. §685.220(d)(1)(i)(B) and (C). If the judgment is vacated, a defaulted loan may be consolidated.

371 34 C.F.R. §685.220(d)(2).

372 34 C.F.R. §685.220(d)(2)(ii).

373 U.S. Department of Education, Federal Student Aid, “Getting Out of Default: Consolidate Your Loans,” https://studentaid.gov/manage-loans/default/get-out#loan-consolidation (accessed July 31, 2024).

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Calculated $0 Monthly Payment under an IDR Plan

Effective July 1, 2024, regulations specify a new method under which borrowers may have their loan default resolved. ED “will no longer consider a borrower in default on a loan” if the following criteria are met

• the borrower provides to ED information necessary to calculate a monthly IDR payment (e.g., documentation of income and family size),

• the information provided includes the point in time at which the loan defaulted (effectively requiring that most borrowers will need to provide the information within a year of default),³⁷⁴ and

• ED determines that the borrower would have had a $0 monthly payment under an IDR plan using that information.³⁷⁵

Upon the default being resolved in this way, the borrower regains eligibility for some borrower privileges, such as loan forgiveness.³⁷⁶ Like consolidating a loan out of default, resolution of a default in this way will not remove the record of default from the borrower’s credit history.³⁷⁷

Loan Counseling and Disclosures

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

As part of the process of obtaining a federal student loan, borrowers are required to undergo financial counseling that provides them with information about their loans and the obligations they assume as borrowers. IHEs must provide first-time borrowers with entrance counseling, which provides them with comprehensive information on the loans they are about to obtain. ED provides individuals eligible to borrow Direct PLUS Loans who have an adverse credit history with PLUS Loan credit counseling that they are required to complete. At the time of obtaining a loan, borrowers are required to sign a promissory note, which is a contract that establishes the borrower’s legal obligation to repay. The promissory note is accompanied by a rights and responsibilities statement that uses plain language to disclose the terms and conditions of the loan. IHE must provide borrowers with exit counseling prior to a borrower ceasing to be enrolled on at least a half-time basis.

374 SAVE Plan Final Rule, p. 43864.

375 34 C.F.R. §685.209(n).

376 See, for example, 34 C.F.R. §685.219(c)(1)(i). It is unclear whether the borrower would regain other borrower privileges such as eligibility for deferments or for additional HEA Title IV aid, as regulatory provisions specify that a borrower who is in default is ineligible for such privileges unless they have made satisfactory repayment arrangements. See, for example, 34 C.F.R. §§685.200(d) and 685.204(a)(3).

377 SAVE Plan Final Rule, p. 43864.

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Entrance Counseling

The institution attended by a first-time borrower of a Direct Subsidized Loan or a Direct Unsubsidized Loan,³⁷⁸ or by a first-time graduate or professional student borrower of a Direct PLUS Loan³⁷⁹ is required to provide such borrowers with entrance counseling prior to disbursing the first installment of the loan. IHEs may provide entrance counseling through an in-person counseling session, a written document provided to the borrower, or an online interactive medium.³⁸⁰ Irrespective of how entrance counseling is provided, the IHE must ensure that an individual who has expertise in federal student aid is available shortly after the session to respond to any questions a borrower might have.³⁸¹

Entrance counseling is designed to provide a borrower with comprehensive information on both the terms and conditions of the loan and the borrower’s rights and responsibilities with regard to the loan.³⁸² Entrance counseling must:³⁸³

• explain the master promissory note;

• emphasize to the borrower the seriousness and importance of the obligation to repay the loan;

• describe the likely consequences of default;

• emphasize that the borrower is required to repay the loan in full, regardless of whether they complete the program of study on time or at all, are unable to obtain employment, or are dissatisfied with the educational or other services provided;

• provide the borrower with sample monthly payment amounts based on either a range of amounts that might be borrowed or the average cumulative amount borrowed by other students in the same program at the same school;

• explain potential effects that accepting the loan might have on the borrower’s eligibility to receive other forms of student aid;

• provide information on interest accrual and capitalization;

• inform the borrower of the option to pay the interest that accrues on Direct Unsubsidized Loans and Direct PLUS Loans while they are enrolled in school;

• explain the meaning of half-time enrollment and the consequences of not maintaining half-time enrollment;

• explain the importance of informing the school if the borrower chooses to withdraw so that it can provide exit counseling;

378 A first-time borrower is an individual who has not previously borrowed a Direct Subsidized Loan, Direct Unsubsidized Loan, FFEL program Subsidized or Unsubsidized Loan, of a Federal SLS Loan. 34 C.F.R. §685.304(a)(1).

379 A first-time graduate or professional student borrower is an individual who has not previously borrowed a Direct PLUS Loan or FFEL PLUS Loan for graduate or professional education. 34 C.F.R. §685.304(a)(2).

380 For example, see U.S. Department of Education, Office of Federal Student Aid, “Entrance Counseling Overview” https://studentaid.gov/entrance-counseling/undergraduate/demo/overview (accessed August 1, 2024).

381 34 C.F.R. §685.304(a)(5).

382 For detailed information on entrance counseling, see U.S. Department of Education, Office of Federal Student Aid, “Direct Loan Entrance Counseling Guide,” updated September 2021, https://studentaid.gov/sites/default/files/loan- entrance-counseling-color.pdf.

383 HEA §485(l); 34 C.F.R. §685.304(a).

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• provide information about, and how the borrower can access, the National Student Loan Data System (NSLDS);

• provide the name of and contact information for an individual the borrower may contact if they have questions about the loan’s terms and conditions and the borrower’s rights and responsibilities; and

• explain to first-time graduate student borrowers of a Direct PLUS Loan who have previously borrowed a Direct Subsidized Loan or a Direct Unsubsidized Loan the differences between these loan types with regard to interest rates, the accrual of interest, and the start of the repayment period.

PLUS Loan Credit Counseling For Borrowers with Adverse Credit

Any parent borrower or graduate or professional student borrower with an adverse credit history who becomes eligible to borrow a Direct PLUS Loan, either by obtaining an endorser or by providing documentation of extenuating circumstances, must complete special PLUS Loan credit counseling.³⁸⁴ The counseling is also available on a voluntary basis to Direct PLUS Loan borrowers who do not have an adverse credit history.³⁸⁵ This counseling includes information similar to what is currently provided in PLUS Loan entrance counseling.³⁸⁶

Master Promissory Note and Plain Language Disclosure

The terms and conditions of federal student loans made through the Direct Loan program are specified in a promissory note,³⁸⁷ which is a contract that establishes the borrower’s obligation to repay the loan. A master promissory note (MPN) is a type of promissory note under which loans may be made to a borrower for a single academic year or for multiple academic years. One type of MPN is used for making Direct Subsidized Loans and Direct Unsubsidized Loans³⁸⁸ and another type of MPN is used for making Direct PLUS Loans.³⁸⁹ A different type of promissory note is used for making Direct Consolidation Loans.³⁹⁰

384 34 C.F.R. §685.200(b)(5) and (c)(2). See, for example, U.S. Department of Education, Office of Federal Student Aid, “PLUS Credit Counseling Demo,” https://studentaid.gov/app/demoPlusCounseling.action (accessed August 1, 2024).

385 U.S. Department of Education, Office of Postsecondary Education, “William D. Ford Federal Direct Loan Program: Final Regulations,” 79 Federal Register 63322, October 23, 2014.

386 See OMB No. 1845-0129, “PLUS Adverse Credit Reconsideration Loan Counseling,” https://www.reginfo.gov/ public/do/DownloadDocument?objectID=103302201.

387 The promissory note for Direct Loans also specifies that amendments to the HEA may amend a loan’s terms and conditions and that any such amendments would be applied to a loan in accordance with the effective date of the amendment. See, for example, U.S. Department of Education, Office of Federal Student Aid, “Master Promissory Note: Direct Subsidized Loans and Direct Unsubsidized Loans, William D. Ford Federal Direct Loan Program,” OMB No. 1845-0007, p. 6, https://fsapartners.ed.gov/sites/default/files/attachments/2020-04/SubUnsubMPN.pdf.

388 U.S. Department of Education, Office of Federal Student Aid, “Master Promissory Note: Direct Subsidized Loans and Direct Unsubsidized Loans, William D. Ford Federal Direct Loan Program,” OMB No. 1845-0007, https://fsapartners.ed.gov/sites/default/files/attachments/2020-04/SubUnsubMPN.pdf.

389 U.S. Department of Education, Office of Federal Student Aid, “Master Promissory Note: Direct PLUS Loans, William D. Ford Federal Direct Loan Program,” OMB No. 1845-0007, https://fsapartners.ed.gov/sites/default/files/ attachments/2020-04/PLUSMPN.pdf.

390 U.S. Department of Education, Office of Federal Student Aid, “Direct Consolidation Loan Application and Promissory Note, William D. Ford Federal Direct Loan Program,” OMB No. 1845-0053, https://studentaid.gov/app- static/images/ApplicationAndPromissoryNote.pdf.

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A student or parent borrower must sign the MPN before an IHE may disburse loan funds.³⁹¹ The IHE a student attends may choose to use a MPN with either a single-year or a multiyear feature. IHEs that use a single-year MPN may only make loans under the MPN for one academic year. IHEs that use the multiyear feature may make one or more loans under the same MPN for up to 10 academic years.³⁹²

IHEs that use a multiyear MPN must confirm a borrower’s acceptance of a new loan for each subsequent year by either obtaining a borrower’s written confirmation of acceptance (affirmative confirmation) or by not receiving a borrower’s notification that they are specifically declining the loan in whole or in part (passive confirmation).³⁹³ IHEs may, but not required to, obtain affirmative confirmation from the student that they accept the loan before disbursing loan funds.³⁹⁴

Attached to the MPN is a Plain Language Disclosure (PLD) form that explains in simplified terms loan terms and conditions and the borrower’s rights and responsibilities. The PLD is provided to borrowers prior to each disbursement of a loan made through the Direct Loan program, regardless of whether an IHE uses a single-year or multiyear MPN.³⁹⁵

Exit Counseling

Prior to a student borrower ceasing to be enrolled on at least a half-time basis, the institution a borrower attends must provide them with exit counseling.³⁹⁶ It may be provided through an in- person counseling session, an audiovisual presentation, or an online interactive medium.³⁹⁷ Regardless of the means through which exit counseling is provided, the institution must ensure that an individual who has expertise in federal student aid is available shortly after the session to respond to any questions a borrower might have.³⁹⁸

Exit counseling is designed to provide the borrower with comprehensive information on both the loan’s terms and conditions of the loan and the borrower’s rights and responsibilities regarding the loan.³⁹⁹ Exit counseling must⁴⁰⁰

• inform the borrower of the average anticipated monthly payment amount based on either the individual’s actual student loan debt or the average cumulative amount borrowed by other students at the same school or in the same program of study at the same school;

391 34 C.F.R. §685.303(b)(1).

392 34 C.F.R. §685.103(b).

393 34 C.F.R. §668.165(a).

394 34 C.F.R. §668.165(a)(2).

395 See, for example, U.S. Department of Education, Office of Federal Student Aid, “Plain Language Disclosure for Direct Subsidized Loans and Direct Unsubsidized Loans William D. Ford Federal Direct Loan Program (Direct Loan Program),” https://fsapartners.ed.gov/sites/default/files/attachments/2020-04/SubUnsubPLD.pdf.

396 34 C.F.R. §685.304(b). If a borrower withdraws without notifying the school or fails to complete exit counseling, the school must provide exit counseling to them either through electronic means or by sending exit counseling materials via mail to the last known address or by email to an address not associated with the school.

397 34 C.F.R. §685.304(b)(2).

398 34 C.F.R. §685.304(b)(2).

399 For detailed information on entrance counseling, see U.S. Department of Education, Office of Federal Student Aid, “Direct Loan Exit Counseling Guide,” Updated July 2021, https://studentaid.gov/sites/default/files/exit-counseling.pdf.

400 HEA §485(b); 34 C.F.R. §685.304(b).

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• review the repayment plan options available to the borrower, including a description of the features of each plan and sample information showing average anticipated monthly payment amounts and differences in interest and total payments under each plan;

• explain options to prepay a loan, to repay according to a shorter schedule, and to change repayment plans;

• provide information on loan consolidation and how it affects the length of repayment and total interest paid; how it affects borrower benefits, such as grace periods, loan forgiveness, loan cancellation, and deferment; and options to prepay a loan or change repayment plans;

• include debt-management strategies designed to facilitate repayment;

• explain how to contact the borrower’s loan servicer;

• explain the master promissory note;

• emphasize the seriousness and importance of the obligation to repay the loan;

• emphasize that the borrower is required to repay the loan in full, regardless of whether they complete the program of study on time or at all, are unable to obtain employment, or are dissatisfied with the educational or other services provided;

• describe the likely consequences of default;

• provide a general description of the terms and conditions under which a borrower may receive full or partial discharge or forgiveness of principal and interest, may defer repayment of principal or interest, or may be granted forbearance;

• provide descriptions of federal student assistance programs and other information and ED publications as required by HEA Section 485(d);

• review information on the availability of the FSA Ombudsman Group;

• provide information about, and how the borrower can access, the NSLDS;

• provide a general description of tax benefits that may be available to borrowers;

• require the borrower to provide current and expected future contact information, next of kin, and (if known) expected employer; and

• explain that the borrower may be contacted by third-party student loan debt relief companies, that the borrower should use caution when interacting with such companies, and that the services offered by such companies are offered to borrowers free of charge through ED or the borrower’s loan servicer.

Additional Information on Loan Terms and Conditions

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

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Appendix A. Directory of Resources

Higher Education Act of 1965 (P.L. 89-329, as amended), Title IV, Part D—William D. Ford Federal Direct Program (https://www.govinfo.gov/content/pkg/COMPS-765/pdf/COMPS-765.pdf)

Title 20 U.S.C. Chapter 28, Subchapter IV, Part D—William D. Ford Federal Direct Loan Program (https://uscode.house.gov/browse/prelim@title20/chapter28/subchapter4/partD&edition=prelim)

Title 34 C.F.R. Part 685—William D. Ford Federal Direct Loan Program (https://www.ecfr.gov/cgi-bin/text-idx? SID=e878c5d6ea6116593e8394e25ec1f3c9&mc=true&node=pt34.4.685&rgn=div5)

U.S. Department of Education, Office of Federal Student Aid, FSA Partners, Loan Servicing and Collection (https://fsapartners.ed.gov/knowledge-center/library/functional-area/Loan%20Servicing%20and%20Collection)

U.S. Department of Education, Office of Federal Student Aid, 2024-2025 Federal Student Aid Handbook (https://fsapartners.ed.gov/knowledge-center/fsa-handbook/pdf/2024-2025)

U.S. Department of Education, Office of Federal Student Aid, “Manage Loans” (https://studentaid.gov/h/manage- loans)

U.S. Department of Education, FSA Ombudsman Group, P.O. Box 1854, Monticello, KY 42633, 1-800-433-3243 (https://studentaid.gov/feedback-ombudsman/disputes/prepare)

CRS Report R44845, Administration of the William D. Ford Federal Direct Loan Program

CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs

CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19

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Appendix B. Glossary of Terms

Term Definition

Acceleration Demand for immediate repayment of the entire outstanding balance of a loan.

Administrative forbearance

A type of forbearance that is granted to borrowers during periods necessary to determine a borrower’s eligibility for a number of borrower benefits and for certain other reasons.

Bond equivalent rate

Also called the bond equivalent yield, coupon equivalent yield, or the investment yield; a Treasury bill’s yield based on the purchase price, discount, and a 365- or 366-day year. It can be used to compare the yield on a discount bill to the yield on a nominal coupon bond that pays semiannual interest. Bond equivalent yield means the annualized yield computed by doubling the semiannual yield. U.S. Department of the Treasury, “Daily Treasury Bill Rates” (https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates& field_tdr_date_value=2024).

Capitalized interest (Capitalization)

Unpaid interest that has been added to the principal balance of a loan.

Cost of Attendance (COA)

The cost in dollars of a period of enrollment (such as an academic year). The COA for a student is an estimate of their educational expenses for the period of enrollment.

COVID-19 payment pause

The period from March 13, 2020, to September 1, 2023, during which borrowers were not required to make monthly payments on their Direct Loan program loans, as well as other federal student loans held by the Department of Education. Also during this time, the monthly accrual of interest on these loans was suspended (i.e., interest rates were set to 0%).

Default Failure to repay a loan according to the terms agreed to in the promissory note. Default occurs on a loan made through the Direct Loan program after 270 days of nonpayment.

Deferment A period during which a borrower is entitled to have payments of principal and interest on federal education loans postponed if the borrower meets applicable eligibility criteria.

Direct Loan program loan

A loan made under the William D. Ford Federal Direct Loan Program.

Disbursement Payment of federal student aid funds to the student by their institution. Students generally receive their federal student aid in two or more disbursements.

Discharge Cancellation of the balance due on a loan on the basis of borrower adversity. (See also loan forgiveness.)

Discretionary income

The difference between a borrower’s annual income and a specified percentage of the federal poverty guideline for the borrower’s family size and state of residence.

Disposable pay The amount that remains from an employee's pay after deductions. 34 C.F.R. §31.2.

Economic hardship (deferment)

A period of up to three years during which a borrower is receiving payments under a federal or state public assistance program, is working full-time and has a monthly income that does not exceed 150% of the poverty line, or is serving as a volunteer in the Peace Corps.

Endorser An individual who agrees to repay a Direct PLUS Loan if the borrower does not repay it.

Forbearance A period during which a borrower may temporarily stop making loan payments, temporarily make smaller payments, or extend the time for making payments.

Full-time student (enrollment)

An enrolled student carrying a full-time academic workload, as determined by the institution, under a standard applicable to all students enrolled in a particular educational program.

General (discretionary) forbearance

A type of forbearance that may be granted at the discretion of the loan servicer to borrowers who are temporarily unable to make scheduled loan payments.

Grace period A period of six months after a borrower of a Direct Subsidized Loan or a Direct Unsubsidized Loan graduates, leaves school, or drops below half-time enrollment, during which the borrower is not required to make payments.

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Term Definition

Half-time student (enrollment)

An enrolled student who is carrying a half-time academic workload, as determined by the institution, that equals at least half of the workload of the applicable minimum requirement outlined in the definition of a full-time student, except that a student enrolled solely in a program of study by correspondence must be carrying a workload of at least 12 hours of work per week, or be earning at least six credit hours per semester, trimester, or quarter. Regardless of the amount of work, no student enrolled solely in correspondence study is considered more than a half-time student.

In-school The period during which borrowers are enrolled in a postsecondary educational program. For purposes of eligibility for loan deferments, a student must be enrolled at least half-time as an eligible student to be considered in-school.

Income-driven repayment (IDR) plan

A loan repayment plan under which a borrower’s monthly payment amounts vary according to their income. Under the Direct Loan program, a borrower’s monthly payments are capped at a specified percentage of their discretionary income and any loan balance that remains outstanding after a specified maximum repayment period is to be forgiven. U.S. Department of Education, Office of Federal Student Aid, “Income-Driven Repayment Plans,” (https://studentaid.gov/ manage-loans/repayment/plans/income-driven).

Interest The cost of borrowing money. Interest is an expense calculated as a percentage of the outstanding (unpaid) principal balance.

Interest accrual

The process through which interest accumulates over time.

Interest rate The price charged per unit of money borrowed per year, or other unit of time, usually expressed as a percentage.

Loan forgiveness

Cancellation or reduction of the balance due on a loan following an extended period of repayment according to an income-driven repayment plan or completion of a period of public service.

Loan origination fee

The amount a borrower is required to pay the Department of Education to help defray the costs of subsidizing a Direct Loan.

Loan principal Initially, the amount borrowed plus any fees charged by the lender. Later, it includes capitalized interest, charges and fees allowed by regulation, less any amount paid and credited to principal, and any amount cancelled, forgiven, or discharged.

Loan servicer An entity that collects payments on loans, responds to customer service inquiries, and performs other administrative tasks associated with maintaining a loan (e.g., processing requests for a change in repayment plans). A federal student loan servicer is a loan servicer for the U.S. Department of Education.

Mandatory forbearance

A type of forbearance that loan servicers are required to grant to borrowers who satisfy applicable eligibility criteria.

Master promissory note (MPN)

A promissory note under which a borrower may receive loans for a single academic year or multiple academic years.

Negative amortization

A period of time during which a borrower’s monthly payment amount may sometimes be less than the amount of interest that accrues on the borrower’s loans. U.S. Department of Education, Office of Federal Student Aid, “Income- Driven Plans Questions and Answers” (https://studentaid.gov/manage-loans/repayment/plans/income-driven/questions).

New borrower An individual who has no outstanding balance on a loan made through either the Direct Loan program or the FFEL program at the time the borrower receives a loan through the Direct Loan program on or after a specific date.

Partial financial hardship (in IBR plans and PAYE repayment plan)

A period during which the total annual payments for all of a borrower’s eligible loans, as calculated according to a standard 10-year repayment period, are greater than an applicable percentage (e.g., 10% or 15%) of the borrower’s discretionary income. For a married borrower, the eligible loans and discretionary income of the borrower’s spouse may also be included in the calculation.

Prepayment A loan payment made before it is due under the terms of the applicable promissory note.

Principal balance

The amount of principal that remains unpaid on a loan.

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Term Definition

Promissory note

A legally binding contract between a lender and a borrower that contains the terms and conditions of the loan, including how the loan is to be repaid. It becomes legally binding when signed (executed) by the borrower. Most federal education loans are made under a Master Promissory Note (MPN).

Rehabilitation (of a defaulted loan)

Process by which a borrower may bring a loan out of default by adhering to specified repayment requirements.

Remaining accrued interest (IBR, PAYE, and SAVE repayment plans)

A portion of accrued interest that the Secretary of Education does not charge a borrower if the borrower's monthly payment amount is not sufficient to pay the accrued interest on their loans due to the loans being negatively amortized. 34 C.F.R. §685.209(h).

Repayment period

The time during which a borrower is obligated to make payments on a loan according to the terms and conditions of the loan’s promissory note and the repayment plan the borrower chooses. For Direct Subsidized Loans and Direct Unsubsidized Loans, repayment begins the day after the grace period ends. For Direct PLUS Loans, repayment begins the day after the loan is fully disbursed.

Satisfactory repayment arrangement

For the purpose of regaining eligibility for federal student aid funds, the agreement of a borrower to make a predetermined number of on-time, voluntary monthly payments on a defaulted loan, or an overpayment of federal student aid. For the purpose of consolidating a defaulted loan, the making of three consecutive, voluntary, on-time, full monthly payments on a defaulted loan. The required monthly payment amount may not be more than is reasonable and affordable based on the borrower’s total financial circumstances.

Subsidized component of a Direct Consolidation Loan (Direct Subsidized Consolidation Loan)

The portion of a Direct Consolidation Loan attributable to certain subsidized Title IV education loans that were repaid by the consolidation loan. Interest is not charged to the borrower during deferment periods, or, for a borrower whose consolidation application was received before July 1, 2006, during in-school and grace periods. 34 C.F.R. §685.102(b).

Subsidized interest (interest subsidy)

Interest that is not charged, or is only partially charged, which would otherwise accrue on a loan during a specified period of time. 34 C.F.R. §§685.102(b) and 685.209(h).

Teach-out agreement

A written agreement between institutions that provides for the equitable treatment of students and a reasonable opportunity for students to complete their program of study if an institution, or an institutional location that provides 100% of at least one program offered, ceases to operate before all enrolled students have completed their program of study.

Teach-out plan A written plan developed by an institution that provides for the equitable treatment of students if an institution, or an institutional location that provides 100% of at least one program, ceases to operate (or plans to cease operations) before all enrolled students have completed their program of study, and may include, if required by the institution’s accrediting agency, a teach-out agreement between institutions.

Unsubsidized component of a Direct Consolidation Loan (Direct Unsubsidized Consolidation Loan)

The portion of a Direct Consolidation Loan attributable to unsubsidized Title IV education loans, certain subsidized Title IV education loans, and certain other federal education loans that were repaid by the consolidation loan. The borrower is responsible for the interest that accrues during any period. 34 C.F.R. §685.102(b).

Variable interest rate

An interest rate on a loan that fluctuates over the life of a loan on the basis of changes in an index that reflects changes in market rates.

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Term Definition

Voluntary payments

Payments made directly by a borrower who owes a federal student aid debt and that do not include payments obtained by federal offset, garnishment, or income or asset execution.

Source: U.S. Department of Education, Office of Federal Student Aid, 2020-2021 Federal Student Aid Handbook, Appendix A: Federal Student Aid Glossary and Acronyms; 34 C.F.R. Parts 600 and 685; U.S. Department of Education, Office of Federal Student Aid; U.S. Department of the Treasury. Notes: Definitions of terms generally are from the Federal Student Aid Handbook and federal regulations. Generally, in instances where the definitions are from sources other than the Federal Student Aid Handbook, citations are noted at the end of the definitions.

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Appendix C. Historical Tables on Selected Loan Terms and Conditions

Table C-1. History of Annual and Aggregate Loan Limits for

Direct Loan Program Loans, by Borrower T ype and Academic Level

(amounts in dollars)

Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

July 1, 1994, to September 30, 1998

Undergraduate students

Annual loan limits

1^st year 2,625 2,625 6,625 n.a.

2^nd year 3,500 3,500 7,500 n.a.

3^rd year and above 5,500 5,500 10,500 n.a.

Aggregate loan limits^a,b,c

All 23,000 23,000 46,000 n.a.

Graduate and professional students

Annual loan limits

In general 8,500 n.a. 18,500 n.a.

Health professions programs^d,e

8,500 n.a. 38,500

to 45,167

n.a.

Health professions programs^d,f

8,500 n.a. 31,000

to 35,167

n.a.

Aggregate loan limits^a,b,c

In general 65,500 n.a. 138,500 n.a.

Health professions programs^g 65,500 n.a. 189,125 n.a.

Parents of dependent undergraduate students

Annual loan limits

In general n.a. n.a. n.a. Up to COA-

EFA^h

Aggregate loan limits^a,b

In general n.a. n.a. n.a. Not limited

October 1, 1998, to June 30, 2007

Undergraduate students

Annual loan limits

Preparatory coursework for undergraduate program

2,625 2,625 6,625 n.a.

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Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

1^st year 2,625 2,625 6,625 n.a.

2^nd year 3,500 3,500 7,500 n.a.

3^rd year and above 5,500 5,500 10,500 n.a.

Preparatory coursework for graduate programⁱ

5,500 5,500 10,500 n.a.

Teacher certificationⁱ 5,500 5,500 10,500 n.a.

Aggregate loan limits^a,b,c

In general 23,000 23,000 46,000 n.a.

Graduate and professional students

Annual loan limits

In general 8,500 n.a. 18,500 n.a.

Health professions programs^d,e

8,500 n.a. 38,500

to 45,167

n.a.

Health professions programs^d,f

8,500 n.a. 31,000

to 35,167

n.a.

Aggregate loan limits^a,b,c

In general 65,500 n.a. 138,500 n.a.

Health professions programs^g 65,500 n.a. 189,125 n.a.

Parents of dependent undergraduate students

Annual loan limits

In general n.a. n.a. n.a. Up to COA-

EFA^h

Aggregate loan limits^a,b

In general n.a. n.a. n.a. Not limited

July 1, 2007, to June 30, 2008

Undergraduate students

Annual loan limits

Preparatory coursework for undergraduate program

2,625 2,625 6,625 n.a.

1^st year 3,500 3,500 7,500 n.a.

2^nd year 4,500 4,500 8,500 n.a.

3^rd year and above 5,500 5,500 10,500 n.a.

Preparatory coursework for graduate programⁱ

5,500 5,500 10,500 n.a.

Teacher certificationⁱ 5,500 5,500 10,500 n.a.

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Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

Aggregate loan limits^a,b,c

In general 23,000 23,000 46,000 n.a.

Graduate and professional students

Annual loan limits

In general 8,500 n.a. 20,500 Up to COA-

EFA^h

Health professions programs^d,e

8,500 n.a. 40,500

to 47,167

Up to COA-

EFA^h

Health professions programs^d,f

8,500 n.a. 33,000

to 37,167

Up to COA-

EFA^h

Aggregate loan limits^a,b,c n.a.

In general 65,500 n.a. 138,500 Not limited

Health professions programs^g,j

65,500 n.a. 189,125 Not limited

Parents of dependent undergraduate students

Annual loan limits

In general n.a. n.a. n.a. Up to COA-

EFA^h

Aggregate loan limits^a,b

In general n.a. n.a. n.a. Not limited

July 1, 2008, to June 30, 2012

Undergraduate students

Annual loan limits

Preparatory coursework for undergraduate program

2,625 2,625 8,625 n.a.

1^st year 3,500 5,500 9,500 n.a.

2^nd year 4,500 6,500 10,500 n.a.

3^rd year and above 5,500 7,500 12,500 n.a.

Preparatory coursework for graduate programⁱ

5,500 5,500 12,500 n.a.

Teacher certificationⁱ 5,500 5,500 12,500 n.a.

Aggregate loan limits^a,b,c

In general 23,000 31,000 57,500 n.a.

Graduate and professional students

Annual loan limits

In general 8,500 n.a. 20,500 Up to COA-

EFA^h

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Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

Health professions programs^d,e

8,500 n.a. 40,500

to 47,167

Up to COA-

EFA^h

Health professions programs^d,f

8,500 n.a. 33,000

to 37,167

Up to COA-

EFA^h

Aggregate loan limits^a,b,c

In general 65,500 n.a. 138,500 Not limited

Health professions^j 65,500 n.a. 224,000 Not limited

Parents of dependent undergraduate students

Annual loan limits

In general n.a. n.a. n.a. Up to COA-

EFA^h

Aggregate loan limits^a,b

In general n.a. n.a. n.a. Not limited

On or after July 1, 2012

Undergraduate students

Annual loan limits

Preparatory coursework for undergraduate program

2,625 2,625 8,625^k n.a.

1^st year 3,500 5,500 9,500^k n.a.

2^nd year 4,500 6,500 10,500^k n.a.

3^rd year and above 5,500 7,500 12,500^k n.a.

Preparatory coursework for graduate programⁱ

5,500 5,500 12,500^k n.a.

Teacher certificationⁱ 5,500 5,500 12,500^k n.a.

Aggregate loan limits^a,b,c

In general 23,000 31,000 57,500^k n.a.

Graduate and professional students

Annual loan limits

In general n.a. n.a. 20,500^l Up to COA-

EFA^h

Health professions programs^d,e

n.a. n.a. 40,500

to 47,167^l

Up to COA-

EFA^h

Health professions programs^d,f

n.a. n.a. 33,000

to 37,167^l

Up to COA-

EFA^h

Aggregate loan limits^a,b,c,m

In general 65,500ⁿ n.a. 138,500 Not limited

Health professions^j 65,500ⁿ n.a. 224,000 Not limited

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Direct

Subsidized

Loans

Direct Subsidized Loans and

Direct Unsubsidized Loans

Combined

Direct

PLUS Loans

Borrower Type

and Program Level

All Eligible Borrowers

Dependent

Students

Independent

Students

All Eligible Borrowers

Parents of dependent undergraduate students

Annual loan limits

In general n.a. n.a. n.a. Up to COA-

EFA^h

Aggregate loan limits^a,b

In general n.a. 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. 103-66; P.L. 103-208; P.L. 105-244; P.L. 109-171; P.L. 110-227; P.L. 112-25; Department of Education, Office of Postsecondary Education, Dear Colleague Letters GEN-96-14; GEN-97-14, GEN-05-09, GEN-08-04, and GEN-08-08; 45 C.F.R. §177.14(a)(3) (1967 edition). Notes: “n.a.” means not applicable a. Includes Subsidized Stafford Loans and Unsubsidized Stafford Loans borrowed through the FFEL program.

b. Accrued interest and other charges that have not been capitalized do not count toward aggregate loan limits.

c. Direct Subsidized Loans and Direct Unsubsidized Loans (and comparable loans made through the FFEL program) that have been included in a Direct Consolidation Loan remain attributable to the aggregate limits for Direct Subsidized Loans and total Direct Subsidized Loans and Direct Unsubsidized Loans combined in accordance with their proportionate share of the Direct Consolidation Loan.

d. In accordance with authority provided the Secretary under P.L. 104-134, effective July 1, 1996, increased Direct Unsubsidized Loan borrowing limits were extended to students who became unable to borrow under the Health Education Assistance Loan (HEAL) program.

e. Students enrolled in programs in the following disciplines are eligible to annually borrow an additional $20,000 more than regular students in Direct Unsubsidized 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.)

f. Students enrolled in programs in the following disciplines are eligible to annually borrow an additional $12,500 more than regular students in Direct Unsubsidized 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.)

g. On December 1, 1997, aggregate loan limits of $189,500 were established for borrowers enrolled in certain health professions programs.

h. There is no statutorily specified dollar amount borrowing limit for Direct PLUS Loans; however, borrowers must be credit-worthy and all aid combined may not exceed COA.

i. For individuals who have obtained a baccalaureate degree.

j. Effective April 14, 2008, aggregate loan limits of $224,000 were established for borrowers enrolled in certain health professions programs.

k. These loan limits also apply to dependent undergraduate students whose parents are unable to obtain Direct PLUS Loans.

l. Direct Subsidized Loans are not currently available to graduate students.

m. Aggregate loan limits for graduate and professional students include amounts borrowed for undergraduate

study.

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n. The aggregate loan limit for Direct Subsidized Loans to graduate and professional students applies to loans borrowed for programs of instruction beginning before July 1, 2012.

Table C-2. History of Interest Rate Formulas for Direct Subsidized Loans, Direct

Unsubsidized Loans, and Direct PLUS Loans

Variable Interest Rate Formula or Fixed Interest Rate in Effect^a

Disbursement Period,

Borrower Type, and

Loan Period (if applicable)

Direct

Subsidized

Loans

Direct

Unsubsidized

Loans

Direct

PLUS Loans

July 1, 1994, to June 30, 1995

Undergraduate students 91-day T-bill + 3.1% (8.25% cap), variable^b

91-day T-bill + 3.1% (8.25% cap), variable^b

n.a.

Graduate and professional students 91-day T-bill + 3.1% (8.25% cap), variable^b

91-day T-bill + 3.1% (8.25% cap), variable^b

n.a.

Parent borrowers n.a. n.a. 52-week T-bill^c + 3.1% (9% cap), variable^b

July 1, 1995, to June 30, 1998

Undergraduate students:

In-school, grace, and deferment

91-day T-bill + 2.5% (8.25% cap), variable^b

91-day T-bill + 2.5% (8.25% cap), variable^b

n.a.

Undergraduate students:

Repayment periods

91-day T-bill + 3.1% (8.25% cap), variable^b

91-day T-bill + 3.1% (8.25% cap), variable^b

n.a.

Graduate and professional students:

In-school, grace, and deferment

91-day T-bill + 2.5% (8.25% cap), variable^b

91-day T-bill + 2.5% (8.25% cap), variable^b

n.a.

Graduate and professional students:

Repayment periods

91-day T-bill + 3.1% (8.25% cap), variable^b

91-day T-bill + 3.1% (8.25% cap), variable^b

n.a.

Parent borrowers n.a. n.a. 52-week T-bill^c + 3.1% (9% cap), variable

July 1, 1998, to June 30, 2006

Undergraduate students:

In-school, grace, and deferment

91-day T-bill + 1.7% (8.25% cap), variable^b

91-day T-bill + 1.7% (8.25% cap), variable^b

n.a.

Undergraduate students:

Repayment periods

91-day T-bill + 2.3% (8.25% cap), variable^b

91-day T-bill + 2.3% (8.25% cap), variable^b

n.a.

Graduate and professional students:

In-school, grace, and deferment

91-day T-bill + 1.7% (8.25% cap), variable^b

91-day T-bill + 1.7% (8.25% cap), variable^b

n.a.

Graduate and professional students:

Repayment periods

91-day T-bill + 2.3% (8.25% cap), variable^b

91-day T-bill + 2.3% (8.25% cap), variable^b

n.a.

Parent borrowers n.a. n.a. 91-day T-bill + 3.1% (9% cap), variable^b

July 1, 2006, to June 30, 2007

Undergraduate students 6.8%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students 6.8%, fixed rate 6.8%, fixed rate n.a.

Parent borrowers n.a. n.a. 7.9%, fixed rate

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Variable Interest Rate Formula or Fixed Interest Rate in Effect^a

Disbursement Period,

Borrower Type, and

Loan Period (if applicable)

Direct

Subsidized

Loans

Direct

Unsubsidized

Loans

Direct

PLUS Loans

July 1, 2007, to June 30, 2009

Undergraduate students 6.0%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students 6.8%, fixed rate 6.8%, fixed rate 7.9%, fixed rate

Parent borrowers n.a. n.a. 7.9%, fixed rate

July 1, 2009, to June 30, 2010

Undergraduate students 5.6%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students 6.8%, fixed rate 6.8%, fixed rate 7.9%, fixed rate

Parent borrowers n.a. n.a. 7.9%, fixed rate

July 1, 2010, to June 30, 2011

Undergraduate students 4.5%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students 6.8%, fixed rate 6.8%, fixed rate 7.9%, fixed rate

Parent borrowers n.a. n.a. 7.9%, fixed rate

July 1, 2011, to June 30, 2012

Undergraduate students 3.4%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students 6.8%, fixed rate 6.8%, fixed rate 7.9%, fixed rate

Parent borrowers n.a. n.a. 7.9%, fixed rate

July 1, 2012, to June 30, 2013

Undergraduate students 3.4%, fixed rate 6.8%, fixed rate n.a.

Graduate and professional students n.a. 6.8%, fixed rate 7.9%, fixed rate

Parent borrowers n.a. n.a. 7.9%, fixed rate

On or after July 1, 2013

Undergraduate students 10-yr T-note + 2.05% (8.25% cap), fixed rate

10-yr T-note + 2.05% (8.25% cap), fixed rate

n.a.

Graduate and professional students n.a. 10-yr T-note + 3.6% (9.5% cap), fixed rate

10-yr T-note + 4.6% (10.5% cap), fixed rate

Parent borrowers n.a. n.a. 10-yr T-note + 4.6% (10.5% cap), 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 on loans made prior to July 1, 1994. Different interest rate procedures apply to borrowers with an outstanding balance on a loan made under HEA, Title IV, Part B prior to July 1, 1994.

b. Rates adjust every July 1 based on last auction prior to June 1.

c. The Consolidated Appropriations Act, 2001 (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 the Treasury stopped issuing 52-week Treasury bills.

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Table C-3. History of Interest Rate Formulas for Direct Consolidation Loans

Disbursement Period

Direct Consolidation Loan

Interest Rate Formula in Effect

July 1, 1994, to June 30, 1995

Direct Subsidized Consolidation Loans^a and Direct Unsubsidized Consolidation Loans^b

91-day T-bill + 3.1% (8.25% cap), variable rate^c

Direct PLUS Consolidation Loans^d 52-week T-bill^e + 3.1% (9% cap), variable rate^c

July 1, 1995, to June 30, 1998

Direct Subsidized Consolidation Loans^a and Direct Unsubsidized Consolidation Loans^b

In-school, grace, and deferment periods 91-day T-bill + 2.5% (8.25% cap), variable rate^c

Repayment periods 91-day T-bill + 3.1% (8.25% cap), variable rate^c

Direct PLUS Consolidation Loans^d 52-week T-bill^e + 3.1% (9% cap), variable rate^c

July 1, 1998, to September 30, 1998

Direct Subsidized Consolidation Loans^a and Direct Unsubsidized Consolidation Loans^b

In-school, grace, and deferment periods 91-day T-bill + 1.7% (8.25% cap), variable rate^c

Repayment periods 91-day T-bill + 2.3% (8.25% cap), variable rate^c

Direct PLUS Consolidation Loans^d 52-week T-bill^e + 3.1% (9% cap), variable rate^c

October 1, 1998, to January 31, 1999

Direct Consolidation Loans 91-day T-bill + 2.3% (8.25% cap), variable rate^c

February 1, 1999, to June 30, 2013

Direct Consolidation Loans Weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one- eighth of 1% (8.25% cap), fixed rate

On or after July 1, 2013

Direct Consolidation Loans Weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one- eighth of 1% (no cap), fixed rate

Source: HEA §§428C and 455(b); (20 U.S.C. §§1078-3 and 1087e(b)); and 34 C.F.R. §685.202(a)(3). Notes: “n.a.” means not applicable. a. This refers to the subsidized component of a Direct Consolidation Loan.

b. This refers to the unsubsidized component of a Direct Consolidation Loan, excluding the portion of a Direct Consolidation Loan attributable to Direct PLUS Loans, Direct PLUS Consolidation Loans, and FFEL PLUS Loans that were repaid by the Direct Consolidation Loan.

c. Rates adjust every July 1 based on last auction prior to June 1.

d. This refers to the unsubsidized component of a Direct Consolidation Loan attributable to Direct PLUS Loans, Direct PLUS Consolidation Loans, and FFEL PLUS Loans that were repaid by the Direct Consolidation Loan.

e. For outstanding 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.

CRS-111

Table C-4. History of Interest Rates in Effect for Direct Loan Program Loans

For the period of July 1 through June 30 (%)

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

July 1, 1994, to June 30, 1995

Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Subsidized Consolidation Loans,^a and Direct Unsubsidized Consolidation Loans^b

91-day T-bill + 3.1% (8.25% cap), variable

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 3.19 3.15 3.13 3.12 3.45 4.08 5.03 5.46 3.23 3.12 4.24 8.25 8.25

Direct PLUS Loans and Direct PLUS Consolidation Loans^c

52-wk. T-bill + 3.1% (9% cap), variable^d

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 3.29 3.23 3.20 3.12 3.65 4.32 5.44 5.08 3.27 3.19 5.93 8.36 8.20

July 1, 1995, to June 30, 1998

Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Subsidized Consolidation Loans,^a and Direct Unsubsidized Consolidation Loans^b

In-school, grace, and deferment periods

91-day T-bill + 2.5% (8.25% cap), variable

— 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 2.59 2.55 2.53 2.52 2.85 3.48 4.43 4.86 2.63 2.52 3.64 7.96 7.90

Repayment periods

91-day T-bill + 3.1% (8.25% cap), variable

— 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 3.19 3.15 3.13 3.12 3.45 4.08 5.03 5.46 3.23 3.12 4.24 8.25 8.25

Direct PLUS Loans and Direct PLUS Consolidation Loans^c

52-wk. T-bill + 3.1% (9% cap), variable^d

— 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 3.29 3.23 3.20 3.12 3.65 4.32 5.44 5.08 3.27 3.19 5.93 8.36 8.20

July 1, 1998, to September 30, 1998

Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Subsidized Consolidation Loans,^a,e and Direct Unsubsidized Consolidation Loans^b,e

In-school, grace, and deferment periods

CRS-112

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

91-day T-bill + 1.7% (8.25% cap), variable

— — — — 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 1.79 1.75 1.73 1.72 2.05 2.68 3.63 4.06 1.83 1.72 2.84 7.16 7.10

Repayment periods

91-day T-bill + 2.3% (8.25% cap), variable

— — — — 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 2.39 2.35 2.33 2.32 2.65 3.28 4.23 4.66 2.43 2.32 3.44 7.76 7.70

Direct PLUS Loans, Direct PLUS Consolidation Loans^c,e

91-day T-bill + 3.1% (9% cap), variable

— — — — 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 3.19 3.15 3.13 3.12 3.45 4.08 5.03 5.08 3.23 3.12 4.24 8.56 8.50

October 1, 1998-January 31, 1999

Direct Subsidized Loans and Direct Unsubsidized Loans

In-school, grace, and deferment periods

91-day T-bill + 1.7% (8.25% cap), variable

— — — — 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 1.79 1.75 1.73 1.72 2.05 2.68 3.63 4.06 1.83 1.72 2.84 7.16 7.10

Repayment periods

91-day T-bill + 2.3% (8.25% cap), variable

— — — — 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 2.39 2.35 2.33 2.32 2.65 3.28 4.23 4.66 2.43 2.32 3.44 7.76 7.70

Direct PLUS Loans

91-day T-bill + 3.1% (9% cap), variable

— — — — 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 3.19 3.15 3.13 3.12 3.45 4.08 5.03 5.08 3.23 3.12 4.24 8.56 8.50

Direct Consolidation Loans^f

91-day T-bill + 2.3% (8.25%), variable

— — — — 7.46 6.92 8.19 5.99 4.06 3.42 3.37 5.3 7.14 7.22 4.21 2.48 2.47 2.36 2.39 2.35 2.33 2.32 2.65 3.28 4.23 4.66 2.43 2.32 3.44 7.76 7.70

CRS-113

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

February 1, 1999-June 30, 2006

Direct Subsidized Loans and Direct Unsubsidized Loans

In-school, grace, and deferment periods

91-day T-bill + 1.7% (8.25% cap), variable

— — — — 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 1.79 1.75 1.73 1.72 2.05 2.68 3.63 4.06 1.83 1.72 2.84 7.16 7.10

Repayment periods

91-day T-bill + 2.3% (8.25% cap), variable

— — — — 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 2.39 2.35 2.33 2.32 2.65 3.28 4.23 4.66 2.43 2.32 3.44 7.76 7.70

Direct PLUS Loans

91-day T-bill + 3.1% (9% cap), variable

— — — — 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 3.19 3.15 3.13 3.12 3.45 4.08 5.03 5.08 3.23 3.12 4.24 8.56 8.50

July 1, 2006, to June 30, 2008

Direct Subsidized Loans and Direct Unsubsidized Loans

6.8% fixed rate — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

Direct PLUS Loans

7.9% fixed rate — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

July 1, 2008, to June 30, 2009

Direct Subsidized Loans to Undergraduate Students

6.0% fixed rate — — — — — — — — — — — — — — 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

Direct Unsubsidized Loans to Undergraduate Students, and Direct Subsidized Loans and Direct Unsubsidized Loans to Graduate Students

6.8% fixed rate — — — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

Direct PLUS Loans

7.9% fixed rate — — — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

CRS-114

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

July 1, 2009, to June 30, 2010

Direct Subsidized Loans to Undergraduate Students

5.6% loans — — — — — — — — — — — — — — — 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60 5.60

Direct Unsubsidized Loans to Undergraduate Students, and Direct Subsidized Loans and Direct Unsubsidized Loans to Graduate Students

6.8% fixed rate — — — — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

Direct PLUS

7.9% fixed rate — — — — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

July 1, 2010, to June 30, 2011

Direct Subsidized Loans to Undergraduate Students

4.5% fixed rate — — — — — — — — — — — — — — — — 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50

Direct Unsubsidized Loans to Undergraduate Students, and Direct Subsidized Loans and Direct Unsubsidized Loans to Graduate Students

6.8% fixed rate — — — — — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

PLUS Loans

7.9% fixed rate — — — — — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

July 1, 2011, to June 30, 2012

Direct Subsidized Loans to Undergraduate Students

3.4% fixed rate — — — — — — — — — — — — — — — — — 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40

Direct Unsubsidized Loans to Undergraduate Students, and Direct Subsidized Loans and Direct Unsubsidized Loans to Graduate Students

6.8% fixed rate — — — — — — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

PLUS Loans

7.9% fixed rate — — — — — — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

CRS-115

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

July 1, 2012, to June 30, 2013

Direct Subsidized Loans to Undergraduate Students

3.4% fixed rate — — — — — — — — — — — — — — — — — — 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40 3.40

Direct Unsubsidized Loans to Undergraduate Students, and Direct Subsidized Loans and Direct Unsubsidized Loans to Graduate Students

6.8% fixed rate — — — — — — — — — — — — — — — — — — 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80 6.80

PLUS Loans

7.9% fixed rate — — — — — — — — — — — — — — — — — — 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90 7.90

July 1, 2013, to June 30, 2014

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — 3.86 3.86 3.86 3.86 3.86 3.86 3.86 3.86 3.86 3.86 3.86 3.86

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — 5.41 5.41 5.41 5.41 5.41 5.41 5.41 5.41 5.41 5.41 5.41 5.41

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41 6.41

July 1, 2014, to June 30, 2015

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — 4.66 4.66 4.66 4.66 4.66 4.66 4.66 4.66 4.66 4.66 4.66

CRS-116

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — 6.21 6.21 6.21 6.21 6.21 6.21 6.21 6.21 6.21 6.21 6.21

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — 7.21 7.21 7.21 7.21 7.21 7.21 7.21 7.21 7.21 7.21 7.21

July 1, 2015, to June30, 2016

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — 4.29 4.29 4.29 4.29 4.29 4.29 4.29 4.29 4.29 4.29

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — 5.84 5.84 5.84 5.84 5.84 5.84 5.84 5.84 5.84 5.84

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84

July 1, 2016, to June30, 2017

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76

CRS-117

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — 5.31 5.31 5.31 5.31 5.31 5.31 5.31 5.31 5.31

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — 6.31 6.31 6.31 6.31 6.31 6.31 6.31 6.31 6.31

July 1, 2017, to June 30, 2018

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — 4.45 4.45 4.45 4.45 4.45 4.45 4.45 4.45

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00

July 1, 2018, to June 30, 2019

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — 5.05 5.05 5.05 5.05 5.05 5.05 5.05

CRS-118

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — 6.60 6.60 6.60 6.60 6.60 6.60 6.60

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — 7.60 7.60 7.60 7.60 7.60 7.60 7.60

July 1, 2019, to June 30, 2020

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — 4.53 4.53 4.53 4.53 4.53 4.53

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — 6.08 6.08 6.08 6.08 6.08 6.08

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — 7.08 7.08 7.08 7.08 7.08 7.08

July 1, 2020, to June 30, 2021

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — 2.75 2.75 2.75 2.75 2.75

CRS-119

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — 4.30 4.30 4.30 4.30 4.30

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — 5.30 5.30 5.30 5.30 5.30

July 1, 2021, to June 30, 2022

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — 3.73 3.73 3.73 3.73

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — 5.28 5.28 5.28 5.28

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — 6.28 6.28 6.28 6.28

July 1, 2022, to June 30, 2023

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — 4.99 4.99 4.99

CRS-120

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — 6.54 6.54 6.54

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — 7.54 7.54 7.54

July 1, 2023, to June 30, 2024

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — 5.50 5.50

Direct Unsubsidized Loans to Graduate Students

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — 7.05 7.05

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — 8.05 8.05

July 1, 2024, to June 30, 2025

Direct Subsidized Loans and Direct Unsubsidized Loans to Undergraduate Students

10-yr T-note + 2.05% (8.25% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 6.53

Direct Unsubsidized Loans to Graduate Students

CRS-121

Disbursement

Period,

Loan Type, and

Loan Period

(if applicable)

1994-1995

1995-1996

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2019-2020

2020-2021

2021-2022

2022-2023

2023-2024

2024-2025

10-yr T-note + 3.60% (9.50% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 8.08

Direct PLUS Loans

10-yr T-note + 4.6% (10.5% cap), fixed

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 9.08

Sources: U.S. Department of Education, Office of Federal Student Aid, “Annual Notice of Interest Rates for Variable-Rate Federal Student Loans Made Under the William D. Ford Federal Direct Loan Program,” 89 Federal Register 68880, August 28, 2024, and prior notices; U.S. Department of Education, Office of Federal Student Aid, “Annual Notice of Interest Rates for Fixed-Rate Federal Student Loans Made Under the William D. Ford Federal Direct Loan Program,” 89 Federal 68878, August 28, 2024, and prior notices; and U.S. Department of Education, Office of Federal Student Aid, “Interest Rates for Direct Loans First Disbursed Between July 1, 2024 and June 30, 2025,” Electronic Announcement, DL-24-03, May 14, 2024, https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2024-05-14/interest- rates-direct-loans-first-disbursed-between-july-1-2024-and-june-30-2025. a. This refers to the subsidized component of a Direct Consolidation Loan.

b. This refers to the unsubsidized component of a Direct Consolidation Loan, excluding the portion of a Direct Consolidation Loan attributable to Direct PLUS Loans, Direct PLUS Consolidation Loans, and FFEL PLUS Loans that were repaid by the Direct Consolidation Loan.

c. This refers to the unsubsidized component of a Direct Consolidation Loan attributable to Direct PLUS Loans, Direct PLUS Consolidation Loans, and FFEL PLUS Loans that were repaid by the Direct Consolidation Loan.

d. 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 made under the FFEL and Direct Loan programs 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 the Treasury stopped issuing 52-week Treasury bills.

e. Consolidation Loan must have been disbursed on or after July 1, 1998 and before October 1, 1998, or the application for the Consolidation Loan must have been received before October 1, 1998, and first disbursed on or after October 1, 1998.

f. Applications for the Direct Consolidation Loan must have been received on or after October 1, 1998, and before February 1, 1999.

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Table C-5. History of Direct Loan Origination Fees

Disbursement Period

Direct

Subsidized

Loans

(%)

Direct

Unsubsidized

Loans

(%)

Direct

PLUS Loans

(%)

July 1, 1994, through August 14, 1999 4.000 4.000 4.000

August 15, 1999, through June 30, 2006 3.000^a 3.000^a 4.000

July 1, 2006, through June 30, 2007 3.000 3.000 4.000

July 1, 2007, through June 30, 2008 2.500 2.500 4.000

July 1, 2008, through June 30, 2009 2.000 2.000 4.000

July 1, 2009, through June 30, 2010 1.500 1.500 4.000

July 1, 2010, through June 30, 2013 1.000 1.000 4.000

July 1, 2013, through November 30, 2013^b 1.051 1.051 4.204

December 1, 2013, through September 30, 2014^b 1.072 1.072 4.288

October 1, 2014, through September 30, 2015^b 1.073 1.073 4.292

October 1, 2015, through September 30, 2016^b 1.068 1.068 4.272

October 1, 2016, through September 30, 2017^b 1.069 1.069 4.276

October 1, 2017, through September 30, 2018^b 1.066 1.066 4.264

October 1, 2018, through September 30, 2019^b 1.062 1.062 4.248

October 1, 2019, through September 30, 2020^b 1.059 1.059 4.236

October 1, 2020, through September 30, 2021^b 1.057 1.057 4.228

October 1, 2021, through September 30, 2022^b 1.057 1.057 4.228

October 1, 2022, through September 30, 2023^b 1.057 1.057 4.228

October 1, 2023, through September 30, 2024^b 1.057 1.057 4.228

October 1, 2024, through September 30, 2025^b 1.057 1.057 4.228

Sources: HEA, §455(c); 20 U.S.C. §1087e(c); U.S. Department of Education, Direct Loan Task Force, Direct Loan Bulletin, DLB 99-39, “Meeting Our Promise – Procedures on Processing the Reduced Loan Origination Fee,” June 1, 1999, https://ifap.ed.gov/dlbulletins/doc0188_bodyoftext.htm; U.S. Department of Education, “William D. Ford Federal Direct Loan Program: Final Regulations,” 64 Federal Register 46252-24255, August 24, 1999, https://www.govinfo.gov/content/pkg/FR-1999-08-24/pdf/99-21957.pdf; and BBEDCA, §256(b); U.S. Department of Education, Office of Federal Student Aid,“FY25 Sequester-Required Changes to the Title IV Student Aid Programs,” Electronic Announcement, GENERAL-24-51, April 30, 2024, https://fsapartners.ed.gov/ knowledge-center/library/electronic-announcements/2024-04-30/fy-25-sequester-required-changes-title-iv- student-aid-programs. a. During the period from August 15, 1999 through June 30, 2006, the Department of Education charged a reduced loan origination fee of 3.0% on Direct Subsidized Loans and Direct Unsubsidized Loans.

b. Origination fee increased due to a sequestration order being in effect.

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Appendix D. COVID-19 Flexibilities

In response to the COVID-19 pandemic, lawmakers and the Department of Education (ED) provided various types of relief for federal student loans borrowers. In general, this relief was available for a temporary period; although, some forms of relief may have a lasting impact on borrowers’ loans for years into the future. Several key forms of COVID-19 student loan relief are presented in this Appendix. For detailed information about these and other forms of COVID-19 student loan relief, see CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.

Interest Accrual Pause

From March 13, 2020, to September 1, 2023, the accrual of interest on all types of Direct Loan program loans was suspended (i.e., interest rates were effectively set to 0%).⁴⁰¹ Borrowers were not required to pay interest on their Direct Loan program loans during this period.

Payment Pause

From March 13, 2020, through October 1, 2023, monthly payments on all types of Direct Loan program loans were suspended.⁴⁰² (In practice, ED placed all loans in administrative forbearance.) During this time, borrowers were not required to make payments due on their loans. This special administrative forbearance is frequently called the COVID-19 payment pause.

Whereas interest typically accrues on loans during periods of forbearance, the interest accrual pause (see above) ensured that interest did not accrue on loans during all but the final month of the payment pause. In addition, suspended payments count toward the maximum repayment periods under the income-driven repayment (IDR) plans (see the “Income-Driven Repayment [IDR] Plans” section), loan rehabilitation for defaulted loans (see the “Loan Rehabilitation” section), and the 120 required monthly payments under the PSLF program (see the “Public Service Loan Forgiveness [PSLF] program” section).

Income-Driven Repayment (IDR) Plan Account Adjustment

Under all of the IDR plans, borrowers may have any remaining outstanding balance on their Direct Loan program loans forgiven after making payments according to the plans for a maximum repayment period (e.g., 20 years/240 months). Typically, only payments made on selected repayment plans count toward the maximum repayment period under the IDR plans. Prior to July 1, 2023, with the exception of the economic hardship deferment and the COVID-19 payment pause, periods of deferment or forbearance did not count toward maximum repayment periods under the IDR plans. Before July 1, 2024, payments made on any loans, including FFEL

401 The Fiscal Responsibility Act of 2023 (P.L. 118-5) specified that the interest accrual pause was to cease to be effective 60 days after June 30, 2023. While 60 days after June 30, 2023, was August 29, 2023, ED implemented this provision such that interest accrual did not begin until September 1, 2023. U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Emergency Relief and Federal Student Aid,” https://studentaid.gov/announcements- events/covid-19 (accessed August 2, 2024).

402 The Fiscal Responsibility Act of 2023 (P.L. 118-5) specified that the payment pause was to cease to be effective 60 days after June 30, 2023. While 60 days after June 30, 2023, was August 29, 2023, ED implemented this provision such that borrowers’ first payments following the end of the pause were not due until student until October 2023. U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Emergency Relief and Federal Student Aid,” https://studentaid.gov/announcements-events/covid-19 (accessed August 8, 2024).

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program loans, prior to consolidation did not count toward the maximum repayment period for the Consolidation Loan.⁴⁰³

In April 2022, in response to the COVID-19 pandemic and to address “historical failures in the administration of the federal student loan programs,”⁴⁰⁴ ED announced a one-time adjustment to borrower loan accounts to revise the number of IDR-qualifying payments for purposes of satisfying the maximum repayment period under the IDR plans. ED estimated that it would complete the account adjustment’s implementation by September 1, 2024.⁴⁰⁵ Through the account adjustment, borrowers are to receive IDR payment credit for the following periods:

• any months in which a borrower’s loan was in repayment status “regardless of the payments made, loan type, or repayment plan”;

• a minimum of 12 months or more of consecutive forbearance;

• 36 or more months of cumulative forbearance, with any combination of forbearance periods counting toward the cumulative amount;

• months spent in economic hardship deferment or military deferments after 2013;

• months spent in any type of deferment, excluding in-school deferment, prior to 2013; and

• months in repayment prior to consolidation.

Borrowers who have accumulated at least 240 months or 300 months in repayment, even if they are not enrolled in an IDR plan, are to receive automatic forgiveness on a rolling basis during implementation of the account adjustment.⁴⁰⁶ To receive automatic forgiveness, a borrower must meet one of the following requirements, all of which include the terms of the above-described account adjustment:

• Borrowers with only undergraduate student loan debt must have been in repayment for 240 months.

• Borrowers with undergraduate and graduate student loan debt, or graduate student loan debt only, and who are currently enrolled in the PAYE repayment plan must have been in repayment for 240 months.

• Borrowers with undergraduate and graduate student loan debt, or graduate student loan debt only, and who are currently not enrolled in the PAYE repayment plan must have been in repayment for 300 months.

• Parent PLUS Loans and Consolidation Loans used to repay Parent PLUS Loans must have been in repayment for 300 months.⁴⁰⁷

403 On July 10, 2023, ED published a Final Rule that modified the IDR plans, including specifying that certain payments made on loans prior to consolidation may count toward the IDR plan maximum repayment periods for Consolidation Loans. The Final Rule took full effect July 1, 2024, but since has been enjoined and stayed by federal courts. See textbox “Income-Driven Repayment Plan Regulations Litigation” for additional information.

404 U.S. Department of Education, “Department of Education Announces Actions to Fix Longstanding Failures in the Student Loan Programs,” press release, April 19, 2022, https://www.ed.gov/news/press-releases/department-education- announces-actions-fix-longstanding-failures-student-loan-programs.

405 U.S. Department of Education, Office of Federal Student Aid, “Income-Driven Repayment Account Adjustment,” https://studentaid.gov/announcements-events/idr-account-adjustment (accessed October 3, 2024).

406 Ibid.

407 Ibid.

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Limited Public Service Loan Forgiveness (PSLF) Waiver

Under the PSLF program, Direct Loan borrowers who, on or after October 1, 2007, are employed full-time in certain public service jobs for 10 years while making 120 qualifying monthly payments on their loans may have any remaining balance of their loans forgiven. Typically, only payments made on selected repayment plans count toward the required 120 qualifying payments. Prior to July 1, 2023, with the exception of the COVID-19 payment pause, periods of deferment or forbearance did not count toward the required 120 payments. Also prior to July 1, 2023, payments made late, made for less than the monthly amount due, and made on any loans (including FFEL program loans) prior to consolidation also did not count toward the required 120 payments, and borrowers were required to be employed full-time in a public service job at the time PSLF benefits were granted. Typically, PSLF benefits may not be provided for the same service used to qualify for benefits under the Teacher Loan Forgiveness Program, the Civil Legal Assistance Attorney Loan Repayment Program, or the Loan Forgiveness for Service in Areas of National Need Program.

In October 2021, ED announced a series of limited-time waivers of numerous PSLF program rules to enable borrowers to receive credit for past periods of repayment that would not otherwise qualify for PSLF. Through October 31, 2022, borrowers could receive PSLF payment credit for the following:

• periods of repayment on Direct Loan program, FFEL program, and other older HEA authorized program loans, even if payments were made according to a nonqualifying repayment plan, made late, or made for less than the amount due;

• periods of deferment before 2013;

• periods of economic hardship deferment on or after January 1, 2013;

• periods of forbearance of 12 consecutive months or greater;

• periods of forbearance of 36 cumulative months or greater; and

• periods of military service deferment.

In addition, ED waived the requirement that a borrower be employed full-time in qualifying public service at the time of application for and forgiveness under PSLF, and permitted periods of service performed to satisfy requirements for Teacher Loan Forgiveness program to also count toward PSLF-qualifying employment.⁴⁰⁸

One-Time Student Loan Debt Relief

On August 24, 2022, invoking the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act; P.L. 108-76, as amended), ED announced a student loan debt relief policy “to address the financial harms of the [COVID-19] pandemic for low- and middle-income borrowers.”⁴⁰⁹ Under the policy, the Administration planned to cancel the following:

• up to $10,000 in student loans for borrowers whose annual income in 2020 or 2021 was less than $125,000 (for individuals or married borrowers who file their

408 U.S. Department of Education, Office of Federal Student Aid, “The Limited PSLF Waiver Opportunity Ended on Oct. 31, 2022,” https://studentaid.gov/announcements-events/pslf-limited-waiver#key-points (accessed August 2, 2024).

409 U.S. Department of Education, “Fact Sheet: President Biden Announces Student Loan Relief for Borrowers Who Need It Most,” press release, August 24, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/ 08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/.

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federal income taxes separately), or $250,000 (for married couples filing jointly, heads of households, or qualifying widow(er)s); borrowers enrolled in postsecondary education as dependent students between July 1, 2021, and June 30, 2022, would have been eligible for cancellation based on parental income; and

• an additional $10,000, for a total of up to $20,000, in student loans for borrowers who met the above criteria and received at least one Pell Grant in any amount at any point.⁴¹⁰

Borrowers’ cancellation benefits were to be capped at the amount of their outstanding student loan debt. Borrowers who made voluntary payments on their loans during the COVID-19 payment pause and qualified for debt relief were to automatically receive refunds of those payments in limited circumstances.⁴¹¹

These benefits would have been available for Direct Loan program loans—as well as Federal Family Education Loan (FFEL) program and Perkins Loan program loans held by ED and defaulted FFEL program loans held by guaranty agencies—disbursed on or before June 30, 2022. For Consolidation Loans, only the underlying loans that were repaid by the Consolidation Loan must have been disbursed on or before June 30, 2022.⁴¹²

The policy was not implemented, because on June 30, 2023, the Supreme Court ruled that the policy exceeded ED’s authority under the HEROES Act.⁴¹³

Collection Pause

Beginning March 13, 2020, involuntary collection practices were suspended.⁴¹⁴ Involuntary collection practices include administrative wage garnishment; offset of federal income tax returns, Social Security benefits, and certain other federal benefits; and civil litigation on Direct Loan program loans. In addition, ED and its contractors halted proactive collection activities (e.g., did not make collection calls or send letters or billing statements to defaulted borrowers). Although ED had previously asserted that the collection pause would end October 1, 2024, reports indicate that ED has since stated “involuntary collections will not occur before 2025.”⁴¹⁵

Fresh Start Initiative

A borrower who defaults on a Direct Loan program loan becomes subject to many consequences, and has multiple options available to them for bringing their loan out of default. In April 2022,

410 For additional information, see CRS Insight IN11997, The Biden Administration’s One-Time Student Loan Debt Relief Policy under the HEROES Act of 2003.

411 Ibid.

412 Direct Consolidation Loans comprised of any FFEL or Perkins Loan program loans not held by ED are eligible for debt relief, so long as the borrower applied for consolidation before September 29, 2022.

413 Biden v. Nebraska, 143 S. Ct. 2355 (2023). For additional information, see CRS Legal Sidebar LSB10997, Supreme Court Invalidates Student Loan Cancellation Policy Under the HEROES Act.

414 U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Emergency Relief and Federal Student Aid,” https://studentaid.gov/announcements-events/covid-19 (accessed August 2, 2024) and Adam Minsky, “Key Student Loan Relief Deadline for Fresh Start Initiative Extended by Biden Administration,” Forbes, September 30, 2024, https://www.forbes.com/sites/adamminsky/2024/09/30/key-student-loan-relief-deadline-for-fresh-start-extended- by-biden-administration/.

415U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Emergency Relief and Federal Student Aid,” https://studentaid.gov/announcements-events/covid-19 (accessed October 3, 2024); and Michael Stratford, “Biden administration pushes collections of defaulted student loans to after election,” Politico, October 10, 2024.

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ED announced a new policy “to eliminate the negative effects of default for borrowers who defaulted on their student loans prior to the [COVID-19] pandemic payment pause.” ⁴¹⁶ Under this Fresh Start Initiative, all qualifying borrowers of defaulted Direct Loans had several Title IV student aid benefits that are otherwise unavailable when a borrower is in default on their loan temporarily restored. If such borrowers took additional steps, they could retain those benefits long-term.

Under the initiative, ED temporarily, automatically provided the following benefits to all qualifying defaulted borrowers:

• restored eligibility for Title IV federal student aid;

• reported defaulted loans as “current” rather than “in collections” to credit reporting agencies; and

• discontinued reporting of borrowers’ default status to the Credit Alert Verification Reporting System (CAIVRS).⁴¹⁷

Borrowers who took the following actions were permitted to keep the above-listed benefits long- term: (1) accepted Title IV student aid under the Fresh Start Initiative, or (2) requested to have their loans placed in repayment status after receiving notification from ED that their loans were being reported to consumer reporting agencies as current rather than in collections.

In addition, other benefits not available to defaulted borrowers, such as eligibility for IDR plans or loan forgiveness programs, were restored. These borrowers’ loans were transferred to a nondefault loan servicer and returned to in-repayment status. ED asked consumer reporting agencies to remove the record of default from the borrower’s credit report. Borrowers who used the Fresh Start Initiative to bring their loans out of default or who rehabilitated their loans during the COVID-19 payment pause would not have these actions counted as their one opportunity to rehabilitate their loans.⁴¹⁸

Many of the benefits available to borrowers under the initiative were available through October 1, 2024.⁴¹⁹ Borrowers who did not take either of the above-described actions before then will again be subject to collections and will have their loans reported as in collections to consumer reporting agencies.

416 U.S. Department of Education, Office of Postsecondary Education, “Federal Student Aid Eligibility for Borrowers with Defaulted Loans,” Dear Colleague Letter GEN-22-13, August 17, 2022, https://fsapartners.ed.gov/knowledge- center/library/dear-colleague-letters/2022-08-17/federal-student-aid-eligibility-borrowers-defaulted-loans.

417 CAIVRS is a database of individuals who have defaulted on federal debts and is used to prescreen and verify applicant eligibility for various federal direct and guaranteed loans. For additional information, see Department of Housing and Urban Development, “CAIVRS-Credit Alert Verification Reporting System,” https://www.hud.gov/ program_offices/housing/sfh/caivrs (accessed August 2, 2024).

418 U.S. Department of Education, Office of Federal Student Aid, “Get Out of Default with a Fresh Start,” https://studentaid.gov/announcements-events/default-fresh-start (accessed August 2, 2024).

419 Adam Minsky, “Key Student Loan Relief Deadline for Fresh Start Initiative Extended by Biden Administration,” Forbes, September 30, 2024, https://www.forbes.com/sites/adamminsky/2024/09/30/key-student-loan-relief-deadline- for-fresh-start-extended-by-biden-administration/.

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Author Information

Alexandra Hegji Specialist in Social Policy

Acknowledgments

This report was originally authored by David P. Smole, CRS Coordinator of Research Planning.

Disclaimer

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