42 U.S.C. § 292d — Eligibility of borrowers and terms of insured loans

(a) In general A loan can only be insured by the Secretary if it meets all of these conditions: (1) It's made to either: (A) a student who (i) has been accepted at, or is in good standing at, an eligible school; (ii) is or will be a full-time student there; (iii) has agreed to use all the loan money only for tuition, other reasonable school costs (fees, books, lab expenses), and reasonable living expenses; and (iv) if a pharmacy student, has already finished three years of training; or (B) someone who (i) previously had a loan insured under this subpart while a full-time student; (ii) is in a period, under paragraph (2), when they don't yet have to repay the loan's principal; and (iii) has agreed to use the new loan only to pay interest owed on the earlier loan. (2) The loan must be backed by a note or written agreement that: (A) requires no collateral and no co-signer — except that a minor borrower may need a co-signer if their signature alone wouldn't create a binding obligation under state law; (B) sets a repayment period for the principal of at least 10 years (unless paid off early) and no more than 25 years, starting 9 to 12 months after certain trigger dates — generally when the borrower finishes an internship or residency program, finishes the 4th year of a longer one, stops being a full-time student, or finishes a fellowship or full-time educational activity related to their health profession (up to 2 years) — except that the total loan period can never exceed 33 years from when the note was signed. The note can also include terms about what happens if the borrower defaults on interest, insurance premiums, or otherwise; (C) says the borrower doesn't have to make principal-and-interest payments — but interest still builds up — during certain periods: (i) while enrolled full-time at an eligible school; (ii) up to 4 years during an accredited internship or residency; (iii) up to 3 years in the U.S. armed forces; (iv) up to 3 years in the Peace Corps; (v) up to 3 years in the National Health Service Corps; (vi) up to 3 years as a full-time domestic volunteer under a specific 1973 law; (vii) up to 3 years after finishing certain primary-care residencies, while practicing primary care; (viii) up to 1 year for chiropractic school graduates; (ix) up to 2 years for the fellowship or educational-activity period described above; (x) up to 3 years while providing health care to Indians through an Indian health program; and (xi) any time on active military duty during the Persian Gulf conflict — none of these deferment periods count toward the 25-year repayment limit in (B); (D) sets an interest rate on the unpaid balance, capped as described in subsection (b), compounded no more than once a year, paid in installments over the loan's term (except as allowed in (C)) — the note can let interest payments be deferred until the first principal payment is due, and let that deferred interest be added to the principal for calculating future payments; (E) offers, by rules the Secretary sets, a repayment schedule where part of the principal and interest normally due at the start of repayment can be pushed to later in the repayment period; (F) lets the borrower pay off all or part of the loan early, without penalty; (G) requires the loan-proceeds check to be made out jointly to the borrower and the school; and (H) can include other terms the borrower and lender agree on, consistent with this subpart and its regulations — including, if agreed, a requirement that the borrower pay the lender extra amounts equal to the insurance premiums the lender owes the Secretary. (3) With the student's consent and as allowed by law, the lender must collect demographic information about the student, including racial or ethnic background. (b) Limitation on rate of interest The interest rate the Secretary sets under (a)(2)(D) can't be higher than the average bond-equivalent rate on 91-day Treasury bills from the previous quarter, plus 3 percentage points, rounded up to the next eighth of a percent. (c) Minimum annual payment by borrower Each year (or repayment period), a borrower must pay at least the annual interest owed on all their insured loans combined — except during the deferment periods in (a)(2)(C) — unless the borrower has agreed in writing to pay less. (d) Applicability of certain laws on rate or amount of interest No federal or state law limiting interest rates or amounts applies to these loans, except for subsections (a)(2)(D) and (b) themselves. (e) Determination regarding forbearance Time a borrower spends in forbearance (a temporary pause on payments) doesn't count toward the 25-year repayment limit in (a)(2)(C). (f) Loan repayment schedule Lenders must offer borrowers graduated repayment schedules that, for the first 5 years of repayment, are based on how much the borrower earns compared to what they owe. (g) Rule of construction regarding determination of need of students This subpart doesn't limit a school's authority to make special allowances for students with unusual financial circumstances, when deciding financial need for one of these loans. (h) Definitions (1) "Active duty" has the meaning given in section 101(18) of title 37 — but doesn't include active duty for training. (2) "Persian Gulf conflict" means the period starting August 2, 1990, and ending on whatever date is later set by presidential proclamation or law.