42 U.S.C. § 292r — Loan provisions

(a) Amount of loan (1) In general: A loan for one school year cannot be more than the student's full cost of attendance for that year — tuition, other reasonable school costs, and reasonable living costs — as decided by the school itself. (2) Third and fourth years of medical school: For third- or fourth-year students at a school of medicine or osteopathic medicine, the loan can be increased above that cap. The extra money must be used to pay off other loans (not from this fund) the student already took out to attend the school, and the school and student must both agree to use the extra money that way. (b) Terms and conditions: Subject to section 292s, the school decides the loan's terms. But the school can lend money only to a student who needs it to study full-time toward one of the listed degrees (medicine, dentistry, osteopathy, pharmacy, podiatric medicine, optometry, or veterinary medicine). (c) Repayment; exclusions from repayment period: Loans are repaid in equal or increasing installments (the borrower can pay faster if they want). Repayment must run somewhere between 10 and 25 years — the school picks the length within that range. The clock starts one year after the student stops attending school full-time. Certain time periods don't count toward that clock: (1) Time spent — (A) up to 3 years on active duty in the uniformed services; (B) up to 3 years volunteering in the Peace Corps; (C) time in advanced professional training such as internships and residencies; and (D) time still enrolled full-time in one of the listed schools. (2) A period of — (A) up to 2 years where a full-time student leaves school planning to return, to do full-time work directly related to their future health profession, as the Secretary decides; or (B) up to 2 years where a graduate does a fellowship or full-time activity directly related to their health profession, as the Secretary decides — a period that must start within 12 months after finishing the advanced training described above, or before that training ends. (d) Cancellation of liability: If the borrower dies, the remaining loan balance and interest are canceled. The same happens if the Secretary decides the borrower has become permanently and totally disabled. (e) Rate of interest: The loan charges 5 percent interest per year on the unpaid balance — but only for the periods when the loan is actually due to be repaid, not during deferment. (f) Security or endorsement: No collateral or co-signer is required — unless the borrower is a minor and, under applicable law, a minor's signature alone would not create a binding obligation. In that case, security or a co-signer can be required. (g) Transferring and assigning loans: A school generally cannot transfer or sell the loan note to anyone else. The one exception: if the borrower switches to another participating school, the loan can transfer to that new school. (h) Charge with respect to insurance for certain cancellations: Following Secretary regulations, a school may charge borrowers a fee to cover the cost of insuring against the death/disability cancellation described in (d). (i) Charge with respect to late payments: A school must charge a late fee if a borrower misses a payment, or fails to file paperwork proving they qualify for a deferment under (c). No fee applies if the payment or paperwork arrives within 60 days of the due date. Here is how the fee works, step by step: - Start with the amount of the missed installment. - The fee cannot be more than 6 percent of that installment amount. - The school then chooses one of two ways to collect the fee: add it to the loan's principal balance as of the day after the payment was due, or bill it separately, due no later than the next installment's due date (counted from when the borrower is notified of the fee). (j) Authority of schools regarding rate of payment: Following Secretary regulations, a school can require a borrower to pay at least $40 per month total, combining principal and interest across all of that borrower's loans from these funds. (k) Authority regarding repayments by Secretary: A borrower who took out a loan to study medicine, osteopathy, dentistry, veterinary medicine, optometry, pharmacy, or podiatry can apply to have the Secretary repay part or all of that loan, at no cost to the borrower. The Secretary can approve this only if regulatory criteria are met and the applicant: (1) did not finish the studies leading to their first professional degree; (2) is in exceptionally needy circumstances; (3) comes from a low-income or disadvantaged family, as defined by regulation; and (4) has not gone back to — and cannot reasonably be expected to go back to — those studies within two years of stopping them. (l) Collection efforts by Secretary: The Secretary can try to collect a defaulted loan on a school's behalf, if the school referred it and has followed the Secretary's collection rules. The school can be reimbursed from its own loan fund for the Secretary's reasonable collection expenses. Such a referred loan is treated as a debt under section 5514 of title 5. Money collected goes back into the school's loan fund. If a lawsuit is needed, the Secretary sends the case to the Attorney General. (m) Elimination of statute of limitation for loan collections: (1) Purpose: This part exists to make sure these loan obligations can always be enforced, no matter what time limits federal or state law would otherwise impose. (2) Prohibition: No federal or state time limit can stop a school that has an agreement with the Secretary from suing, enforcing a judgment, or taking other collection action — like garnishment or an offset — to recover a defaulted loan under this subpart, no matter how much time has passed since the default.