20 U.S.C. § 1087dd — Terms of loans

(a) Terms and conditions.
(1) Loans from a student loan fund established under an agreement under section 1087cc must be made on terms and conditions the institution determines, subject to the conditions, limits, and requirements the Secretary^* sets by regulation.
(2)(A) Except as paragraph (4) allows, an institution may not make more than the following total amount of loans to a student in one academic year or equivalent:
(i) $5,500 for a student who has not successfully completed an undergraduate program; or
(ii) $8,000 for a graduate or professional student.
(B) Except as paragraph (4) allows, the unpaid principal for all such loans made to a student by all institutions may not exceed:
(i) $60,000 for a graduate or professional student, including loans made before the person became such a student;
(ii) $27,500 for a student who completed 2 years of a bachelor’s-degree program but not the work needed for the degree, as regulations determine, including earlier loans; or
(iii) $11,000 for any other student.
(3) The Secretary’s regulations under paragraph (1) must, as far as practicable, prevent damage to the student loan capital funds and aim to let the student finish the course of study.
(4) If a student studies abroad in a program approved for credit by the home institution and the reasonable cost exceeds the home institution’s budget, the annual and total limits may be 20 percent higher than the amounts in paragraph (2)(A) and (B).

(b) Need and eligibility required.
(1) A loan may be made only to a student who shows financial need under part F, meets section 1091, and gives the institution the student’s driver’s-license number, if any, when applying. A student in default on a loan under this part may not receive another loan under this part unless the new loan meets a condition excluded under section 1087bb(g)(1)(E).
(2) If the institution’s capital contribution under section 1087bb is based directly or indirectly in part on need shown by students attending less than full time or by independent students, a reasonable part of the loans from the fund containing that contribution must be made available to those students.

(c) Contents of loan agreement.
(1) An agreement between an institution and a student for a loan from a fund assisted under this part:
(A) must be shown by a note or other writing. Unless paragraph (2) provides otherwise, it must require repayment of principal and interest in equal installments. If the borrower asks, it may instead use graduated periodic installments under schedules approved by the Secretary. Payments may be quarterly, every two months, or monthly, as the institution chooses. The repayment period begins 9 months after the student stops carrying at least half the normal full-time academic workload at an institution in the United States or at a comparable institution outside the United States approved by the Secretary. It ends 10 years and 9 months after that date, but may begin earlier than 9 months if the borrower asks.
(B) must let the borrower choose to speed up repayment of all or part of the loan.
(C)(i) may provide, at the institution’s choice and under Secretary regulations, that during repayment the borrower’s payments of principal and interest on all outstanding loans from funds under this part will be at least $40 per month. The institution may, under those regulations, allow less than $40 per month for no more than 1 year when needed to prevent hardship, but it may not extend the 10-year maximum repayment period in subparagraph (A).
(ii) may provide that if a monthly or similar payment for all loans held by the institution is not a multiple of $5, the total may be rounded up to the next whole-dollar amount that is a multiple of $5.
(D) must provide 5 percent annual interest on the unpaid balance for a loan made on or after October 1, 1981. Interest may not build up before the repayment start date under paragraph (2)(A)(i) or during a period when repayment is suspended under paragraph (2).
(E) must provide that the loan is made without security and without an endorsement.
(F) must provide that the borrower’s duty to repay is cancelled:
(i) when the borrower dies;
(ii) when the borrower becomes permanently and totally disabled under Secretary regulations;
(iii) when the borrower cannot engage in substantial gainful activity because of a medically determinable physical or mental impairment that can be expected to cause death, has lasted continuously for at least 60 months, or can be expected to last continuously for at least 60 months; or
(iv) when the Secretary of Veterans Affairs determines that the borrower cannot work because of a service-connected disability^*.
(G) must provide that the lender may not assign the note or evidence of the obligation, except to another participating institution (or an institution eligible and approved by the Secretary to participate) when the borrower transfers there, and except as needed to carry out section 1087cc(a)(6).
(H) under Secretary regulations, must assess a charge when the borrower fails to pay all or part of an installment when due. The charge includes reasonable collection expenses, to the extent the Secretary allows, but may not exceed 20 percent of the borrower’s monthly payment.
(I) must notify the borrower about the system for reporting default information to consumer reporting agencies under section 1087cc(c).

(2)(A) The borrower is not required to repay principal or interest during:
(i) a period when the borrower:
(I) is taking at least a half-time course, as an eligible institution determines; or
(II) is studying under a Secretary-approved graduate fellowship or rehabilitation training program for people with disabilities. A borrower may not receive a deferment under this clause, or a loan under this part, while serving in a medical internship or residency;
(ii) up to 3 years while seeking but unable to find full-time work;
(iii) a period when the borrower:
(I) is on active duty^* during a war, other military operation^*, or national emergency^*; or
(II) is performing qualifying National Guard duty during one of those events, and the 180 days after the demobilization date for the service in (I) or (II);
(iv) up to 3 years for a reason the lender determines, under regulations prescribed by the Secretary under section 1085(o), has caused or will cause economic hardship;
(v) a period when the borrower is performing service described in section 1087ee(a)(2); or
(vi) a period when the borrower is receiving cancer treatment and the 6 months after treatment.
Any of these periods is left out when calculating the 10-year period in paragraph (1)(A).
(B) Repayment after any period in subparagraph (A) may not begin until 6 months after that period ends.
(C) A person with an unpaid loan balance who meets the deferment requirements that applied on October 7, 1998, is eligible for deferment under this paragraph despite a contrary promissory-note term and despite any amendment to this section, or effective-date rule for an amendment, enacted before the deferment date.

(3)(A) For good cause, the Secretary may extend the 10-year maximum repayment period for an individual loan under regulations.
(B) Under uniform criteria, the Secretary may extend by up to 10 years the repayment period for a student borrower who is a low-income individual during repayment and may adjust the schedule to reflect that person’s income.

(4) Repayment begins the day after the period in paragraph (1)(A) ends, measured from when the student stops carrying the required workload, unless the borrower asks for and receives an earlier start. The repayment period does not include authorized deferment, forbearance, or cancellation.

(5) The institution may choose either:
(A) to add a charge under paragraph (1)(H) to the loan principal on the first day after the installment was due and notify the borrower; or
(B) to make the charge payable to the institution by the next installment’s due date.

(6) A student in graduate or post-graduate fellowship-supported study outside the United States, including study under a Fulbright grant, must have a requested deferment approved until the fellowship ends.

(7) The 9-month period that starts when a student stops carrying at least half the normal full-time workload does not include up to 3 years when a reserve-component member of the Armed Forces named in 10 U.S.C. 10101 is called or ordered to active duty for more than 30 days, as defined in 10 U.S.C. 101(d)(2). The excluded period includes the time needed to resume enrollment at the borrower’s next available regular enrollment period.

(d) Loan fund available to all eligible students. An agreement for Federal capital contributions must include provisions designed to make loans from the fund reasonably available, up to the money in the fund, to all eligible students at the institution who need them.

(e) Forbearance.
(1) The Secretary must ensure that, when documented as paragraph (2) requires, an institution grants a borrower forbearance of principal and interest, or of principal alone. It may be renewed every 12 months for no more than 3 years. The terms must otherwise match Secretary regulations and must be agreed to in writing by the loan parties. The institution must grant it when:
(A) the borrower’s debt burden is at least 20 percent of the borrower’s gross income;
(B) the institution decides the borrower should receive forbearance for another reason; or
(C) the borrower qualifies for Armed Forces interest payments under 10 U.S.C. 2174 and interest is being paid under subsection (j). In that case, forbearance must temporarily stop all loan payments except the interest payments made under subsection (j).
(2) The parties must document the agreed terms by:
(A) the institution notifying the borrower and confirming the borrower’s agreement; and
(B) recording the terms in the borrower’s file.

(f) Authority for a special repayment rule.
(1) Subject to restrictions the Secretary sets to protect the United States, the Secretary may authorize in the agreement an institution to compromise repayment of defaulted loans under paragraph (2) to encourage repayment. The Federal share of the compromise payment must bear the same ratio to the institution’s share as the Federal capital contribution to the fund bears to the institution’s contribution.
(2) A compromise payment is allowed only if the student borrower pays in one lump sum:
(A) 90 percent of the loan;
(B) the interest due; and
(C) collection fees due.

(g) Discharge.
(1) General rule. If a student who received a loan under this part on or after January 1, 1986, cannot finish the enrolled program because the institution closed, the Secretary must discharge the borrower’s liability, including interest and collection fees. The Secretary must then pursue any claim the borrower could pursue against the institution, its affiliates, and its principals, or settle the obligation under the financial-responsibility standards in section 1099c(c).
(2) Assignment. A borrower whose loan is discharged is treated as assigning the United States the right to a refund from the institution, its affiliates, and principals, up to the amount discharged.
(3) Additional assistance. The time when the student could not finish because the institution closed does not count when calculating the student’s eligibility period for additional assistance under this subchapter.
(4) Special rule. A discharged borrower is not barred by the discharge from receiving additional grant, loan, or work assistance under this subchapter for which the borrower would otherwise qualify, except for the default on the discharged loan. The discharged amount is treated as cancelled under section 1087ee(a).
(5) Reporting. The Secretary or institution, whichever applies, must report to consumer reporting agencies about loans discharged under this subsection.

(h) Rehabilitation of loans.
(1) Rehabilitation.
(A) General rule. If a borrower who defaulted on a loan makes 9 consecutive, on-time monthly payments of amounts owed, as determined by the institution—or by the Secretary for a Secretary-held loan—the loan is rehabilitated. The institution that made it, or the Secretary for a Secretary-held loan, must ask every reporting agency to which the default was reported to remove the default from the borrower’s credit history.
(B) Comparable conditions. As long as the borrower keeps making scheduled payments, a rehabilitated loan has the same terms, conditions, benefits, and privileges as other loans under this part.
(C) Additional assistance. Section 1091 does not bar the borrower from otherwise-eligible additional grant, loan, or work assistance under this subchapter because of the default before rehabilitation.
(D) Limitation. A borrower may use this paragraph to rehabilitate a loan under this part only once.
(2) Restoring eligibility. If a borrower who defaulted makes 6 consecutive, on-time monthly payments, the borrower’s eligibility for otherwise-available grant, loan, or work assistance under this subchapter is restored. A borrower may use this paragraph to restore eligibility only once.

(i) Incentive repayment program.
(1) General rule. With the Secretary’s approval, an institution may create an incentive repayment program to reduce defaults and refill student loan funds. The program may:
(A) reduce the interest rate on a loan after 48 consecutive monthly payments, but by no more than 1 percentage point;
(B) discount the balance when the borrower pays principal and interest in full before the repayment period ends, but the discount may not exceed 5 percent of the unpaid principal due when the early payment is made; and
(C) include other incentive repayment choices the institution decides will meet this subsection’s goals.
(2) Limitation. No incentive may be paid with Federal money, including Federal money from the student loan fund, or with institutional money from that fund.

(j) Armed Forces and NOAA Commissioned Officer Corps student-loan interest-payment programs.
(1) Authority. Using money transferred to the Secretary under 10 U.S.C. 2174 or 33 U.S.C. 3078 to pay interest on a loan under this part for an Armed Forces member or an officer in NOAA’s commissioned officer corps, respectively, the Secretary must pay the interest as it comes due for no more than 36 consecutive months. The Secretary may not use any other money for that interest.
(2) Forbearance. While the Secretary makes those payments, the institution must grant the borrower forbearance under subsection (e)(1)(C).

(k) Additional safeguards. The Secretary may create safeguards needed to prevent fraud and abuse in cancelling liability under subsection (c)(1)(F). Despite that subsection, the Secretary may issue regulations restarting collection on a cancelled loan if:
(1) the borrower received cancellation and afterward:
(A) receives a loan made, insured, or guaranteed under this subchapter; or
(B) earns more than the poverty line^*; or
(2) the Secretary decides restarting collection is necessary.