42 U.S.C. § 254o — Breach of scholarship contract or loan repayment contract

(a) Failure to maintain academic standing; dismissal from institution; voluntary termination; liability; failure to accept payment: (1) Someone under a section 254l (Scholarship) contract who (A) fails to keep an acceptable academic standing (as the school decides under Secretary rules), (B) gets dismissed for disciplinary reasons, or (C) voluntarily quits their training before finishing — instead of owing any service, owes the United States back everything paid to them or on their behalf under the contract. (2) Someone under a section 254l–1 (Loan Repayment) contract who (A), if in their final year of school, fails to keep acceptable academic standing, quits, or is dismissed before finishing; or (B), if in a graduate training program, fails to complete it and doesn't get a waiver under section 254l–1(b)(1)(B)(ii) — instead of owing service, owes back everything paid on their behalf under the contract. (b) Failure to commence or complete service obligations; formula to determine liability; payment to United States; recovery of delinquent damages; disclosure to credit reporting agencies: (1)(A) Except as covered in paragraph (2), if someone breaks their section 254l contract for any other reason — by not starting their service on time, not finishing it, or not completing a required residency — the government can recover an amount using a formula. Here is how the formula works, step by step. First, find "ϕ": add up everything the government paid the person, or on their behalf, under this Program, plus the interest that money would have earned if it had instead been a loan at the maximum legal interest rate. Multiply that total by 3. Next, find the fraction of the service period the person did not complete: take "t," the total number of months of obligated service required, subtract "s," the number of months the person actually served, and divide that result by "t." Finally, multiply the tripled ϕ by that fraction. The answer is "A," the amount the person owes. In short: triple what the government paid out, then scale that number down by the share of the required service the person still had left to serve. (B)(i) Any damages owed must be paid within one year of the breach (or a longer period the Secretary sets). Amounts still unpaid after that can be collected by reducing the person's Medicare payments. (ii) If a debt is delinquent for 3 months, the Secretary must use collection agencies — either ones under contract with the General Services Administration, or ones the Secretary selects directly. (iii) Every collection contract must require the collector to report on its progress to the Secretary at least every 6 months, and the general federal debt-collection-contract law (section 3718 of title 31) applies where it doesn't conflict. (iv) The Secretary must report debts over $100 that are more than 60 days delinquent (or a longer period the Secretary sets) to credit reporting agencies, unless another law forbids it. (2) If someone was released from an obligation under the older section 234 (as it stood before September 30, 1977) and doesn't meet that obligation, the old law's own penalty rule applies instead of paragraph (1). (3) The Secretary may cancel a section 254l contract if, at least 30 days before the school year covered by the contract ends, the person asks in writing and repays everything they were paid under section 254l(g). (c) Failure to commence or complete service obligations for other reasons; determination of liability; payment to United States; waiver of recovery for extreme hardship or good cause shown: (1) If someone breaks their section 254l–1 (Loan Repayment) contract for a reason not covered in subsection (a) or section 254p(d), by not starting or finishing service, the government can recover the sum of: (A) everything the government paid on their behalf under section 254l–1(g) for the unserved period, plus (B) $7,500 for every month of obligated service they didn't complete, plus (C) interest on both those amounts at the maximum legal rate, running from the date of breach — except the total owed can never be less than $31,000. (2) The Secretary may cancel a section 254l–1 contract if, at least 45 days before the end of the fiscal year the contract was signed in, the person asks in writing and repays everything paid under section 254l–1(g). (3) These damages are paid the same way as described in subsection (b)(1)(B). (d) Cancellation of obligation upon death of individual; waiver or suspension of obligation for impossibility, hardship, or unconscionability; release of debt by discharge in bankruptcy, time limitations: (1) If the person dies, any remaining service or payment obligation is canceled. (2) The Secretary must write regulations allowing a partial or full waiver or suspension of someone's service or payment obligation whenever following it would be impossible, would cause extreme hardship, and would be unfair to enforce. (3)(A) A payment obligation can only be wiped out through bankruptcy if the bankruptcy discharge happens at least 7 years after payment was first due, and the bankruptcy court finds that keeping the debt would be unfair. (B) This same 7-year bankruptcy rule also applies to obligations under the old section 234(f), as it existed before it was repealed in 1976. (e) Inapplicability of Federal and State statute of limitations on actions for collection: No time limit — federal or state — restricts when a lawsuit can be filed, a judgment enforced, or a collection action (like garnishment) taken to recover money owed under this section. (f) Effective date: A 2002 amendment (from the Health Care Safety Net Amendments) applies to any obligation where a bankruptcy discharge hadn't already been granted by November 26, 2002 (31 days after the law's enactment).