Federal Student Loans Made Through the
William D. Ford Federal Direct Loan Program:
Terms and Conditions for Borrowers
Updated June 26, 2023
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 FY2024, $85.8 billion in new loans will be made
through the program. As of the end of the first quarter of FY2023, $1.4 trillion in principal and interest on Direct Loan
program loans, borrowed by or on behalf of 38.3 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 upon 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
June 26, 2023
Alexandra Hegji
Analyst 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 hardship (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 are required to undergo financial counseling, which is designed to provide them with comprehensive
information on the terms and conditions of their loans as well as their 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
Congressional Research Service
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 ........................................................................................... 13
Annual Loan Limits .......................................................................................................... 13
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 ...................................................................................................... 26
Interest Capitalization ............................................................................................................. 26
Limit on Interest Capitalization in the IDR and Alternative Repayment Plans ................ 28
Loan Origination Fees ................................................................................................................... 29
Loan Repayment ............................................................................................................................ 30
Grace Period ............................................................................................................................ 30
Loan Repayment Period .......................................................................................................... 30
Loan Repayment Plans ............................................................................................................ 31
Standard Repayment Plans ............................................................................................... 38
Extended Repayment Plans ............................................................................................... 39
Graduated Repayment Plans ............................................................................................. 40
Income-Driven Repayment (IDR) Plans ........................................................................... 41
Alternative Repayment Plans ............................................................................................ 56
Prepayment .............................................................................................................................. 57
Application of Payments on Delinquent Loans ....................................................................... 58
Deferment and Forbearance .......................................................................................................... 59
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service
Deferments .............................................................................................................................. 59
In-School Deferment ......................................................................................................... 60
Graduate Fellowship Deferment ....................................................................................... 60
Rehabilitation Training Program Deferment ..................................................................... 61
Unemployment Deferment ................................................................................................ 61
Economic Hardship Deferment ......................................................................................... 61
Military Service Deferment .............................................................................................. 62
Post-Active Duty Student Deferment ............................................................................... 62
Cancer Treatment Deferment ............................................................................................ 63
Forbearance ............................................................................................................................. 63
General (Discretionary) Forbearance ................................................................................ 64
Administrative Forbearance .............................................................................................. 64
Medical or Dental Internship or Residency Forbearance .................................................. 65
AmeriCorps National Service Forbearance ...................................................................... 65
Teacher Loan Forgiveness Program Forbearance ............................................................. 65
Student Loan Debt Burden Forbearance ........................................................................... 66
National Guard Duty Forbearance .................................................................................... 66
Department of Defense Student Loan Repayment Program Forbearance ........................ 66
Loan Discharge and Loan Forgiveness.......................................................................................... 66
Loan Discharge for Borrower Hardship .................................................................................. 67
Discharge Due to Death .................................................................................................... 67
Total and Permanent Disability Discharge ........................................................................ 67
Closed School Discharge .................................................................................................. 70
False Certification and Unauthorized Payment Discharges .............................................. 72
Unpaid Refund Discharge ................................................................................................. 72
Borrower Defense to Repayment Discharge ..................................................................... 72
Bankruptcy Discharge ....................................................................................................... 74
Loan Forgiveness Following IDR Plan Repayment ................................................................ 75
Loan Forgiveness for Public Service....................................................................................... 75
Teacher Loan Forgiveness Program .................................................................................. 75
Public Service Loan Forgiveness (PSLF) Program .......................................................... 76
Tax Treatment of Discharged and Forgiven Debt ................................................................... 80
Loan Default, Its Consequences, and Resolution .......................................................................... 81
Consequences of Default for Borrowers ................................................................................. 82
Resolution of Default .............................................................................................................. 84
Loan Rehabilitation ........................................................................................................... 85
Loan Consolidation ........................................................................................................... 86
Loan Counseling and Disclosures ................................................................................................. 86
Entrance Counseling ............................................................................................................... 87
PLUS Loan Credit Counseling For Borrowers with Adverse Credit ...................................... 88
Master Promissory Note and Plain Language Disclosure ....................................................... 89
Exit Counseling ....................................................................................................................... 90
Additional Information on Loan Terms and Conditions ......................................................... 91
Tables
Table 1. Annual and Aggregate Loan Limits, by Borrower Type and Program Level: July
1, 2012, to Present ...................................................................................................................... 15
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service
Table 2. Interest Rates on Loans Made Through the Direct Loan Program: July 1, 2022,
through June 30, 2023, and July 1, 2023, through June 30, 2024 .............................................. 21
Table 3. Origination Fees on Loans Made Through the Direct Loan Program, FY2023 and
FY2024 ....................................................................................................................................... 29
Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to
Borrowers: Standard Repayment Plans, Extended Repayment Plans, Graduated
Repayment Plans, and Income-Driven Repayment Plans .......................................................... 32
Table 5. Repayment Periods: Standard Repayment Plan for Direct Consolidation Loans
and Graduated Repayment Plan for Direct Consolidation Loans............................................... 38
Table 6. Repayment Periods: Extended Repayment Plan and Graduated Repayment Plan ......... 40
Table 7. 2023 Poverty Guidelines for the 48 Contiguous States and the
District of Columbia ................................................................................................................... 42
Table C-1. History of Annual and Aggregate Loan Limits for Direct Loan Program
Loans, by Borrower Type and Academic Level ......................................................................... 96
Table C-2. History of Interest Rate Formulas for Direct Subsidized Loans, Direct
Unsubsidized Loans, and Direct PLUS Loans ......................................................................... 101
Table C-3. History of Interest Rate Formulas for Direct Consolidation Loans ........................... 103
Table C-4. History of Interest Rates in Effect for Direct Loan program loans ............................ 104
Table C-5. History of Direct Loan Origination Fees .................................................................... 115
Appendixes
Appendix A. Directory of Resources ............................................................................................. 92
Appendix B. Glossary of Terms .................................................................................................... 93
Appendix C. Historical Tables on Selected Loan Terms and Conditions ...................................... 96
Appendix D. COVID-19 Flexibilities .......................................................................................... 116
Contacts
Author Information ...................................................................................................................... 121
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 1
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
FY2024, 13.9 million new loans, averaging $6,164 each and totaling $85.8 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 532,000 Direct Consolidation Loans,
2
averaging $68,651 each and totaling $36.5 billion, will be made to existing borrowers of federal
student loans.
3
As of the end of the first quarter of FY2023, $1.4 trillion in principal and interest
on Direct Loan program loans (including Direct Consolidation Loans), borrowed by or on behalf
of 38.3 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, FY2024 Justification of Appropriation Estimates to the Congress, Volume II, “Student
Loans Overview,” March 12, 2023, p. 25, https://www2.ed.gov/about/overview/budget/budget24/justifications/s-
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, FY2024 Justification of Appropriation Estimates to the Congress, Volume II, “Student
Loans Overview,” March 12, 2023, p. 25, https://www2.ed.gov/about/overview/budget/budget24/justifications/s-
sloverview.pdf.
4
U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Federal Student Aid
Portfolio Summary,” FY2023 Q1, https://studentaid.ed.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,
(archived, available to congressional clients upon request). 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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 2
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 non-exhaustive,
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 have been 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, archived (available to congressional clients upon request).
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 3
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 limited 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: 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: 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
first quarter of FY2023, $198.6 billion in principal and interest on FFEL program loans, borrowed
by or on behalf of 8.8 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
students
16
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.
• 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 upon
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
the loan; and the interest rate is higher than the rate on both Direct Subsidized
Loans and Direct Unsubsidized Loans.
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 (archived, available to
congressional clients upon request).
15
U.S. Department of Education, Office of Federal Student Aid, Federal Student Aid Data Center, “Location of Federal
Family Education Loan (FFEL) Program Loans,” FY2023 Q1, https://studentaid.ed.gov/sa/sites/default/files/fsawg/
datacenter/library/LocationofFFELPLoans.xls. Of this amount, $121.6 billion in principal and interest on FFEL
program loans is held by commercial lenders and guaranty agencies, while the remaining $77.0 billion is held by ED.
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.
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• Direct Consolidation Loans.
17
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.
18
Upon an individual obtaining a Direct Consolidation Loan, a new repayment
period begins, which may be for a longer term than applied to the loans originally
borrowed.
19
A Direct Consolidation Loan may have a subsidized component
20
and
an unsubsidized component.
21
17
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.
18
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.
As of June 14, 2023, ED has not yet implemented these statutory changes.
19
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 term 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.
20
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).
21
The unsubsidized component of a Direct Consolidation Loan (also referred to as a Direct Unsubsidized 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 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
(continued...)
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Congressional Research Service 6
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)
22
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 IHE
23
, a preparatory program necessary for
enrollment in an eligible program (for up to one year), or a teacher certification
program;
24
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.
22
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.
23
For additional information on institutional and program eligibility requirements for participation in the HEA Title IV
student financial aid programs, see CRS Report R43159, Institutional Eligibility for Participation in Title IV Student
Financial Aid Programs.
24
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.
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Congressional Research Service 7
• not be incarcerated;
• be a U.S. citizen or national, U.S. permanent resident, or other eligible
noncitizen;
25
• have a high school diploma or recognized equivalent, such as a general education
development (GED) certificate, or meet other academic requirements;
26
• maintain satisfactory academic progress as defined by the school and in
accordance with the HEA;
27
• 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.
28
Student Dependency Status
For purposes of awarding federal student aid, dependency status determines whether a student is
considered dependent upon 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;
• 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;
25
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).
26
For additional information, see U.S. Department of Education, 2022-2023 Federal Student Aid Handbook, vol. 2, p.
8-14 (hereinafter, FSA Handbook).
27
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.”
28
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 of
Division FF of P.L. 116-260, Consolidated Appropriations Act, 2021) eliminated these eligibility restrictions.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 8
• 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.
29
A student who does not satisfy any of the criteria to qualify as an independent student is classified
as a dependent student.
30
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.
31
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,
32
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.
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
29
HEA, §480(d); U.S. Department of Education, 2023-2024 Federal Student Aid Handbook, Application and
Verification Guide, pp. 20-25 (hereinafter 2023-2024 FSA Handbook). 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.
30
34 C.F.R. §668.2(b).
31
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. See FSA Handbook, vol. 3, p. 126.
32
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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Congressional Research Service 9
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.
33
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.
34
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.
35
Applicants seeking to
borrow Direct Subsidized Loans must undergo a need test through which the expected family
contribution (EFC) to be made by the student, and, if applicable, the student’s family, toward
paying the student’s postsecondary education expenses is determined on the basis of the financial
resources available to the student.
36
According to federal student aid need analysis procedures, the
33
34 C.F.R. §668.2(b).
34
For additional information on the impact of grade-level progression on annual borrowing limits, see FSA Aid
Handbook, vol. 3, Chapter 5—Direct Loan Periods and Amounts.
35
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.
36
The FAFSA Simplification Act makes significant changes to the underlying processes and methodologies for
determining federal student aid eligibility, including renaming EFC to student aid index (SAI). The act’s general
(continued...)
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Congressional Research Service 10
sum of the student’s EFC 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 Grant
37
(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 needy 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 section on “Limits on Borrowing Determined by Need Analysis and Packaging” below.) 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 an undergraduate dependent
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 EFC). 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 an undergraduate
dependent student, the student must have completed a FAFSA. There is no requirement that a
parent borrower 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.
38
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.
39
The
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.
37
For additional information on the Federal Pell Grant program, see CRS Report R45418, Federal Pell Grant Program
of the Higher Education Act: Primer.
38
FSA Handbook, vol. 1, p. 77.
39
34 C.F.R. §685.200.
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Congressional Research Service 11
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;
40
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 endorser
41
or demonstrate that extenuating circumstances exist
with regard to the applicant’s credit history.
42
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. In addition, to obtain a Direct PLUS Loan an applicant who
has an adverse credit history must also complete credit counseling. (See the section on “PLUS
Loan Credit Counseling For Borrowers with Adverse Credit.”) 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. 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 below in
the section on “Amounts That May Be Borrowed.”)
Eligibility Requirements for Direct Consolidation Loans
Two differing sets of borrower eligibility criteria apply for Direct Consolidation Loans. One set of
criteria 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.
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.
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
40
Regulations specify that the $2,085 threshold will periodically be adjusted for inflation; however, this has never
occurred since the regulations’ implementation in 2015. 34 C.F.R. §685.200(c)(2).
41
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).
42
A dependent student on whose behalf the loan would be made to a parent borrower may not be an endorser.
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Congressional Research Service 12
repay according to one of the Income-Driven Repayment (IDR) plans (described below). 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. 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 assistance
43
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. Finally,
borrowers with a Joint Consolidation Loan (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 “Criteria to
Separate Joint Consolidation Loans into a Direct Consolidation Loan”).
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. 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.
44
The eligible types of federal student loans made outside of the
Direct Loan and FFEL programs are Federal Perkins Loans, Guaranteed Student Loans, Federal
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.
45
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 were authorized to consolidate their debt into
a single Joint Consolidation Loan (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
43
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).
44
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).
45
Several of these loan types were once made through programs that have since been discontinued.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 13
amounts of the respective loan obligations” that were to be consolidated and without regard to
any subsequent change in the couple’s marital status.
46
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 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
jointly 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 borrower
47
or are
“unable to reasonably reach or access the loan information from the other individual borrower.”
48
If an individual borrower receives a new Direct Consolidation Loan after separating the JCL
without application from the other borrower, the non-applicant borrower shall become 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.
ED has not yet implemented the terms and procedures of the Joint Consolidation Loan Separation
Act.
49
Thus, as of the date of this report, borrowers of JCLs are unable to separate their loans.
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
46
20 U.S.C. §1078-3 (2018), “Editorial Notes.”
47
Domestic abuse and economic abuse are defined in 34 U.S.C. §12291.
48
ED is also authorized to permit individual borrowers to apply individually to separate their JCLs if doing so would be
in the best fiscal interest of the federal government.
49
On its website, ED has indicated that the process for borrowers to separate JCLs “will not be fully implemented until
late 2024.” U.S. Department of Education, Office of Federal Student Aid, “Joint Consolidation Loan Separate News
and Updates,” https://studentaid.gov/announcements-events/joint-consolidation-loans (accessed May 9, 2023).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 14
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 undergraduate dependent 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.
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.
50
No aggregate limits are
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.
51
Annual and aggregate limits that have applied to loans made
through the Direct Loan program since July 1, 2012, are presented in Table 1.
50
Aggregate loan limits for Direct Subsidized Loans also include Subsidized Stafford Loan amounts borrowed through
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.
51
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 15
Table 1. Annual and Aggregate Loan Limits,
by Borrower Type 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 programs
i
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
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 16
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
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.
52
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.
52
HEA §§472 and 479A. For additional information on COA, see FSA Handbook, vol. 3, Chapter 2—Cost of
Attendance (Budget). Beginning in award year 2023-2024 (July 1, 2023-June 30, 2024), institutions may only include
loan fees associated with federal loans in the COA and may no longer include loan fees for non-federal student loans in
the COA. Department of Education, GEN-22-15, “FAFSA Simplification Act Changes for Implementation in 2023-
24), November 4, 2022, https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2022-11-03/fafsar-
simplification-act-changes-implementation-2023-24.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 17
• Expected Family Contribution (EFC).
53
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.
54
A student’s EFC is calculated according to
procedures specified in law using information supplied by the student on the
FAFSA.
55
The formula for calculating a student’s EFC takes into account myriad
factors including taxed and untaxed income, financial assets, certain benefits
(e.g., Social Security, unemployment compensation), family size, and the number
of family members to be enrolled in college during an academic year.
• Estimated Financial Assistance (EFA). 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. It includes grant, scholarship, fellowship, loan, and
need-based employment assistance. For purposes of need analysis and packaging,
two variations of EFA are relevant: (1) EFA not received under HEA, Title IV
programs, and (2) EFA from all sources. EFA does not include Iraq and
Afghanistan Service Grants; federal veterans’ education benefits; or, for purposes
of awarding Direct Subsidized Loans, Segal AmeriCorps Education Awards.
56
• Financial Need. This is the amount determined by subtracting a student’s EFC
and EFA not received under HEA, Title IV from the student’s COA.
57
• Unmet Financial Need. This is the amount determined by subtracting the sum of
a student’s EFC and EFA from the student’s COA.
58
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; however, 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 EFC. 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 EFA. 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.
53
The FAFSA Simplification Act makes significant changes to the underlying processes and methodologies for
determining federal student aid eligibility, including renaming EFC to 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.
54
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.
55
For additional information, see HEA, Title IV, Part F, and FSA Handbook, Application and Verification Guide,
Chapter 3—Expected Family Contribution (EFC).
56
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 7—Packaging Aid.
57
HEA §471.
58
For additional information, see FSA Handbook, vol. 3, pp. 152-154.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 18
Direct Subsidized Loans
Direct Subsidized Loans are need-based. They may be awarded to satisfy a student’s unmet
financial need. The maximum Direct Subsidized Loan amount a student is eligible to borrow is
determined by summing the student’s EFC and EFA, and then subtracting that amount from the
student’s COA for the school attended. As discussed above, Direct Subsidized Loan borrowing is
also capped by 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 - (EFC + EFA)), Direct Subsidized Loan limit
59
]
Direct Unsubsidized Loans
Direct Unsubsidized Loans are non-need-based. Students are eligible to borrow Direct
Unsubsidized Loans irrespective of the amount of their EFC, in amounts up to the lesser of (1) the
result of subtracting the student’s EFA (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 - EFA), (total Direct Loan limit
60
- 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
EFC. The amount that may be borrowed through a Direct PLUS Loan is limited to the result of
subtracting the EFA (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
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 - EFA
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.
59
For information on Direct Subsidized Loan limits, see Table 1.
60
For information on loan limits for Direct Subsidized Loans and Direct Unsubsidized Loans, combined, see Table 1.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 19
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 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
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. 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
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 20
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.
61
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 Loans 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 Loans 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.
62
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%.
63
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.
64
For Direct Consolidation Loans made during the period from
February 1, 1999, through June 30, 2013, the maximum interest rate was capped at 8.25%.
65
For a
Direct Consolidation Loan that was the result of a separation a Joint Consolidation Loan (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. There is no maximum interest rate for Direct Consolidation Loans made on or after July
1, 2013.
61
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 establish interest rates for particular loan types and to communicate this information to
current and prospective borrowers and loan servicers.
62
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.
63
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.
64
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
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).
65
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 21
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. 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. 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.
66
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, 2022, through June 30, 2023, and for loans first disbursed July 1, 2023, through
June 30, 2024, are presented below in Table 2.
Table 2. Interest Rates on Loans Made Through the Direct Loan Program:
July 1, 2022, through June 30, 2023, and July 1, 2023, through June 30, 2024
(percentage)
Fixed Interest Rate in Effect
Borrower Type
Direct
Subsidized
Loans
Direct
Unsubsidized
Loans
Direct
PLUS
Loans
Direct Loans disbursed July 1, 2022-June 30, 2023
Undergraduate students
4.99
4.99
n.a.
Graduate and professional students
n.a.
6.54
7.54
Parents of dependent undergraduate students
n.a.
n.a.
7.54
Direct Loans disbursed July 1, 2023-June 30, 2024
Undergraduate students
5.50
5.50
n.a.
66
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 February 13, 2023).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 22
Fixed Interest Rate in Effect
Borrower Type
Direct
Subsidized
Loans
Direct
Unsubsidized
Loans
Direct
PLUS
Loans
Graduate and professional students
n.a.
7.05
8.05
Parents of dependent undergraduate students
n.a.
n.a.
8.05
Source: HEA §455(b); (20 U.S.C. §1087e(b)); U.S. Department of Education, “Annual Notice of Interest Rates
for Fixed-Rate Federal Student Loans Made Under the William D. Ford Federal Direct Loan program,” 87 Federal
Register 50327, August 16, 2022; and U.S. Department of Education, Office of Federal Student Aid, Electronic
Announcement, DL-23-03, “FY23 Interest Rates for Direct Loans First Disbursed Between July 1, 2023 and June
30, 2024,” 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,
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.
67
With this
formula, interest accrues only on the outstanding principal balance (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 the product of (1) the number of days of
interest being calculated (e.g., days since the last payment was made), (2) the OPB of the loan,
and (3) an interest rate factor. The interest rate factor is the quotient of the applicable interest rate
of the loan
68
divided by the number of days in a year (365.25).
69
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
Interest rate factor:
Applicable interest rate: 0.0550
Days in a year: 365.25
Accrued Interest = [30 x $4,500 x (0.0550 ÷ 365.25)] = $20.33
67
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 February 13, 2023).
68
In the simple daily interest formula, the applicable interest rate is expressed in decimal form. For example, 5.50% is
expressed in decimal form as 0.0550.
69
In the current loan servicing environment, ED loan servicers utilize established standards to calculate daily interest.
The interest rate factor is determined by dividing the applicable interest rate by either 365.25 or 365 days, depending on
the loan servicer platform. (CRS email communication with U.S. Department of Education, Office of Legislation and
Congressional Affairs, February 28, 2023.)
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 23
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.
In response to the COVID-19 pandemic, interest accrual on Direct Loan program loans has been
suspended temporarily. For information on this flexibility, see Appendix D.
Subsidized Interest
In a limited set of circumstances, the federal government subsidizes some or all of the interest
that would otherwise accrue on loans made through the Direct Loan program.
70
During periods
when an interest subsidy is provided, borrowers are relieved of the requirement 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.
71
Interest subsidies that may be
available on loans made through the Direct Loan program are described below.
72
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
during the grace period on Direct Subsidized Loans disbursed between July 1, 2012, and June 30,
2014.
73
70
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.
71
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.
72
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.
73
Between July 1, 2013, and August 13, 2021, borrowers 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 would 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
(continued...)
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 24
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.
74
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 Revised Pay As You Earn (REPAYE) repayment plan—during periods
when a borrower’s loans are in negative amortization.
75
(Details of these IDR plans are described
below in “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 REPAYE repayment plan an
extended, partial interest subsidy is provided on all eligible loan types. These IDR plan interest
subsidies are described in greater detail below.
Three-Year Interest Subsidy on Direct Subsidized Loans Repaid According to
Certain IDR Plans During Negative Amortization
The structure of the IBR, PAYE, and REPAYE 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 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 IDR plans under which
a subsidized loan interest subsidy is provided, a cumulative three-year limit on receipt of the
interest subsidy applies to periods of repayment made under any of the aforementioned IDR
plans.
76
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 are excluded from the three-year eligibility limit.
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.
74
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.
75
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.
76
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 25
50% Interest Subsidy on All Eligible Loan Types Repaid According to the
REPAYE Repayment Plan During Negative Amortization
In addition to the three-year interest subsidy of the remaining accrued interest on Direct
Subsidized Loans and the subsidized component of Direct Consolidation Loans described above,
the REPAYE repayment plan includes a 50% subsidy of the remaining accrued interest on all
loans.
77
Beyond the three-year period for Direct Subsidized Loans and the subsidized component
of Direct Consolidation Loans (described above), and during all periods of repayment on other
eligible loans, 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 Secretary charges the borrower for
only 50% of the remaining accrued interest.
78
There is no time limit on receipt of the REPAYE
repayment plan 50% interest subsidy.
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.
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.
79
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
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.
80
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
77
34 C.F.R. §685.209(c)(2)(iii). Direct PLUS Loans made to parent borrowers and Direct Consolidation Loans that
repaid either a Direct PLUS Loan or a FFEL PLUS Loan made to a parent borrower are ineligible to be repaid
according to the REPAYE repayment plan.
78
The borrower is not relieved of responsibility for payment of the 50% of the remaining accrued interest that is
charged.
79
For additional information on the SCRA, see CRS Report R45283, The Servicemembers Civil Relief Act (SCRA):
Section-by-Section Summary.
80
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 26
rate of the new Direct Consolidation Loan.
81
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.
82
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 an IDR plan, 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.
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:
81
34 C.F.R. §685.202(a); 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.
82
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 27
1. Entering Repayment Status. Any unpaid interest that has accrued on a
borrower’s loans during the in-school and grace periods is capitalized at the time
a borrower’s loan enters repayment status.
2. Annually, in ICR and Alternative Repayment Plans. Any unpaid interest that
has accrued on a borrower’s loan while the borrower is repaying according to the
ICR plan (a type of IDR plan) or one of the alternative repayment plans is
capitalized annually.
3. 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.
4. Exit from or Failure to Recertify Income and Family Size in the PAYE or
REPAYE Repayment Plans. Any unpaid interest that has accrued on a
borrower’s loan during a period when they were repaying according to the PAYE
or REPAYE repayment plans is capitalized at the time the borrower changes to a
different repayment plan. For borrowers in the PAYE repayment plan, interest
may also capitalize in instances in which they fail to recertify their income and
family for purposes of annually determining their monthly payments under the
plan.
83
5. 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.
84
6. End of Partial Financial Hardship in PAYE Repayment Plan. Any unpaid
interest that has accrued on a borrower’s loan during a period when they were
repaying according to the PAYE repayment plan and had a partial financial
hardship is capitalized when the borrower is determined to no longer have a
partial financial hardship.
7. End of Forbearance. In general, any unpaid interest that has accrued on a
borrower’s loan during a period of forbearance is capitalized at the expiration of
the period. However, interest that accrues during specified periods of
administrative forbearance is not capitalized at the end of the administrative
forbearance.
85
If, during the period of forbearance, a borrower was enrolled in
83
Regulations do not explicitly state that failure to annually certify income information under the REPAYE repayment
plan results in interest capitalization. However, regulations do specify that when a borrower fails to annually certify
their income under the REPAYE repayment plan, ED will place them in an alternative repayment plan, and that interest
capitalizes when a borrower leaves the REPAYE repayment plan. Thus, in effect, interest capitalizes when a borrower
fails to annually recertify their income under the REPAYE repayment plan because they are placed into a different
repayment plan. 34 C.F.R. § 685.209(c)(2)(iv) and (c)(4)(iii)(B); U.S. Department of Education, “Income-Driven
Repayment (IDR) Plan Request,” OMB No. 1845-0102, https://studentaid.gov/app-static/images/idrPreview.pdf.
84
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.
85
The administrative forbearance must have been granted (for up to 60 days) for purposes of processing a borrower’s
request for deferment, forbearance, a change in repayment plan, or loan consolidation.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 28
either of the IBR plans or the PAYE repayment plan and was experiencing a
partial financial hardship as defined under those plans, any unpaid interest that
accrued on the borrower’s loans during the period of forbearance will not be
capitalized as long as the borrower continues to have a partial financial
hardship.
86
8. 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.
87
If during the period of
deferment a borrower was enrolled in either of the IBR plans or the PAYE
repayment plan and was experiencing a partial financial hardship, any unpaid
interest that accrued on the borrower’s loans during the period of deferment will
not be capitalized as long as the borrower continues to have a partial financial
hardship.
88
9. Default. Any unpaid interest that has accrued on a borrower’s loan prior to the
borrower defaulting (e.g., during periods of negative amortization, during
delinquency) is capitalized at the time of default.
10. 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.
Effective July 1, 2023, ED regulations eliminate all instances of interest capitalization that are not
specified in the HEA.
89
Thus, the situations described in 1, 2, 4, 6, 7, and 9 above, will no longer
result in interest capitalization. That is, interest capitalization is to only occur: (1) when, while
enrolled in an IBR plan, a borrower exits the plan, fails to annually certify their income and
family size, or no longer has a partial financial hardship; (2) when a period of deferment ends;
and (3) upon consolidation.
Limit on Interest Capitalization in the IDR and Alternative Repayment Plans
For borrowers who are repaying their loans according to some of the IDR plans or an alternative
repayment plan, the amount of interest that may be capitalized is capped. For borrowers repaying
their loans according to the ICR plan or the alternative repayment plans, interest may be
capitalized until the outstanding principal balance reaches a maximum of 110% of the amount of
the OPB owed at the time the borrower entered repayment.
90
For borrowers repaying their loans
according to the PAYE repayment plan, the amount of interest that may be capitalized is capped
at 10% of the OPB owed at the time the borrower entered into repayment under the PAYE
repayment plan.
91
Under all three of these repayment plans, once the limit is reached, interest will
continue to accrue and accumulate, but it will no longer be capitalized as long as the borrower
remains in the same repayment plan.
86
34 C.F.R. §§685.209(a)(2)(iv) and 685.221(b)(4).
87
34 C.F.R. §685.202(b)(2).
88
34 C.F.R. §§685.209(a)(2)(iv) and 685.221(b)(4).
89
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 [hereinafter ED, Final Rule,
November 1, 2022].
90
34 C.F.R. §§685.208(l)(5) and 685.209 (b)(3)(iv).
91
34 C.F.R. §685.209(a)(2)(iv)(B).
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Congressional Research Service 29
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization in the ICR
plan, the PAYE repayment plan, and the alternative repayment plan.
92
Accordingly, effective July
1, 2023, the same regulations also eliminate provisions limiting interest capitalization in these
plans.
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.
These fees help offset federal loan subsidy costs by passing along some of the costs to
borrowers.
93
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%. (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.
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.
94
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 FY2023 and FY2024 (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,
FY2023 and FY2024
(percentage)
Disbursement Period
Direct
Subsidized
Loans
Direct
Unsubsidized
Loans
Direct
PLUS
Loans
October 1, 2022-September 30, 2023
1.057
1.057
4.228
October 1, 2023-September 30, 2024
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, Electronic Announcement GENERAL-23-37, “FY24
Sequester-Required Changes to the Title IV Student Aid Programs,” May 15, 2023, https://fsapartners.ed.gov/
92
ED, Final Rule, November 1, 2022.
93
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.
94
For additional information on how budget sequestration affects federal student loans, see CRS Report R42050,
Budget “Sequestration” and Selected Program Exemptions and Special Rules, archived (available to congressional
clients upon request).
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Congressional Research Service 30
knowledge-center/library/electronic-announcements/2023-05-15/fy-24-sequester-required-changes-title-iv-
student-aid-programs
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, commences either upon the loan being 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 are afforded the opportunity to choose from
among a selection of numerous loan repayment plan options to repay their loans. The repayment
plan selected is a determining factor 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.
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.
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.
95
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 Loan 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. 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. (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.
In general, the repayment period excludes any periods of authorized deferment and forbearance;
however, in certain instances of a borrower repaying a loan according to an IDR plan, periods
95
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 February 27, 2023).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 31
during which the borrower is receiving an economic hardship deferment may be considered as
part of the repayment period. In instances where a borrower has entered a period of deferment or
forbearance, the next subsequent payment is due no later than 60 days after the end of the
deferment or forbearance period.
Loan Repayment Plans
Borrowers may choose from among numerous loan repayment plan options to repay their loans.
The available repayment plans fall into five broad categories: standard repayment plans, extended
repayment plans, graduated repayment plans, income-driven repayment (IDR) plans, and
alternative repayment plans.
The particular repayment plans available to any individual borrower may depend on 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. However, if a borrower seeking to repay
according to one of the IDR plans 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.
In general, a borrower may change from one plan to another eligible plan at any time and may not
change to a repayment plan that has a maximum repayment period of fewer than the number of
years that the borrower’s loans have already been in repayment status. If a borrower changes
plans to any of the standard repayment plans, graduated repayment plans, extended repayment
plans, or alternative repayment plans, the beginning of the applicable repayment period will be
measured from the date that the borrower’s loan initially entered repayment status. If a borrower
changes to one of the IDR plans, the beginning of the repayment period will be measured from
the date the borrower satisfied certain plan-specific criteria, as described below, for the applicable
IDR plans.
Under the standard repayment plans, graduated repayment plans, extended repayment plans, and
most alternative repayment plans, payment amounts may not be less than the amount of accrued
interest that is due. Negative amortization is permitted in the IDR plans and as part of one
alternative repayment plan option. 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 standard repayment plans, graduate repayment plans, and extended
repayment plans to take into account the effects of annual changes in the variable interest rate.
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.
CRS-32
Table 4. Selected Characteristics of Loan Repayment Plans Generally Available to Borrowers: Standard Repayment Plans,
Extended Repayment Plans, Graduated Repayment Plans, and Income-Driven Repayment Plans
Repayment Plan
Special
Eligibility
Limitations
a
Payment
Structure
Annual
Certification of
Income and
Family Size
Required
Subsidized
Interest
Negative
Amortization
Permitted
Limit on Interest
Capitalization
Maximum
Repayment
Term
Loan
Forgiveness at
End of
Repayment
Term
Standard Repayment Plans
Standard Repayment
Plan with a Maximum
10-year Term
None
Level payments
No
No
No
No
10 years
No
Standard Repayment
Plan for Direct
Consolidation Loans
with 10-year to 30-
year Terms
Direct
Consolidation
Loans only
Level payments
No
No
No
No
10 to 30 years,
based on
combined loan
balance
b
No
Extended Repayment Plans
Extended Fixed
Repayment Plan with
a Maximum 25-Year
Term
Loan balance must
exceed $30,000
Level payments
No
No
No
No
25 years
No
Extended Graduated
Repayment Plan with
a Maximum 25-Year
Term
Loan balance must
exceed $30,000
Payments increase
incrementally every
2 years
No
No
No
No
25 years
No
Extended Repayment
Plan with 12-year to
30-year Terms
(Pre-July 1, 2006)
None
Level payments
No
No
No
No
12 to 30 years,
based on loan
balance
c
No
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Repayment Plan
Special
Eligibility
Limitations
a
Payment
Structure
Annual
Certification of
Income and
Family Size
Required
Subsidized
Interest
Negative
Amortization
Permitted
Limit on Interest
Capitalization
Maximum
Repayment
Term
Loan
Forgiveness at
End of
Repayment
Term
Graduated Repayment Plans
Graduated
Repayment Plan with
a Maximum 10-year
Term
None
Payments increase
incrementally every
2 years
No
No
No
No
10 years
No
Graduated
Repayment Plan for
Direct Consolidation
Loans with 10-year to
30-year Terms
Direct
Consolidation
Loans only
Payments increase
incrementally every
2 years
No
No
No
No
10 to 30 years,
based on
combined loan
balance
b
No
Graduated
Repayment Plan with
12-year to 30-year
Terms
(Pre-July 1, 2006)
None
Payments increase
incrementally every
2 years
No
No
No
No
12 to 30 years,
based on loan
balance
c
No
Income-Driven Repayment Plans
Income-Contingent
Repayment (ICR) Plan
Direct PLUS
Loans to parents
excluded, unless
consolidated into
a Direct
Consolidation
Loan
Lesser of:
• 12-year
amortization,
multiplied by an
income percentage
factor,
d
or
• 20% of AGI
e
that
exceeds 100% of
federal poverty
guideline
Yes. Upon failure to
certify, accrued
interest is capitalized
f
and payment reverts
to Standard
Repayment Plan with a
Maximum 10-year
Term
No
Yes
Yes. Accrued interest
is capitalized once per
year; and capitalized
interest may not
result in balance
exceeding 110% of
original OPB
f
25 years
Yes
CRS-34
Repayment Plan
Special
Eligibility
Limitations
a
Payment
Structure
Annual
Certification of
Income and
Family Size
Required
Subsidized
Interest
Negative
Amortization
Permitted
Limit on Interest
Capitalization
Maximum
Repayment
Term
Loan
Forgiveness at
End of
Repayment
Term
Original Income-
Based Repayment
(IBR) Plan
Must initially have
a partial financial
hardship;
Direct PLUS
Loans to parents
and Direct
Consolidation
Loans that
consolidated a
parent PLUS Loan
excluded
Lesser of:
• 15% of AGI
e
that
exceeds 150% of
federal poverty
guideline while
borrower has a
partial financial
hardship, or
• 10-year
amortization based
on original OPB
Yes. Upon failure to
certify, accrued
interest is capitalized
and payment reverts
to Standard
Repayment Plan with a
Maximum 10-year
Term
Yes. Remaining
accrued interest
on Direct
Subsidized Loans
during negative
amortization for
first 3 years,
excluding periods
of economic
hardship
deferment
g
Yes
Yes. Accrued interest
is generally capitalized
only if a borrower no
longer has a partial
financial hardship.
25 years
Yes
IBR Plan for Post-July
1, 2014, New
Borrowers
Must initially have
a partial financial
hardship;
Direct PLUS
Loans to parents
and Direct
Consolidation
Loans that
consolidated a
parent PLUS Loan
excluded
Lesser of:
• 10% of AGI
e
that
exceeds 150% of
federal poverty
guideline while
borrower has a
partial financial
hardship, or
• 10-year
amortization based
on original OPB
Yes. Upon failure to
certify, accrued
interest is capitalized
and payment reverts
to Standard
Repayment Plan with a
Maximum 10-year
Term
Yes. Remaining
accrued interest
on Direct
Subsidized Loans
during negative
amortization for
first 3 years,
excluding periods
of economic
hardship
deferment
g
Yes
Yes. Accrued interest
is generally capitalized
only if a borrower no
longer has a partial
financial hardship.
20 years
Yes
CRS-35
Repayment Plan
Special
Eligibility
Limitations
a
Payment
Structure
Annual
Certification of
Income and
Family Size
Required
Subsidized
Interest
Negative
Amortization
Permitted
Limit on Interest
Capitalization
Maximum
Repayment
Term
Loan
Forgiveness at
End of
Repayment
Term
Pay As You Earn
(PAYE) Repayment
Plan
Must initially have
a partial financial
hardship;
Direct PLUS
Loans to parents
and Direct
Consolidation
Loans that
consolidated a
parent PLUS Loan
excluded
Lesser of:
• 10% of AGI
e
that
exceeds 150% of
federal poverty
guideline while
borrower has a
partial financial
hardship, or
• 10-year
amortization based
on original OPB
Yes. Upon failure to
certify, accrued
interest may be
capitalized
f
and
payment reverts to
Standard Repayment
Plan with a Maximum
10-year Term
Yes. Remaining
accrued interest
on Direct
Subsidized Loans
during negative
amortization for
first 3 years,
excluding periods
of economic
hardship
deferment
g
Yes
Yes. Accrued interest
is generally capitalized
only if a borrower no
longer has a partial
financial hardship; and
capitalized interest
may not exceed 10%
of original OPB
f
20 years
Yes
Revised Pay As You
Earn (REPAYE)
Repayment Plan
Direct PLUS
Loans to parents
and Direct
Consolidation
Loans that
consolidated a
parent PLUS Loan
excluded
10% of AGI
h
that
exceeds 150% of
federal poverty
guideline; and
payment may be
adjusted for
borrowers who
return to the plan
from the REPAYE
Alternative
Repayment Plan
i
Yes. Upon failure to
certify income,
accrued interest is
capitalized
f
and
borrower is placed in
the REPAYE
Alternative Repayment
Plan; and upon failure
to certify family size, a
family size of 1 is
assumed
Yes. Remaining
accrued interest
on Direct
Subsidized Loans
during negative
amortization for
first 3 years,
excluding periods
of economic
hardship
deferment;
g
and
50% of remaining
accrued interest
on all other loans,
and on Direct
Subsidized Loans
beyond the first 3
years
Yes
Yes. Accrued interest
is not capitalized as
long as a borrower
remains in the
REPAYE Repayment
Plan
f
20 years for
borrowers
with only
undergraduate
debt; and
25 years for
borrowers
with any
graduate debt
Yes
CRS-36
Repayment Plan
Special
Eligibility
Limitations
a
Payment
Structure
Annual
Certification of
Income and
Family Size
Required
Subsidized
Interest
Negative
Amortization
Permitted
Limit on Interest
Capitalization
Maximum
Repayment
Term
Loan
Forgiveness at
End of
Repayment
Term
REPAYE Alternative
Repayment Plan
Must have
previously repaid
according to the
REPAYE
Repayment Plan;
Direct PLUS
Loans to parents
and Direct
Consolidation
Loans that
consolidated a
parent PLUS Loan
excluded
Level payments,
amortized over the
shorter of:
• 10 years from
placement into the
plan; or
• remainder of the
20 year or 25 year
REPAYE
repayment term, as
applicable
No
No
No
No
Shorter of:
• 10 years from
placement into
the plan; or
• remainder of
the 20 year or
25 year
REPAYE
Repayment
Plan term, as
applicable
No
j
Source: HEA, §§455 and 493C; 34 C.F.R. §§685.208, 685.209, and 685.221.
Notes: This table excludes the Alternative Repayment Plans, which are distinct from the REPAYE Alternative Repayment Plan. Details about the Alternative Repayment
Plans are communicated to borrowers by loan services and are generally not made publicly available. AGI = adjusted gross income; OPB = outstanding principal balance.
a. Eligibility for certain plans may be contingent upon 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. For details, see the “Loan Repayment Plans”
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. Income percentage factors range from 50.52% to 200%, depending on a borrower’s AGI and income tax filing status.
e. 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 AGI of the borrower is used.
f. Effective July 1, 2023, ED regulations eliminate this instance of interest capitalization. Accordingly, ED regulations also eliminate provisions limiting the amount of
interest capitalization.
g. 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.
CRS-37
h. For a borrower who is unmarried, their AGI is used. If the borrower is married, and unless certain exceptions apply, the AGI of both the borrower and their
spouse is used irrespective of whether the borrower files a joint or separate federal tax return with their spouse. If a borrower is married and certifies that they are
separated or are unable to access information on the income of their spouse, then the AGI of only the borrower is used.
i. For a borrower who returns to the REPAYE repayment plan after having repaid according to the REPAYE Alternative repayment plan, if it is determined that the
borrower paid less under the REPAYE Alternative repayment plan than would have been required under the REPAYE repayment plan, payment amounts may be
adjusted upwards to recoup the difference.
j. Periods of repayment according to the REPAYE Alternative repayment plan may count toward the maximum repayment term to qualify for loan forgiveness under
other IDR plans. However, such periods do not qualify for loan forgiveness under the PSLF program.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 38
Standard Repayment Plans
Standard repayment plans allow borrowers to make predictable, 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 with a Maximum 10-Year Term
All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans,
and borrowers of Direct Consolidation Loans that 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.
96
Standard Repayment Plan for Direct Consolidation Loans
with 10-Year to 30-Year Terms
Borrowers of Direct Consolidation Loans that were made 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.
97
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.
98
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 for Direct Consolidation Loans are shown in Table 5. (The repayment periods
shown also apply to the Graduated Repayment Plan for Direct Consolidation Loans, which is
discussed in a later section.)
Table 5. Repayment Periods: Standard Repayment Plan for Direct Consolidation
Loans and Graduated Repayment Plan for Direct Consolidation Loans
(Borrowers who entered repayment on or after July 1, 2006)
Combined Loan Balance
a
at Start of Repayment
Maximum
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
$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).
96
The last payment may be for less than $50.
97
The last payment may be for less than $50.
98
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 February 27, 2023).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 39
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 term, interest accrues over a longer period of time; as a
consequence, a larger amount of interest is paid under an extended repayment plan than would be
paid according to a standard repayment plan with a 10-year term. There are three 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.
Extended Fixed Repayment Plan with a Maximum 25-Year Term
This repayment plan is available to individuals who are new borrowers on or after October 7,
1998; whose loans 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. The Extended Fixed
Repayment Plan allows borrowers to make monthly payments in equal amounts over a period of
25 years from the date their loans entered repayment status.
99
This results in monthly payment
amounts being lower than they would be under a standard repayment plan with a 10-year term.
Extended Graduated Repayment Plan with a Maximum 25-Year Term
Like the above plan, this repayment plan is available to individuals who are new borrowers on or
after October 7, 1998; whose loans 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. The
Extended Graduated Repayment Plan allows borrowers to make monthly payments that are
initially low and increase in amount every two years over a repayment period of 25 years from
the date the borrower’s loans entered repayment status.
100
Under this plan, monthly payment
amounts increase from an initial payment amount that must be at least $50 to an amount that may
not be greater than three times the initial monthly payment amount.
Extended Repayment Plan with 12-Year to 30-Year Terms (Pre-July 1, 2006)
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.
101
The minimum monthly payment amount is $50, and the
duration of the repayment term is dependent upon the outstanding principal balance of the
99
For additional details, see 34 C.F.R. §685.208(e) and U.S. Department of Education, Office of Federal Student Aid,
“Repayment Plans: Extended Plan,” https://studentaid.gov/manage-loans/repayment/plans/extended (accessed February
27, 2023).
100
Ibid.
101
For additional details, see 34 C.F.R. §685.208(d).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 40
borrower’s loans made through the Direct Loan program.
102
The extension of the repayment term
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 for borrowers who entered repayment prior to July 1, 2006, which is
discussed in the next section.)
Table 6. Repayment Periods: Extended Repayment Plan
and Graduated Repayment Plan
(Borrowers who entered repayment prior to July 1, 2006)
Outstanding
Principal Balance
a
Maximum
Repayment Period
Less than $10,000
12 years
$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.
Graduated Repayment Plans
Loan repayment according to the graduated repayment plans is structured so that a borrower’s
monthly payment amount will periodically change 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 with a Maximum 10-Year Term
All borrowers of Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans
that entered repayment after July 1, 2006, may select a graduated repayment plan that has a
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 the initial monthly payment amount.
103
102
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 term
under this plan.
103
For additional details, see 34 C.F.R. §685.208(g) and U.S. Department of Education, Office of Federal Student Aid,
“Repayment Plans: Graduated Plan,” https://studentaid.gov/manage-loans/repayment/plans/graduated (accessed
February 27, 2023).
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Congressional Research Service 41
Graduated Repayment Plan for Direct Consolidation Loans
with 10-Year to 30-Year Terms
Borrowers of Direct Consolidation Loans that were made 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 the initial
monthly payment amount.
104
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. Repayment periods for the Graduated Repayment Plan for Direct Consolidation Loans are
shown above in Table 5.
Graduated Repayment Plan with 12-Year to 30-Year Terms (Pre-July 1, 2006)
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 term 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 the Standard Repayment Plan with a Maximum 10-Year Term to an
amount that may be no more than 150% of the amount that would be required under the Standard
Repayment Plan with a Maximum 10-Year Term.
105
The duration of the repayment term 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.
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) a repayment plan
under which a borrower’s monthly payment amounts are to vary according to their income.
106
For
the first 15 years that the Direct Loan program was in operation, an Income-Contingent
Repayment (ICR) plan fulfilled this requirement. Over time, ED and Congress have established
additional repayment plans under which a borrower’s monthly payments vary according to their
income. Collectively, these plans have come to be referred to as income-driven repayment (IDR)
plans.
Several IDR plans are currently available to borrowers: the ICR plan, the Income-Based
Repayment (IBR) plan (one version of which is available to individuals who qualify as a new
borrower on or after July 1, 2014, and another which is available to individuals who do not
qualify as a new borrower as of that date), the Pay As You Earn (PAYE) repayment plan, and the
Revised Pay As You Earn (REPAYE) repayment plan.
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
104
For additional details, see 34 C.F.R. §685.208(h) and U.S. Department of Education, Office of Federal Student Aid,
“Repayment Plans: Graduated Plan,” https://studentaid.gov/manage-loans/repayment/plans/graduated (accessed
February 27, 2023).
105
For additional details, see 34 C.F.R. §685.208(f).
106
HEA, §455(d)(1)(D).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 42
that may not exceed a specified duration. 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 may include other
individuals who both live with the borrower and receive more than half of their support from the
borrower.
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The portion of a borrower’s income that is below the federal poverty guideline
multiple that is 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. 2023 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%
$14,580
$19,720
$24,860
$30,000
$35,140
$40,280
$45,420
$50,560
150%
$21,870
$29,580
$37,290
$45,000
$52,710
$60,420
$68,130
$75,840
Source: U.S. Department of Health and Human Services, “U.S. Federal Poverty Guidelines Used to Determine
Financial Eligibility for Certain Federal Programs,” 88 Federal Register 3424, January 19, 2023.
Notes: For families/households with more than eight persons, add $4,540 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 $18,210 in Alaska, and $16,770 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. Poverty
guidelines are adjusted annually based on the percentage change in the Consumer Price Index for All Urban
Consumers (CPI-U).
The various IDR plans are primarily distinguished by (1) the multiple (e.g., 100%, 150%) of the
federal poverty guidelines used to define discretionary income, (2) the percentage of a borrower’s
discretionary income (e.g., 10%, 15%, 20%) that is assessed as being available for purposes of
making student loan payments, and (3) the maximum duration of the repayment term (e.g., 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, on an annual basis borrowers must
provide documentation of their income and must certify their family size to
107
34 C.F.R. §§685.209(a)(1(iv); 685.209(c)(1)(iii), and 685.221(a)(3). 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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Congressional Research Service 43
become and remain eligible for IDR plan repayment.
108
In addition, borrowers
may update their income and family size at any time if either changes.
109
• Potential negative amortization. IDR plan payment amounts are capped at no
more than 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.
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• Potential availability of loan forgiveness. All the IDR plans make available the
prospect of eventual loan forgiveness if a borrower, after making payments
according to one or more of the IDR plans, has been unable to fully repay their
student loan debt by the end of the maximum repayment term.
111
Payments made
on defaulted loans repaid according to the IDR plans do not count toward a
borrower’s eligibility for loan forgiveness.
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,”
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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 in the IDR plans. For information on this adjustment,
see Appendix D.
Income-Contingent Repayment (ICR) Plan
The Income-Contingent Repayment plan permits borrowers to make payments on eligible student
loans in amounts that are determined according to procedures that take into account a borrower’s
adjusted gross income 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. An income-
108
U.S. Department of Education, Office of Federal Student Aid, “Income-Driven Repayment (IDR) Plan Request,”
OMB No. 1845-0102. In response to the COVID-19 pandemic, ED has stated that borrowers will not be required to
recertify their income through at least six months after the COVID-19 student loan payment pause ends (i.e., a special
administrative forbearance available in light of the COVID-19 pandemic). 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 February 27, 2023).
109
The Fostering Undergraduate Talent by Unlocking Resources for Education Act (the FUTURE Act; P.L. 116-91),
among other provisions, authorizes the Internal Revenue Service (with borrower approval) to disclose relevant tax
return information to ED for the purpose of determining a Direct Loan borrower’s eligibility for and repayment
obligations under IDR plans. Authorized disclosures include (1) taxpayer identity information, (2) filing status, (3)
adjusted gross income, (4) total number of claimed exemptions, (5) the number of dependents taken into account for
determining the Child Tax Credit under IRC Section 24, and (6) the fact that no return was filed (if applicable). As of
the publication date of this report, it appears these procedures have not yet been operationalized.
110
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.
111
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 section on “Tax Treatment of
Discharged and Forgiven Debt” below.
112
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.
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Congressional Research Service 44
contingent repayment plan has been available to borrowers since the establishment of the Direct
Loan program in 1994.
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Eligibility. The ICR plan is available to all borrowers of Direct Subsidized Loans, Direct
Unsubsidized Loans, Direct PLUS Loans made to graduate and professional students, and Direct
Consolidation Loans.
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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. There are no specific income restrictions that limit a borrower’s eligibility to repay
according to the ICR plan.
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’s loans enter repayment status, 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 used; 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, multiplied by an income percentage factor that corresponds to the
borrower’s AGI and tax filing status;
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or
• one-twelfth of 20% of the amount by which the borrower’s AGI exceeds 100% of
the federal poverty guideline applicable to the borrower’s family size (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, a minimum monthly payment amount of $5 is required. 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 to each other may elect to repay their loans jointly. Married
borrowers must file a joint federal tax return to qualify for Joint ICR plan repayment. Under this
option, the sum of the outstanding loan balances of each borrower, as of the time they elect joint
repayment, is used to determine their combined monthly payment amount according to the
procedures described above for the ICR plan. Payments made by married borrowers repaying
113
The ICR plan has been modified several times since the Direct Loan program was established. In general, the
regulations in effect at the time a borrower selects the ICR plan govern the method for determining the borrower’s
monthly payment amounts. 34 C.F.R. §685.208(k)(3). This description is based on provisions for the ICR plan
specified in current regulations. 34 C.F.R. §685.209(b).
114
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.
115
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 2022—William D. Ford Federal Direct Loan
Program,” 87 Federal Register, 50615, August 17, 2022.
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Congressional Research Service 45
jointly are applied to each borrower’s loans in proportion to each borrower’s share of the
combined outstanding balance.
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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. 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, interest will continue to accrue on the outstanding principal balance and unpaid
interest that has accumulated; it will be capitalized into the principal balance of the loan once per
year. However, unpaid accrued interest may only be capitalized until the outstanding principal
balance reaches 110% of the amount of the original principal balance as of when the borrower’s
loan(s) entered repayment. Once the OPB has reached 110% of the original principal balance,
unpaid accrued interest may continue to accumulate but will no longer be capitalized.
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as annual interest capitalization under the ICR plan, and accordingly,
also eliminate provisions limiting the amount of interest capitalization under the ICR plan.
117
Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to
the ICR plan, borrowers must annually provide certification of their income and family size to
ED. Certification of income is normally satisfied by providing the borrower’s AGI. However, if
the borrower’s AGI does not reflect their current income, alternative documentation of income
may be provided. If the borrower fails to provide certification of income, their monthly payment
amount will be recalculated to equal the amount the borrower would have paid according to the
Standard Repayment Plan with a Maximum 10-Year Term, based on the amount owed at the time
they first elected to repay according to the ICR plan. The repayment period based on the
recalculated payment amount may exceed 10 years. If the borrower fails to certify their family
size, a family size of one will be assumed and used for the year.
Maximum Repayment Period and Loan Forgiveness. The ICR plan has a maximum
repayment period of 25 years. If a borrower repays according to the ICR plan and obtains an
additional loan that is eligible to be repaid according to the plan, a new, separate repayment
period will begin for the new loan when it enters repayment. If after 25 years of having repaid a
nondefaulted loan or loans according to the ICR plan or certain other repayment plans, or having
qualified for and received an economic hardship deferment, a borrower still has an outstanding
loan balance, the remaining unpaid balance will be discharged (i.e., forgiven). The maximum 25-
year repayment period for the ICR plan, after which loan forgiveness may be granted, includes
periods during which the borrower
• made monthly payments (including payments of $0) according to the ICR plan;
• made monthly payments (including payments of $0) according to an IBR plan
while experiencing a partial financial hardship;
• made monthly payments, either as part of an IBR plan after no longer having a
partial financial hardship or after leaving an IBR plan, in amounts calculated
according to the Standard Repayment Plan with a Maximum 10-Year Term,
based on the outstanding balance as of when the borrower first began repaying
according to an IBR plan;
116
34 C.F.R. §685.209(b)(2).
117
ED, Final Rule, November 1, 2022.
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• made monthly payments (including payments of $0) according to the PAYE
repayment plan or the REPAYE repayment plan;
• made monthly payments according to the REPAYE Alternative Repayment plan
prior to changing to an IBR plan;
• made monthly payments on a Direct Subsidized Loan, a Direct Unsubsidized
Loan, or a Direct PLUS Loan according to the Standard Repayment Plan with a
Maximum 10-Year Term during the portion of the maximum 10-year repayment
period that remains after the borrower ceases to repay according to an IBR plan;
• made payments on a Direct Consolidation Loan according to the Standard
Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms
or the Graduate Repayment Plan for Direct Consolidation Loans with 10-Year to
30-Year Terms during the portion of the maximum 10-year to 30-year repayment
period that remains after the borrower ceases to repay according to an IBR plan;
• made monthly payments according to the Standard Repayment Plan with a
Maximum 10-Year Term;
• made monthly payments during periods after October 1, 2007, according to any
repayment plan in amounts not less than the amount required under the Standard
Repayment Plan with a Maximum 10-Year Term;
• only for borrowers who entered repayment prior to October 1, 2007, and only if
the applicable repayment term is for not more than 12 years, made payments
according to the Standard Repayment Plan for Direct Consolidation Loans with
10-Year to 30-Year Terms, the Extended Repayment Plan for Direct
Consolidation Loans with 10-Year to 30-Year Terms, or the Graduated
Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year Terms
(see Table 5);
• received an economic hardship deferment;
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or
• had monthly payments suspended under the COVID-19 payment pause (see
Appendix D).
Income-Based Repayment (IBR) Plans
The Income-Based Repayment plans 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 adjusted gross income, family size, and monthly payment amount as calculated
according to a standard 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 the IBR plan. Any loan balance that remains after the maximum repayment
period of the plan will be forgiven. There are two IBR plan versions 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 description that follows distinguishes between the two IBR plan versions as
applicable.
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
118
34 C.F.R. §685.209(b)(3)(iii)(B).
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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.)
Eligibility. With certain exceptions, federal student loans made through both the Direct Loan
program and the FFEL program are considered eligible loans for purposes of repayment
according to the Original IBR plan,
119
while only loans made through the Direct Loan program
are eligible for repayment according to the IBR plan for Post-July 1, 2014, New Borrowers. In
both cases, Direct PLUS Loans and FFEL PLUS Loans that were made to a parent borrower and
Direct Consolidation Loans and FFEL Consolidation Loans that that were used to repay either a
Direct PLUS Loan or a FFEL PLUS Loan that was made to a parent borrower are ineligible to be
repaid according to either of the IBR plans. These loans to parent borrowers are also excluded
from being considered when determining a borrower’s eligibility for IBR plan repayment. This
discussion addresses the IBR plans available through the Direct Loan program.
Partial Financial Hardship. To be eligible to begin repaying according to an IBR plan, a
borrower must be determined to have a partial financial hardship. The criteria for determining
whether a borrower has a partial financial hardship take into account the borrower’s federal
income tax filing status (e.g., single, married filing jointly), AGI, family size, multiples of the
federal poverty guidelines applicable to the borrower’s family size, and monthly payment
amounts as calculated according to a standard 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 the IBR plan.
If a borrower is single, or is married and files an individual federal tax return, they are determined
to have a partial financial hardship if the total annual payments for all of the borrower’s eligible
loans, as calculated according to a standard 10-year repayment period, are greater than the
applicable percentage (15% for the Original IBR Plan or 10% for the IBR plan for Post-July 1,
2014, New Borrowers) of their discretionary income. If a borrower is married and files a joint
federal tax return, they are determined to have a partial financial hardship if the total annual
payments for all of the eligible loans of the borrower and, if applicable, the eligible loans of the
borrower’s spouse, as calculated according to a standard 10-year repayment period, are greater
than the applicable percentage of the combined discretionary income of the borrower and the
borrower’s spouse. Discretionary income is defined as the portion of a borrower’s adjusted gross
income that is in excess of 150% of the poverty guideline that is applicable to their family size. If
the total annual payments for all of the borrower’s eligible loans, as calculated according to a
standard 10-year repayment period, do not exceed 15% or 10% of their discretionary income, as
applicable, the borrower is no longer considered as having a partial financial hardship.
Payment Amounts. During periods while a borrower has a partial financial hardship and repays
according to an IBR plan, monthly amounts due on their loans may range from $0, for a borrower
with an AGI that is at or below 150% of the poverty guideline, to a maximum of one-twelfth of
the specified percentage factor (15% or 10%) of a borrower’s discretionary income. For example,
based on the 2023 HHS Poverty Guidelines, 150% of the poverty guideline for a family of one in
the 48 contiguous states and the District of Columbia is $21,870. (See Table 7)
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For borrowers with loans made through both the Direct Loan program and the FFEL program, repayment is
coordinated for those who wish to repay both types of loans according to the Original IBR plan. In such cases, payment
amounts are calculated in proportion to the outstanding balance of eligible loans owed under the respective programs.
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Congressional Research Service 48
• In the Original IBR plan, a single borrower with an adjusted gross income of $40,000
would have a partial financial hardship if their annual student loan payments were greater
than $2,719.50, or $226.63 per month. ($2,719.50 is 15% of the result of subtracting
$21,870 from $40,000.)
• In the IBR plan for post-July 1, 2014, New Borrowers, a single borrower with an adjusted
gross income of $40,000 would have a partial financial hardship if their annual student
loan payments were greater than $1,813, or $151.08 per month. ($1,813 is 10% of the
result of subtracting $21,870 from $40,000.)
For a borrower whose calculated monthly payment results in an amount that is greater than or
equal to $5 but less than $10, the monthly payment is set at $10. For a borrower whose calculated
monthly payment results in an amount that is less than $5, the monthly payment is set at $0.
Monthly payment amounts are recalculated annually to take into account changes that may have
occurred over the past year.
If a borrower who is repaying according to an IBR plan no longer demonstrates having a partial
financial hardship or no longer desires to make payments based on income, they may remain in
the IBR plan; however, the borrower’s maximum required monthly payment amount will no
longer be calculated according the formula described above. Nonetheless, the required payment
amount may not exceed the monthly amount due, as calculated according to a standard 10-year
repayment period based on the borrower’s loan balance at the time they elected to begin repaying
according to the IBR plan. However, in such a case the duration of the repayment period may
exceed 10 years.
Joint IBR Plan Repayment for Married Borrowers. Since July 1, 2010, the IBR plan has
provided for the joint repayment of loans by married borrowers who both have eligible loans and
who file a joint federal tax return. Individual payment amounts are proportional to each spouse’s
share of the couple’s combined loan balances and combined AGI.
Subsidized Interest. As part of the IBR plans, an interest subsidy is available on subsidized loans
during periods of negative amortization for a maximum of the first three years from the start of a
borrower’s repayment according to an 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, or paid by the Secretary. Any periods during which
the borrower has received an interest subsidy under either the PAYE repayment plan or the
REPAYE repayment plan are applied toward this three-year period. However, any 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 an IBR plan are first
applied to interest due on the loan, then to any fees, and then to 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 IBR plan and continues to have a partial financial hardship. If a borrower’s
required monthly payment is sufficient to pay the accrued interest but is insufficient to repay the
amount of principal due, then the payment of any principal due in excess of the monthly payment
amount owed will be postponed until the borrower no longer has a partial financial hardship or
leaves the IBR plan. Upon a borrower either no longer having a partial financial hardship or
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 49
electing to no longer repay according to an IBR plan, any accumulated accrued interest that has
not been paid will be capitalized.
If a borrower chooses to leave an IBR plan, they must change to the Standard Repayment Plan
that is applicable to the loans—either the Standard Repayment Plan with a Maximum 10-Year
Term or the Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-Year
Terms. (The borrower may subsequently change to another repayment plan; however, they may
not change to a repayment plan—other than a different IDR plan—that has maximum term that is
less than the number of years the borrower’s loans have already been in repayment.
120
) 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 IBR plan. A borrower who changes from the IBR plan to a standard repayment plan must
make at least one monthly payment according to the standard repayment plan before changing to
another repayment plan for which the borrower may be eligible. Borrowers may request a
forbearance that permits the making of a smaller payment amount than otherwise would be
required for purposes of making that one required monthly payment according to the Standard
Repayment Plan.
Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to
the IBR plans, borrowers must annually provide certification of their income and family size to
ED. Certification of income is normally satisfied by providing the borrower’s AGI. However, if
the borrower’s AGI does not reflect their current income, alternative documentation of income
may be provided. 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 the Standard Repayment Plan with a
Maximum 10-Year Term, based on the amount owed at the time they first elected to repay
according to the IBR plan. The repayment period based on the recalculated payment amount may
exceed 10 years. If the borrower fails to certify their family size, a family size of one will be
assumed and used for the year.
Maximum Repayment Period and Loan Forgiveness. The maximum repayment period for the
Original IBR plan is 25 years, whereas the maximum repayment period for the IBR plan for post-
July 1, 2014, New Borrowers is 20 years. If after having repaid according to an IBR plan a
borrower obtains additional loans that are eligible to be repaid according to that IBR plan, a new
repayment period will begin for the new loans when they enter repayment. A borrower who has
participated in one of the IBR plans and has satisfied any combination of the following conditions
for the duration of the applicable repayment period becomes eligible to have any balance that
remains at the end of the maximum repayment period forgiven:
• made reduced monthly payments (including payments of $0) according to an IBR
plan while experiencing a partial financial hardship;
• made monthly payments in amounts calculated according to the Standard
Repayment Plan with a Maximum 10-Year Term after no longer having a partial
financial hardship;
• made monthly payments on Direct Subsidized Loans, Direct Unsubsidized
Loans, or Direct PLUS Loans according to the Standard Repayment Plan with a
Maximum 10-Year Term, or on Direct Consolidation Loans according to the
Standard Repayment Plan for Direct Consolidation Loans with 10-Year to 30-
120
34 C.F.R. §§685.210(b)(2) and 685.221(d).
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Congressional Research Service 50
Year Terms, as applicable, after choosing to no longer repay according to an IBR
plan;
• made monthly payments according to any repayment plan in amounts not less
than the amount required under the Standard Repayment Plan with a Maximum
10-Year Term;
• made monthly payments according to the Standard Repayment Plan with a
Maximum 10-Year Term based on the amount owed at the time the borrower
initially selected an IBR plan;
• made monthly payments (including payments of $0) according to the ICR plan,
the PAYE repayment plan, or the REPAYE repayment plan;
• made monthly payments according to the REPAYE Alternative Repayment Plan
prior to changing to an IDR plan;
• received an economic hardship deferment; or
121
• had monthly payments suspended under the COVID-19 payment pause (see
Appendix D).
Pay As You Earn (PAYE) Repayment Plan
The Pay As You Earn (PAYE) repayment plan is substantially similar to the IBR plan for post-
July 1, 2014, New Borrowers (see above). 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 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 repayment will be forgiven. The plan became available to eligible
borrowers on December 21, 2012.
122
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.
123
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 are new borrowers on or
after October 1, 2007, and 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 who are identified as having a partial financial hardship. Eligible
borrowers may use the plan to repay loans made through the Direct Loan program, with the
exceptions of 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.
121
34 C.F.R. §§685.221(d) and (f); 685.208.
122
U.S. Department of Education, “William D. Ford Federal Direct Loan Program,” 77 Federal Register 72960,
December 7, 2012.
123
HEA, §455(d)(1)(D) and (e); 34 C.F.R. §685.209(a).
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Congressional Research Service 51
Partial Financial Hardship. A borrower is considered as having a partial financial hardship if
the total of their annual payments on all eligible loans,
124
as calculated according to a standard 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.
If a borrower is single, or is married and files an individual federal tax return, they are determined
to have a partial financial hardship if the total annual payments for all of the borrower’s eligible
loans, as calculated according to a standard 10-year repayment period, are greater than 10% of
their discretionary income. If a borrower is married and files a joint federal tax return, they are
determined to have a partial financial hardship if the total annual payments for all of the
borrower’s eligible loans and, if applicable, the borrower’s spouse’s eligible loans, as calculated
according to a standard 10-year repayment period, are greater than 10% of the combined
discretionary income of the borrower and their spouse. If the total annual payments for all of the
borrower’s eligible loans, as calculated according to a standard 10-year repayment period, do not
exceed 10% of their discretionary income, the borrower is no longer considered as having a
partial financial hardship.
Payment Amounts. While repaying according to the PAYE repayment plan, monthly amounts
due on borrowers’ 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 any amount by which the borrower’s AGI
exceeds 150% of the poverty line. If a borrower who is repaying according to the plan no longer
demonstrates having a partial financial hardship or no longer desires to make payments based on
income, the monthly payment amount will be recalculated. In such a case, the maximum monthly
payment amount may not exceed the amount due as calculated according to the Standard
Repayment Plan with a Maximum 10-Year Term 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, the monthly payment is set at $10. For a borrower whose calculated
monthly payment results in an amount that is less than $5, the monthly payment is set at $0.
Monthly payment amounts are recalculated annually to take into account changes that may have
occurred over the past year.
Joint PAYE Repayment for Married Borrowers. The PAYE repayment plan provides for the
joint repayment of loans by married borrowers who both have eligible loans and who file a joint
federal tax return. For married borrowers repaying jointly according to the plan, individual
payment amounts are proportional to each spouse’s share of the couple’s combined loan balances
and combined AGI.
Subsidized Interest. An interest subsidy is available on subsidized loans during periods of
negative amortization for a maximum of the first three 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
component of a Direct Consolidation Loan), the portion of the accrued interest that is not covered
124
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 52
by their monthly payment is subsidized for a period not to exceed three years. Periods during
which a borrower is receiving an economic hardship deferment are excluded from the three-year
eligibility period. In general, the terms of this interest subsidy for subsidized loans are the same as
the terms that apply to the IBR plans (see above).
Application of Payments. Payments made by borrowers repaying according to the PAYE
repayment plan are credited first to interest due on the loan, then to any fees, and then to
principal. 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, so
long as the borrower remains in the plan and continues to have a partial financial hardship. If a
borrower’s required monthly payment is sufficient to pay the accrued interest but is insufficient to
repay the amount of principal due, then the payment of any principal due in excess of the monthly
payment amount owed will be postponed until they no longer have a partial financial hardship or
leaves the plan.
If a borrower no longer has a partial financial hardship but remains in the PAYE repayment plan,
accumulated accrued interest is capitalized into the principal balance of the loan. In such a case,
the amount of accrued interest that may be capitalized is limited to 10% of the outstanding
principal balance at the time the borrower began repaying according to the plan. Any accrued
interest beyond the 10% limit will remain due but will not be capitalized as long as the borrower
remains in the plan.
If a borrower chooses to leave the PAYE repayment plan, they may change to any other
repayment plan for which they are eligible, as long as the new repayment plan has a maximum
term that is not less than the number of years the borrower’s loans have already been in
repayment, or is an available IDR plan. Upon a borrower electing to no longer repay according to
the PAYE repayment plan, any accumulated accrued interest that has not been paid will be
capitalized.
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as when a borrower no longer has a partial financial hardship and
remains in the PAYE repayment plan or when a borrower chooses to leave the PAYE repayment
plan. Accordingly, and also effective July 1, 2023, ED regulations eliminate provisions limiting
the amount of interest capitalization under the PAYE repayment plan.
125
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. Certification of income is normally satisfied by providing the borrower’s AGI.
However, if the borrower’s AGI does not reflect their current income, alternative documentation
of income may be provided. If the borrower fails to provide certification of income, any unpaid
accrued interest may be capitalized and their monthly payment amount will be recalculated to
equal the amount the borrower would have paid according to the Standard Repayment Plan with a
Maximum 10-Year Term, 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. If the borrower fails to certify their family size, a family size of one will be
assumed and used for the year.
125
ED, Final Rule, November 1, 2022.
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Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as when a borrower fails to provide certification of income under the
PAYE repayment plan.
126
Maximum Repayment Period and Loan Forgiveness. In the PAYE repayment plan, the
maximum repayment period is 20 years. A borrower who at any time participates in the plan
becomes eligible to have any balance that remains on their eligible loans forgiven if during the
20-year repayment period the borrower meets the loan forgiveness eligibility criteria specified in
regulations at 34 C.F.R. Section 685.209(a)(6) or had monthly payments suspended under the
COVID-19 payment pause. (These criteria are substantially similar to the provisions that are
applicable to the IBR plan for post-July 1, 2014, New Borrowers, as described above.) If after
having repaid according to the PAYE repayment plan a borrower obtains additional loans that are
eligible to be repaid according to the plan, a new repayment period will begin for the new loans
when they enter repayment.
Revised Pay As You Earn (REPAYE) Repayment Plan
The Revised Pay As You Earn (REPAYE) 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. For borrowers
whose student loan debt was obtained exclusively for undergraduate education, the maximum
repayment period is 20 years; for borrowers whose student loan debt includes any amounts
obtained for graduate education, the maximum repayment period is 25 years. Any loan balance
that remains after the maximum repayment period will be forgiven. The REPAYE repayment plan
became available to eligible borrowers on December 17, 2015.
127
Like the PAYE repayment plan, the REPAYE 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.
128
The REPAYE repayment plan has
a number of characteristics that are similar to the other IDR plans. It also has an enhanced interest
subsidy that is unique to the plan.
Eligibility. The REPAYE 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. The plan is available to borrowers irrespective of when an individual
became a new borrower. A borrower’s eligibility to repay according to the REPAYE 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 REPAYE repayment plan).
Payment Amounts. While repaying according to the REPAYE repayment plan, monthly amounts
due on borrowers’ 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 any amount by which a borrower’s AGI
exceeds 150% of the poverty line. For a borrower whose calculated monthly payment results in
an amount that is greater than or equal to $5 but less than $10, the monthly payment is set at $10.
126
ED, Final Rule, November 1, 2022.
127
U.S. Department of Education, Office of Federal Student Aid, Dear Colleague Letter GEN-15-22, “Approval of the
Income-Driven Repayment Plan Request for the Direct Loan and FFEL Programs,” December 17, 2015,
https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2015-12-17/gen-15-22-subject-approval-
income-driven-repayment-plan-request-direct-loan-and-ffel-programs.
128
HEA, §455(d)(1)(D) and (e).
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Congressional Research Service 54
For a borrower whose calculated monthly payment results in an amount that is less than $5, the
monthly payment is set at $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 REPAYE repayment plan, if the
borrower is unmarried their AGI is used. If the borrower is married, and unless certain exceptions
apply, the AGI of both the borrower and their spouse is used irrespective of whether the borrower
files a joint or separate federal tax return with their spouse. 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.
Joint REPAYE Repayment for Married Borrowers. The REPAYE repayment plan provides for
the joint repayment of loans by married borrowers who both have eligible loans and who file a
joint federal tax return. For married borrowers repaying jointly according to an IBR plan,
individual payment amounts are proportional to each spouse’s share of the couple’s combined
loan balances and combined AGI.
Subsidized Interest. Under the REPAYE repayment plan, an interest subsidy is available on both
subsidized loans and unsubsidized loans during periods of negative amortization. During the first
three years from the start of repayment under the plan, for Direct Subsidized Loans and the
subsidized component of Direct Consolidation Loans, 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. Periods during which a
borrower receives an interest subsidy during an economic hardship deferment are excluded from
the consecutive three-year period. After the three-year period for subsidized loans, and during all
periods for Direct Unsubsidized Loans, Direct PLUS Loans, and the unsubsidized component of
Direct Consolidation Loans, 50% of the portion of the accrued interest that is not covered by the
borrower’s monthly payment is subsidized.
129
Graduate students who are borrowers of Direct PLUS Loans may be able to qualify for the 50%
interest subsidy while they are in school in lieu of receiving an in-school deferment while interest
accrues at the otherwise applicable interest rate. 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. Borrowers whose AGI while in school is low enough that
it would result in the calculation of a monthly payment amount according to the REPAYE
repayment plan that would be insufficient to pay all of the interest that accrues on their loan may
consider choosing to cancel receipt of an in-school deferment in favor of receiving a 50% interest
subsidy on the portion of the interest that would not be covered by their monthly payment
amount.
Application of Payments. Payments made by borrowers repaying according to the REPAYE
repayment plan are credited first to interest due on the loan, then to any fees, and then to
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
129
34 C.F.R. §685.209(c)(2)(iii).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 55
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. If a borrower’s required
monthly payment is sufficient to pay the accrued interest but is insufficient to repay the amount of
principal due, then the payment of any principal due in excess of the monthly payment amount
owed will be postponed.
If a borrower chooses to leave the REPAYE repayment plan, they may change to any other
repayment plan for which they are eligible, as long as the new repayment plan has a maximum
term that is not less than the number of years the borrower’s loans have already been in
repayment or is an available IDR plan. Upon a borrower electing to no longer repay according to
the REPAYE repayment plan, any accumulated accrued interest that has not been paid will be
capitalized.
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as when a borrower chooses to leave the REPAYE repayment plan.
130
Failure to Certify Income and Family Size. To qualify and remain eligible to repay according to
the REPAYE repayment plan, borrowers must annually provide certification of their income and
family size. Certification of income is normally satisfied by providing the borrower’s AGI.
However, if the borrower’s AGI does not reflect their current income, alternative documentation
of income may be provided. If the borrower fails to provide certification of income, any unpaid
accrued interest will be capitalized and they will be placed in the REPAYE Alternative
Repayment plan. If the borrower fails to certify their family size, a family size of one will be
assumed and used for the year.
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as when a borrower fails to certify their income under the REPAYE
repayment plan and is placed in the REPAYE Alternative plan as a result.
131
REPAYE Alternative Repayment Plan. Borrowers repaying according to the REPAYE
repayment plan who fail to provide timely certification of their income are subject to being placed
into the REPAYE Alternative Repayment plan. Under the REPAYE Alternative Repayment plan,
monthly payment amounts are calculated to equal the amount necessary to repay the borrower’s
loans in full within the earlier of 10 years from placement into the REPAYE Alternative
Repayment plan or the ending of the maximum repayment period of 20 years or 25 years, as
applicable.
132
Payments made during periods of repayment according to the REPAYE Alternative
Repayment plan count as qualifying payments for loan forgiveness under the various IDR plans;
however, they do not count as qualifying payments for the Public Service Loan Forgiveness
program.
133
130
ED, Final Rule, November 1, 2022.
131
ED, Final Rule, November 1, 2022.
132
In establishing the REPAYE repayment plan, ED stated that in the absence of a process that allows for borrowers to
consent to multi-year access to information on their income, the REPAYE Alternative Repayment plan provides an
incentive for borrowers to comply with the requirement to certify their income information in a timely manner and also
provides a disincentive for borrowers to fail to provide updated information if their income increases substantially.
Department of Education, “Student Assistance General Provisions, Federal Family Education Loan,” 80 Federal
Register 39620, July 9, 2015.
133
In the Public Service Loan Forgiveness (PSLF) program, after 10 years of qualifying payments made while
employed full-time in qualifying public service, a borrower’s remaining loan balance may be forgiven. Amounts
forgiven under the PSLF program are exempt from taxation under the Internal Revenue Code. For additional
information on PSLF, see CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 56
Maximum Repayment Period and Loan Forgiveness. In the REPAYE repayment plan, the
maximum repayment period is 20 years for borrowers whose student loan debt was obtained
exclusively for undergraduate education; and 25 years for borrowers whose student loan debt
includes any amounts obtained for graduate education. A borrower who at any time participates in
the REPAYE repayment plan becomes eligible to have any balance that remains on their eligible
loans forgiven if for 20 years or 25 years, as applicable, the borrower meets the loan forgiveness
eligibility criteria specified in regulations at 34 C.F.R. Section 685.209(c)(5) or had monthly
payments suspended under the COVID-19 payment pause. (These criteria are substantially
similar to the provisions that are applicable to the IBR plans, as described above.) If after having
repaid according to the REPAYE repayment plan a borrower obtains additional loans that are
eligible to be repaid according to the plan, a new repayment period will begin for the new loans
when they enter repayment.
Adjusted Payment Amounts for Borrowers Who Return to the REPAYE Repayment Plan. If
a borrower seeks to return to the REPAYE repayment plan after having left and repaid according
to any other repayment plan (including the REPAYE Alternative Repayment plan), they must
provide documentation of income for the entire period that they repaid according to another plan.
If it is determined that the borrower paid a lesser amount under the other repayment plan (or
plans) than they would have been required to repay according to the REPAYE repayment plan,
upon returning to the REPAYE repayment plan the borrower’s monthly payment amounts will be
adjusted upward to ensure that the difference between the two amounts will be paid before the
end of the maximum repayment period of 20 or 25 years, as applicable.
Alternative Repayment Plans
Alternative repayment plans are available in more limited situations, on a case-by-case basis, to
borrowers who demonstrate that due to exceptional circumstances they are unable to repay
according to other available repayment plans.
134
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.
135
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.
136
Four variations of alternative repayment plans are available:
137
1. Alternative Fixed Payment Repayment,
2. Alternative Fixed Term Repayment,
3. Alternative Graduated Payment Repayment, and
4. Alternative Negative Amortization Repayment.
The 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. A borrower may be provided up to a maximum of 30 years to repay according
to an alternative repayment plan, not including periods of deferment and forbearance. There is a
minimum monthly payment amount of $5 and payments cannot vary by more than three times the
134
34 C.F.R. §685.208(l).
135
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 March 1, 2023).
136
34 C.F.R. §685.208(l)((3).
137
These alternative repayment plans are distinct from the REPAYE Alternative Repayment plan.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 57
amount of the smallest payment.
138
Under the Alternative Negative Amortization Repayment
plan, a borrower may be permitted for one year to make monthly payments of less than the
amount of the interest that accrues on the loan.
139
In such a case, any unpaid interest will be
capitalized; however, capitalization of unpaid interest may not result in the loan balance
exceeding 110% of the original principal amount. If this occurs, any additional interest that
accrues must be paid by the borrower. Payments made according to an alternative repayment plan
do not count toward the periods of repayment that may qualify a borrower for loan forgiveness
under the IDR plans or the PSLF program.
Effective July 1, 2023, ED regulations eliminate instances of interest capitalization that are not
specified in the HEA, such as following a permitted one-year period of negative amortization
under the Alternative Negative Amortization Repayment plan. Accordingly, and also effective
July 1, 2023, ED regulations eliminate provisions limiting the amount of interest capitalization
under the Alternative Negative Amortization Repayment plan.
140
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
servicer on how to provide prepayment, with instructions regarding the application of
overpayments. The procedures for applying prepayments to borrowers’ accounts are specified in
regulations issued by ED.
141
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.
142
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,
143
(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 the IBR, PAYE, or REPAYE
repayment plans and has a scheduled monthly payment of $0.00, the prepayment is applied in the
following order: (1) to accrued interest, (2) to collection costs, (3) to late charges, and then (4) to
138
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.
139
Email communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs,
March 16, 2023.
140
ED, Final Rule, November 1, 2022.
141
34 C.F.R. §685.211(a).
142
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.
§685.208(a)(4).
143
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.
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Congressional Research Service 58
outstanding principal. 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, and, 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. 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 of
making the prepayment.
144
Application of Payments on Delinquent Loans
The loans of borrowers who fall behind on making payments are considered to be delinquent.
145
In general, a federal student loan is considered delinquent when the full payment amount is not
satisfied by the payment due date.
146
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.
An example of how a delinquent loan may be restored to current status is provided by ED in its
contracts for its loan servicers.
147
The example considers a borrower whose scheduled monthly
payment amount of $225 is due on the 14
th
of the month. If as of January 14
th
, the borrower had
paid only $200 for the January payment, the loan would become delinquent, as $25 would remain
unpaid. However, if on February 14
th
, the borrower paid $250, $25 would be applied to the past
due amount for January and $225 would be applied to the amount due for February. This would
restore the borrower’s loan to current status.
144
The 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 March 2, 2023).
145
In general, a borrower who is 270 days or more delinquent on a loan is considered to be in default. Once in default,
the entire remaining balance of the loan becomes due immediately, and ED, via its contracted loan servicers, private
collections agencies, or other authorized means (e.g., the Treasury Offset Program) may attempt to recoup the entire
outstanding balance of the loan.
146
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 March 2, 2023).
147
See, for example, U.S. Department of Education, Office of Federal Student Aid, Loan Servicing Contracts, Title IV
Additional Servicing (TIVAS) Contracts (2014): Nelnet Servicing, LLC, p. 14, https://studentaid.gov/sites/default/files/
ED-FSA-09-D-0013_MOD_0082_Nelnet.pdf#page=14.
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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, periods of
up to three years while in receipt of an economic hardship deferment 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. 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.
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. 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. While in receipt of a deferment, borrowers have the option either to pay the
interest as it accrues or pay it at a later time. In most instances, if the interest that accrues during a
period of deferment is not paid as it accrues, it will be capitalized at the end of the deferment
period. However, if a borrower’s deferment coincides with the individual having a partial
financial hardship while repaying according to either of the IBR plans or the PAYE repayment
plan, any interest that has accrued during the deferment will not be capitalized so long as the
borrower continues to have a partial financial hardship.
The following types of deferments are available to borrowers of loans made through the Direct
Loan program.
148
148
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).
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In-School Deferment
A borrower is eligible to receive an in-school deferment
149
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.
150
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.
151
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
let the interest that had accrued on the deferred payments be capitalized upon cancellation of the
deferment.
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.
152
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.
153
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.
149
34 C.F.R. §685.204(b).
150
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.
151
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.
152
34 C.F.R. §685.204(c); 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.
153
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.
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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.
154
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 services according to a written,
individualized plan that specifies an expected completion date and must require 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.
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.
155
To be eligible, a
borrower must be either receiving unemployment benefits or must document that they have
registered with a public or private employment agency (if one is available within 50 miles) and is
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 during periods while they are experiencing an economic
hardship.
156
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
154
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.
155
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.
156
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.
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Security Income [SSI], Supplemental Nutrition Assistance Program [SNAP],
state general public assistance, other means-tested benefits);
• the borrower is working full-time 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.
157
Periods of up to three years while a borrower qualifies
for an economic hardship deferment may be counted as part of the repayment period for each of
the IDR plans. During an economic hardship deferment, an interest subsidy is provided on Direct
Subsidized Loans and on the subsidized component of Direct Consolidation Loans.
Military Service Deferment
A borrower may qualify for a military service deferment on the basis of serving on active duty or
performing qualifying National Guard duty during a war or other military operation or national
emergency.
158
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.
159
Post-Active Duty Student Deferment
A borrower may qualify for a post-active duty student deferment if they are a member of the
National Guard
160
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.
161
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
157
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.
158
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.
159
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.
160
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.
161
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.
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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.
162
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.
163
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.
164
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.
Forbearance
Forbearance constitutes 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. 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. Borrowers have the option of either paying the interest as it accrues during
forbearance or letting it be capitalized into the principal balance at the end of the forbearance
period.
165
(Effective July 1, 2023, ED regulations eliminate interest capitalization that are not
specified in the HEA, such as following periods of forbearance.
166
) In 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. Certain types of forbearance are
limited to a maximum of 36 months.
Forbearance may be granted for a number of reasons. General or discretionary forbearance, may
be granted at the discretion of the loan servicer to borrowers who are temporarily unable to make
162
The cancer treatment deferment is available for periods of cancer treatment occurring on or after September 28,
2018.
163
U.S. Department of Education, Office of Federal Student Aid, “Deferment for Cancer Treatment for Direct Loan,
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.
164
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.
165
In some limited circumstances, as described below, interest is not capitalized at the end of forbearance.
166
ED, Final Rule, November 1, 2022.
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scheduled loan payments. 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. Certain types of forbearance, referred to as mandatory forbearance,
are required to be granted to borrowers who satisfy applicable eligibility criteria.
In response to the COVID-19 pandemic, monthly payments due on all types of Direct Loan
program loans have been suspended temporarily (i.e., the COVID-19 payment pause). In practice,
this is a type of administration forbearance. During this time, borrowers are not required to make
payments due on their loans. For additional information, see Appendix D.
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, upon submission of a
Public Service Loan Forgiveness application, or other reasons.
167
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. A borrower’s loan servicer may limit the maximum
duration of forbearance; however, there is no statutory or regulatory limit.
168
Administrative Forbearance
Administrative forbearance may be granted during periods necessary to process requests by a
borrower for certain benefits or to determine their eligibility.
169
It may be granted for up to 60
days for the processing of requests for deferment, forbearance, change of repayment plan, and
loan consolidation. (Interest that accrues during administrative forbearance for these purposes is
not capitalized.) Administrative forbearance is also granted during periods necessary to determine
a borrower’s eligibility for a student loan discharge (e.g., death or total and permanent disability,
closed school, false certification, unauthorized payment, unpaid refund, bankruptcy, borrower
defense to repayment) or for loan forgiveness through the Teacher Loan Forgiveness program.
Administrative forbearance is provided to a borrower 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. It may also be granted for short periods, such as when payments are
overdue at the beginning of an authorized period of deferment or forbearance.
The Secretary may also authorize administrative forbearance in response to a national military
mobilization or a local or national emergency.
170
167
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.
168
See, U.S. Department of Education, “General Forbearance Request,” OMB No. 1845-0031, https://studentaid.gov/
sites/default/files/GeneralForbearance.pdf.
169
34 C.F.R. §685.205(b).
170
In response to the COVID-19 pandemic, for March 13, 2020, through October 1, 2023, monthly payments on all
types of Direct Loan program loans are suspended. ED will suspend monthly payments on all types of Direct Loan
program loans. (In practice, ED is placing all loans in administrative forbearance.) During this time, borrowers will not
be required to make payments due on their loans. For additional information, see Appendix D.
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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
that must be completed before the borrower may begin professional practice or service.
171
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.
AmeriCorps 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.
172
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.
173
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.”
174
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.
171
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.
172
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.
173
Corporation for National and Community Service, AmeriCorps, “Members & Volunteers: Your benefits,”
https://americorps.gov/members-volunteers/your-benefits (accessed March 14, 2023). This benefit should not be
confused with subsidized interest. During periods while a borrower receives an AmeriCorps National Service
Forbearance, they continue to be charged interest. The interest may be paid on the borrower’s behalf by the National
Service Trust.
174
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 the opportunity 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.
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Student Loan Debt Burden Forbearance
A borrower may receive mandatory forbearance on the basis of having a federal student loan debt
burden that equals or exceeds 20% of their monthly total income.
175
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
Loan program) equal or exceed 20% of their total monthly taxable income.
176
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.
177
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.
178
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.
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 hardship, loan
forgiveness following IDR plan repayment, and loan forgiveness for public service.
175
34 C.F.R. §685.205(a)(6).
176
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.
177
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.
178
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.
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Congressional Research Service 67
In addition, in response to the COVID-19 pandemic, ED has announced a one-time student loan
debt relief policy under which qualifying borrowers may have up to $20,000 of their federal
student loan debt (including Direct Loan program loans) cancelled. To date, the policy has not
been implemented due to lawsuits challenging ED’s legal authority to effectuate the policy. For
additional information, see Appendix D.
Loan Discharge for Borrower Hardship
A borrower who experiences certain types of hardship may have their loan discharged. Types of
hardship 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.
179
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.
180
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.
181
Total and Permanent Disability Discharge
A borrower’s liability to repay a loan is discharged upon the individual being determined to have
a total and permanent disability (TPD).
182
A borrower may be determined to be have a total and
permanent disability based on any of the following three criteria:
183
1. Physician’s Certification. Certification by a physician (M.D. or D.O.) licensed
to practice in the United States that the borrower is unable to engage in any
substantial gainful activity due to a physical or mental impairment that (a) can be
expected to result in death, (b) has lasted continuously for at least 60 months, or
(c) 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 qualifies for Social Security Disability
179
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. 34 C.F.R. §685.218.
180
34 C.F.R. §685.212(a).
181
34 C.F.R. §685.220(l).
182
HEA, §§437 and 455(a)(1). In addition, in the case of a borrower who is the spouse of an individual (or with respect
to a Direct PLUS Loan borrowed on behalf of student, in the case of a borrower who is the parent of such 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. 34 C.F.R. §685.218.
183
34 C.F.R. §§685.102(b), 685.213, and 685.218.
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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.
184
Acceptable
documentation includes an SSA notice of award for SSDI or SSI benefits and an
SSA Benefits Planning Query
185
(BPQY).
186
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.
Effective July 1, 2023, ED regulations
187
would specify that, in addition to the criteria above, a
borrower may also be determined to have a total and permanent disability based on
• certification by a state-licensed nurse practitioner (NP) or physician assistant
(PA), or a certified psychologist at the independent practice level who is licensed
to practice in the United States; and
• SSA documentation that a borrower (1) qualifies for SSDI or SSI benefits with a
next scheduled disability review of three years; (2) 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; (3) qualifies
for SSDI or SSI benefits based on a compassionate allowance;
188
or (4) is
currently receiving SSA retirement benefits and met any of the other SSA
documentation requirements prior to qualifying for SSA retirement benefits.
189
On a periodic basis, ED obtains information 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.
190
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
184
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.
185
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), March 2021, p. 3, https://www.ssa.gov/disabilityresearch/documents/
BPQY_Handbook.pdf.
186
U.S. Department of Education, Office of Federal Student Aid, Total and Permanent Disability (TPD) Discharge,
“TPD 101,” https://disabilitydischarge.com/tpd-101 (accessed March 15, 2023).
187
ED, Final Rule, November 1, 2022.
188
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 April 4, 2023).
189
The updated ED regulations also codify the pre-July 1, 2023, ED practice that considered an SSA BPQY as
acceptable documentation.
190
U.S. Department of Education, Office of Management, Privacy Safeguards Division, “Computer Matching
Agreement Between the Social Security Administration (SSA) and the U.S. Department of Education (ED) Federal
Student Aid (FSA),” https://www2.ed.gov/about/offices/list/om/docs/pirms/ssa-mine-cma.pdf; and “Computer
Matching Agreement Between U.S. Department of Veterans Affairs (VA) and the U.S. Department of Education (ED)
Federal Student Aid (FSA),” https://www2.ed.gov/about/offices/list/om/docs/pirms/computer-matching-agreement-
btwn-ed-and-va.pdf.
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disability.
191
A borrower who has been identified as a veteran with a VA service-connected
disability or unemployability determination will be granted a TPD discharge without needing to
submit an application unless they decide to opt out of the process within 60 days of being notified
by ED.
192
If a borrower’s TPD discharge application is approved, they will be considered totally and
permanently disabled as of the date of the physician’s certification, the date that ED received SSA
documentation or the effective date of the VA’s service-connected disability or unemployability
determination, as applicable.
193
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 physician’s 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
(1) has annual earnings from employment in excess of 100% of the federal poverty guideline for a
family of two (see Table 7), (2) obtains a new Direct Loan program loan or a TEACH Grant, (3)
fails to return any Direct Loan or TEACH Grant disbursements made between the TPD discharge
application date and the discharge date, or (4) receives a notice from SSA that they are no longer
disabled or that their next scheduled disability review will be sooner than five to seven years from
the date of the borrower’s most recent SSA disability determination.
194
To show compliance with
the annual earnings requirement, borrowers must annually submit to ED documentation
195
of their
annual earnings from employment; failure to submit this documentation results in the
reinstatement of a borrower’s loan.
196
After the three-year period, the TPD discharge becomes
permanent. A TPD discharge granted on the basis of a VA service-connected disability or
191
U.S. Department of Education, Office of Federal Student Aid, Total and Permanent Disability (TPD) Discharge,
“Forms,” https://disabilitydischarge.com/Forms (accessed March 15, 2023).
192
Presidential Memorandum of August 21, 2019, “Discharging the Federal Student Loan Debt of Totally and
Permanently Disabled Veterans,” 84 Federal Register 44677-44678, August 26, 2019; and U.S. Department of
Education, “Trump Administration to Automatically Forgive Federal Student Loan Debt for Totally and Permanently
Disabled Veterans,” August 21, 2019. 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.)
193
34 C.F.R. § 685.213(b)(4)(i) and (c)(2)(i).
194
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 three-year monitoring period. This may be considered as another of the various forms of subsidized
interest available on loans made through the Direct Loan program.
195
U.S. Department of Education, Office of Federal Student Aid, “Total and Permanent Disability Discharge: Meet the
Monitoring Requirements”, https://studentaid.gov/manage-loans/forgiveness-cancellation/disability-
discharge#postdischarge (accessed March 15, 2023).
196
In response to the COVID-19 pandemic, ED suspended the annual earnings certification requirement through the
earlier of 60 days after litigation relating to the Administration’s one-time student loan debt relief policy is resolved or
60 days after June 30, 2023. Borrowers whose loans were reinstated on or after March 13, 2020, due to not meeting the
annual earnings certification requirement will have their loans automatically returned to discharge status. U.S.
Department of Education, Office of Federal Student Aid, “COVID-19 Relief: Total and Permanent Disability
Discharge,” https://studentaid.gov/announcements-events/covid-19/disability-discharge (accessed March 15, 2023).
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unemployability is permanent upon being granted and is not subject to a post-discharge
monitoring period.
Effective July 1, 2023, borrowers with a TPD discharge approved on the basis of a physician’s,
(or NP’s, PA’s, or certified psychologist’s) certification or an SSA disability determination will no
longer have their loans reinstated if (1) their annual earnings from employment are in excess of
100% of the federal poverty guideline for a family of two,
197
(2) they receive a notice from SSA
that they are no longer disabled or that their next scheduled disability review will be sooner than
five to seven years from the date of the borrower’s most recent SSA disability determination
during the three-year monitoring period, or (3) they do not return any Direct Loan or TEACH
Grant disbursements made during the three-year monitoring period.
198
Such borrowers would,
however, continue to have their loans reinstated if they obtain a new Direct Loan program loan or
a TEACH Grant during the three-year monitoring period.
199
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
for which the loan was made because the school (institution) they attended has closed.
200
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,
201
and (2) the student did not
complete the program of study for which the loan was obtained through a teach-out agreement
202
at another school or by transferring credits earned at the closed school to another school to enroll
197
The FUTURE Act (P.L. 116-91), among other provisions, authorizes the Internal Revenue Service (with borrower
approval) to disclose relevant tax return information to ED for the purpose of monitoring a borrower’s earnings and, if
necessary, reinstating their loans that were discharged based on TPD. Authorized disclosures include (1) taxpayer
identity information, (2) filing status, (3) the fact that no return was filed (if applicable), and (4) the amount of net
earnings from self-employment, wages, and taxable income from a farming business. As of the publication date of this
report, it appears these procedures have not yet been operationalized. Regardless of this authority, ED decided to
eliminate the annual earnings requirement during the three-year monitoring period, noting that the FUTURE Act
authority “would not fully absolve borrowers of the burden” associated with earnings monitoring, as the TPD earnings
monitoring process looked at the earnings of an individual borrower, and “IRS data are not able to provide individual
[earnings] information from married filing jointly tax return.” ED “would thus not have enough information to
determine if a married borrower filing jointly who received a TPD discharge had earnings that exceeded the
thresholds.” ED, Final Rule, November 1, 2022, p. 65961.
198
Consistent with current regulations, ED would suspend the processing of a borrower’s TPD discharge application
until the borrower returns to ED the full amount of any disbursement made after the physician’s (or NP’s, PA’s, or
certified psychologist’s) certification date or the date ED received SSA disability documentation on a loan made prior
to those dates, as applicable.
199
ED, Final Rule, November 1, 2022.
200
HEA, §437(c); 34 C.F.R. §§685.212 and 685.214.
201
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.
202
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. §602.3.
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in a comparable program.
203
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,
204
(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.
205
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.
Effective July 1, 2023, ED regulations make uniform the closed school discharge standards and
procedures across Direct Loans, regardless of when a loan was first disbursed. Specifically, to
qualify for a closed school discharge, a borrower will be required to submit an application and
certify that (1) the school attended closed
206
either while the student was enrolled or within 180
days of the student withdrawing,
207
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
203
For additional information on comparable programs, see U.S. Department of Education, Office of Federal Student
Aid, “Has Your School Closed? Here’s What to Do: How does ED define a “comparable program of study” when
considering eligibility for a closed school loan discharge?,” https://studentaid.gov/announcements-events/closed-school
(accessed May 21, 2021).
204
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.
205
HEA, §437(c); 34 C.F.R. §§685.212 and 685.214(c)(2). The 180-day window may be extended in exceptional
circumstances. 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. §602.3.
206
The amended 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.
207
The amended 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 204) 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.
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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 is to 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 is to discharge the
borrower’s loan one year after the student’s last date of attendance, as applicable.
208
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,
209
or if the loan proceeds were disbursed
without their authorization (e.g., unauthorized signature).
210
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
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.
211
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.
212
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.
213
208
ED, Final Rule, November 1, 2022.
209
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. 12-14.
210
HEA, §437(c); 34 C.F.R. §§685.212 and 685.215.
211
Effective July 1, 2023, ED regulations make slight adjustments to some of the eligibility criteria for discharge and
some of the documentation required in a borrower’s discharge application. In addition, the amended regulations
establish that a State Attorney General or nonprofit legal services representative may submit an application to ED on
behalf of a group of borrowers. ED, Final Rule, November 1, 2022.
212
HEA, §437(c); 34 C.F.R. §§685.212 and 685.216.
213
HEA, §437(c); 34 C.F.R. §§685.206(c), 685.206(e), 685.212(k), and 685.222. Refunds are limited to the amount of
(continued...)
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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.”
214
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.
215
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
and from which they suffered financial harm.
216
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.
Effective July 1, 2023, ED regulations specify that for 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), a borrower may assert a defense to repayment on the basis of:
• a substantial misrepresentation
217
by the school that misled the borrower;
• an omission of fact by the school;
218
payments made by the borrower “that exceed the amount owed on that portion of the loan not discharged.” For
additional information, see CRS Report R44737, The Closure of Institutions of Higher Education: Student Options,
Borrower Relief, and Other Implications.
214
34 C.F.R. §685.206(c).
215
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).
216
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.
217
Under the amended 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.
218
An omission of fact means a misrepresentation “if a reasonable person would have considered the omitted
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• a failure of the school to perform its obligations under a contract with the student;
• engagement in aggressive and deceptive recruitment conduct by the school;
219
• 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,
220
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
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 may 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.
221
Under the amended 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, for a borrower who had previously defaulted on an applicable loan and who is
granted a defense to repayment discharge is to have their eligibility to receive additional Title IV
federal student aid restored, and consumer reporting agencies are to be instructed to delete any
adverse credit history related to the loan.
Bankruptcy Discharge
Section 523(a)(8) of the Bankruptcy Code provides that student loans (e.g., loans made through
the Direct Loan program) are presumed to be not dischargeable 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.”
222
In general, to discharge
student loan debt in bankruptcy, the 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.
223
If a borrower’s liability to repay a loan made through the Direct Loan
information in making a decision to enroll or continue attendance at the institution.” ED, Final Rule, November 1,
2022, p. 66041.
219
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.
220
For additional information on program participation agreements, see CRS Report R43159, Institutional Eligibility
for Participation in Title IV Student Financial Aid Programs.
221
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.
222
11 U.S.C. §§523(a)(8) and 1328.
223
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
(continued...)
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program is discharged in bankruptcy, the Secretary will cease to require the borrower to make
payments on the loan.
224
Loan Forgiveness Following IDR Plan Repayment
A borrower who has repaid a loan made through the Direct Loan program according to one or
more of the Income-Driven Repayment (IDR) plans for the duration of the applicable maximum
repayment period (including periods of repayment according to certain other eligible plans,
periods while in receipt of an economic hardship deferment, and periods while payments are
suspended under the COVID-19 payment pause (see Appendix D) is relieved of the obligation to
repay any balance of principal and interest that remains outstanding. The applicable maximum
repayment period varies by IDR repayment plan as follows:
• Income-Contingent Repayment Plan: 25 years;
• Original IBR Plan: 25 years;
• IBR Plan for Post-July 1, 2014, New Borrowers: 20 years;
• PAYE Repayment Plan: 20 years;
• REPAYE Repayment Plan for borrowers with debt only for undergraduate
education: 20 years; and
• REPAYE Repayment Plan for borrowers with any debt for graduate education: 25
years.
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
The Direct Loan program makes loan forgiveness benefits available to borrowers who have
engaged in certain types of public service for a specified period of time and meet program-
specific requirements, as described below.
225
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) may be relieved of the obligation to
repay up to $5,000 for service as a highly qualified teacher, or up to $17,500 for service as a
highly qualified special education teacher or secondary school teacher of mathematics or
science.
226
Teacher Loan Forgiveness benefits are only available to borrowers who had no
release, November 17, 2022, https://www.justice.gov/opa/pr/justice-department-and-department-education-announce-
fairer-and-more-accessible-bankruptcy.
224
34 C.F.R. §685.212(c).
225
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.
226
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
(continued...)
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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 during the five years of teaching service required to qualify for benefits.
A borrower becomes eligible for loan forgiveness benefits upon completion of the fifth year of
qualifying service. If a borrower’s student loan debt exceeds the amount to be forgiven, 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 Public Service Loan Forgiveness (PSLF) program, the Loan Forgiveness for
Service in Areas of National Need Program, or a Segal AmeriCorps Education Award.
227
Public Service Loan Forgiveness (PSLF) Program
A borrower may be relieved of the obligation to repay the balance of principal and interest that
remains outstanding on eligible loans upon having made 120 qualifying monthly payments on or
after October 1, 2007, concurrent with the borrower being employed full-time by one or more
public service organizations or serving full-time in an AmeriCorps or Peace Corps position.
228
To
qualify, a borrower must make 120 separate, full, on-time scheduled monthly payments on loans
that are not in default. In general, qualifying payments are those made within 15 days of the due
date according to certain repayment plans. Borrowers may make lump sum payments for up to the
lesser of 12 months or when their next IDR annual certification is due.
229
Regulations also specify
that borrowers using Segal AmeriCorps Education Award benefits, Peace Corps transition
payments, or certain Department of Defense student loan repayment benefits may make lump
sum payments.
230
Qualifying payments include those made according to one or more of the
following repayment plans:
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://studentloans.gov/myDirectLoan/tcli.action?_ga=2.177690848.493686772.1564697813-
1244777594.1562359674. Bureau of Indian Education (BIE) schools are considered eligible schools. Qualifying
service may be completed at one or more eligible schools or ESAs.
227
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.
228
HEA, §455(m); 34 C.F.R. §§685.212(i) and 685.219. For a detailed description of the PSLF program, see CRS
Report R45389, The Public Service Loan Forgiveness Program: Selected Issues, archived (available to congressional
clients upon request).
229
U.S. Department of Education, Office of Federal Student Aid, Electronic Announcement, “Changes to the Public
Service Loan Forgiveness (PSLF) Program and New, Single PSLF Form, October 28, 2020, https://fsapartners.ed.gov/
knowledge-center/library/electronic-announcements/2020-10-28/changes-public-service-loan-forgiveness-pslf-
program-and-new-single-pslf-form.
230
34 C.F.R.§685.219(c)(2).
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• Income-Contingent Repayment (ICR) plan;
• Income-Based Repayment (IBR) plans;
• Pay As You Earn (PAYE) repayment plan;
• Revised Pay As You Earn (REPAYE) repayment plan;
• Standard Repayment Plan with a Maximum 10-Year Term; and
• any other of the loan repayment plans (except for the alternative repayment plans
[discussed above]) if the monthly payment amount is not less than what would be
paid under the Standard Repayment Plan with a Maximum 10-Year Term.
In addition, payment credits received under the IDR account adjustment (see Appendix D) for
months that coincide with months during which a borrower was employed in PSLF qualifying
employment count toward the 120 qualifying monthly payments. Monthly payments suspended
under the COVID-19 payment pause (see Appendix D) count toward the 120 qualifying monthly
payments. Payments made on loans prior to consolidation into a Direct Consolidation Loan,
however, do not count toward the 120 qualifying monthly payments on the new Direct
Consolidation Loan.
A borrower must be employed by or serving full-time with a public service organization at the
time they make each of the required 120 payments, apply for loan forgiveness benefits, and have
forgiveness granted.
231
Public service organizations are federal, state, local, or tribal government
agencies, organizations, or entities; tribal colleges and universities; public child or family service
agencies; nonprofit entities organized under Section 501(c)(3) of the Internal Revenue Code
(IRC) that are tax-exempt under IRC Section 501(a); and certain other private nonprofit entities
that are providers of public services. Public service organizations exclude labor unions and
partisan political organizations. Religious organizations qualify as public service organizations,
regardless of whether activities relate to religious instruction, worship services, or
proselytizing.
232
Eligible private nonprofit entities include providers of any of the following
public services: emergency management, 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. 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.
233
Effective July 1, 2023, ED regulations make a number of changes to PSLF program rules.
234
Under the new regulations, borrowers would still be required to make 120 qualifying monthly
231
Full-time employment means the greater of an average of 30 hours per week or the number of hours the employer
considers full time. Employer-provided leave or vacation and FMLA leave are not considered when determining the
average number of hours worked. Lump sum payments may be applied to the lesser of either the number that results
from dividing the amount of the lump sum payment by the borrower’s monthly payment amount as calculated
according to one of the authorized repayment plans, or 12 months. 34 C.F.R. §685.219.
232
U.S. Department of Education, “Federal Perkins Loan Program, Federal Work-Study Programs, Federal
Supplemental Educational Opportunity Grant, Federal Family Education Loan Program, William D. Ford Federal
Direct Loan Program, National Direct Student Loan Program, Teacher Education Assistance for College and Higher
Education Grant Program, Federal Pell Grant Program, Leveraging Educational Assistance Partnership Program, and
Gaining Early Awareness and Readiness for Undergraduate Programs,” 85 Federal Register 49805-07, 49821, August
14, 2020.
233
For additional information on the latter two programs, see CRS Report R43571, Federal Student Loan Forgiveness
and Loan Repayment Programs.
234
ED, Final Rule, November 1, 2022.
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payments on or after October 1, 2007, while employed full-time
235
in public service. However,
qualifying payments are to newly include those not paid on time (i.e., not within 15 days of the
scheduled due date) and those paid in multiple installments that equal the full scheduled amount
due. Borrowers in IDR plans may make lump sum payments for a period of months not to exceed
the period from ED’s receipt of the payment until the borrower’s next annual IDR recertification
date, and borrowers in a standard repayment plan with a 10-year repayment term may make lump
sum payments for up to the lesser of 12 months or the date on which ED receives the borrower’s
next PSLF application.
236
The new regulations do not change the types of repayment plans under which qualifying
payments must be made. They do, however, permit borrowers to newly count the following
periods of deferment and forbearance as qualifying monthly payments for the purpose of
satisfying the required 120 monthly payments:
• cancer treatment deferment,
• economic hardship deferment,
• military service deferment,
• post-active duty student deferment,
• AmeriCorps national 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 months of deferment or forbearance not listed above, the borrower may obtain credit toward
the 120 qualifying monthly payments for those months if they make additional payments equal to
or greater than the amount they would have paid under a qualifying repayment during such
months or otherwise qualify for a $0 payment under an IDR plan.
The new regulations also establish a mechanism through which borrowers who consolidated any
type of Direct Loan into a Direct Consolidation Loan may receive credit toward the 120 required
payments on the new Consolidation Loan for payments made prior to consolidation. Specifically,
if a borrower consolidates one or more Direct Loans into a Consolidation Loan, the number of
qualifying payments on the new Consolidation Loan is to equal the weighted average of the
235
The amended regulations update the definition of full-time to mean (1) a minimum average of 30 hours per week;
(2) a minimum of 30 hours per week through a contractual or employment period of at least 8 months in a 12-month
period; or (3) for non-tenure track employment at an institution of higher education, the equivalent of 30 hours per
week as determined by multiplying each credit or contract hour taught per week by 3.35. ED has stated it intends to
designate this new definition of full-time as eligible for implementation before July 1, 2023. ED, Final Rule, November
1, 2022, p. 65906.
236
While the regulatory language explicitly authorizing borrowers using Segal AmeriCorps Education Award benefits,
Peace Corps transition payments, or certain Department of Defense student loan repayment benefits to make lump sum
payments, such individuals would still be able to do so under the new rules relating to lump sum payments applicable
to all borrowers.
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number of otherwise qualifying payments (e.g., made under PSLF qualifying repayment plans)
they made on the Direct Loan prior to consolidation.
237
Under the new regulation, the types of PSLF qualifying employers largely remain the same.
238
Employment as a contracted employee for a PSLF qualifying employer in a position that, under
applicable state law, cannot be filled by a direct employee would newly be considered PSLF
qualifying employment.
239
Finally, the updated regulations eliminate the criterion that a borrower
be employed by a PSLF qualifying employer at the time that forgiveness is granted.
In response to the COVID-19 pandemic, for October 6, 2021-October 31, 2022, ED authorized a
set 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. For additional
information, see Appendix D.
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.
240
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 or the Graduated Repayment
Plans, but in an amount that was less than what would have been paid under the
Standard Repayment Plan with a Maximum 10-Year Term.
• 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
237
It appears that ED intends to calculate the weighted average of number of otherwise qualifying payments made on
the Direct Loans prior to consolidation based on the balance of each loan at the time the loans are consolidated. For an
example of how this would be calculated, see ED, Final Rule, November 1, 2022, p. 65974.
238
The updated regulations would make clarifications to the definitions of the types of qualifying employers. For
example, the updated regulations clarify that nonprofit entities not organized under IRC Section 501(c)(3) and not tax-
exempt under IRC Section 501(a) must show that they devote the majority of their full-time equivalent employees to
work in at least one of the previously enumerated public services (e.g., public safety, early childhood education).
239
The regulatory language does not specifically define “direct employee” nor “contracted worker.” However, it does
define an employee as an individual (1) “to whom an organization issues an IRS Form W-2”; (2) “who receives and
IRS form W-2 from an organization that has contracted with a qualifying employer to provide payroll or similar
servicers for the qualifying employer, and provides the Form W-2 under that contract”; and (3) “who works as a
contracted employee for a qualifying employer in a position or providing services which, under applicable state law,
cannot be filled or provided by a direct employee of the qualifying employer.” ED, Final Rule, November 1, 2022, p.
66064.
240
For background, see U.S. Government Accountability Office, 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.
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borrower who would otherwise qualify for TEPSLF benefits but over the past
five years demonstrates an “unusual fluctuation of income.”
241
)
Benefits are available on a first-come, first-served basis and are subject to the availability of
funds.
242
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.
243
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, the
individual 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,
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.
244
• 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 120
days (for loans made prior to July 1, 2020) or 180 days (for loans made on or
after July 1, 2020)
245
of the student withdrawing and the student also having not
completed the program of study for which the loan was obtained.
246
• 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.
247
• 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.
248
241
P.L. 115-141.
242
Up to $500 million in loan forgiveness benefits was made available by P.L. 115-141, an additional $500 million was
made available by P.L. 115-245, an additional $75 million was made available by P.L. 116-94, an additional $75
million was made available by P.L. 116-260, and an addition $75 million was made available by P.L. 117-103.
243
IRC §61(a)(12).
244
P.L. 117-7.
245
Effective July 1, 2023, regulations make uniform the look-back period to 180 days, regardless of when a loan was
first disbursed. ED, Final Rule, November 1, 2022.
246
HEA §§437(c) and 465(a)(5).
247
HEA §§437(c) and 465(a)(5).
248
HEA §§437(c) and 465(a)(5).
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• Bankruptcy Discharge. Student loan debt that is discharged in bankruptcy
proceedings.
249
• Insolvency. Student loan debt that is discharged while an individual is
insolvent.
250
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.
251
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.
252
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).
253
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 remove a loan from default status by rehabilitating the loan, consolidating the loan
into a new Direct Consolidation Loan, or paying off the defaulted loan balance.
In response to the COVID-19 pandemic, involuntary collection practices (described below),
which include administrative wage garnishment; offset of federal income tax returns, Social
249
IRC §108(a)(1)(A).
250
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).
251
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, by Jane G. Gravelle et al.
252
34 C.F.R. §685.102.
253
34 C.F.R. §685.211(d).
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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,”
254
known as the Fresh Start initiative. 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.
255
A defaulted
borrower may regain eligibility by voluntarily making six consecutive, on-time,
full monthly payments. A borrower may restore eligibility for Title IV aid though
this method only once.
• Capitalization of Interest. Any unpaid interest that has accrued (e.g., during
periods of negative amortization, during delinquency) may be capitalized into the
principal balance of the loan. Effective July 1, 2023, ED regulations eliminate
capitalization of unpaid accrued interest upon borrower default.
256
• Acceleration. The entire unpaid balance owed on the borrower’s loan becomes
due in full.
• 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. 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.
257
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.
258
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 to the Treasury Offset Program (TOP) for collection, or could recommend
litigation.
254
ED, Office of Postsecondary Education, Dear Colleague Letter GEN-22-13, “Federal Student Aid Eligibility for
Borrowers with Defaulted Loans,” August 17, 2022, https://fsapartners.ed.gov/knowledge-center/library/dear-
colleague-letters/2022-08-17/federal-student-aid-eligibility-borrowers-defaulted-loans.
255
Ineligibility for Title IV aid also results from defaulting on a FFEL program loan or a Perkins Loan.
256
ED, Final Rule, November 1, 2022.
257
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.
258
For additional information on PCAs, see CRS Report R44845, Administration of the William D. Ford Federal
Direct Loan Program.
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On November 8, 2021, ED cancelled its contracts with PCAs and recalled all
borrower accounts. 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
to continue default resolution arrangements (described below).
259
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
COVID-19 pandemic (see Appendix D).
When student loan repayments resume following the end of the COVID-19
student loan payment pause, ED intends that debt collection work will 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 to enter into a voluntary
repayment agreement and collecting debt via other means such as AWG, TOP, or
recommendation for litigation.
260
• 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.
261
• Administrative Wage Garnishment (AWG). Up to 15% of the borrower’s
disposable pay may be garnished to repay the defaulted student loan.
262
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.
263
• Treasury Offset Program. Defaulters become subject to having their federal
income tax returns, Social Security benefits, and certain other federal benefits
offset through the TOP
264
as payment on their student loans. Up to 100% of
federal tax refunds may be offset. 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.
265
Special rules apply with
regard to the offset of Social Security Disability Insurance (SSDI) benefits. If a
259
U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Relief: loans in Default,”
https://studentaid.gov/announcements-events/covid-19/default (accessed March 24, 2023). For additional information
on the cessation of debt collection activities due to COVID-19, see CRS Report R46314, Federal Student Loan Debt
Relief in the Context of COVID-19.
260
CRS communication with U.S. Department of Education, Office of Legislation and Congressional Affairs, March
24, 2023
261
34 C.F.R. §§30.60, 685.202(e), and 685.211(d).
262
HEA, §488A; 34 C.F.R. Part 30.
263
30 C.F.R. Part 31 and Part 32.
264
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).
265
31 U.S.C. §3716(c)(3)(A); 31 C.F.R. §285.4(e).
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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.
266
• Civil Lawsuit. 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.
267
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.
268
Resolution of Default
A number of options are available to borrowers to get out of default. As noted above, a borrower
may rehabilitate the defaulted loan, obtain a Direct Consolidation Loan and use the proceeds to
pay off the defaulted loan, pay the amount owed on the defaulted loan in full, or, 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.
269
Compromise agreements and settlements are offered only after other repayment options have
been exhausted.
270
Loan rehabilitation and loan consolidation are more widely available to and used by borrowers
than compromise agreements and settlements. Loan rehabilitation and consolidation are described
below.
266
U.S. Department of Education, Office of Federal Student Aid, “Understanding Delinquency and Default:
Collections: Withholding Money From Your Tax Refund or Other Federal Payments (Treasury Offset),”
https://studentaid.ed.gov/sa/repay-loans/default/collections#treasury-offset (accessed March 24, 2023).
267
U.S. Department of Housing and Urban Development, “CAIVRS-Credit Alert Verification Reporting
System,” https://www.hud.gov/program_offices/housing/sfh/caivrs (accessed March 27, 2023).
268
HEA, §430A. 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.
269
34 C.F.R. §30.70.
270
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 March 27, 2023).
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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
defaulter must work with the party responsible for debt collections to enter into a written loan
rehabilitation agreement.
271
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.
272
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
payment is initially determined as being an amount equal to the greater of either one-twelfth of
15% 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. However, a borrower is permitted to object to
the initial determination and may 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.
273
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 the TOP) while a
borrower pursues loan rehabilitation.
274
Monthly payments suspended under the COVID-19
payment pause (see Appendix D) count toward the nine monthly payments required for loan
rehabilitation, but only to the extent that such suspended payments occurred while a loan
rehabilitation agreement was in place.
275
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 and
they will be placed in one of the alternative repayment plans (discussed above) for a period of 90
days. The borrower may then apply for another repayment plan for which they are eligible; if the
borrower does not apply for a repayment plan, they will be placed in a standard repayment
plan.
276
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.
277
271
34 C.F.R. §685.211(f)(1)(iv).
272
34 C.F.R. §685.211(f); U.S. Department of Education, Federal Student Aid, “Getting Out of Default: Loan
Rehabilitation,” https://studentaid.gov/manage-loans/default/get-out#loan-rehab (accessed March 27, 2023).
273
34 C.F.R. §685.211(f); 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.
274
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).
275
U.S. Department of Education, Office of Federal Student Aid, “COVID-19 Relief: Loans in Default,”
https://studentaid.gov/announcements-events/covid-19/default (accessed March 27, 2023).
276
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 (accessed March 27, 2023).
277
Late payments remain in a borrower’s credit report for seven years.
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A defaulted loan may be rehabilitated only once. Defaulted loans upon which a court judgement
has been obtained through a civil lawsuit are not eligible to be rehabilitated.
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.
278
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 the TOP). A borrower who chooses this approach may repay the new Direct
Consolidation Loan according to any available repayment plan.
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.
279
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 was 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.
280
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. 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.
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.
281
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
278
34 C.F.R. §685.102(b).
279
34 C.F.R. §685.220(d)(3).
280
If the judgment is vacated, a defaulted loan may be consolidated; however, the federal government generally does
not vacate judgments on defaulted loans. U.S. Department of Education, Office of Federal Student Aid, “Loan
Servicing and Collection: Frequently Asked Questions, JPJ-Q2, https://fsapartners.ed.gov/knowledge-center/faqs/loan-
servicing-and-collection-frequently-asked-questions (accessed March 27, 2023).
281
U.S. Department of Education, Federal Student Aid, “Getting Out of Default: Loan Consolidation,”
https://studentaid.gov/manage-loans/default/get-out#loan-consolidation (accessed March 27, 2023).
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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. First-time borrowers must be provided with entrance counseling,
which provides them with comprehensive information on the loans they are about to obtain.
Borrowers who have received an adverse credit determination but have been able to establish
eligibility to borrow Direct PLUS Loans must receive PLUS Loan credit counseling. 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. Prior to a borrower ceasing to be enrolled on at least a half-time basis, they must be
provided with exit counseling.
Entrance Counseling
The institution attended by a first-time borrower of a Direct Subsidized Loan or a Direct
Unsubsidized Loan,
282
or by a first-time graduate or professional student borrower of a Direct
PLUS Loan
283
is required to ensure that they receive entrance counseling prior to the first
installment of the loan being disbursed. Entrance counseling may be provided through an in-
person counseling session, a written document provided to the borrower, or an online interactive
medium.
284
Irrespective of the means through which entrance 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.
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.
285
Entrance counseling must satisfy the following requirements:
286
• 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, which include adverse credit reports,
the collection of delinquent debt, and litigation;
282
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).
283
A first-time graduate or professional student borrower is an individual who has not previously borrowed a Direct
PLUS Loan of FFEL PLUS Loan for graduate or professional education. 34 C.F.R. §685.304(a)(2).
284
For example, see U.S. Department of Education, Office of Federal Student Aid, “Complete Your Student Loan
Entrance Counseling Requirement,” https://studentloans.gov/myDirectLoan/
demoEntranceCounseling.action#!/ecDemo/1 (accessed March 28, 2023).
285
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.
286
HEA §485(l); 34 C.F.R. §685.304(a).
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• emphasize that the borrower is required to repay the loan in full, irrespective of
whether they complete the program of study on time or at all, are unable to obtain
employment, or are dissatisfied with the program;
• 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 implications 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 exit counseling can be provided;
• 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 the borrower has any questions about the terms and conditions of the
loan and the borrower’s rights and responsibilities with regard to the loan;
• through June 30, 2023, for loans first disbursed on or after July 1, 2020, and if
the school requires as a condition of enrollment that the borrower enter into a
pre-dispute arbitration agreement, a written description of the school’s dispute
resolution process that the borrower has agreed to pursue, how and when the
agreement applies, how the borrower enters into the arbitration process, and who
to contact if the borrower has any questions
287
; 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
determination who becomes eligible to borrow a Direct PLUS Loan, either by obtaining an
endorser or by providing documentation of extenuating circumstances, must receive special
PLUS Loan credit counseling.
288
The counseling is also available on a voluntary basis to Direct
287
ED, Final Rule, November 1, 2022. Effective July 1, 2023, as a condition of participation in the HEA Title IV
programs, IHEs are prohibited from requiring borrowers to agree to mandatory pre-dispute arbitration agreements or
the waiver of class action lawsuits.
288
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 March 28,
2023).
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PLUS Loan borrowers who have not received an adverse credit determination.
289
This counseling
includes information similar to what is currently provided in PLUS Loan entrance counseling.
290
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,
291
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 Loans
292
and
another type of MPN is used for making Direct PLUS Loans.
293
A different type of promissory
note is used for making Direct Consolidation Loans.
294
The MPN must be read and signed by a student or parent borrower before loan funds may be
disbursed. 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.
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).
295
Under current regulations, IHEs are
encouraged, but not required, to obtain affirmative confirmation from the student that they accept
the loan before disbursing loan funds.
296
Attached to the MPN is a Plain Language Disclosure (PLD) form that explains loan terms and
conditions and the borrower’s rights and responsibilities in simplified terms. 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.
297
289
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.
290
OMB No. 1845-0129, “PLUS Adverse Credit Reconsideration Loan Counseling,” https://www.reginfo.gov/public/
do/DownloadDocument?objectID=103302201.
291
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.
292
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.
293
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.
294
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.
295
34 C.F.R. §668.165(a).
296
34 C.F.R. §668.165(a)(2).
297
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.
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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.
298
It may be provided through an in-
person counseling session, an audiovisual presentation, or an online interactive medium.
299
Irrespective 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.
Exit counseling is designed to provide the borrower with comprehensive information on both the
terms and conditions of the loan and the borrower’s rights and responsibilities with regard to the
obligation to repay the loan.
300
Exit counseling must satisfy the following requirements:
301
• 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;
• provide a review of the repayment plan options available to the borrower, along
with a description of the various 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 to the borrower the seriousness and importance of the obligation to
repay the loan;
• emphasize that the borrower is required to repay the loan in full, irrespective of
whether they complete the program of study on time or at all, is unable to obtain
employment, or is dissatisfied with the program;
• describe the likely consequences of default, which include adverse credit reports,
the collection of delinquent debt, and litigation;
298
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 him or her 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.
299
U.S. Department of Education, Office of Federal Student Aid, “Exit Counseling (Demonstration Module),”
https://studentaid.gov/exit-counseling/demo/table-of-contents.
300
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.
301
HEA §485(b); 34 C.F.R. §685.304(b).
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• 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, 2022-2023 Federal Student Aid Handbook
(https://fsapartners.ed.gov/knowledge-center/fsa-handbook/pdf/2022-2023)
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 1843, Monticello, KY 42633, 1-877-577-2575
(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
Acceleration
Demand for immediate repayment of the entire outstanding balance of a loan.
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_month=202303).
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.
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 the school. 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 hardship. (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.
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.
Half-time
student
(enrollment)
An enrolled student who is carrying a half-time academic workload, as determined by the institution, that amounts to 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. Note that 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.
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U.S. Department of Education, Office of Federal Student Aid, “Income-Driven Repayment (IDR) 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 loan
servicer is a loan servicer for the U.S. Department of Education.
Master
promissory
note (MPN)
A promissory note under which the 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.
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
REPAYE
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(a) and (c) and 685.221.
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.
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Congressional Research Service 95
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), 685.209(a) and (c) and 685.221.
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
one hundred percent 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 term of a loan on the basis of changes in an index that reflects changes
in market rates.
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 Type and Academic Level
(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 program
i
5,500
5,500
10,500
n.a.
Teacher certification
i
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 program
i
5,500
5,500
10,500
n.a.
Teacher certification
i
5,500
5,500
10,500
n.a.
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Congressional Research Service 98
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 program
i
5,500
5,500
12,500
n.a.
Teacher certification
i
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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Congressional Research Service 99
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 program
i
5,500
5,500
12,500
k
n.a.
Teacher certification
i
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
65,500
n
n.a.
138,500
Not limited
Health professions
j
65,500
n
n.a.
224,000
Not limited
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Congressional Research Service 100
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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Congressional Research Service 101
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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Congressional Research Service 102
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 103
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-104
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
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
TBD
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
TBD
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
TBD
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
TBD
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
TBD
July 1, 1998, to September 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
CRS-105
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
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
TBD
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
TBD
Direct PLUS Loans Direct PLUS Consolidation Loans
c
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
TBD
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
TBD
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
TBD
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
TBD
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
TBD
CRS-106
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
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
TBD
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
TBD
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
TBD
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
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
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
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 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
CRS-107
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
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
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
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
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
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
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
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
CRS-108
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
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
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
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
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
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
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
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
CRS-109
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
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
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
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
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
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
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
CRS-110
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
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
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
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
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
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
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
CRS-111
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
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
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
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
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
Direct PLUS Loans
10-yr T-note + 4.6%
(10.5% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
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
Direct Unsubsidized Loans to Graduate Students
10-yr T-note +
3.60%
(9.50% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
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
Direct Unsubsidized Loans to Graduate Students
10-yr T-note +
3.60%
(9.50% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
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
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
Direct Unsubsidized Loans to Graduate Students
10-yr T-note +
3.60%
(9.50% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6.54
6.54
Direct PLUS Loans
10-yr T-note + 4.6%
(10.5% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7.54
7.54
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.49
Direct Unsubsidized Loans to Graduate Students
10-yr T-note +
3.60%
(9.50% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7.05
Direct PLUS Loans
10-yr T-note + 4.6%
(10.5% cap), fixed
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.05
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,” 87 Federal Register 50320-50322, August 16, 2022 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,” 87 Federal Register
50326-50328, August 16, 2022, and prior notices; U.S. Department of Education, Office of Federal Student Aid, “Federal Stafford, Federal PLUS, Federal SLS, and Federal
Consolidation Interest Rate Calculations for the Period July 1, 2022-June 30, 2023 (Updated July 1, 2022),” June 13, 2022; and U.S. Department of Education, Office of
Federal Student Aid, Electronic Announcement, DL-23-03, “FY23 Interest Rates for Direct Loans First Disbursed Between July 1, 2023 and June 30, 2024,” 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,
TBD means to be determined.
CRS-114
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. For Direct PLUS Consolidation Loans, the application for such loans must have been received before October 1, 1998, and the loan must have been first disbursed
on or after July 1, 1998.
f. Applications for the Direct Consolidation Loan must have been received on or after October 1, 1998, and before February 1, 1999.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 115
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
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,“FY24 Sequester-Required Changes to the Title IV
Student Aid Programs,” Electronic Announcement GENERAL-23-37, May 15, 2023, https://fsapartners.ed.gov/
knowledge-center/library/electronic-announcements/2023-05-15/fy-24-sequester-required-changes-title-iv-
student-aid-programs and prior notices.
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.
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service 116
Appendix D. COVID-19 Flexibilities
In response to the COVID-19 pandemic, lawmakers and the Department of Education (ED) have
provided various types of relief for federal student loans borrowers. In general, this relief is
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, through September 1, 2023, the accrual of interest on all types of Direct
Loan program loans is suspended.
302
Thus, borrowers will not be responsible for paying 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 are suspended.
303
(In practice, ED is placing all loans in administrative
forbearance.) During this time, borrowers are not required to make payments due on their loans.
This special administrative forbearance is frequently called the payment pause.
Whereas interest typically accrues on loans during periods of forbearance, the interest accrual
pause (see above) ensures that interest does not accrue on loans during all but the final month of
the payment pause. In addition, suspended payments will count toward the maximum periods
under the income-driven repayment 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 Public Service Loan Forgiveness 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 of their
Direct Loan program loans forgiven after making payments according to the plans for a
maximum repayment period (20 years/240 months or 25 years/300 months). Typically, only
payments made on selected repayment plans count toward the maximum repayment period under
the IDR plans, and with the exception of the economic hardship deferment and the COVID-19
payment pause, periods of deferment or forbearance do not count toward the maximum
repayment period under the IDR plans. Payments made on any loans, including FFEL program
302
The Fiscal Responsibility Act of 2023 (P.L. 118-5) specifies that the interest accrual pause shall cease to be
effective 60 days after June 30, 2023. While 60 days after June 30, 2023, is August 29, 2023, ED has indicated that
interest accrual will 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 June 15, 2023).
303
The Fiscal Responsibility Act of 2023 (P.L. 118-5) specifies that the payment pause shall cease to be effective 60
days after June 30, 2023. While 60 days after June 30, 2023, is August 29, 2023, ED has indicated that student loan
payments will not be due 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 June
15, 2023).
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loans, prior to consolidation do not count toward the maximum repayment period for the
Consolidation Loan.
In April 2022, in response to the COVID-19 pandemic and to address “historical failures in the
administration of the federal student loan programs,”
304
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. 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.
ED intends to automatically forgive the loans of borrowers who have accumulated at least 240
months or 300 months in repayment, even if they are not currently enrolled in an IDR plan, “by
the end of 2023.”
305
To receive automatic forgiveness, a borrower will need to 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.
306
All other borrowers who will not receive automatic forgiveness are to see their loan accounts
updated in 2024.
307
304
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.
305
U.S. Department of Education, Office of Federal Student Aid, “Income-Driven Repayment Account Adjustment,”
https://studentaid.gov/announcements-events/idr-account-adjustment (accessed May 19, 2023).
306
Ibid.
307
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,
and with the exception of the COVID-19 payment pause, periods of deferment or forbearance do
not count toward the required 120 payments. Payments made late, made for less than the monthly
amount due, and made on any loans (including FFEL program loans) prior to consolidation also
do not count toward the required 120 payments. Borrowers must be employed full-time in a
public service job at the time PSLF benefits are granted. 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 the prohibition
against periods of service performed to receive benefits under the Teacher Loan Forgiveness
program also counting towards periods of PSLF qualifying employment.
308
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 “one-time debt relief”
309
policy
“to address the financial harms of the [COVID-19] pandemic for low- and middle-income
borrowers.”
310
Under the policy, the Administration intends to cancel the following:
308
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 March 23,
2023).
309
U.S. Department of Education, Office of Federal Student Aid, “One-time Federal Student Loan Debt Relief,”
https://studentaid.gov/manage-loans/forgiveness-cancellation/debt-relief-info (accessed April 3, 2023).
310
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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• 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
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, will be 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 meet the above criteria and received at least one Pell Grant in any amount at
any point.
311
Borrowers’ cancellation benefits are to be capped at the amount of their outstanding debt.
Borrowers who made voluntary payments on their loans during the COVID-19 payment pause
and qualify for debt relief may automatically receive refunds of those payments in limited
circumstances.
312
These benefits are 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, except that for
Consolidation Loans only the underlying loans that were repaid by the Consolidation Loan must
have been disbursed on or before June 30, 2022.
313
The policy has not yet been implemented due to lawsuits challenging ED’s legal authority to
effectuate it. The Supreme Court heard oral arguments for the lawsuits on February 28, 2023.
314
Thus, loan cancellation under the policy would occur, if at all, only if the Supreme Court renders
a decision in favor of the Administration.
Collection Pause
From March 13, 2020, through one year after the COVID-19 payment pause ends
315
(see above),
involuntary collection practices are suspended. 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 are not engaging in proactive collection activities (e.g., are not making
collection calls or sending letters or billing statements to defaulted borrowers). However,
borrowers may contact ED and its contractors to begin or continue default resolution
arrangements (see the “Resolution of Default” section).
316
311
For additional information, see CRS Insight IN11997, The Biden Administration’s One-Time Student Loan Debt
Relief Policy.
312
U.S. Department of Education, “One-time Federal Student Loan Debt Relief,” https://studentaid.gov/manage-loans/
forgiveness-cancellation/debt-relief-info#refunds (accessed April 3, 2023).
313
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.
314
Transcript of Oral Argument, Nebraska v. Biden, No. 22-506 (February 28, 2023), https://www.supremecourt.gov/
oral_arguments/argument_transcripts/2022/22-506_22p3.pdf and transcript and Transcript of Oral Argument, Dep’t. of
Educ. v. Brown No. 22-535 (February 28, 2023), https://www.supremecourt.gov/oral_arguments/argument_transcripts/
2022/22-535_4g15.pdf.
315
CRS communication with staff of U.S. Department of Education, Office of Legislation and Congressional Affairs,
February 27, 2023.
316
U.S. Department of Education, Office of Federal Student Aid, “Coronavirus and Forbearance Info for Students,
Borrowers, and Parents,” Loans in Default, https://studentaid.gov/announcements-events/coronavirus#defaulted-loan-
(continued...)
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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,
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.”
317
Under this
Fresh Start Initiative, all qualifying borrowers of defaulted Direct Loans will have several Title
IV student aid benefits temporarily restored that are otherwise unavailable when a borrower is in
default on their loan. If such borrowers use the Fresh Start Initiative to get out of default, they
would be able to retain those benefits long-term.
Under the initiative, ED has, for a temporary period, automatically provided the following
benefits to all qualifying defaulted borrowers:
• restored eligibility for Title IV federal student aid;
• reporting of 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).
318
Borrowers who take the following actions will be permitted to keep the above-listed benefits
long-term: (1) accept Title IV student aid under the Fresh Start Initiative, or (2) request to have
their loans placed in repayment status after receiving notification from ED that their loans are
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, will be restored. These borrowers’ loans will also be transferred to
a nondefault loan servicer, their loans will be returned to in-repayment status, and ED will ask
consumer reporting agencies to remove the record of default from the borrower’s credit report.
Borrowers who use 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.
319
Many of the benefits available to borrowers under the initiative are to be available until one year
after the end of the COVID-19 payment pause (referred to as the Fresh Start period). Borrowers
who do not take either of the above-described actions during the Fresh Start period will again be
subject to collections after that period ends and will have their loans reported as in collections to
consumer reporting agencies.
questions (accessed May 24, 2021). For additional information on the cessation of debt collection activities due to
COVID-19, see CRS Report R46314, Federal Student Loan Debt Relief in the Context of COVID-19.
317
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.
318
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 June 13, 2023).
319
U.S. Department of Education, Office of Federal Student Aid, “A Fresh Start for Federal Student Loan Borrowers in
Default,” https://studentaid.gov/announcements-events/default-fresh-start (accessed March 27, 2023).
Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program
Congressional Research Service R45931 · VERSION 9 · UPDATED 121
Author Information
Alexandra Hegji
Analyst in Social Policy
Acknowledgments
This report was originally authored by David P. Smole, CRS Coordinator of Research Planning.
Disclaimer
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