Chapter 4 TERMS AND CONDITIONS OF THE HPSL PROGRAM
Chapter 4 TERMS AND CONDITIONS OF THE HPSL PROGRAM
This chapter reviews the characteristics of the HPSL program such as maximum amounts that students may borrow, interest rates, deferment options, repayment requirements, cancellation provisions, and loan consolidation.
Loans made on or after November 13, 1998, may be made in amounts that do not exceed the cost attendance (including tuition, other reasonable educational expenses, and reasonable living expenses). Previously the maximum loan amount was tuition plus $2,500. Before making decisions about how much an individual student receives in HPSL funds, schools must be sure that students meet the statutory and regulatory eligibility criteria described in Chapter 3, Section 1, Student Eligibility Criteria.
[Section 722(a) of the Public Health Service Act]
Allopathic and osteopathic medical schools have the authority to increase awards from HPSL, Loans for Disadvantaged Students (LDS) and Primary Care Loans (PCL) beyond the cost of attendance annual maximum limit. However, amounts beyond the annual maximum limit are only available to third- and fourth-year students. In addition, the funds must be used to repay outstanding balances on loans taken out while the borrower was in attendance at that school. Funds may not be used to repay previous HPSLs, LDS and PCLs.
This authority allows allopathic and osteopathic medical schools to help students reduce the level of their indebtedness from loans with less favorable terms, such as loans with higher interest rates or loans that compound interest. For example, a school of medicine could provide a third-year student with an HPSL, LDS, or PCL that would not only cover a portion of the student's cost of attendance, but would also repay--in part or in total--the student's HEAL debt assumed during the first or second year in medical school.
Schools are responsible for implementing this provision and assuring that the loans funds are used appropriately. The school and the student must agree that amounts received in HPSL, LDS, or PCL above the legal annual maximum will be applied solely to the repayment of other educational loans. Further, the school must make checks copayable to the student and the school. The purpose of making checks copayable is to assure that the funds are actually used to repay designated prior loans.
[Section 722(a) of the Public Health Service Act]
A uniform interest rate of five percent per year applies to all loans made on or after November 4, 1988. Interest is computed on the unpaid principal balance and begins to accrue upon expiration of the grace period unless a borrower is eligible for deferment status.
HPSLs have the following interest rates based on the date they were incurred:
After July 1, 1969, borrowers who received HPSLs at different interest rates must have each loan computed at its respective interest rate.
[Section 722(e) of the Public Health Service Act; 42 CFR Part 57.208]
Statute and regulations permit schools to charge an insurance premium to cover loss of the institutional share of a HPSL in cases of death and disability cancellations. Schools that choose to charge an insurance premium must determine the rate each year based on their cancellation experience. However, the rate may not exceed .6 percent of the loan amount disbursed to the student. Proceeds collected from HPSL disbursements as insurance premiums:
Regulations state that the school is required to maintain separate accountability for the insurance premium fund even though the school does not have to establish a separate account.
Fiscal Management, Collections, Chapter 2 also addresses insurance premiums.
[Section 722(h) of the Public Health Service Act; 42 CFR Part 57.213a]
The grace period for a HPSL is one year long during which repayment of principal is not required and interest does not accrue. The grace period immediately follows completion or termination of full-time student status and cannot be postponed to follow any deferments for which the borrower may be eligible. The following example illustrates.
Example:
A student who borrowed from the HPSL program graduates from medical school. She is going directly into a three-year residency for which she can obtain deferment on the payment of her HPSLs. Because the grace period begins as soon as she graduates, she must use her grace period for the first year of her residency and then apply for deferments for the last two years of her residency. She is not allowed to obtain deferments for all three years of residency and then use the grace period after her residency training is completed.
Borrowers who have not graduated do not lose the grace period or any portion of it unless they are out of school for the full year. This means that a borrower who reenters the same or another health professions school within the one-year period maintains the entire grace period. The following examples illustrate.
Example:
A student in a podiatric medicine program borrowed an HPSL for his first year of school. He went home during the three-month summer break between his first and second year of the program to work. Because he was out of school for less than one year, he still has not lost the one-year grace period on his HPSL.
Example:
A student withdraws from a dental school. After being out of dental school for seven months, she enrolls in a school of veterinary medicine. Because her enrollment at the second institution began before the grace period was over, she still has the full year of grace remaining once she graduates or terminates attendance at the school of veterinary medicine.
Similarly, a borrower who has graduated from a health professions school retains the full grace period if enrollment in another health profession school begins before the grace period expires.
Fiscal Management, Collections, Chapter 2 provides information on required institutional grace period contacts.
[Section 722(c) of the Public Health Service Act; 42 CFR 57.210]
A deferment period on an HPSL means that interest does not accrue and the borrower does not have to make payments on the loan. The following three statements describe the general mechanics of HPSL deferments:
Although borrowers engaged in specific activities are entitled to deferments on their HPSLs, the deferments are not automatic. Borrowers must request deferments at least 30 days before the beginning of:
Borrowers then must file deferment forms annually for each additional year of deferment. A copy of an HPSL deferment form appears as Exhibit E. For the institution to acknowledge that the borrower is in deferment, the borrower must provide evidence that the:
The evidence must include certification by a program official or other authorized official that the borrower's activity meets the deferment requirements. The borrower is also responsible for providing any other information necessary for the school to process and acknowledge the deferment. The school has the right to deny a request for deferment if the borrower does not comply with the information requirements as prescribed by regulations. Note that the responsibility for granting a deferment is the institution's and cannot be transferred to a third party, such as a billing agent. In addition to being responsible for requesting deferments and submitting the necessary documentation, the borrower also must contact the institution when he/she has completed or terminated the deferable activity.
Fiscal Management, Collections, Chapter 2 contains information about required institutional deferment contacts.
[Section 722(c) of the Public Health Service Act; 42 CFR Part 57.210]
Borrowers may obtain deferments if they participate in certain activities. The chart below briefly identifies those activities and the corresponding maximum period of time for which the borrower can be in deferment.
|
Type of Activity |
Maximum Number of Years |
|
Active duty in the uniformed services |
Up to three years |
|
Peace Corps volunteer |
Up to three years |
|
Advanced professional training |
Unlimited |
|
Leave of absence to pursue related educational activity |
Up to two years |
|
Training fellowship, training programs and related educational activities for graduates of health professions schools |
Up to two years |
Further descriptions of the allowable deferment activities appear below.
[Section 722(C) of the Public Health Service Act; 42 CFR Part 57.210]
Borrowers who perform active duty as a member of a uniformed service (Army, Navy, Marine Corps, Air Force, Coast Guard, the National Oceanic and Atmospheric Administration Corps, or the U.S. Public Health Service Commissioned Corps) are eligible for deferment for up to three years. Such service performed during the grace period does not count as part of the maximum deferment period for which the borrower is eligible, nor does it entitle the borrower to a grace period after the deferment period ends. This deferment provision is specifically limited by statute to borrowers on active duty who are members of a uniformed service and does not apply to borrowers who are employed by one of the uniformed services in a civilian capacity. For example, a borrower who is working for the Public Health Service (PHS) and who is not a member of the Commissioned Corps would not qualify for deferment.
A borrower who is fulfilling an NHSC scholarship obligation through the "private practice option" or through the "private placement option" rather than as a PHS commissioned officer would not be eligible for deferment. Institutions should be certain that borrowers understand this provision prior to graduation to avoid subsequent problems in administering deferments based on participation in the uniformed services.
[Section 722(c)(1)(A) of the Public Health Service Act; 42 CFR Part 57.210]
Borrowers who volunteer under the Peace Corps Act are eligible for deferment for up to three years. Such service performed during the grace period does not count as part of the maximum deferment period for which the borrower is eligible, nor does it entitle the borrower to a grace period after the deferment period ends.
Service in VISTA does not qualify for deferment.
NOTE: The total period of deferment for uniformed service and service as a Peace Corps volunteer may not exceed three years for each activity, or a total of six years.
[Section 722(c)(1)(B) of the Public Health Service Act; 42 CFR Part 57.210]
Borrowers can qualify for deferment on the basis of advanced professional training for the duration of that training if it is:
A borrower who completes advanced professional training at an institution in a foreign country may be eligible for deferment, provided that the borrower will receive credit towards his or her board certification. It is the school's responsibility to make the final determination in this case.
[Section 722(c)(1)(C) of the Public Health Service Act; 42 CFR Part 57.210]
An HPSL borrower, who is still a full-time student in a health professions school, may obtain deferments for a leave of absence to pursue full-time educational activities that are directly related to the health profession for which the borrower is preparing. The borrower must be taking the leave of absence with the intent of returning to the original school as a full-time student. The deferment is limited to two years.
The related educational activity must meet the following criteria for the borrower to obtain a deferment:
OR
The borrower must request this deferment at least 60 days before beginning the related educational activity. The institution must determine whether it will grant the deferment at least 30 days before the borrower plans to begin the activity in question.
A borrower who qualifies for this type of deferment receives the grace period upon completion or termination of his/her studies leading to the first professional degree. If the borrower does not return to the original school, then the school must begin the borrower's grace period retroactively from the beginning of the "leave of absence" when the borrower terminated study at that institution. The repayment period must then begin after the grace period has expired.
[Section 722(c)(2)(A) of the Public Health Service Act; 42 CFR Part 57.210]
Graduates of health professions schools who borrowed HPSL funds are eligible for deferments if they participate in certain fellowship training programs. The fellowship training must be directly related to the health profession for which the borrower obtained the HPSL. In addition, the borrower must enter into the fellowship either prior to the end of his/her advanced professional training or no later than 12 months after the borrower completed participation in that advanced professional training. The fellowship training itself must meet certain criteria in order for the borrower to obtain the deferment. Specifically, the fellowship training must be a:
[Section 722(c)(2)(B) of the Public Health Service Act; 42 CFR Part 57.210]
Graduates of health professions schools who borrowed HPSL funds are also eligible for deferments if they participate in certain educational activities. The educational activity must be directly related to the health profession for which the borrower obtained the HPSL. In addition, the borrower must enter into the activity either prior to the end of his/her advanced professional training or no later than 12 months after the borrower completed participation in that advanced professional training.
The related educational activity must meet the following criteria for the borrower to obtain a deferment:
OR
OR
[Section 722(c)(2)(B) of the Public Health Service Act; 42 CFR Part 57.210]
Installment payments must be made during the repayment period immediately following the expiration of the grace period and excluding any allowable periods of deferment. Installment payments must be made no less often than quarterly, in equal or graduated installments, in accordance with the terms of the schedule provided by the school and agreed to by the borrower at the time of the exit interview. Under no circumstances may a school agree to a payment schedule which does not require at least a quarterly payment of principal and accrued interest.
A borrower who is more than 60 days past due in the repayment of an HPSL must be placed on a monthly repayment schedule, regardless of when he or she entered repayment status. Fiscal Management, Collections, Chapter 2 also contains information about institutional responsibility for establishing repayment schedules.
[Section 722(C) of the Public Health Service Act; 42 CFR Part 57.210]
Institutions may require borrowers to repay HPSLs at a rate that is not less than $40 per month.
[Section 722(j) of the Public Health Service Act; 42 CFR Part 57.210]
Repayment of the principal, together with accrued interest, shall be made over a period of not less than 10 years nor more than 25 years, at the discretion of the institution. The Senate Report accompanying P.L. 105-392 directs that this revision to the repayment period be available for any borrowers who have not yet completed repayment of their loans.
The Department intends that school officials use their professional judgment to determine which borrowers need an extended time period to repay their loans, based on factors such as the amount of the borrower's indebtedness and projected income. Although this provision provides flexibility in determining the length of repayment, school officials should be guided by the need to collect these funds in a manner that maximizes the amount of revolving funds available annually for loaning to current students. The Department cautions schools not to grant extended repayment periods except as needed to assure manageable repayment and avoid default, since longer repayment periods will reduce the amount of loan funds available annually for making loans to current students. The Department does not plan to issue further guidance regarding the use of this authority unless schools indicate a need for such.
The school may reduce the repayment period without the borrower's consent when the total payments at the minimum monthly rate would require less than the required amount of years to repay.
Readers are also referred to Fiscal Management, Collections, Chapter 2.
[Section 722(C) of the Public Health Service Act; 42 CFR Part 57.210]
The borrower may, at his or her option and without penalty, prepay all or any part of the principal and accrued interest at any time. If an accelerated payment is made, that prepayment must first be applied to accrued interest and penalties, if any, and then to the principal balance. (Also see Fiscal Management, Collections, Chapter 2.)
[Section 722(C) of the Public Health Service Act; 42 CFR Part 57.210]
Borrowers must be charged a late fee for installment payments on HPSLs that are more than 60 days past due. For loans disbursed on or after October 22, 1985 or for which promissory notes have been signed on or after October 22, 1985, the late fee cannot exceed six percent of the installment payment.
This provision is intended to assist schools in collecting HPSL funds by providing delinquent borrowers with an incentive to remit their payments on a timely basis to avoid any additional costly charges. Accordingly, each school is encouraged to implement the provision at an amount and frequency that will be of greatest benefit for improving its ability to collect from its borrowers.
For loans extended prior to October 22, 1985, schools may impose a late charge for failure by the borrower to pay all or any part of an installment when it is due, or for failure to file timely evidence of deferment or cancellation of part or all of a loan. The late charge may be up to $1 for the first month or part of a month following the due date, and $2 for each subsequent month or part of a month.
Fiscal Management, Collections, Chapter 2 provides additional information about penalty charges.
[Section 722(I) of the Public Health Service Act; 42 CFR Part 57.210]
No refunds are permitted to borrowers once payments have been made. Refunds to borrowers for errors made by the school must come from institutional funds, not the HPSL fund.
The borrower is required to inform the school of any change of address after ceasing to be a student at the school.
When a borrower has more than one HPSL outstanding, the sum of the amounts loaned may be combined for repayment purposes. However, separate accounts must be kept when a borrower has loans made under different statutory provisions, so that the appropriate benefits may be applied to the proportionate amount of indebtedness. It is also necessary to keep separate repayment schedules whenever a borrower has loans made at different grace periods and interest rates.
The Federal Loan Consolidation Program permits borrowers to combine their Federal student loans from different programs into a single, new loan. It also permits the loans to be repaid over a longer period of time. In addition to repaying in equal installments, borrowers can obtain graduate and income-sensitive repayments for loans consolidated under this Federal program. For more information on Federal Loan Consolidation, refer to Department of Education publications (e.g., The Federal Student Financial Aid Handbook).
Note: Although HPSLs and LDSs are eligible for Federal Loan Consolidation at the option of the lender, PCLs are not eligible for Federal Loan Consolidation.
Forbearance and renegotiation are two separate methods for dealing with a borrower who is unable to make payments as required by his or her existing repayment schedule. Periods of forbearance and of renegotiation are similar, because both must be counted as part of the 10-year repayment period. However, forbearance differs from renegotiation, because:
Renegotiated loans do not have payments towards principal temporarily suspended. As a result, renegotiated loans are included in the delinquency rate calculation:
The following sections provide more information about forbearance and renegotiation. Fiscal Management, Collections, Chapter 2 also addresses forbearance and renegotiation (in terms of interruption of the original repayment schedule).
Due to a borrower's extraordinary circumstances, and at the discretion of the institution, the borrower may be placed in forbearance. This has the effect of temporarily suspending payment of principal; however, interest continues to accrue. Extraordinary circumstances include unemployment, poor health or other personal problems that have a short-term impact on the borrower's ability to make payments on HPSLs as scheduled.
During periods of forbearance, interest continues to accrue on the unpaid principal balance of the loan. Further, a minimum payment must be made on all accrued interest during the period in which the borrower is in forbearance (e.g., six months, one year). Schools are urged to make every effort to keep forbearance periods to a minimum, because the borrower may be faced with unmanageable payments as a result of the reduced period of time for making repayments.
Note that penalties are not charged to borrowers with loans in forbearance--provided that the borrower is complying with the terms of forbearance agreed upon by the borrower and the school--since a loan in forbearance is not considered to be past due.
The school is responsible for determining whether there are "extraordinary circumstances" which warrant granting forbearance, based on a borrower's financial situation and other pertinent information. Examples of extraordinary circumstances which might place an undue hardship on the borrower and prevent him or her from making scheduled payments include the following:
The institution must obtain documentation at least annually that supports the borrower's request for forbearance. This means that the borrower's institutional file should contain some combination of the following documents:
The institution must notify the borrower in writing of its approval or disapproval to grant forbearance. The basis for that decision must be thoroughly documented in the borrower's file. Institutions are accountable for limiting the use of forbearance to situations in which the borrower clearly intends to repay the HPSL obligation, but is unable to comply with the existing repayment schedule.
[42 CFR Part 57.210]
A school should use renegotiation when a borrower is able to make payments on a regular basis, but is unable to pay the amount required to keep the account current according to the existing repayment schedule. To renegotiate the repayment schedule:
The school must maintain documentation of the agreement in the borrower's
file.
A borrower with a renegotiated loan is considered to be current with
the repayment schedule as long as the borrower complies with the terms of the
renegotiation, because the
renegotiated schedule supersedes the previous
repayment schedule. As a result, the new schedule is used to determine whether a
borrower is current or past due. Penalties are not charged to borrowers with
renegotiated loans--provided that the borrower is complying with the terms of
the renegotiation agreed upon by the borrower and the school--since a
renegotiated loan is not considered to be past due.
Note that borrowers with renegotiated HPSLs must still repay their obligations within the 10-year limitation. Institutions are accountable for limiting the use of renegotiation to situations in whichthe borrower clearly intends to repay the HPSL obligation but is unable to comply with the existing repayment schedule.
HPSLs may be canceled because of the death of the borrower, or because the borrower has become permanently and totally disabled. See Chapter 4, Section 3, Insurance Premium, in this book for additional information. Fiscal Management, Audits, Chapter 3 addresses cancellation of repayment.
Upon the death of a borrower, the unpaid balance of the loan and accrued interest will be canceled. To grant cancellation, the school must obtain a death certificate or other official proof of death. The school retains the document in the borrower's file for audit purposes. The amount canceled must be reported on the Annual Operating Report.
[Section 722(d) of the Public Health Service Act; 42 CFR Part 57.211]
A borrower is entitled to cancellation of HPSLs in the event of permanent and total disability. Permanent and total disability is defined as being unable to engage in gainful employment of any kind because of a medically determinable impairment which is expected to continue for a long and indefinite period of time or to result in death. The review and final determination shall be made by the Secretary on the recommendation of the school, supported by required medical certification relating to the borrower's disability.
To claim cancellation for disability, a borrower should submit a formal request to the school that awarded the loan along with the following documentation:
The medical report must be sufficiently detailed to provide for a comprehensive review to determine the nature, duration, and extent of the impairment and prognosis. Supporting documentation should include history of illness, medical examination(s), inpatient and outpatient treatments, and current medications. Include copies of all pertinent past medical records and a prognosis and rehabilitation plan. The medical documentation must be accompanied by a signed and dated statement from the borrower's physician documenting permanent and total disability according to the definition above.
The school should obtain from the borrower a consent for release of information allowing the release of any required information on the disability to the Department.
The school will be formally notified of the Secretary's and/or designee's decision and must retain the written notification of the decision on file for audit and other review purposes. The school must report the amount of the loan canceled on its Annual Operating Report.
Documentation must be submitted to the Division of Student Assistance, Parklawn Building, Room 8-34, 5600 Fishers Lane, Rockville, Maryland 20857.
A disability checklist is provided at Exhibit F as guidance for obtaining the required documentation. This checklist should not be used in lieu of obtaining the required documentation described above.
NOTE: SCHOOLS/LENDERS DO NOT HAVE THE AUTHORITY TO CANCEL LOANS BASED ON PERMANENT AND TOTAL DISABILITY. THIS AUTHORITY REMAINS WITH THE DEPARTMENT OF HEALTH AND HUMAN SERVICES.
[Section 722(d) of the Public Health Service Act; 42 CFR Part 57.211]
