Chapter 4 TERMS AND CONDITIONS OF NSLs
Chapter 4 TERMS AND CONDITIONS OF NSLs
This chapter reviews the characteristics of the NSL program such as maximum amounts that students may borrow, interest rates, deferment options, repayment requirements and cancellation provisions.
With the exception of nursing students in their last two years of a program, the annual maximum loan is $2,500. The annual maximum NSL is $4,000 for students who are in their last two years of study. Institutions are permitted to increase proportionately the annual maximum NSL amount for students enrolled in a nursing school that provides a course of study within a 12-month period that is more than nine months long. Annual maximum limits not withstanding, the aggregate maximum NSL that any nursing student may obtain is $13,000.
Before making decisions about how much an individual student receives in NSL funds, the school must be sure that students meet the statutory and regulatory eligibility criteria. These are described in Chapter 3, Section 1, Student Eligibility Criteria.
[Section 836(a) of the Public Health Service Act; 42 CFR Part 57.307]
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.
NSLs have the following interest rates based on the date they were incurred:
After July 1, 1969, borrowers who received NSLs at different interest rates must have each loan computed at its respective interest rate.
[Section 836(b)(5) of the Public Health Service Act; 42 CFR Part 57.308]
The grace period immediately follows completion or termination as a full-time student or a half-time student for loans received after November 17, 1971. During the grace period, which is nine consecutive months long, repayment of principal is not required and interest does not accrue.
The grace period begins on the first day of the month nearest to the date the borrower is no longer a full-time or half-time student. For example, the grace period begins on June 1 for an NSL borrower who receives the nursing degree on June 15.
If the borrower resumes full-time or half-time studies at the same or another nursing school during the grace period, the interrupted grace period is treated as if it did not begin. Therefore, the borrower is still entitled to the full nine-month grace period upon completion or termination of full-time or half-time student status. In this case, the borrower is required to notify the lending school of his or her continued student status by completing a deferment form and submitting it to the loan collections office.
Example:
A student received a nursing student loan in September, 19X5 while enrolled in the first year of a diploma nursing program. The student withdraws from school on January 5, 19X6 and the grace period begins on January 1, 19X6. The student then enrolls full-time in an associate degree nursing program on August 28, 19X6. Since re-enrollment is within the nine-month grace period, the grace period is not considered to have begun. The lending school does not require payment and no interest accrues on the loan. However, the borrower must file a deferment form with the lending school and will be given a nine-month grace period when he or she is no longer pursuing an eligible course of study as either a full-time or half-time student.
The grace period ends on the last day of a month. On the first day of the next month, the borrower enters either repayment status or deferment (if eligible). The grace period cannot be extended under any circumstances.
If the borrower resumes a full-time or half-time course of study at the same or another nursing school after the grace period has expired, the original loan(s) already have entered repayment status. These loans, therefore, are not eligible for an additional grace period. However, if the borrower receives any new loans during this course of study, the borrower will receive a grace period for the new loans upon completion or termination of full-time or half-time student status.
Fiscal Management, Collections, Chapter 2 provides information on required institutional grace period contacts.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR 57.310]
A deferment period on an NSL 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 NSL deferments:
Although borrowers engaged in specific activities are entitled to deferments on their NSLs, 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 NSL deferment form appears as Exhibit F. For the institution to acknowledge that the borrower is in deferment, the borrow 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 deferrable activity.
Fiscal Management, Collections, Chapter 2 contains information about required institutional deferment contacts.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
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 |
Full-time or half-time enrollment in a collegiate nursing program leading to a baccalaureate degree or graduate degree in nursing; or
|
Up to 10 years |
Fuller descriptions of the allowable deferment activities appear below.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
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.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
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 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
NSL borrowers who have entered repayment may receive additional deferments for up to 10 years for full-time or half-time enrollment in a collegiate nursing school. The program in which the borrower is enrolled must lead to a baccalaureate or a graduate degree in nursing.
Borrowers with NSLs obtained after November 4, 1988 have up to 10 years of deferment for full-time or half-time enrollment and advanced professional training combined. For example, if a borrower deferred a NSL for five years on the basis of full-time student status, that borrower would only be able to obtain another five years of deferment for advanced professional training. Borrowers with NSLs obtained prior to November 4, 1988 have a five-year limit on such deferments.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
NSL borrowers may obtain deferments for up to 10 years if they are pursuing advanced training in nursing or are engaged in training to become a nurse anesthetist. The regulations define advanced training in nursing as full-time or half-time training beyond the borrower's first diploma or degree in nursing. Advanced training must:
Note that NSL borrowers may not obtain more than 10 years of deferment for full-time or half-time enrollment and advanced professional training combined. For example, if a borrower deferred a NSL for five years on the basis of full-time student status, that the borrower would only be able to obtain another five years of deferment for advanced professional training.
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
Installment payments are to be made during the 10-year 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 a NSL loan 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 836(b) of the Public Health Service Act; 42 CFR Part 57.310]
Institutions may require borrowers to repay NSLs at a rate that is not less than $40 per month.
[Section 836(g) of the Public Health Service Act; 42 CFR Part 57.310]
Repayment of the principal, together with accrued interest, shall be made over a 10-year period which begins immediately after the grace period expires, excluding any eligible periods of deferment. In no case can the repayment period exceed 10 years, even if the institution grants the borrower a forbearance or has renegotiated the repayment schedule with the borrower.
The school may reduce the 10-year repayment period without the borrower's consent when the total payments at the minimum monthly rate would require less than 10 years to repay.
Readers are also referred to Fiscal Management, Collections, Chapter 2.
[Section 836(b) of the Public Health Service Act; 42 CFR Part 57.310]
Pursuant to uniform criteria established by the Secretary, the repayment period for any student borrower who failed to make consecutive payments during the repayment period, and who has made at least 12 consecutive payments during the last 12 months of the repayment period, may be extended for a period not to exceed 10 years. Schools may use this authority to extend the repayment period of any student borrower who: (1) failed to make consecutive payments at some point during the repayment period; (2) has made at least 12 consecutive payments during the most recent 12 months of the repayment period; and (3) needs additional time, beyond the original 10 year repayment period, to complete repayment of the debt.
The Department intends that school officials use their professional judgment to determine, on a case-by-case basis, which eligible borrowers need an extended time period to complete repayment of their NSL debt, based on their particular financial circumstances and needs. Although this provision provides flexibility in determining the length of repayment for certain borrowers, school officials should be guided by the need to collect NSL funds in a manner that maximizes the amount of revolving funds available annually for loaning 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.
Readers are also referred to Fiscal Management, Collections, Chapter 2.
[Section 836(b) of the Public Health Service Act; 42 CFR Part 57.310]
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 any accrued interest and penalties, if any, and then to the principal balance. (Also see Fiscal Management, Collections, Chapter 2.)
[Section 836(b)(2) of the Public Health Service Act; 42 CFR Part 57.310]
Borrowers must be charged a late fee for installment payments on NSLs that are more than 60 days past due. For loans disbursed on or after October 1, 1985 or for which promissory notes have been signed on or after October 1, 1985, the late fee cannot exceed six percent of the installment payment.
This provision is intended to assist schools in collecting NSL 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 between June 30, 1969 but prior to October 1, 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 836(f) of the Public Health Service Act; 42 CFR Part 57.310]
No refunds are permitted to borrowers once payments have been made. Refunds to borrowers for errors made by school must come from institutional funds, not the NSL 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 NSL 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 authorized under the Higher Education Act permits NSLs to be consolidated with other Federal educational loans at the option of the lender. For more information on Federal Loan Consolidation, refer to Department of Education publications (e.g., The Federal Student Financial Aid Handbook).
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 the NSL 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). Even though a borrower obtains forbearance, the maximum NSL repayment period remains 10 years, including the time during which payments on the NSL are in forbearance. As a result, 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 NSL obligation, but is unable to comply with the existing repayment schedule.
[42 CFR Part 57.310]
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 NSLs must still repay their obligations within the
10-year limitation. Institutions are accountable for limiting the use of renegotiation to situations in which the borrower clearly intends to repay the NSL obligation but is unable to comply with the existing repayment schedule.
NSLs may be canceled because of the death of the borrower, or because the borrower has become permanently and totally disabled.
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 836(b)(4) of the Public Health Service Act; 42 CFR Part 57.311]
A borrower is entitled to cancellation of NSLs 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.
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.
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 G as guidance for the school in obtaining the required documentation to submit claims for permanent and total disability. This check list should not be used in lieu of obtaining the required documentation described above.
[Section 836(b)(4) of the Public Health Service Act; 42 CFR Part 57.311]
The law provides the authority for the Federal Government to repay or cancel a borrower's NSL and other loans in exchange for serving as a nurse in certain fields, locations or facilities. Various cancellation and repayment programs at this writing have not been authorized or funded. Refer to the statutory and regulatory citations below for specific cancellation and repayment programs.
[Section 836 of the Public Health Service Act; 42 CFR Parts 57.312, 57.313, 57.313a and 57.314]
