Chapter 3 TERMS AND CONDITIONS OF HEAL LOANS
Chapter 3 TERMS AND CONDITIONS OF HEAL LOANS
Institutions must be sure that students who receive HEAL funds meet the set eligibility requirements specified in statute and in regulations. Note that certain borrowers who are no longer students may also obtain HEAL loans for payment of accruing interest. A description of the eligibility requirements follows.
A student applicant must be a citizen or national of the United States, or a lawful permanent resident of the United States, the Commonwealth of Puerto Rico, the Northern Mariana Islands, the Virgin Islands, Guam, American Samoa or the Trust Territory of the Pacific. A student who remains in this country on a student or visitor's visa is not eligible.
[42 CFR Part 60.5]
The student must be enrolled or accepted for enrollment as a full-time student in a health professions school participating in the HEAL program. The school is responsible for defining full-time student status. However, regulations permit the student's work load to include any combination of course, work experience, research or special studies that the school accepts as meeting a definition of full-time student status. The student must be in good standing as defined by the school.
Should a HEAL recipient cease to be a student in good standing because of academic failure, then the school is obligated to discontinue disbursement of HEAL funds. An institution must also discontinue disbursements for students who are awarded HEAL loans upon disability or death. Loan funds disbursed to the student for other educational expenses beyond the period of academic good standing should be collected from the student and applied to the principle balance of the outstanding HEAL loan.
[Sections 705(a)(1)(A)(I) and 705(a)(1)(A)(ii) of the Public Health Service Act; 42 CFR Part 60.5]
Students must be enrolled full-time in programs leading to the following degrees in order to be eligible for HEAL funds:
Note: Regulations, policies and procedures have not implemented allied health as an active discipline in the HEAL program.
Pharmacy students must satisfactorily complete three years of training toward a pharmacy degree before obtaining a HEAL loan. The three-year training period must have taken place at the pharmacy school at which the HEAL borrower is enrolled, or at another school whose credits are accepted on transfer by the pharmacy school. Students enrolled in doctor of pharmacy programs are eligible for HEAL only if the degree is taken at an institution that does not require the bachelor or master of science in pharmacy as a prerequisite for the doctor of pharmacy degree.
[42 CFR Part 60.5]
Some allopathic and osteopathic medical school programs and dental school programs combine undergraduate school with graduate school training. These programs generally condense the undergraduate curriculum into two years, while maintaining a four-year graduate curriculum. When students are enrolled in these six-year programs, they are eligible for HEAL loans only during the last four years of the program.
Some allopathic medical institutions offer multiple degree programs, such as combined M.D. and doctoral degrees in science (M.D./Ph.D.), M.D. and law degrees (M.D./J.D.), or M.D. and master of public health degrees (M.D./M.P.H.). If such students are enrolled in multiple degree programs, they are eligible to receive HEAL loans only when they are pursuing the M.D. degree as full-time students.
Example:
A student is enrolled in a six-year program. It consists of two years of study toward the M.D. degree followed by two years of study toward the Ph.D. degree. The last segment of the program is dedicated to the M.D. degree. The student is only eligible to receive HEAL loans during the first two and last two years of the program. Because this student is enrolled full-time at a school that is eligible to participate in the HEAL program or in the Title IV Federal Family Education Loan Programs (previously called the Guaranteed Student Loan Programs) during the two years of full-time study towards the Ph.D. degree, the student can defer making payments on previous HEAL loans, but cannot receive additional HEAL loans during this period.
Students enrolled in concurrent or supplemental degree programs that do not provide for full-time study towards the M.D. degree are not eligible to receive HEAL loans. If they receive the M.D. degree through full-time study and remain enrolled in a Ph.D. program, they are eligible to receive HEAL loans only up to the time they receive the M.D. degree. In all instances, the proceeds of a HEAL loan may be used only for the costs of education for full-time study towards the M.D. degree.
Financial aid administrators must remember that they are responsible for certifying that students who apply for HEAL loans are enrolled or accepted for enrollment full-time in an eligible degree program. Financial aid administrators must not accept HEAL applications from students pursuing ineligible degrees or studying less than full-time. Further, financial aid administrators must notify the lender within 60 days when a student borrower's status changes. This would include any student whose enrollment status changes to other than that of a full-time student.
[Section 713 of the Public Health Service Act; 42 CFR Part 60.5]
Students must demonstrate financial need to obtain a HEAL loan and show that the loan is absolutely necessary to continue in school. Need is the difference between the cost of attendance and a student's resources, which include calculated expected family contribution as determined by the need analysis formula incorporated into the Higher Education Act, actual and estimated financial aid awards, and other sources. Chapter 2, Section F, Determining the Amount of the HEAL Loan, provides a fuller explanation of how institutions must assess the needs of applicants for HEAL loans.
The amount that students may borrow for HEAL may not exceed the lesser of their financial need or the legal maximum under the program. In addition, students must agree that all HEALproceeds are used solely to pay for tuition and other reasonable educational expenses. Other reasonable educational expenses include:
[Section 705(a)(1)(A)(iii); 42 CFR Parts 60.5 and 60.51]
Draft-eligible male students must be registered with the Selective Service to receive a HEAL loan. If they are not registered, they may receive HEAL loans only if they give Selective Service permission to register them using the HEAL application form.
[Section 705(a)(1)(A)(iv) of the Public Health Service Act; 42 CFR Part 60.5]
Students must provide health professions schools with financial aid transcripts from any other previously attended institution of higher education. More information on the content of the financial aid transcript, who must sign it, and its purpose in processing HEAL applications appears in Chapter 2, Section 3D.
[42 CFR Part 60.51]
HEAL loans are not available to students who have defaulted or are delinquent on other Federal obligations. If a student who has defaulted or has become delinquent on another Federal obligation is able to make satisfactory repayment arrangements with the affected Federal agency(ies), then that student may become eligible to borrower from HEAL funds. The lender must receive correspondence by the authorized Federal official from the affected agency stating that the borrower has taken satisfactory actions to bring the account into good standing. The responsibility rests with the loan applicant to assure that the lender receives the pertinent documentation.
[42 CFR Part 60.33]
HEAL lenders must determine whether a student applying for a HEAL loan is creditworthy using, at a minimum, the following data:
Lenders must perform a credit check at least once in every academic year for which a student applies for a HEAL loan. Lenders must judge a student as creditworthy if his or her repayment history is satisfactory for loans that have become payable and the lender has applied all credit criteria standards implemented by HEAL program guidelines. In addition, the absence of any credit history is considered to be good credit. However, lenders may not determine students in default on any loan--whether commercial, consumer or educational--to be creditworthy until a satisfactory repayment arrangement has been made with the party that holds the loan. The lender must obtain documentation, such as a letter from the holder or institution or a corrected credit report indicating that the HEAL applicant has taken satisfactory actions to bring the account into good standing. HEAL applicants or the school acting on behalf of the applicant are responsible for assuring that lenders receive the necessary documentation.
Lenders are responsible for determining a student's creditworthiness, not the school. However, the school's certification attests to the eligibility of the student. This includes certification that:
As a result, when a borrower's HEAL application has been certified by the school as meeting all the HEAL eligibility requirements, including the requirements listed above--and the lender returns the application to the school because it does not deem the student to be creditworthy--the school may resubmit the loan to another lender.
[42 CFR Part 60.33]
Lenders cannot require either security or endorsement on a HEAL loan. However, if the student is a minor whose signature on the loan application and promissory note cannot constitute a legally binding obligation under State law, a lender may require an endorsement by another person. An endorsement refers to the signature of an individual other than the borrower who is willing to assure either primary or secondary liability on the note.
Eligible borrowers may reduce their HEAL insurance premium payment by 50 percent, if a creditworthy parent or other responsible party cosigns the HEAL promissory note. In these cases, the cosigner must repay the loan if the borrower defaults. The cosigner is not responsible for repaying the loan, however, if the borrower dies or is totally and permanently disabled.
[Sections 705(a)(2)(A) and 708(c(C)f the Public Health Service Act; 42 CFR Part 60.17]
Some nonstudents are eligible to borrower under the HEAL program. Regulations, however, set out detailed requirements that must be met in order to provide a HEAL loan to a nonstudent. Specifically, the borrower must have received a HEAL loan prior to August 13, 1981 that requires payment of interest--but not principal--during the grace period and deferments, such as internship and residency. In addition, the proceeds from HEAL loans to nonstudents must be used solely to pay accruing interest on the nonstudent's HEAL loans and the HEAL insurance premium. Nonstudents requesting HEAL funds must meet the same citizenship, selective service, default, creditworthy, and security and endorsement eligibility requirements as HEAL applicants who are currently students.
Note that schools are not responsible for certifying applications for eligible nonstudents requesting HEAL funds.
[Section 705(a)(1)(B) of the Public Health Service Act; 42 CFR 60.6]
The statute requires that the lender obtain appropriate demographic information about HEAL applicants. The information must be obtained from the applicant and with the applicant's consent.
[Section 705(a)(2)(H) of the Public Health Service Act]
The chart below identifies the legal annual and aggregate maximum loan limits students may obtain depending on the student's degree program. No student may borrow more than his or her financial need (see Chapter 3, Section 1D for information on determining financial need).
HEAL LOAN AMOUNTS | ||
Degree Program and
|
Legal Annual Maximum |
Legal Aggregate
|
doctor of allopathic medicine
|
$20,000 for a nine-month academic year, not to exceed $26,667 for a 12-month academic year |
$80,000 |
bachelor or master of science in pharmacology
|
$12,500 for a nine-month academic year, not to exceed $16,667 for a 12-month academic year |
$50,000 |
For the purpose of determining the annual maximum a student may receive in HEAL, the traditional academic year of nine months (generally from September to June) may be modified for students attending programs with academic years lasting 10 months (240 work days) to 12 months (270 work days). The academic year must be prorated accordingly to compute academic year equivalents for students who attend for more than the traditional nine months during a 12-month period. At no time may students receive more than the prorated maximum on the loan or their financial need, whichever is less.
[Section 703(a) of the Public Health Service Act; 42 CFR Part 60.10(a)]
Most HEAL loans are offered as variable interest rate loans. This means the interest can change every three months throughout the life of the loan based on an assessment performed by the Department of Health and Human Services. The Department of Health and Human Services assesses the maximum HEAL interest rate for every quarter by:
Since 1981, there has been no cap on the interest rate beyond not exceeding the maximum rate assessed by the Department each quarter. However, lenders may impose a cap if they choose. Interest rates and compounding terms charged by the lender during the in-school, grace, deferment and repayment periods will be noted on each HEAL promissory note.
Some HEAL loans may be offered as fixed interest rate loans. This means that the interest remains the same throughout the life of the loan, unless the borrower chooses to refinance his or her HEAL loans into a variable interest rate loan, or consolidate all HEAL loans into one consolidation loan. The rate of interest on a fixed HEAL loan cannot exceed the maximum interest rate as assessed by the Department of Health and Human Services for the quarter in which the borrower obtains the HEAL loan.
Lenders have the option for both variable and fixed rate loans to offer HEAL loans at interest rates below the levels assessed by the Department. Further, Federal and State usury laws cannot supersede interest rates applicable to HEAL loans.
[Sections 705(b) and 705(d) of the Public Health Service Act; 42 CFR Part 60.13]
Interest accrues on HEAL loans from the date of disbursement until the date the loan is paid in full. Interest on HEAL loans may compound as much as semi-annually on loans for which the borrower signed promissory notes prior to October 13, 1992, and as much as annually on loans for which the borrower signed promissory notes after this date. That is, the interest that accrues on the loan may be added to the principal as often as every six or 12 months. Lenders have the option to compound the interest less frequently. For example, lenders may postpone the compounding of interest before the beginning of the repayment period or during periods of deferment or forbearance. However, lenders must compound interest on the date repayment begins or resumes.
[Section 705(a)(2)(D) of the Public Health Service Act]
Students may be subject to other charges in addition to interest rates. These charges include the HEAL loan insurance premium, late charges, collections costs and so forth. The following text describes these charges.
Insurance premiums charged to the borrower and the school are based on the school's risk category. The risk categories are determined by the school's HEAL default rate, as follows:
Borrowers attending low-risk schools pay an insurance premium of six percent of the principal amount of the loan. Low-risk schools do not pay a risk-based insurance premium.
Borrowers attending medium-risk schools pay an insurance premium of eight percent of the principal amount of the loan. Medium-risk schools must also pay a risk-based insurance premium of five percent of the principal amount of the loan for each HEAL loan processed.
Borrowers attending high-risk schools also pay an insurance premium of eight percent of the principal amount of the loan. However, high-risk schools must pay a risk-based insurance premium of 10 percent of the principal amount of the loan for each HEAL loan processed.
Borrowers attending schools with default rates above 20 percent may not obtain HEAL loans.
The Department will send a quarterly billing invoice to all schools that are required to pay a risk-based insurance premium. This invoice will be based on all HEAL disbursements made to students enrolled at that institution during the preceding quarter and reported to the Department. The institution must pay this bill within a specified time period before a delinquency occurs. Schools should pay these bills on a timely basis since a delinquent debt to the Federal Government may initiate limitation and/or suspension action from the HEAL program.
[Section 708 of the Public Health Service Act]
Each school's risk category is determined every September 30 and becomes effective July 1 through June 30 of the following year to coincide more appropriately with the academic year. The risk category is based on the default rate status of the school as outlined in Chapter 2, Section 1.E.2.
[Section 708 of the Public Health Service Act]
Borrowers can reduce the cost of their insurance premiums by 50 percent, if a creditworthy adult cosigns the loan note. The cosigner becomes responsible for repaying the loan if the borrower defaults. However, the cosigner is not responsible for repaying the loan if the borrower dies or becomes totally and permanently disable. In addition, the Department of Health and Human Services may grant a waiver of the medium- and high-risk insurance premium requirements if it determines that the default rate for the school is not an accurate indicator due to low HEAL volume.
[Section 708 of the Public Health Service Act]
For loans that are multiply disbursed, the HEAL loan insurance premium is paid upon issuing each disbursement. The following example is based on a student who must pay an 8 percent insurance premium.
Example:
A student borrows $10,000 in HEAL to attend a school that divides the academic year into two semesters. The loan must be multiply disbursed. Because expenses are greater in the first semester than in the second, the first disbursement will equal $6,000 of the total loan and the second disbursement will equal $4,000. An 8 percent insurance premium must be deducted from the proceeds. Although the total insurance premium is $800 on a $10,000 loan, the premium must be paid in proportion to the disbursements. As a result, the insurance premium for the first disbursement is $480 (i.e., 8 percent of $6,000) with proceeds equaling $5,520 (i.e., $6,000 minus $480); the insurance premium is $320 (i.e., 8 percent of $4,000) for the second disbursement with proceeds equaling $3,680 (i.e., $4,000 minus $320).
[Section 708 of the Public Health Service Act; 42 CFR Part 60.14]
The insurance premium is the only charge a lender may pass on to the borrower at the time the loan is made. Lenders may not pass any other charges on to the borrower for the purpose of processing and disbursing a HEAL loan.
Regulations require lenders or holders to charge borrowers a fee when they are late in repaying installments on their loans. Each late charge is equal to five percent of the amount of any repayment installment that is overdue by 30 days or more. Borrowers also are charged a late fee when they are eligible for deferments, but they file their deferment forms later than 30 days after a repayment installment on a loan that would have been due.
[42 CFR Part 60.15]
The lender or holder may charge borrowers for reasonable costs incurred in order to collect any installment not paid when due. Reasonable collection costs include:
The holder may not charge the borrower for the normal costs associated with:
[42 CFR Part 60.15]
The repayment period begins nine months after the HEAL borrower ceases to be a full-time student. This nine-month period in which no repayment installments are required--although interest continues to accrue--is called the grace period. If, prior to the end of the grace period, a borrower begins an activity for which he or she is eligible for certain deferments, the grace period goes into effect at the end of the deferment period. Deferments for which the student can postpone the grace period are participation in:
accredited internship and residency programs; and
accredited fellowship training or other educational activity (for loans borrowed after October 22, 1985).
[Section 705(a)(2)(B) of the Public Health Service Act;42 CFR Part 60.11]
To obtain deferments, HEAL borrowers must comply with three requirements. First, they must be participating in activities that the statute deems eligible for deferments. Second, they must provide deferment forms to lenders between 30 to 60 days prior to onset of the deferment activity to prove that they will be participating in the activity and that the activity constitutes an eligible deferment. Third, borrowers must submit deferment forms annually thereafter for each year they can still obtain deferment on the loan. This information is set forth in each promissory note issued to the borrower.
During deferment periods, borrowers are not required to make payments on their HEAL loans. However, interest continues to accrue and may compound at the option of the lender, but not more frequently than every 12 months (or the interest rate and terms for compounding interest contained in the promissory note). In addition, periods of deferments are not counted in the number of years that a borrower has to repay his or her HEAL loan.
The following chart identifies eligible activities for deferments and the number of years a borrower may defer for each. A copy of the Borrower Deferment form appears as Exhibit A.
HEAL DEFERMENT OPTIONS | |
Deferment |
Time Limit And Additional Requirements |
Full-time course of study at a HEAL school or at a school that participates in the Higher Education Act Title IV programs |
|
|
Accredited internship and residency |
|
|
*Armed Forces of the United States |
*Borrowers who served as members of the Armed Forces on active duty during the Persian Gulf conflict were eligible for extra deferments during that period. |
Peace Corps |
|
|
National Health Service Corps |
|
|
Full-time VISTA Volunteer |
|
|
Fellowship training programs |
|
Related educational full-time activit\`y |
|
|
Practice in primary health care |
|
|
Graduates of chiropractic medicine |
|
|
Health care services to Indians |
|
In reviewing this chart, note that interns and residents may not be certified for deferment on the basis of full-time student status. This is contrary to the intent of the Public Health Service Act and the regulations used to implement that statute. The total maximum length of time that most borrowers may obtain for internship and residency deferment is four years. Under no circumstances, may interns and residents receive additional deferments as full-time students. A school that does not comply with these provisions jeopardizes its eligibility to continue participating in the HEAL program.
[Section 705(a)(2)(C) of the Public Health Service Act; 42 CFR Parts 60.12 and 60.13]
Borrowers must begin making payments on HEAL loans after the nine-month grace period, which follows the date that the borrower:
[Section 705(a)(2)(B) of the Public Health Service Act; 42 CFR Part 60.11]
Once repayments begin, the minimum repayment required annually of a HEAL borrower generally is equal to the amount of interest that accrues on his or her HEAL indebtedness during the course of that year. However, alternate repayment schedules--such as graduated repayments, or payments based on a borrower's debt-to-income ratio during the first five years of repayment--may result in repayments during certain periods equaling less than the amount of interest that accrues. Borrowers must agree to any alternate repayment terms.
Note that paying less than the amount of interest that accrues will increase the total amount that the borrower must repay over the life of the loan, because interest only accrues on the outstanding balance of the loan--not on amounts already repaid. In this instance, the outstanding balance is actually increasing. The increased amount could be substantial depending on interest rates, the amount of HEAL principal and interest outstanding, and the length of time that payments are less than the amount of accruing interest.
[Section 705(C) of the Public Health Service Act; 42 CFR Part 60.11]
HEAL borrowers must repay their loans in not less than 10 years nor more than 25 years. Borrowers may choose to repay their loans in less than 10 years without penalty if they so choose. Periods of deferment are not counted toward the 10- to 25-year time frame in which HEAL loans must be repaid; nor is forbearance, if the promissory note was signed prior to October 13, 1992 (see Section 7F below). Nonetheless, borrowers are not given more than 33 years from the date a HEAL loan was made to repay that loan.
[Section 705(a)(2)(B) of the Public Health Service Act; 42 CFR Part 60.11]
Borrowers may accelerate the repayment of HEAL loans or make prepayments at any time without penalty. Making prepayments reduces the outstanding balance of a borrower's HEAL obligation, thus reducing the amount of interest that accrues. Prepayments or additional amounts will always be applied first to the outstanding interest to date. As a result, prepayment or additional amount payment has the advantage of reducing the overall cost of repayment to the borrower.
[Section 705(a)(2)(F) of the Public Health Service Act; 42 CFR Part 60.11]
A HEAL borrower who makes late payments or who becomes delinquent or goes into default must pay penalty charges in the form of late fees and collection costs. See Sections 4C and 4D above for more information.
[Section 705(a)(2)(B) of the Public Health Service Act; 42 CFR Part 60.15]
Forbearance is a period of time in which the lender extends the time that the borrower can make loan payments or permits lower installments than required by the repayment schedule. The purpose of forbearance is to prevent a borrower from defaulting because he or she cannot afford the installments as agreed to in the repayment schedule.
Lenders must notify borrowers of their right to request forbearance. In addition, upon receipt of full documentation of the borrower's ability to repay the HEAL loan, lenders must grant forbearance to any borrower who is temporarily unable to make scheduled payments on a HEAL loan and continues to make payments in amounts that are commensurate with his or her financial circumstances. However, the lender is not obligated to provide forbearance to borrowers who, in the lender's judgment and with the approval of the Department of Health and Human Services, will inevitably default. (Note: If the lender has no objection, a borrower in default on a HEAL loan is still eligible for forbearance with the approval of the Department of Health and Human Services.)
Forbearance is available for six-month increments, which can be extended. No borrower may obtain more than a total of two years of forbearance on HEAL loans, unless the borrower and the lender believe that there are bona fide reasons why this period should be extended. In these instances, the lender must seek approval from the Department of Health and Human Services. The request must document the reasons why an extension of the two-year limitation should be granted.
In the case of loans for which promissory notes were signed before October 13, 1992, periods of forbearance do not interrupt the repayment period. As a result, any period of forbearance counts against the 10-year to 25-year HEAL repayment period.
However, in the case of loans for which promissory notes were signed after October 13, 1992, periods of forbearance do not count against the 10-year to 25-year HEAL repayment period,forbearance must be taken into account in calculating the total 33-year limitation on repayment of HEAL obligations. In effect, forbearance on these loans is treated as a deferable activity that interrupts, rather than shortens, the repayment period.
[Sections 705(e) and 707(C) of the Public Health Service Act]
HEAL loan obligations are canceled in the case of a borrower's death or permanent and total disability as approved by the Department of Health and Human Services. In these instances, no lien is placed against the borrower's estate, nor are any members of the borrower's family required to repay the debt.
[Section 714 of the Public Health Service Act; 42 CFR Part 60.39]
Regulations require borrowers to contact the lenders or holders of their HEAL loans at least 30 days--but not more than 60 days--before their repayment periods begin. The purpose of the contact is to establish the precise terms of repayment. The lender/holder is responsible for offering the borrower a variety of repayment terms to include:
If the borrower does not contact the HEAL lender/holder or does not respond to the lender's/holder's contacts, the lender/holder may establish a monthly repayment schedule with substantially equal installment payments, subject to the terms of the borrower's HEAL note.
[Sections 705(a)(2)(E), 705(f) and 715(a)(8) of the Public Health Service Act]
Lenders/holders have the option of offering borrowers alternative repayment schedules, other than those mentioned above in Section 7.B, Minimum Repayment Amounts. These alternative schedules are referred to as supplemental agreements. Although providing an alternative schedule is at the option of the lender, the borrower must agree to the terms unless the lender obtained the borrower's written consent to enter into a supplemental agreement at the time the borrower signed the promissory note.
Lenders/holders may not offer supplemental agreements that will unduly burden the borrower. Nor may the agreements extend the repayment period beyond the 10- to 25-year limits, or the 33 years permitted to repay the loan from the date the loan was made.
[42 CFR 60.11]
Borrowers have two options for refinancing their HEAL loans:
Questions regarding consolidation of HEAL loans with Title IV loans should be directed to the Department of Education. The following sections address HEAL loan refinancing.
HEAL loan refinancing permits borrowers and lenders by mutual consent to combine borrowers' HEAL loans into a single, new loan with a single lender and a single monthly repayment. At the time of refinancing, the new loan's terms and conditions will be the same as those prevailing under the HEAL program and, as a result, may differ from the terms and conditions of the HEAL loans that are being refinanced.
Because a HEAL loan refinancing creates a new loan for the borrower, the number of years to repay the loan is based on the date of the new loan and not on the dates of the original HEAL loans. In addition, if a borrower had HEAL loans with different terms and conditions (e.g., deferment options), the refinanced loan would create a uniform set of terms and conditions.
[Section 706(e) of the Public Health Service Act]
Only approved HEAL refinancing lenders may offer HEAL loan refinancing. They may include the following types of institutions:
Borrowers who fall into the following categories are eligible to apply for HEAL refinancing:
Borrowers who have defaulted on HEAL loans are not eligible to refinance their HEAL loans. Borrowers who are delinquent on their HEAL loans (a court judgment on the delinquent loans has not been issued) are eligible for HEAL loan refinancing, provided that the borrower:
A borrower may not choose to refinanced some of his/her HEAL loans, but not others, under the HEAL refinancing program. To assure that the borrower does not inadvertently exclude any loans on the refinancing application, the refinancing lender must obtain verification directly from the Division of Student Assistance before processing the application.
A borrower may choose any authorized HEAL refinancing lender that agrees to refinance his or her loans. The borrower does not have to refinance HEAL loans with the lender that holds the borrower's Title IV loans, nor is the refinancing lender required to be currently holding any of the borrower's HEAL loans.
If a lender refuses to refinance a borrower's HEAL loans, then the borrower may go to another HEAL refinancing lender. However, a borrower may not apply to more than one lender at a time, and may only apply to a second lender if the application to the first has been denied or withdrawn.
The Department of Health and Human Services periodically publishes lists of authorized consolidation lenders to participating schools. Information on HEAL refinancing may be obtained by contacting the HEAL Branch at 301-443-1540 or by visiting our internet web site at www.hrsa.gov/refinance.
HEAL loan refinancing may only take place after graduation or other separation from a HEAL school. The borrower's entire HEAL portfolio must be refinanced at the same time.
HEAL regulations pertaining to creditworthiness do not apply to HEAL loan refinancing. The reason is that every time a borrower previously obtained a HEAL loan that borrower was subject to a credit check on that original loan.
Borrowers must sign a single promissory note documenting the issuance of a single new HEAL refinanced loan. The promissory note contains:
A copy of the HEAL Refinancing Application/Promissory Note appears as Exhibit B.
The terms and conditions--that is, length of repayment, interest rates, loan capitalization, deferment options, forbearance, cancellation provisions, penalties, etc.--of a HEAL refinanced loan coincide with the prevailing standard HEAL loan terms and conditions at the time the refinanced loan is made. Because the refinanced loan is a new loan, the borrower becomes fully eligible for any of the provisions in the refinanced loan's promissory note, even if the borrower was no longer eligible prior to refinancing.
Examples:
Lenders may not charge insurance premiums or fees to borrowers seeking a HEAL refinanced loan.
The HEAL refinancing lender is responsible for providing information to the borrower about the advantages and disadvantages of loan refinancing. At a minimum, this information must address:
Each refinancing lender must provide this information in writing to borrowers. In addition, lenders must submit copies of this "standardized" borrower information to the Division of Student Assistance for approval in order to become an eligible HEAL refinancing lender.
Once the borrower's HEAL refinancing loan application has been processed and approved, the refinancing takes place by the refinancing lender repaying the full amount of the outstanding HEAL loans and issuing a new promissory note to the borrower. A refinanced loan is not multiply disbursed.
Once the borrower has submitted a signed HEAL refinancing loan application, the lender is responsible for contacting the borrower's current holder(s) concerning the payoff amount of the borrower's outstanding HEAL loans. Each holder should provide the information within 10 days of receipt of the document requesting loan verification and payoff amounts. The refinancing loan lender then pays off the current HEAL loan balances within a specified period of time (e.g., 45 days, 60 days, 90 days). The holder ceases requesting regularly scheduled payments from the borrower after the date the HEAL refinancing loan takes effect--that is, the date the payoff amount is received by the holder(s).
If the payoff amount represents an overpayment, the holder must refund the difference to the refinancing lender. The refinancing lender, in turn, credits the overpayment as a prepayment toward the refinanced HEAL loan. Conversely, if the payoff amount represents an underpayment, the holder and the refinancing lender may either include this amount as part of the refinanced loan, or request the borrower to pay the amount owed directly to the previous holder(s).
The Department of Health and Human Services can take several actions against borrowers who have defaulted on their HEAL loans. The purpose is to recoup losses resulting from the defaults. These actions include:
Note that statutes of limitation do not apply to allowable activities used to collect on defaulted HEAL loans. A brief description of each action follows.
[Sections 707(f), 707(h)(3) and 707(I) of the Public Health Service Act]
HEAL lenders and holders are required to report all HEAL loans that become more than 60 days past due to at least one national consumer credit reporting agency. This requirement is designed to assure that information on a borrower's failure to honor the HEAL repayment obligation will be available to other creditors who are considering making a loan to the borrower.
HEAL lenders and holders are required to obtain a judgment against a defaulted HEAL borrower before the Department of Health and Human Services will purchase the loan. When a judgment is entered against a HEAL borrower, it becomes part of the borrower's credit record and a lien is placed against the borrower's property. This action makes it extremely difficult for the borrower to obtain other credit. Further, the lien prevents the borrower from selling the property without first satisfying the judgment.
Defaulted HEAL loans assigned to the Department of Health and Human Services are subject to departmental collections procedures, including litigation and enforcement of judgments by the Department of Justice. Department of Justice enforcement procedures include garnishment of wages, attachment of property, and other methods that are appropriate depending upon the circumstances of the defaulted borrower.
The Department of Health and Human services reports defaulted HEAL borrowers who have failed to make satisfactory repayment arrangements to the Internal Revenue Service (IRS). Reports are forwarded annually. The IRS then withholds any tax refund--not to exceed the full amount of the unpaid HEAL balance--that the defaulted borrower would otherwise be entitled to receive.
Defaulted HEAL borrowers who have failed to make satisfactory repayment arrangements with the Department of Health and Human Services--and who are employees of the Federal Government--are subject to salary offsets. Salaries of affected HEAL borrowers are offset until the debt has been fully repaid.
The Public Health Service Act requires the Department of Health and Human Services to publicize the names of defaulted HEAL borrower by publishing a list in the Federal Register. The list also includes the defaulters' city and state, total amount of HEAL debt, health professions school attended and date of graduation. The list does not include defaulted borrowers who have repaid their HEAL loans in full, have received cancellation due to death or disability, or have entered into a repayment agreement with the Department and have complied with the agreement for the most recent 12 consecutive months.
The lists are published annually. Because the Federal Register is a public document, it is possible that the press and other media will further publicize the names of defaulters in news reports.
The Public Health Service Act requires the Department of Health and Human Services to release the names of defaulted HEAL borrowers to relevant Federal agencies, schools, school associations, professional and specialty associations, State licensing boards, hospitals with which the borrowers may be affiliated, and other organizations with an appropriate interest. In addition to the names of the defaulters, the Department will also provide their social security numbers, addresses and the total amounts of their HEAL debts. The Department will not include defaulted borrowers who have made satisfactory repayment arrangements.
The Department of Health and Human Services must reduce any Federal reimbursements and payments to HEAL defaulters for health services provided. The Social Security Act requires that the defaulted borrower be given an opportunity to enter into an agreement to repay his or her HEAL loans by having a portion of the Medicare reimbursements applied toward repayment. Borrowers who refuse to enter into such agreements are subject to exclusion from the Medicare programs. (See Section 9I. that follows below.)
A borrower who defaults on a HEAL loan and does not make satisfactory repayment arrangements with the Department of Health and Human Services is subject to exclusion from participation in the Medicare program.
The Public Health Services Act authorizes schools to withhold academic, alumni and other services from borrowers who have defaulted on their HEAL loans.
A borrower cannot discharge a HEAL loan in bankruptcy until seven years have elapsed from the time repayments begin. The seven-year requirement does not include intervals in which repayments are suspended, such as periods of deferment. This provision applies only to HEAL loans for which bankruptcy proceedings began on or after June 10, 1993.
The provisions for bankruptcy proceedings that began prior to June 10, 1993 are different. In these instances, the borrower cannot discharge a HEAL loan until five years have passed from the beginning of the repayment period. The five years include any intervals in which repayments were suspended.
[Section 707(g) of the Public Health Service Act]
