Laws & Guidance HIGHER EDUCATION
1998 Amendments to the Higher Education Act of 1965
P.L. 105-244

TITLE IV--STUDENT ASSISTANCE

PART E--FEDERAL PERKINS LOANS

SEC. 464. TERMS OF LOANS

(a) TERMS AND CONDITIONS; ANNUAL LIMITS- Paragraph (2) of section 464(a) (20 U.S.C. 1087dd(a)) is amended to read as follows:

`(2)(A) Except as provided in paragraph (4), the total of loans made to a student in any academic year or its equivalent by an institution of higher education from a loan fund established pursuant to an agreement under this part shall not exceed--

`(i) $4,000, in the case of a student who has not successfully completed a program of undergraduate education; or

`(ii) $6,000, in the case of a graduate or professional student (as defined in regulations issued by the Secretary).

`(B) Except as provided in paragraph (4), the aggregate unpaid principal amount for all loans made to a student by institutions of higher education from loan funds established pursuant to agreements under this part may not exceed--

`(i) $40,000, in the case of any graduate or professional student (as defined by regulations issued by the Secretary, and including any loans from such funds made to such person before such person became a graduate or professional student);

`(ii) $20,000, in the case of a student who has successfully completed 2 years of a program of education leading to a bachelor's degree but who has not completed the work necessary for such a degree (determined under regulations issued by the Secretary), and including any loans from such funds made to such person before such person became such a student; and

`(iii) $8,000, in the case of any other student.'.

(b) NEED AND ELIGIBILITY- Section 464(b) is amended--

(1) in paragraph (1), by adding at the end the following: `A student who is in default on a loan under this part shall not be eligible for an additional loan under this part unless such loan meets one of the conditions for exclusion under section 462(g)(1)(E).'; and

(2) by amending paragraph (2) to read as follows:

`(2) If the institution's capital contribution under section 462 is directly or indirectly based in part on the financial need demonstrated by students who are (A) attending the institution less than full time, or (B) independent students, then a reasonable portion of the loans made from the institution's student loan fund containing the contribution shall be made available to such students.'.

(c) CONTENTS OF LOAN AGREEMENT- Section 464(c) is amended--

(1) in paragraph (1)(D)--

(A) by striking `(i) 3 percent' and all that follows through `or (iii)'; and

(B) by striking `subparagraph (A)(i)' and inserting `paragraph (2)(A)(i)';

(2) in the matter following clause (iv) of paragraph (2)(A), by striking `subparagraph (B)' and inserting `subparagraph (A) of paragraph (1)';

(3) by adding at the end of paragraph (2) the following:

`(C) An individual with an outstanding loan balance who meets the eligibility criteria for a deferment described in subparagraph (A) as in effect on the date of enactment of this subparagraph shall be eligible for deferment under this paragraph notwithstanding any contrary provision of the promissory note under which the loan or loans were made, and notwithstanding any amendment (or effective date provision relating to any amendment) to this section made prior to the date of such deferment.'; and

(4) by adding at the end the following:

`(7) There shall be excluded from the 9-month period that begins on the date on which a student ceases to carry at least one-half the normal full-time academic workload (as described in paragraph (1)(A)) any period not to exceed 3 years during which a borrower who is a member of a reserve component of the Armed Forces named in section 10101 of title 10, United States Code, is called or ordered to active duty for a period of more than 30 days (as defined in section 101(d)(2) of such title). Such period of exclusion shall include the period necessary to resume enrollment at the borrower's next available regular enrollment period.'.

(d) DISCHARGE; REHABILITATION; INCENTIVE REPAYMENT- Section 464 is amended by adding at the end the following:

`(g) DISCHARGE-

`(1) IN GENERAL- If a student borrower who received a loan made under this part on or after January 1, 1986, is unable to complete the program in which such student is enrolled due to the closure of the institution, then the Secretary shall discharge the borrower's liability on the loan (including the interest and collection fees) and shall subsequently pursue any claim available to such borrower against the institution and the institution's affiliates and principals, or settle the loan obligation pursuant to the financial responsibility standards described in section 498(c).

`(2) ASSIGNMENT- A borrower whose loan has been discharged pursuant to this subsection shall be deemed to have assigned to the United States the right to a loan refund in an amount that does not exceed the amount discharged against the institution and the institution's affiliates and principals.

`(3) ELIGIBILITY FOR ADDITIONAL ASSISTANCE- The period during which a student was unable to complete a course of study due to the closing of the institution shall not be considered for purposes of calculating the student's period of eligibility for additional assistance under this title.

`(4) SPECIAL RULE- A borrower whose loan has been discharged pursuant to this subsection shall not be precluded, because of that discharge, from receiving additional grant, loan, or work assistance under this title for which the borrower would be otherwise eligible (but for the default on the discharged loan). The amount discharged under this subsection shall be treated as an amount canceled under section 465(a).

`(5) REPORTING- The Secretary or institution, as the case may be, shall report to credit bureaus with respect to loans that have been discharged pursuant to this subsection.

`(h) REHABILITATION OF LOANS-

`(1) REHABILITATION-

`(A) IN GENERAL- If the borrower of a loan made under this part who has defaulted on the loan makes 12 ontime, consecutive, monthly payments of amounts owed on the loan, as determined by the institution, or by the Secretary in the case of a loan held by the Secretary, the loan shall be considered rehabilitated, and the institution that made that loan (or the Secretary, in the case of a loan held by the Secretary) shall request that any credit bureau organization or credit reporting agency to which the default was reported remove the default from the borrower's credit history.

`(B) COMPARABLE CONDITIONS- As long as the borrower continues to make scheduled repayments on a loan rehabilitated under this paragraph, the rehabilitated loan shall be subject to the same terms and conditions, and qualify for the same benefits and privileges, as other loans made under this part.

`(C) ADDITIONAL ASSISTANCE- The borrower of a rehabilitated loan shall not be precluded by section 484 from receiving additional grant, loan, or work assistance under this title (for which the borrower is otherwise eligible) on the basis of defaulting on the loan prior to such rehabilitation.

`(D) LIMITATIONS- A borrower only once may obtain the benefit of this paragraph with respect to rehabilitating a loan under this part.

`(2) RESTORATION OF ELIGIBILITY- If the borrower of a loan made under this part who has defaulted on that loan makes 6 ontime, consecutive, monthly payments of amounts owed on such loan, the borrower's eligibility for grant, loan, or work assistance under this title shall be restored to the extent that the borrower is otherwise eligible. A borrower only once may obtain the benefit of this paragraph with respect to restored eligibility.

`(i) INCENTIVE REPAYMENT PROGRAM-

`(1) IN GENERAL- Each institution of higher education may establish, with the approval of the Secretary, an incentive repayment program designed to reduce default and to replenish student loan funds established under this part. Each such incentive repayment program may--

`(A) offer a reduction of the interest rate on a loan on which the borrower has made 48 consecutive, monthly repayments, but in no event may the rate be reduced by more than 1 percent;

`(B) provide for a discount on the balance owed on a loan on which the borrower pays the principal and interest in full prior to the end of the applicable repayment period, but in no event may the discount exceed 5 percent of the unpaid principal balance due on the loan at the time the early repayment is made; and

`(C) include such other incentive repayment options as the institution determines will carry out the objectives of this subsection.

`(2) LIMITATION- No incentive repayment option under an incentive repayment program authorized by this subsection may be paid for with Federal funds, including any Federal funds from the student loan fund, or with institutional funds from the student loan fund.'.

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Last Modified: 09/24/2003