§685.211. Miscellaneous repayment provisions.
34 C.F.R. § 685.211
Payment application and prepayment.
Except as provided for the Income-Based Repayment plan or Repayment Assistance Plan in paragraph (a)(1)(ii) of this section, the Secretary applies any payment in the following order:
Accrued charges and collection costs.
Outstanding interest.
Outstanding principal.
The Secretary applies any payment made under the Income-Based Repayment plan or the Repayment Assistance Plan in the following order:
Accrued interest.
Collection costs and late charges.
Loan principal.
A borrower may prepay all or part of a loan at any time without penalty. If a borrower pays any amount in excess of the amount due, the excess amount is a prepayment.
If a prepayment equals or exceeds the monthly repayment amount under the borrower's repayment plan, the Secretary—
Applies the prepaid amount according to paragraph (a)(1) of this section;
Advances the due date of the next payment unless the borrower requests otherwise; and
Notifies the borrower of any revised due date for the next payment.
If a prepayment is less than the monthly repayment amount, the Secretary applies the prepayment according to paragraph (a)(1) of this section.
Repayment incentives. To encourage on-time repayment, the Secretary may reduce the interest rate for a borrower who repays a loan under a system or on a schedule that meets requirements specified by the Secretary.
Refunds and returns of title IV, HEA program funds from schools. The Secretary applies any refund or return of title IV, HEA program funds that the Secretary receives from a school under § 668.22 against the borrower's outstanding principal and notifies the borrower of the refund or return.
Default—
Acceleration. If a borrower defaults on a Direct Loan, the entire unpaid balance and accrued interest are immediately due and payable.
Collection charges. If a borrower defaults on a Direct Loan, the Secretary assesses collection charges in accordance with § 685.202(e).
Collection of a defaulted loan.
The Secretary may take any action authorized by law to collect a defaulted Direct Loan including, but not limited to, filing a lawsuit against the borrower, reporting the default to nationwide consumer reporting agencies, requesting the Internal Revenue Service to offset the borrower's Federal income tax refund, and garnishing the borrower's wages.
If a borrower defaults on a Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct Consolidation Loan that is not an excepted consolidation loan as defined in § 685.209, or a student Direct PLUS Loan, the Secretary may designate the Repayment Assistance Plan or the income-based repayment plan for the borrower.
Ineligible borrowers.
The Secretary determines that a borrower is ineligible if, at the time the loan was made and without the school's or the Secretary's knowledge, the borrower (or the student on whose behalf a parent borrowed) provided false or erroneous information, has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program funds, or took actions that caused the borrower or student—
To receive a loan for which the borrower is wholly or partially ineligible;
To receive interest benefits for which the borrower was ineligible; or
To receive loan proceeds for a period of enrollment for which the borrower was not eligible.
If the Secretary makes the determination described in paragraph (e)(1) of this section, the Secretary sends an ineligible borrower a demand letter that requires the borrower to repay some or all of a loan, as appropriate. The demand letter requires that within 30 days from the date the letter is mailed, the borrower repay any principal amount for which the borrower is ineligible and any accrued interest, including interest subsidized by the Secretary, through the previous quarter.
If a borrower fails to comply with the demand letter described in paragraph (e)(2) of this section, the borrower is in default on the entire loan.
A borrower may not consolidate a loan under § 685.220 for which the borrower is wholly or partially ineligible.
Rehabilitation of defaulted loans.
A defaulted Direct Loan, except for a loan on which a judgment has been obtained, is rehabilitated if the borrower makes 9 voluntary, reasonable and affordable monthly payments within 20 days of the due date during 10 consecutive months. The Secretary determines the amount of a borrower's reasonable and affordable payment on the basis of a borrower's total financial circumstances.
Before July 1, 2027, the Secretary initially considers the borrower's reasonable and affordable payment amount to be an amount equal to the payment required under any eligible income-driven repayment plan, except if this amount is less than $5, the borrower's monthly payment is $5.
Beginning on and after July 1, 2027, the Secretary initially considers the borrower's reasonable and affordable payment amount to be an amount equal to the payment required under any eligible income-driven repayment plan, except that if this amount is less than $10, the borrower's monthly payment is $10.
The Secretary may calculate the payment amount based on information provided orally (or through other means) by the borrower or the borrower's representative and provide the borrower with a rehabilitation agreement using that amount.
The Secretary may provide a single application for the purpose of enabling a borrower to apply for loan rehabilitation and income driven repayment simultaneously, and may, with the borrower's approval, calculate the payment amount for any income driven repayment plan that the borrower would otherwise be eligible for (after successful rehabilitation of the defaulted loan) to inform the borrower of the projected monthly repayment amount under such plan after the loans are rehabilitated. The Secretary may use the calculated payment required under any eligible income driven repayment plan for the purpose of determining the reasonable and affordable payment amount under this paragraph (f)(1), with the borrower's approval. Nothing in this section prohibits the Secretary from accepting an application from a borrower for an IDR plan who is currently enrolled in a rehabilitation agreement but has not yet completed such agreement by making the requisite payments.
The Secretary requires the borrower to provide documentation to confirm the borrower's AGI and family size, except that the Secretary may, in his or her discretion, consider such additional documentation unnecessary if the borrower approves having the payment amount calculated by the Secretary for an eligible income driven repayment plan as the borrower's reasonable and affordable payment. If the borrower's AGI or family size is not available, or if the Secretary believes that the borrower's reported AGI or family size may be inaccurate, the borrower must provide other documentation to verify income or family size. If the borrower fails to provide acceptable documentation to verify family size, the Secretary assumes a family size of one. If the borrower does not provide the Secretary with any income documentation requested by the Secretary to calculate or confirm the reasonable and affordable payment amount within a reasonable time deadline set by the Secretary, the rehabilitation agreement provided is null and void.
A reasonable and affordable payment amount is not—
A required minimum loan payment amount (e.g., $50) if the Secretary determines that a smaller amount is reasonable and affordable;
A percentage of the borrower's total loan balance; or
Based on other criteria unrelated to the borrower's total financial circumstances.
Within 15 business days of the Secretary's determination of the borrower's loan rehabilitation payment amount, the Secretary provides the borrower with a written rehabilitation agreement which includes the borrower's reasonable and affordable payment amount, a prominent statement that the borrower may object orally or in writing to the reasonable and affordable payment amount with the method and timeframe for raising such an objection, a statement that the rehabilitation is null and void if the borrower does not provide the documentation required to calculate the reasonable and affordable payment amount, and an explanation of any other terms and conditions applicable to the required series of payments that must be made. To accept the agreement, the borrower must sign and return the agreement or accept the agreement electronically under a process provided by the Secretary. The Secretary does not impose any other conditions unrelated to the amount or timing of the rehabilitation payments in the rehabilitation agreement. The written rehabilitation agreement informs the borrower of the effects of having the loans rehabilitated (e.g., removal of the record of default from the borrower's credit history and return to normal repayment).
The Secretary provides the borrower with a written statement confirming the borrower's reasonable and affordable payment amount, as determined by the Secretary, and explaining any other terms and conditions applicable to the required series of payments that must be made before the borrower's loans can be rehabilitated. The statement informs the borrower that the borrower may object to the terms and conditions of the rehabilitation agreement and explains the method and timeframe for objecting to the terms and conditions of the rehabilitation agreement.
If the borrower rejects the monthly payment amount determined under paragraph (f)(1) of this section, the Secretary recalculates the payment based solely on information provided on a form approved by the Secretary and, if requested, supporting documentation from the borrower and other sources, and considerations
The borrower's, and if applicable, the spouse's current disposable income, including public assistance payments, and other income received by the borrower and the spouse, such as welfare benefits, Social Security benefits, Supplemental Security Income, and workers' compensation. Spousal income is not considered if the spouse does not contribute to the borrower's household income;
Family size as defined in § 685.209; and
Reasonable and necessary expenses, which include—
Food;
Housing;
Utilities;
Basic communication expenses;
Necessary medical and dental costs;
Necessary insurance costs;
Transportation costs;
Dependent care and other work-related expenses;
Legally required child and spousal support;
Other title IV and non-title IV student loan payments; and
Other expenses approved by the Secretary.
The Secretary provides the borrower with a new written rehabilitation agreement confirming the borrower's recalculated reasonable and affordable payment amount. To accept the agreement, the borrower must sign and return the agreement or accept the agreement electronically under a process provided by the Secretary.
The Secretary includes any payment made under paragraph (1) of the definition of “satisfactory repayment arrangement” in § 685.102(b) in determining whether the 9 out of 10 payments required under paragraph (f)(1) of this section have been made.
A borrower may request that the monthly payment amount be adjusted due to a change in the borrower's total financial circumstances only upon providing the documentation specified in paragraph (f)(3) of this section.
During the rehabilitation period, the Secretary limits contact with the borrower on the loan being rehabilitated to collection activities that are required by law or regulation and to communications that support the rehabilitation.
If a defaulted loan is rehabilitated, the Secretary instructs any consumer reporting agency to which the default was reported to remove the default from the borrower's credit history.
A defaulted Direct Loan on which a judgment has been obtained may not be rehabilitated.
A Direct Loan obtained by fraud for which the borrower has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program assistance may not be rehabilitated.
If a borrower's loan is being collected by administrative wage garnishment while the borrower is also making monthly payments on the same loan under a loan rehabilitation agreement, the Secretary continues collecting the loan by administrative wage garnishment until the borrower makes five qualifying monthly payments under the rehabilitation agreement, unless the Secretary is otherwise precluded from doing so.
After the borrower makes the fifth qualifying monthly payment, the Secretary, unless otherwise directed by the borrower, rescinds the garnishment order issued to the borrower's employer.
Before July 1, 2027, a borrower may only obtain the benefit of a suspension of administrative wage garnishment while also attempting to rehabilitate a defaulted loan once.
On or after July 1, 2027, a borrower may only obtain the benefit of a suspension of administrative wage garnishment while also attempting to rehabilitate a defaulted loan a maximum of twice per loan.
Effective for any defaulted Direct Loan that is rehabilitated on or after August 14, 2008, and before July 1, 2027, the borrower cannot rehabilitate the loan again if the loan returns to default status following the rehabilitation.
Effective for any defaulted Direct Loan on or after July 1, 2027, the borrower may not rehabilitate the loan again if the loan returns to default status following the second rehabilitation.
A borrower who has a Direct Loan that is rehabilitated and which has been returned to repayment status on or after July 1, 2024, may be transferred to REPAYE by the Secretary if the borrower's minimum payment amount on REPAYE would be equal to or less than the minimum payment amount on the Income-Based Repayment Plan.
A borrower who has a defaulted Direct Loan that is rehabilitated on or after July 1, 2026, may be automatically transferred to the income-driven repayment plan by the Secretary if that borrower applied for such plan on a single application.
Notes, amendments, and revision history
Amendments
[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 2001; 67 FR 67081, Nov. 1, 2002; 71 FR 45714, Aug. 9, 2006; 73 FR 63256, Oct. 23, 2008; 74 FR 56003, Oct. 29, 2009; 77 FR 66142, Nov. 1, 2012; 78 FR 65833, Nov. 1, 2013; 88 FR 43905, July 10, 2023; 91 FR 23895, May 1, 2026]
Authority
Authority: 20 U.S.C. 1087a—1087j. Subpart A also issued under U.S.C. 1087e(a). Subpart B also issued under U.S.C 1078, 1078-3, 1087(e), 1087e(a)(2), 1087e(a), 1087e(a)(3), 1087e(b), 1087e(d), 1087e(d)(1), 1087e(f), 1087e(g), 1087(m)(1)(A), 1091(a), 1092(d)(1), 1098e(a)(2), 1098e(a)(3), 1098h(a)(2). Subpart C also issued under U.S.C 1087a.
Source
Source: 59 FR 61690, Dec. 1, 1994, unless otherwise noted.
Amendments
[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 2001; 67 FR 67081, Nov. 1, 2002; 71 FR 45714, Aug. 9, 2006; 73 FR 63256, Oct. 23, 2008; 74 FR 56003, Oct. 29, 2009; 77 FR 66142, Nov. 1, 2012; 78 FR 65833, Nov. 1, 2013; 88 FR 43905, July 10, 2023; 91 FR 23895, May 1, 2026]