[The following was reprinted with permission from the Association of American Medical Colleges]
The House and Senate Sept. 6 approved the conference report (H. Rpt. 110-317) for the College
Cost Reduction and Access Act (H.R. 2669), the budgetary provisions of the Higher Education
Act (HEA) reauthorization. The bill includes a significant revision to the economic hardship
deferment (to be adopted in regulation within a year of the bill's signing) and authorizes a new
income-based repayment program, effective July 1, 2009. The President is expected to sign the
bill.
Economic Hardship Deferment
The conference agreement does not include language contained in the House and Senate (S.
1762) approved bills to extend the economic hardship deferment beyond the current 3-year limit.
The AAMC supported the addition of this language in the final conference report. The economic hardship deferment allows medical residents to
postpone repayment of their student loans, avoiding forbearance, while the government
continues to pay the interest on the subsidized portion of their loan.
Currently, borrowers qualify for the economic hardship deferment if:
- Their income does not exceed the greater of either the minimum wage rate or 100 percent
of the poverty line for a family of 2; or
- Their debt-to-income ratio is under 220 percent of the poverty line for a family of 2.
The final conference agreement includes a change in the criteria to qualify for the economic
hardship deferment that eliminates the debt-to-income pathway, which is the most common
means by which medical residents obtain eligibility. The mandatory medical residency/internship
deferment and forbearance will not be affected.
While the final bill increases the maximum qualifying income for the first pathway, it is unlikely
that residents will continue to qualify for the economic hardship deferment. Under the new
definition, a borrower's income cannot exceed the greater of either the minimum wage rate or
150 percent of the poverty line applicable to the borrower's family size. For an independent
single student the maximum qualifying monthly income will be $1,276. The following chart
outlines the complete qualifying incomes by family size.
| New Qualifing Income for Economic Hardship Deferment |
Family Size |
Poverty Line |
150% |
Maximum Qualifying Monthy Income |
1 |
$10,210 |
$15,315 |
$1,276 |
2 |
$13,690 |
$20,535 |
$1,711 |
3 |
$17,170 |
$25,755 |
$2,146 |
4 |
$20,650 |
$30,975 |
$2,581 |
5 |
$24,130 |
$36,195 |
$3,016 |
6 |
$27610 |
$41,415 |
$3,451 |
7 |
$31,090 |
$46,365 |
$3,886 |
8 |
$34,570 |
$51,855 |
$4,321 |
*Average first-year resident stipend is $43,266 ($3606 monthly)
Income-Based Repayment
The final bill also creates a new program of income-based repayment that would cap
participating borrowers' loan payments at 15 percent of their income that is over 150 percent of
the poverty line applicable to the borrower's family size. For example, a medical resident with
the average first year stipend ($43,266) would only be required to make monthly payments of
$349, as calculated below:
[$43,266 - ($10,210 x 1.5)] x 0.15
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The holder of such a loan shall apply the borrower's monthly payment under the income-based
repayment program first toward interest due on the loan, next toward any fees due on the loan,
and then toward the principal of the loan.
All federal (Direct and FFEL) loans are eligible for income-based repayment, except PLUS loans
(for dependent undergraduates) and consolidation loans with such PLUS loans. Grad PLUS
loans are eligible. Private loans are not eligible. There is no minimum qualifying debt and no
maximum disqualifying income.
Similar to the economic hardship deferment, the federal government will continue to pay interest
on the subsidized portion of the loan during the first 3 years of income-based repayment; interest
will continue to accrue on the unsubsidized portions. After 3 years, interest will begin to accrue
on the subsidized portion of the loan as well.
Once a borrower has made income-based repayments for a period of 25 years, the remainder of
the borrower's federal debt is forgiven.
A participant can elect to leave the income-based repayment program at any time. After leaving
the program, the borrower's monthly payment can not exceed the monthly repayment schedule
the borrower held immediately before entering the income-based repayment program (as
calculated for a 10-year repayment period).
Interest on the loans is capitalized at the time the participant elects to leave the income-based
repayment program, most likely at the end of a physician's residency.
By Matthew Shick
AAMC Office of Governmental Relations
Posted 09/13/07 to www.NASFAA.org. Please submit Web Site questions or comments to Web@NASFAA.org
