Teaching Service -- Loan Cancellation/Deferment Opportunities 2001-2002 4-page Fact Sheet

Borrowers of certain U.S. Department of Education loans may quality for deferment or cancellation of all or part of their loans for teaching service in a designated low-income school or in a designated teacher shortage area, depending on the type of loans and when the loans were made. Deferment is a temporary postponement of payments (principal and, in some cases, interest) on the loan. Cancellation/Forgiveness means that the borrower will no longer be responsible for repaying all or a portion of the loan, including interest, once he or she has performed qualifying teaching service. Forgiveness-Forbearance means placing loan payments due on hold until qualifying teaching service has been performed if the forgiveness amount will satisfy the anticipated outstanding balance.

• Perkins cancellation provisions. Teachers who lave a loan from the Federal Perkins Loan Program may be eligible for loan cancellation for full-time teaching in a designated low-income school or in a subject-matter teacher shortage area.
• FFELP / Direct Loans deferment and forgiveness provisions. Full-time teachers with certain loans from the Federal Direct Loan Program (Direct) or the Federal Family Education Loan Program (FFELP) may be eligible for deferment if teaching in a subject-matter shortage area. [Loans eligible for deferment include Federal Stafford Loans and Federal Supplemental Loans for Students (SLS)]. The deferment program for these loans is only available to teachers whose first loan was made on or after July 1, 1987 but before July 1, 1993, along with any additional Stafford Loans they may have taken out at later dates. NEW: A teacher who has no outstanding balance under the FFELP or Direct Loan Programs on the date he or she obtains a loan on or after October 1, 1998 may be eligible for loan forgiveness benefits (see page 4).
• Douglas Scholarship reduced service. Teachers with a Paul Douglas Teacher Scholarship may be eligible for reduced service obligations, such as only one year of teaching service per year of scholarship assistance instead of two years of teaching service. [Note: the last scholarships were awarded in 1995-96. Scholarships are no longer being made under the Douglas Program.]

Important Warning: Teachers should be careful about consolidating student loans because consolidation may result in loss of deferment benefits, as well as loss of Perkins loan cancellation benefits and low interest rates! (A loan that is paid off by another loan may lose certain aspects of its identity.) To find out if these issues are applicable, teachers should check with the holder of their individual loans.

Federal Perkins Loan Cancellation ...

Who qualifies for cancellation:

Federal Perkins Loan borrowers are eligible for cancellation for full-time teaching in three categories:

1. Teaching in an elementary or secondary school that serves low-income students (Perkins/NDSL loans made on or after July 1, 1987)
   
   To be eligible for Perkins teaching cancellation, you must be teaching full-time at a low-income school, as determined by the State Education Agency. To find out if a school is classified as a Low Income School, check the U.S. Dept.of Education Office of Student Financial Aid Programs on-line database for the most recent year(s) that you have been employed as a teacher. (http://www.ed.gov/offices/OSFAP)
   
   Note that if you have had a portion of your loan canceled for teaching at a low-income elementary or secondary school in one year, you can continue to have portions of your loan canceled for teaching at that school, even if it is no longer listed as a low-income school in later years. Under certain circumstances, the school that holds your Perkins Loan may permit retroactive cancellation, if you can demonstrate that you qualified for cancellation in a prior year.

   To be considered a "low-income school," the school must be in a school district that qualified for funds--in the year for which the cancellation is sought--under Title I of the Elementary and Secondary Education Act of 1965, as amended. The school also must have more than 30% of its enrolled children counted in the Title I funding formula (low-income). Questions about the inclusion or omission of a particular school should be directed to the State Education Agency contact in the state where the school is located, and not to the U.S. Department of Education.
   

   
   
2. Teaching in an elementary or secondary school system that has a shortage of teachers in a designated subject-matter area (Perkins Loans made on or after July 23, 1992).
   
   Federal Perkins Loan borrowers can also have their loans canceled for full-time teaching if there is a shortage of teachers in their subject area. Each year the State Education Agency determines the subject-matter shortage areas in the elementary and secondary schools within the state. The designated subject-matter shortage areas nationwide include mathematics, science, foreign languages, and bilingual education. For Texas the 2001-2002 subject-matter shortage areas are Mathematics, Special Education, Bilingual/ESL, Science, Foreign Language (languages other than English) and technology applications. For other states, check the U.S. Department of Ed. Office of Student Financial Aid Program website (http://www.ed.gov/offices/OSFAP).

   New legislation: Effective October 7, 1998, borrowers previously ineligible for cancellation (by teaching in a subject-matter shortage area) on loans made prior to July 23, 1992, are now eligible for cancellation benefits on outstanding balances, based on qualifying teaching service in a subject-matter shortage area starting October 7, 1998 regardless of the fact that the loan was made before July 23, 1992. (Cancellation is not retroactive for service prior to October 7, 1998.)
   

   
   

3. Teaching disabled students in a public or other nonprofit elementary or secondary school (Perkins/NDSL loans made on or after July 1, 1987)

   You must have an official at the school certify that you are teaching handicapped or learning disabled students, either on the postponement/cancellation form itself, or on an official letter from the school bearing the school’s seal or letterhead. For Perkins Loans made on or after July 23, 1992, this cancellation includes special education teachers, including teachers of infants, toddlers, children, or youth with disabilities.

Cancellation amounts for years of service

If a borrower is eligible for teacher cancellation under any of the three categories listed above, up to 100% of the Perkins loan may be canceled for teaching service, in the following increments:

• 15% canceled per year for the first and second years of service
• 20% canceled per year for the third and fourth years, and
• 30% canceled for the fifth year

How to apply for teacher loan cancellation for a Perkins Loan:

To apply for loan cancellation for a Perkins loan, you must request the appropriate forms from the office that administers the Perkins loan program at the college or university that holds your loan. You must submit two forms for each year for which you seek cancellation: a postponement/deferment request at the beginning of the school year, and a cancellation request at the end of the school year. You must also provide any documentation the college requests to show that you qualify for cancellation. It is the college's responsibility to determine whether you qualify for cancellation, and its decision cannot be appealed to the U.S. Department of Education or the State Education Agency.

See your loan promissory note for information on other Perkins/NDSL cancellation provisions for Head Start, Peace Corps, or VISTA workers, nurses or medical technicians, military personnel serving in areas of imminent danger, or certain types of law enforcement, family service or early intervention work. Note that some of these cancellation provisions were added to Perkins Loans made after 1990 and 1992, and some of them offer partial rather than full cancellation. You should consult your Perkins Loan promissory note to see if you meet all of the requirements for cancellation. If you have further questions, contact the office that administers the program at your former college or university.

Deferments for FFEL and Direct Loans ...

Repayment of certain loans from the FFEL or Direct Loan Programs (Federal Stafford Loans, and Federal Supplemental Loans for Students) may be deferred for full-time teaching in a federally-designated teacher shortage area for a maximum of three years if:

• your first FFEL loan was made on or after July 1, 1987 but before July 1, 1993 
  
  or
  

• you had an outstanding balance on a FFEL Program loan that was made on or after July 1,
  1987 but before July 1, 1993 on the date you received a FFEL or Direct Program loan on or
  after July 1, 1993.
  

If you qualify for teacher service deferment of an FFEL Program loan for enrollment between July 1, 1987 and June 30, 1993, you may also defer any additional FFEL Program loan or Direct Loan that you received after June 30, 1993. If your loan is unsubsidized, you must still pay the interest that accrues on the loan during eligible periods of deferment. You may pay the interest as it accrues during the deferment period, or you may capitalize the interest. Capitalized interest is added to the principal and, as a result, your monthly payment amount or the payoff period may increase.

To obtain a targeted teaching deferment you must submit a deferment form to your loan holder for each school year of teaching service for which you apply for deferment. Under the FFEL and Direct Loan Programs, a federally designated teacher shortage area is a shortage of elementary or secondary school teachers and can be a grade level, subject-matter, discipline classification, or geographic area as identified by the State Education Agency and approved by the U.S. Department of Education (in Texas, the designation is subject-matter teacher shortage areas).

The principal at the school where you are teaching must certify on the deferment form that you are teaching in a federally-designated teacher shortage area. Please remember that you must reapply each school year for a targeted teaching deferment.

If you continue to teach in the same shortage area for which you obtained the original deferment, you may continue to receive the deferment for a maximum of three years, even if your position is no longer considered to be in a teacher shortage area for those subsequent years. To receive the continuing deferment you must provide the loan holder with a completed deferment form, certified by the school principal, indicating that you continue to teach full time, and continue to teach in the same teacher shortage area for which the deferment was received the previous school year.

For more information about targeted teaching deferments for the FFEL Program, you should consult your loan promissory note, contact the loan holder or guarantor, or contact the State Education Agency in the state where you are teaching. Direct Loan borrowers should contact the Direct Loan Servicing Center.

New Forgiveness Provision ONLY for Stafford Borrowers who have no outstanding balance under the FFEL or Direct PRograms on the date he or she obtains a loan on or after October 1, 1998:

(NOTE: One reason there has been no loan forgiveness benefit for loans taken out before October 1, 1998 is that Congress passed legislation in 1994 to give forgiveness benefits to Stafford borrowers, but never funded the program (so it was as though no legislation had been passed).

Starting October 1, 1998, the law established a (partial) loan forgiveness program, for new Stafford Loan borrowers (who have no outstanding balance on a loan from the FFEL or Direct Loan Programs on the date he/she obtains a loan on or after October 1, 1998) who serve as teachers in designated low-income schools (schools with greater than 30% low-income students in districts that are eligible for Title I funds) for five consecutive complete academic school years, at least one of which was after the 1997-98 academic year. Note: the portion of a Consolidation Loan that paid off an eligible Stafford Loan may be eligible for forgiveness.

The borrower must also make regular payments on his/her loan(s) during those five years. However, the borrower may request forbearance if the loan holder believes that the forgiveness amount will satisfy the anticipated outstanding balance (by submitting a Teacher Loan Forgiveness Forbearance form to the loan holder). At the end of the 5 years, this program will repay up to $5,000 of the borrower's total outstanding Stafford Loan balances (principal and interest). To apply, submit the Teacher Loan Forgiveness Application form to the loan holder. No refunds on payments will be made. The borrower must also not be in default on loans for which he/she seeks forgiveness.

Reduction of Teaching Service Requirement for Douglas Scholars who teach in a subject-matter shortage area ...

If you received a scholarship under the Paul Douglas Teacher Scholarship Program (formerly the Congressional Teacher Scholarship Program), you are generally required to teach for two years for every year of scholarship assistance received. However, if you are teaching in a federally-approved subject-matter teacher shortage area, you are required to teach only one year for each year of scholarship assistance received. [Note: the last scholarships were awarded in 1995-96. Scholarships are no longer being made under the Douglas Program. However, former scholarship recipients who have not fulfilled the scholarship agreement must continue to do so.]

If a scholar fails to fulfill the teaching obligation, he or she will be required to repay, on a pro rata basis, the amount of the scholarships received as well as accrued interest and any required collection costs.

For more information, call Connie Cooper (1-800-242-3062)

(Updated October, 2001 TEA)