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School Service Center FAQs: Interest Subsidy Benefits

May 2, 2014

Q: What repayment plans offer interest subsidy benefits?

  • Income Based Repayment  and Pay As You Earn only

Q: What are the parameters?

  • Borrower eligible when their loan payment does not cover accruing interest on subsidized loans (negative amortization)
  • Eligibility limited to first 3 consecutive years of repayment under either plan;  if used under one plan, the subsidy benefit is exhausted and not available if the borrower later moves to the other repayment option
  • Subsidy amount (paid by the Department) = accruing interest on subsidized loans not covered by monthly payment
    • Borrower must pay all interest on unsubsidized loans
  • Interest subsidy eligibility period continues:
    • During deferment/forbearance, except during periods of economic hardship deferment
    • During periods when borrower doesn’t qualify for subsidy (monthly payment covers accruing interest), and
    • If borrower switches from IBR to Pay As You Earn, or vice versa

Note:  Borrowers who lose subsidy benefits as a result of the 150% Direct Loan Subsidy rule would not have eligibility under either Income Based Repayment or Pay As You Earn Repayment.

 

Dana Kelly, Trainer and Southern Regional Director, Nelnet Partner Solutions

Dana Kelly, Trainer and Southern Regional Director, Nelnet Partner Solutions

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