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The Federal student loan repayment program permits agencies to repay Federally insured student loans as a recruitment or retention incentive for candidates or current employees of the agency. The program implements 5 U.S.C. 5379, which authorizes agencies to set up their own student loan repayment programs to attract or retain highly qualified employees.
Any employee (as defined in 5 U.S.C. 2105) is eligible, except those occupying a position excepted from the competitive civil service because of their confidential, policy-determining, policy-making, or policy-advocating nature (e.g., Schedule C appointees).
Loans eligible for payment are those made, insured, or guaranteed under parts B, D, or E of title IV of the Higher Education Act of 1965 or a health education assistance loan made or insured under part A of title VII or part E of title VIII of the Public Health Service Act. (See Q&A 17 for examples of the types of student loans that are eligible for repayment.)
Although the student loan is not forgiven, agencies may make payments to the loan holder of up to a maximum of $10,000 for an employee in a calendar year and a total of not more than $60,000 for any one employee.
As with any incentive, this authority is used at the discretion of the agency. Each agency must develop a plan to describe how the program will be implemented.
An employee receiving this benefit must sign a service agreement to remain in the service of the paying agency for a period of at least 3 years. An employee must reimburse the paying agency for all benefits received if he or she is separated voluntarily or separated involuntarily for misconduct, unacceptable performance, or a negative suitability determination under 5 CFR part 731. In addition, an employee must maintain an acceptable level of performance in order to continue to receive repayment benefits.
Periods of leave without pay, or other periods during which the employee is not in a pay status, do not count toward completion of the required service period. The service completion date must be extended by the total amount of time spent in non-pay status. However, as provided by 5 CFR 353.107, absence because of uniformed service or compensable injury is considered creditable toward the required service period upon reemployment.
Agencies are required to report annually to the U.S. Office of Personnel Management (OPM) on their use of the student loan repayment authority. Before March 31 of each year, agencies must submit their reports for the previous calendar year. The reports must contain-
Annual reports to Congress on agencies' use of the Federal student loan repayment program.
* OPM changed from fiscal year to calendar year reporting to synchronize and simplify the agency reporting requirements.
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Under 5 U.S.C. 5379 and 5 CFR part 537, Federal agencies are authorized to implement a program under which they may agree to repay certain types of student loans as a recruitment or retention incentive for highly qualified personnel. Below is a summary of the best practices and lessons learned by agencies that have successfully implemented student loan repayment programs. This information is intended to assist agencies in establishing and administering a student loan repayment program.
Additional information is available for the Department of Justice's Attorney Student Loan Repayment Program.
In the beginning:
As the program matures:
The repayment authority, 5 U.S.C. 5379 as amended, is limited to student loans authorized by the Higher Education Act of 1965 and the Public Health Service Act. These are Federally insured loans made by educational institutions or banks and other private lenders.
The Higher Education Act covers guaranteed student loan programs such as: Stafford Loans (subsidized, unsubsidized, Direct subsidized, and Direct unsubsidized); Plus Loans (Federal and Direct Federal); Federal Consolidation Loans (Direct subsidized and Direct unsubsidized); Defense Loans (made before July 1, 1972); National Direct Student Loans (made between 7/1/72 and 7/1/87); and Perkins Loans.
Loans covered under the Public Health Service Act include the: Nursing Student Loan Program loans; Health Profession Student Loan Program loans; and Health Education Assistance Loan Program loans.
Eligibility for payments
The following options are intended to provide assistance in making determinations of eligibility that satisfy the requirement for fair and equitable treatment in the selection of repayment candidates. [Please note that, under the authorizing legislation and regulations, the need to maintain a balanced workforce in which women and members of racial and ethnic minority groups are represented must be taken into consideration in determining which candidates will be eligible. The spirit and intent of this requirement may be satisfied by directing recruitment information and activities toward events and locations that are most likely to produce candidates in the employment group(s) needed by the respective [AGENCY COMPONENT], even though the results of all recruitment efforts produce highly qualified candidates other than in the targeted employment group(s).]
Limit eligibility to those occupations which are priorities as specified in an [AGENCY COMPONENT] staffing and diversity plan. Thus, a business case is made on a pro-active basis as to which occupations and candidates and/or employees will be eligible.
Limit eligibility to those whose grade point averages (GPAs) meet the standard established by the [AGENCY COMPONENT] for both graduates and employees who are, or will be, enrolled in academic training while employed.
Periods of service and loan repayment periods
The next two payment options may require negotiations with the lender/note holder to adjust the existing payment schedule to conform to the dollar limits established under the Student Loan Repayment Program. They are intended to provide consistency in approach toward loan repayments. For example, in determining periods of service, the [AGENCY COMPONENT] may follow the current practice of service for [AGENCY]-paid training/education, which is to require service based on a ratio of 1:3, e.g., 3 months of service for a 1-month class.
Set the minimum period of service at 3 years for all candidates and then determine the loan payment period.
Convert the loan amount to years.
The loan payment period is the same as the period of service, which is determined by dividing the annual school cost into the loan balance.
Example 1 - total loan is $20,000; total cost for 4-year bachelors degree is $40,000; outstanding loan represents 2 years of total school cost; years of service is determined by multiplying 2 years of costs x 3 years of service per each year of payments = 6 years of service; loan is payable over 6 years at $3,333/yr.
Example 2 - total loan is $42,000 for an advanced degree; annual cost for 2 years is $21,000; outstanding loan represents the total 2 year cost; years of service is determined by multiplying 2 x 3 = 6; loan is paid over 6 years = $7,000/yr; therefore, the total amount that [AGENCY] would pay is 6 x $7,000 = $42,000.
The loan payment period is determined by dividing the maximum annual payment into the loan balance; the period of service is determined by multiplying the loan payment period by 3.
Example 1 - total loan is $20,000; $20,000 / $10,000 = 2 years of allowable payments, i.e., loan is payable over 2 years at $10,000 per year; 2 years of [AGENCY] payments x 3 years of service for each year of payments = 6 years of service.
Example 2 - total loan is $42,000 for an advanced degree; the maximum annual amount that may be paid by [AGENCY] is $10,000; therefore, the number of years of payments of $10,000 = 4.2 years; assuming that 3 years of service would be required for each year of student loan benefit payments, the related service requirement would be 4.2 years x 3 years = 12.6 years of service.
The loan payment period is determined by dividing the outstanding balance by the number of years to attain the degree; the period of service is determined by multiplying the loan payment period by 3.
Example 1 - total loan is $20,000 for a 4-year bachelors degree (which took 4 years to get); the loan payments are $5,000 per year ($20,000 / 4) for 4 years; years of service: 4 years of loan payments x 3 for each year of payment = 12;
Example 2 - total loan is $42,000 for a 2-year advance degree (which took 3 years to get); the loan payments are $10,000 per year, which is the maximum allowable per year, for 3 years, for a total of $30,000; years of service: 3 years of loan payments x 3 for each year of payment = 9.
Lump-Sum Net Payments
This occurs when the employee elects, and the lender/note holder agrees, to have one loan payment made each calendar year. The total amount of taxes is first deducted from the gross loan amount and a net payment is made annually to the lender/note holder. The flat rate of 28% will be used to determine the amount of Federal income taxes to be withheld from the gross loan payment amount; social security, Medicare, and State and local income taxes are then determined and withheld based on the gross amount authorized as supplemental wages.
Example - Gross amount of annual payment - $10,000; approximately $3,000 is withheld and reported on the employee's W-2; a net payment of approximately $7,000 is made to the lender/note holder.
Biweekly Payroll Payments
This occurs when the employee elects, and the lender/note holder agrees, to biweekly payments of a set amount. For this option, the amount of the loan payment is added to the gross salary amount to increase the total salary for that pay period; taxes are calculated and withheld based on the total salary to determine the employee's net pay.
The total payment amounts may vary from year to year because each calendar year does not always have 26 pay periods; the total amount will probably be less the first calendar year and is dependent on the employee's entry on duty date. Thus, the biweekly amount may need to be adjusted each year so that the maximum allowable per calendar year is not exceeded.
Example - Annual amount of payments - $5,200; employee's biweekly gross pay during the loan repayment period would be increased by $200; $200 would be paid to the lender/note holder each pay period (assuming 26 payments in any calendar year) resulting in a reduction in the employee's net pay of approximately $65 due to the taxes on the loan repayment amount.
An employee may use [FORM NUMBER] for providing payment information in lieu of providing information on the employee, lender/note holder, and loan account separately. A separate [FORM NUMBER] is required for each loan. For lump-sum payments, the [FORM NUMBER] must clearly indicate that it is for a one-time payment with the amount indicated as "NET loan repayment." For biweekly payroll deductions, no further action is needed, as the payment will remain in effect until the end of the agreement period or, as a result of the annual recertification process (see the next section), notice is provided to the payroll office that the payment should be changed or stopped. Payments will automatically stop when the total authorized amount has been paid each year. If [FORM NUMBER] is used, it should be attached to the payroll copy of the service agreement.
This process should be similar to recertifications of retention allowances, in which the servicing human resources staff "suspenses" the effective date of the service agreement and follows up with the appropriate management official; the management official provides a statement that funds are still available for the entire calendar year and that each loan has been reviewed to ascertain whether or not it is in arrears or default. If the amount of the allotment(s) will not change, then a statement to that effect must be provided to the payroll office. If the amount of the loan repayment(s) will be different from the prior year, the new information must be provided. If the loan(s) is in arrears or default, then the management official must determine the appropriate course of action and inform the employee and the servicing human resources staff. If payments will be terminated, then the [AGENCY COMPONENT] must inform the employee, the payroll office, and the lender/note holder.
Employees may be able to deduct the interest on their student loans even though the interest is included in the total loan amount and paid by the agency. Employees should review Chapter 3 of the Internal Revenue Service Publication 970, which is available at www.irs.gov/pub/irs-pdf/p970.pdf.
This instruction provides policy and guidance for implementing the Student Loan Repayment Program. This program is intended to facilitate the recruitment and retention of highly-qualified employees by allowing agencies to repay part or all of their Federally insured student loans.
Title 5, U.S. Code, Section 5379 Title 5, Code of Federal Regulations, Part 537
Student Loan: A loan made, insured, or guaranteed under parts B, D, or E of Title IV of the Higher Education Act of 1965; or a health education assistance loan made or insured under Part A of Title VII of the Public Health Service Act, or under Part E of Title VIII of that Act.
Loans covered under The Higher Education Act include such loans as:
Loans covered under the Public Health Service Act include loans made under:
Federal Direct Student Loan: The U. S. Department of Education is the lender for these loans. Direct loans include Federal Direct PLUS loans and Federal Direct Stafford loans.
Federal Family Education Loan Program: These loans are insured by the Department of Education. Loans are privately issued by a bank, credit union, or other lender that participates in the Federal Family Education Loan Programs.
Subsidized Loan: The U.S. Government pays the interest on the loan while the student is in school, during the 6-month grace period, and during periods of authorized deferment.
Unsubsidized Loan: The student is responsible for paying the interest accrued while the student is in school, during the 6-month grace period, and during authorized periods of deferment.
The following are eligible for student loan repayment assistance:
NOTE: Employees receiving a physicians' comparability allowance (PCA) under 5 CFR 595.105(e) are eligible. However, the amount of their PCA must be reduced by an amount equal to any loan repayment assistance received under this program.
Employees serving in confidential, policy determining, policymaking, or policy advocating positions (e.g., Schedule C employees) are not eligible.
Eligible employees may be considered for loan repayment assistance up to $10,000 per calendar year, with a $60,000 lifetime maximum for any individual. More than one loan may be repaid so long as the combined repayments do not exceed these limits. Assistance may be provided for both recruitment and retention purposes. Recommendations will normally be made by the immediate supervisor, and approval will be at the discretion of the next higher level.
Loan repayment may be authorized upon determination that, in the absence of loan repayment benefits, the agency would have difficulty filling a position with a highly qualified candidate. Evidence of need may be based on:
This determination must be in writing and must document the criteria used to determine the amount of loan repayment benefits. Managers may consider the following criteria in deciding the amount:
Each determination for recruitment purposes and the amount to be paid must be made before the employee enters on duty.
Loan repayment may be authorized upon determination that, in the absence of loan repayment benefits, the agency would have difficulty retaining a highly qualified employee. Evidence of need may be based on--
This determination must be in writing and must document the criteria used to determine the amount of the loan repayment benefit. Managers may consider the following criteria in deciding the amount:
An employee receiving loan repayment benefits will be ineligible for continued benefits if he/she--
Before any loan repayment may be made, the employee must sign a written agreement to serve a minimum of 3 years with the employing agency, regardless of the amount of repayment authorized. This 3-year period will begin when the first payment is made to the holder of the loan. Any further repayment made after the initial agreement has been completed will extend the service agreement by 1 additional year for each additional payment made. A model service agreement is at attachment 1.
The agreement may specify employment conditions considered appropriate, such as, but not limited to, the employee's position and the duties he/she is expected to perform, work schedule, or level of performance. However, the service agreement in no way constitutes a right, promise, or entitlement to continued employment or noncompetitive conversion to the competitive service, nor does it limit management's right to take corrective or disciplinary actions as otherwise appropriate.
An employee who, voluntarily or because of performance or misconduct, fails to complete the agreed-upon period of service must refund the full amount of benefits received during the initial 3-year period. Employees who fail to complete the period of service under a 1-year extension (e.g., 4th year, 5th year), must repay the amount of the benefits received in the extension year only. If an employee fails to reimburse the agency, the amount outstanding will be recovered from the employee under established debt collection procedures.
Repayment may be wholly or partially waived at the discretion of the [agency] if recovery would not be in the public interest or would be against equity and good conscience. In making this determination, the [agency] will take into account consistency, fairness, and the cost to the taxpayer of recovering monies owed to the government. A waiver may be considered, but is not automatic, when an employee accepts a position in another operating division of the [agency].
When an employee is separated by death or disability retirement, or is unable to continuing working because of disability evidenced by acceptable medical documentation, repayment is automatically waived.
Payments will be made directly to the lending institution holding the loan on behalf of the employee. One payment will be made each year for the duration of the service agreement. Payments may be applied only to indebtedness outstanding at the time the agreement is signed, and no payment may be made before an employee enters on duty.
Loan repayment benefits made under this authority are in addition to basic pay. These benefits are subject to Federal income tax, FICA and Medicare withholding, and any State or local income tax that may be applicable. Tax withholdings will be deducted at the time payment is made.
Employing offices will–
Servicing Personnel Offices will–
§ 5379. Student loan repayments
(a)(1) For the purpose of this section—
(A) the term "agency" means an agency under subparagraph (A), (B), (C), (D), or (E) of section 4101(1) of this title; and
(B) the term "student loan" means—
(i) a loan made, insured, or guaranteed under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.);
(ii) a loan made under part D or E of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq., 1087aa et seq.); and
(iii) a health education assistance loan made or insured under part A of title VII of the Public Health Service Act (42 U.S.C. 292 et seq.) or under part E of title VIII of such Act (42 U.S.C. 297a et seq.).
(2) An employee shall be ineligible for benefits under this section if the employee occupies a position that is excepted from the competitive service because of its confidential, policy-determining, policy-making, or policy-advocating character.
(b)(1) The head of an agency may, in order to recruit or retain highly qualified personnel, establish a program under which the agency may agree to repay (by direct payments on behalf of the employee) any student loan previously taken out by such employee.
(2) Payments under this section shall be made subject to such terms, limitations, or conditions as may be mutually agreed to by the agency and employee concerned, except that the amount paid by an agency under this section may not exceed—
(A) $10,000 for any employee in any calendar year; or
(B) a total of $60,000 in the case of any employee.
(3) Nothing in this section shall be considered to authorize an agency to pay any amount to reimburse an employee for any repayments made by such employee prior to the agency's entering into an agreement under this section with such employee.
(c)(1) An employee selected to receive benefits under this section must agree in writing, before receiving any such benefit, that the employee will—
(A) remain in the service of the agency for a period specified in the agreement (not less than 3 years), unless involuntarily separated; and
(B) if separated involuntarily on account of misconduct, or voluntarily, before the end of the period specified in the agreement, repay to the Government the amount of any benefits received by such employee from that agency under this section.
(2) The payment agreed to under paragraph (1)(B) of this subsection may not be required of an employee who leaves the service of such employee's agency voluntarily to enter into the service of any other agency unless the head of the agency that authorized the benefits notifies the employee before the effective date of such employee's entrance into the service of the other agency that payment will be required under this subsection.
(3) If an employee who is involuntarily separated on account of misconduct or who (excluding any employee relieved of liability under paragraph (2) of this subsection) is voluntarily separated before completing the required period of service fails to repay the amount agreed to under paragraph (1)(B) of this subsection, a sum equal to the amount outstanding is recoverable by the Government from the employee (or such employee's estate, if applicable) by—
(A) setoff against accrued pay, compensation, amount of retirement credit, or other amount due the employee from the Government; and
(B) such other method as is provided by law for the recovery of amounts owing to the Government.
The head of the agency concerned may waive, in whole or in part, a right of recovery under this subsection if it is shown that recovery would be against equity and good conscience or against the public interest.
(4) Any amount repaid by, or recovered from, an individual (or an estate) under this subsection shall be credited to the appropriation account from which the amount involved was originally paid. Any amount so credited shall be merged with other sums in such account and shall be available for the same purposes and period, and subject to the same limitations (if any), as the sums with which merged.
(d) An employee receiving benefits under this section from an agency shall be ineligible for continued benefits under this section from such agency if the employee—
(1) separates from such agency; or
(2) does not maintain an acceptable level of performance, as determined under standards and procedures which the agency head shall by regulation prescribe.
(e) In selecting employees to receive benefits under this section, an agency shall, consistent with the merit system principles set forth in paragraphs (1) and (2) of section 2301(b) of this title, take into consideration the need to maintain a balanced workforce in which women and members of racial and ethnic minority groups are appropriately represented in Government service.
(f) Any benefit under this section shall be in addition to basic pay and any other form of compensation otherwise payable to the employee involved.
(g) The Director of the Office of Personnel Management, after consultation with heads of a representative number and variety of agencies and any other consultation which the Director considers appropriate, shall prescribe regulations containing such standards and requirements as the Director considers necessary to provide for reasonable uniformity among programs under this section.
(h)(1) Each head of an agency shall maintain, and annually submit to the Director of the Office of Personnel Management, information with respect to the agency on—
(A) the number of Federal employees selected to receive benefits under this section;
(B) the job classification for the recipients; and
(C) the cost to the Federal Government of providing the benefits.
(2) The Director of the Office of Personnel Management shall prepare, and annually submit to Congress, a report containing the information submitted under paragraph (1), and information identifying the agencies that have provided benefits under this section.
Sec.537.101 Purpose.537.102 Definitions.537.103 Agency student loan repayment plans.537.104 Employee eligibility.537.105 Criteria for payment.537.106 Conditions and procedures for providing student loan repayment benefits.537.107 Service agreements.537.108 Loss of eligibility for student loan repayment benefits.537.109 Employee reimbursements to the Government.537.110 Records and reports.
Authority: 5 U.S.C. 5379(g).
This part implements 5 U.S.C. 5379, which authorizes agencies to establish a student loan repayment program for the purpose of recruiting or retaining highly qualified personnel. Under such a program, an agency may agree to repay (by direct payment to the loan holder on behalf of the employee) all or part of any outstanding qualifying student loan or loans previously taken out by a job candidate to whom an offer of employment has been made, or by a current employee of the agency.
The definitions in this section apply only to part 537. In this part:
Agency has the meaning given that term in subparagraphs (A) through (E) of 5 U.S.C. 4101(1).
Authorized agency official means the head of an Executive agency or an official who is authorized to act for the head of the agency in the matter concerned.
Employee means an employee of an agency who satisfies the definition of the term in 5 U.S.C. 2105.
Loan payment means the net payment made by an agency to the holder of a student loan (after deducting any tax withholdings that may be made from the gross student loan repayment benefit credited to the employee).
Service agreement means a written agreement between an agency and an employee (or job candidate) under which the employee (or job candidate) agrees to a specified period of service in exchange for student loan repayment benefits, subject to the conditions set forth under this part.
Student loan means–
Student loan repayment benefit means the benefit provided to an employee under this part in which an agency repays (by a direct payment on behalf of the employee) a qualifying student loan as described in § 537.106(b) previously taken out by such employee. The dollar value of this benefit is the gross amount credited to the employee at the time of a loan payment to the holder of the student loan, before deducting any employee tax withholdings from that gross amount as described in § 537.106(a)(6)(iii). A student loan repayment benefit is not considered basic pay for any purpose.
Time-limited appointment means a non-permanent appointment including—
Before providing student loan repayment benefits under this part, an agency must establish a student loan repayment plan. This plan must include the following elements:
Note to § 537.106(a)(6): Contact the Internal Revenue Service for further details concerning these options, as well as the tax withholding implications of payments under this part.