Education Department Postpones Eliminating Hardship Deferments

The U.S. Department of Education has extended until fall 2008 a hardship deferment program that allows qualifying recipients to delay loan repayments for three years without accruing any extra interest on their federally subsidized student loans.

The deferment program, which is popular among medical students, was eliminated in late September when President Bush signed into law the College Cost Reduction and Access Act (at the Thomas Web site type "HR 2669" in the search box after selecting "Bill Number"). The law eliminates the debt-to-income ratio of the economic hardship loan deferment program -- commonly known as the "20/220" rule -- instead creating two new programs to reduce long-term debt: an income-based repayment program and a loan forgiveness program for direct loans and the consolidation of loans.

The elimination of the deferment program led to an outcry among medical students. Without the program, medical students would have to start repaying their debts immediately after graduation during their residencies or choose forbearance, which allows individuals to delay making repayments while interest continues to accrue on their loans.

In early November, however, the Department of Education announced that it would extend the 20/220 hardship deferment program until Nov. 1, 2008. The action came, in part, because the income-based repayment program proposed under the College Cost Reduction and Access Act is not scheduled to take effect until July 1, 2009.

The Department of Education also expanded eligibility for the program. Under the expanded eligibility, first-year residents making about $45,000 a year can qualify for deferment if they have a debt of at least $80,100, according to the Association of American Medical Colleges. Under the old plan, a resident making $45,000 a year needed a debt level of $106,000 or more to qualify.

Legislation has been introduced to reinstate the 20/220 program. Sens. Richard Burr, R-N.C., and Johnny Isakson, R-Ga., recently introduced S.B. 2303 (at the Thomas Web site type "S. 2303" in the search box after selecting "Bill Number"), which would permanently reinstate the program criteria.

In a recent statement, the AMA expressed its "strong support" for the Burr/Isakson legislation, saying that "helping medical students, residents and young physicians better finance their education and manage their high debt burden is a top legislative priority for the AMA."

AMA Board of Trustees Member Chris DeRienzo, a fourth-year medical student at Duke University School of Medicine, pointed out in the statement that the "average medical student today graduates with $139,000 in debt."

"Making it harder for residents to pay back this high debt can deter young physicians from going into primary care medicine or practicing in underserved areas where patients desperately need them," DeRienzo said.