Health Education Assistance Loan Program (Heal Private Student Loans)

What are HEAL loans?

The HEAL loan program insured loans made by participating lenders to eligible graduate students pursuing education and eventual employment in various fields of medicine. Students attending schools of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health, pharmacy, chiropractic, or programs in health administration and clinical psychology were eligible for these loans. The program was discontinued in 1998 and in 2014 the HEAL program was transferred to the United States Department of Education.

What are the interest rates for HEAL loans?

Interest rates for loans issued under the HEAL vary according to when they were issued. According to the United States Department of Education, the current maximum interest rates for the Quarter Ending September 30, 2016 are:

  • Loans made prior to January 27, 1981: 3.875%
  • Loans made on or after January 27, 1981: 3.875%
  • Loans made on or after October 22, 1985: 3.125%

What is the repayment process for a HEAL loan?

Borrowers are required to begin the repayment process on the first day of the tenth month following the completion of their full-time enrollment in their education institutions. Between the end of enrollment and the repayment period, students are granted a nine month “grace period” during which no payment is due. If the borrower becomes an intern or resident during this period, repayment of the loan will begin on the first day of the tenth month after the internship or residency ends. A borrower’s repayment period ranges from ten to twenty-five years and there are no penalties for prepayment.

Forbearance, Deferment Periods, and Disability

Lenders and lender services must offer various repayment options to accommodate borrowers including requiring smaller payments early in the repayment period or offering an income contingent loan repayment plan. Income contingent plans are based upon the borrower’s income for the first five years of employment. Lenders may also offer an extension of time for making loan payments. This extension, also known as forbearance, may be granted in six month increments up to a maximum of three years. Additionally, every borrower must be notified of their right to request forbearance.

Repayment of principal and interest can be deferred in various situations. However, interest will continue to accrue during deferment periods including during:

  • Full time study at a HEAL school or at an institution of higher education eligible to participate in the student aid programs authorized under Title IV of the Higher Education Act
  • Up to three years for full-time active duty in the Armed Forced
  • Up to three years for service in the Peace Corps, VISTA, or the National Health Service Corps
  • Up to two years for certain fellowship and education training programs
  • Up to four years for internship and residency training
  • Up to one year for graduates of schools of chiropractic
  • Up to three years for completion of an internship or residency training program

If a borrower has become totally and permanently disabled after receiving a HEAL loan, he or she may submit an application for total and permanent disability. To qualify, the borrower must be unable to engage in any substantial gainful activity because of a medically determinable impairment that is expected to continue for an indefinite time or result in death.

Default, Collections, and Litigation

Overdue accounts are aggressively pursued and often referred to collection agencies for repayment. In most cases, lenders and lender services are required to litigate defaulted loans and obtain a judgment against borrowers who fail to meet the terms of their loan agreements. Consequences for defaulting on a HEAL loan include:

  • Account referred to a collection agency
  • Judgment registered in Federal Court by DOJ for Enforced Collection
  • Exclusion from treating any Medicare and Medicaid patients and Federal workers
  • IRS offset
  • Name published by the United States Department of Education in the Federal Register on the list of defaulted borrowers

HEAL Loans and Bankruptcy

Generally speaking, under 42 U.S.C Sec. 294f(g), a HEAL loan is not dischargeable by bankruptcy unless: (1) five years have passed from the date that repayment begins; (2) the bankruptcy court finds that non-discharge would be unconscionable; and (3) the Secretary has waived certain rights. All three elements must be satisfied for a HEAL loan to be discharged by bankruptcy. According to the United States Court of Appeals for the Seventh Circuit, the burden of initiating an inquiry into discharging a HEAL loan under section 294f(g) falls upon the debtor, not the creditor. See United States v. Wood, 925 F.2d. 1580 (7th.Cir. 1991) for more information.

HEAL Loans and Settlement

Heal loans can and have commonly been settled for less than the full balance. There are a number of factors that affect the average settlement including financial and medical hardship. There are usually a wide range of financial documents that the Department of Justice or collection agency or law firm assigned request to approve an offer to settle. The offers accepted are usually requested in lump sum payments although payment plans at no interest have been approved. An average of 40%-65% off of the full balance of the HEAL loan can be expected through a settlement if all the criteria can be met.