PHEAA Guaranteed Student Loans

Authored By: MidPenn Legal Services


Pennsylvania Higher Education Assistance Agency (PHEAA) is a state agency of the Commonwealth of Pennsylvania. One of its main purposes is to help Pennsylvania citizens access federal government money set aside for student loans. It does this in cooperation with the U.S. Department of Education under the Federal Family Education Loan Program or FFEL Program. The loans can be for college or for education at a technical or trade school. PHEAA also has loan and grant programs which use Pennsylvania money but this fact sheet does not deal with these. This fact sheet covers Stafford Loans made under the FFEL Program.

PHEAA is a GUARANTEE AGENCY in the FFEL Program. A guarantee agency encourages banks to lend money to students by paying the bank the amount due on the loan if the student doesn't make payment. This takes the element of risk out of lending for the bank. PHEAA, in turn, is repaid by the U.S. government for claims it pays to banks when there is a student default. When PHEAA says "default" they mean the borrower has either not made a payment when due or has otherwise breached the contract. Both the banks and PHEAA, however, must properly administer the loans by complying with federal and state guidelines or they will not be reimbursed on the defaulted loans. This helps make sure that the law is followed and that the student borrower is treated fairly.


Ordinarily, a student does not have to repay the principal or interest on the loan while he or she is still attending school at least on a half-time basis. When the student is no longer going to school at least half-time, a "grace period" begins. The grace period for most loans guaranteed by Pennsylvania is six months. The loan document will indicate the length of the grace period.

Repayment of GSL Program loans for correspondence schools must usually begin upon completion of the correspondence program. Once again, the loan document will indicate the length of the grace period.

During the grace period you are not required to make any payments. After the grace period has expired the "repayment period" begins and the borrower must begin making regular monthly payments according to the repayment schedule. The repayment schedule will be explained on the loan document in brief and then in greater detail in the repayment documents that the lender will send during the grace period.

Interest generally begins to build on a GSL from the time the money is lent but the borrower can apply for a federal interest payment allowance which will pay the interest until the loan becomes payable. That is usually after the student is out of school. The borrower should be sure to apply for this benefit at the same time that he or she applies for the loan.


If the borrower does not make a payment when due he or she is "delinquent" on the loan. If the failure to repay monthly payments, when the payments are due, persists for 270 days then the loan can be placed in "default" status. After the loan is placed in default status, the lender can "accelerate" the loan. Acceleration means that the whole amount of the loan becomes due and payable immediately. The lender is not allowed to accelerate the loan during the delinquency stage but must wait until the correct amount of time has passed and the loan has been found to be in default. During the delinquency period the lender is required to contact the borrower to try to get him or her to make payments on the loan and to warn the borrower of the consequences of having the loan declared to be in default.

Loans which are non-federal loans may be declared to be in default after a payment is 120 days late.

Please note that your loan must be repaid regardless of the fact that you did not get a job in the same field for which you went to school.


After the loan is placed in default status, the lender has the right to ask PHEAA to pay the loan. PHEAA then has the right to sue the borrower. PHEAA will usually send letters and make phone calls to the borrower before any lawsuit is started in hopes of making some type of repayment arrangement with the borrower. Very often the lenders and PHEAA will employ a collection agent to make these contacts with the borrower. One large collection agency is called the Student Loan Servicing Center. Two main offices for it are located in Harrisburg and in Wilkes-Barre. The collection agency will handle most collection efforts short of actually filing a suit against the borrower. PHEAA is ultimately responsible for the collection efforts undertaken by the collection agency and for any violations of the law committed by the collection agency.

Borrowers need to be aware that they will seldom be contacted by the same person twice from the collection agency. Dealings with the agency are likely to be confusing. It is very important to get the name of the person spoken to and to keep accurate notes of conversations; document any "run around" that you seem to get as it may be helpful to testify concerning it in any hearing involving the loans. Always be sure to keep copies of each and every document sent by you to PHEAA, the U.S. Department of Education, or any collection agent.


There are several reasons for which the lender, PHEAA, or any collection agent may be asked to postpone collection of the loan. These are when the borrower is qualified for a deferment or is granted a forbearance on the loan. Under certain circumstances, the loan may be canceled and the borrower is then permanently relieved from the obligation to repay. As a last resort, bankruptcy is available under limited circumstances.

  • Deferment

Deferment means that the lender or guarantor will delay the requirement that the borrower repay the principal of the loan for a specified period of time; payment of the interest, however, is generally required unless the borrower had qualified to be relieved from that portion of the payment as well. Qualification is determined at the time the borrower applied for the loan. Be sure to ask to apply for this interest benefit.

To receive a deferment on a Stafford Loan the borrower must request it and provide the lender or guarantor with all the documentation needed to show entitlement to the deferment. PHEAA provides forms for these requests and it is advisable to learn how they may be obtained at the time the loan is taken out. Most lenders and, of course, PHEAA can provide them.

A lender may not deny a deferment when a borrower has met the guidelines for eligibility for it if the borrower is only delinquent in his or her payments but not yet in default. Even a borrower who is in default can be given a deferral if satisfactory repayment arrangements on the loan are made.

Reasons for which a deferment is allowable include continued full time study, participation in a graduate fellowship program, active duty in the armed forces or Peace Corps, inability to find a job and temporary, total disability. There are others as well. Each type of deferment has a time limit for which it can be granted. After the condition for which the deferral was given ends, there is an additional six month grace period during which repayment need not be made but this extra grace period only applies to loans made before October 1, 1981.

PHEAA forms listing the type, duration and the very specific qualifications for each deferral are available online at: Pennsylvania Higher Education Assistance Agency or American Education Services.

  • Forbearance

Forbearance means permitting loan repayment to temporarily cease, granting extra time within which to make payments or accepting smaller payments than required by the loan documents. The lender or collector does not have to grant a forbearance but the borrower should ask for it if he or she can't pay a loan and is not eligible for a deferral.

Most Stafford Loans must be paid within a maximum of 10 years and there is always a minimum amount that must be paid on each loan in any year. Forbearance can be granted multiple times and the periods of forbearance may be for up to one year.

  • Cancellation

All obligation to repay a loan can be canceled if the borrower dies or becomes totally and permanently disabled. Total and permanent disability means that the borrower has become unable to work and earn money because of an impairment that is expected to continue indefinitely or result in death. The condition causing disability cannot have existed prior to the loan application unless the disability results because the condition has deteriorated since that time.

When the lender is notified of disability, it must request the borrower, or the borrower's representative, to submit medical proof of the disability on a form provided by the lender. The lender may continue collection efforts on the loan until the medical certification is received or until a letter indicating that the physician needs more time to complete the certification is received from the physician. If adequate proof to show total and permanent disability is submitted, the lender must cancel the loan.

The request for any of these forms of relief should be made just as soon as the borrower knows that conditions are going to make him or her eligible for it. Complete and accurate notes of contact with the lender or collector and copies of all documents submitted must be kept. It is also a good idea to send documents by certified mail with a return receipt requested. These steps will insure that a borrower can prove that he or she complied with all requirements for relief.

  • Bankruptcy

A bankruptcy discharge may eliminate student loan obligations if the bankruptcy judge finds that not wiping out the loan will create an undue hardship to the borrower. There are many factors that the court will consider and this relief is not lightly granted by the bankruptcy court.

Other Relief - Defending Against Repayment Where There Has Been Abuse

If a borrower can show that there was some fraud or unfairness committed against him or her by a school or lender then the debt may be canceled. Examples of such fraud or unfairness include the falsification of loan documents by a school or lender so that a student (who has not known of or participated in the fraud) can be granted a loan or the closing of a school before the borrower can attend or finish the course of study. If the lender or guarantee agency can't be convinced to cancel the loan a lawsuit may be needed. The borrower should seek legal advice as soon as he or she realizes that such a situation may exist.


PHEAA does have the right to proceed in court against a borrower. If such a suit is started, the borrower should seek legal advice right away. As with any lawsuit, there are important deadlines that must be met. An answer to a complaint must be filed within twenty days of service of the complaint upon the borrower; if legal help is not available, the borrower should file his or her own written response to the complaint. The response should raise any defense that the borrower feels may be available. This will help insure that the borrower is at least given an opportunity to appear in court to present his or her case. This also will keep the option of approaching PHEAA with a settlement proposal open to the borrower.

The written response to the complaint should identify each attempt to obtain a deferment or cancellation. If the court finds that PHEAA or the lender wrongfully denied such a request, it has the power to grant the deferral or cancellation.

PHEAA also has the right to proceed against the borrower by filing a "Statement of Claim" before a PHEAA hearing officer. There are specific procedural rights given to the borrower and there is a right to appeal the agency decision to the Court of Common Pleas in the county where the borrower resides. If you feel that the administrative decision is wrong or that you were not given a fair hearing at which your point of view was considered it is important to file an appeal with the Court of Common Pleas in your county.

A copy of the state regulation setting forth the specific procedures to be used in administrative proceedings and giving the appeal procedures is attached to this fact sheet. Of course, it is of extreme importance to meet all time deadlines given.

The most important thing to remember if served with any court paper -whether from a Court of Common Pleas or from an administrative agency - is that a written response must be filed by the borrower within the time limits provided or there will be a judgment by default entered against the borrower. To be sure to get your "day in Court" you must file the written response.


A borrower should fully familiarize himself or herself with the loan documents used and should ask the lender or PHEAA any questions that there are about them. It is always best to try to anticipate problems and seek their solutions beforehand.

Many times payment problems can be taken care of by contacting the lender immediately after a problem arises. If payment is not made and nothing is heard from the borrower, most lenders will aggressively pursue collection efforts including the passing along of the loan to a collector. It is almost always more difficult to repair the problem after that point.

This fact sheet covers only Stafford Loans. Other programs may have very different rules. Also, rules do change from time to time. The federal regulations for the Stafford Loan Program and other federal loan programs are published in Title 34 of the United States Code of Federal Regulations. It is available in law libraries or in the Federal Depository Library nearest you.

The laws and regulations governing PHEAA loan programs should be available in your county's law library.

MidPenn Legal Services is providing the information and forms which are currently appropriate for use with the Pennsylvania Higher Education Assistance Agency, Guaranteed Student Loans. MidPenn Legal Services in providing the information, forms and instructions is in no way agreeing or implying that it will represent individuals who use the enclosed information, nor is MidPenn Legal Services responsible for misuse of the forms or errors which may be made in completing the forms. This information is accurate at the time of preparation. MidPenn Legal Services assumes no responsibility for the total accuracy of this information and these forms other than on the date of preparation.


Last Reviewed: July 2003

Last Review and Update: Aug 18, 2003