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The Loan Repayment Program Contract

Home > About the Programs > AIB Extramural > Eligibility Requirement > CIR > The Loan Repayment Program Contract

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The Loan Repayment Program Contract



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Breach of Contract

In accordance with 42 USC 254o, which addresses enforcement of the National Health Service Corps LRP contract (legislation establishing the NIH LRPs stipulates that certain provisions of the NHSC LRP are applicable to the NIH LRPs), any participant who fails to complete the minimum 2-year (or 3-year for General Research LRP) service obligation required under the terms of their initial contract will be considered to have breached such contract.

Contracts Starting On or After October 1, 2003

The NIH is entitled to recover from participants who have breached their LRP contract the sum of:
  • Amounts paid by the NIH to the participant or the participant's lenders on their behalf,
  • An "unserved obligation penalty" which is the product of the number of months of obligated service not completed multiplied by $7,500, and
  • Interest on the above amounts shall accrue from the date of the breach at the maximum prevailing rate determined by the United States Department of the Treasury.
The minimum participant liability following a breach of contract with penalty shall be $31,000. Any amount the NIH is entitled to recover shall be paid within one-year of the date of the breach.

The following examples apply to each of the LRPs (intramural 42 USC 288-1 and 42 USC 288-3; extramural 42 USC 288-2, 42 USC 288-5, 42 USC 288-5a, and 42 USC 288-6):

Example 1: Dr. Jones' repayable debt was $123,000 at the beginning of her two-year LRP contract and her quarterly payment amount was set at $7,687.50. She decides to leave the program after 10½ months, during which time NIH had made three equal quarterly loan payments on her behalf. The NIH determines there is a breach of contract with an unserved obligation penalty. Dr. Jones is not liable for the $23,062.50 repayment benefit she received but is liable for a $105,000 penalty ($7,500 x 14 months), plus interest.

Example 2: Dr. Jones' repayable debt was $165,000 at the beginning of her two-year LRP contract and her quarterly payment amount was set at $8,750. She decides to leave the program after completing her 15th month of research service, during which time NIH had made five equal quarterly payments. The NIH determines there is a breach of contract with an unserved obligation penalty. Four of the payments went to her lenders and one was to Dr.Jones to partially reimburse payments she made to her lenders during her LRP contract. Dr.Jones is not liable for the $43,750 repayment benefit she received but is liable for a $67,500 penalty ($7,500 x 9 months), plus interest.

A participant's breach of contract liability to the NIH may be released by a discharge in bankruptcy under Title 11 of the United States Code only if such discharge is granted after the expiration of the 7-year period beginning on the first date that payment of such damages is required, and only if the bankruptcy court finds that nondischarge of the obligation would be unconscionable.

Contracts Starting Prior to October 1, 2003

The NIH is entitled to recover from participants who have breached their LRP contract the sum of:
  • Amounts paid by the NIH to the participant or the participant's lenders on their behalf, and
  • The product of the number of months of obligated service not completed multiplied by $1,000; unless the date of breach is prior to completion of one year of service, in which case the number of months in the full period of obligated service is multiplied by $1,000.
Additionally, the NIH shall recover from the Department of the Treasury the total of Federal tax payments made by the NIH for credit of the participant's tax account at the IRS in the same calendar year as the breach of contract, unless Form 1099-G "Certain Government Payments" for such calendar year had been transmitted to the IRS.

Any amount the NIH is entitled to recover shall be paid within the one-year period beginning on the date of the breach of contract.

The following examples apply to each of the LRPs (intramural 42 USC 288-1 and 42 USC 288-3; extramural 42 USC 288-2, 42 USC 288-5, 42 USC 288-5a, and 42 USC 288-6):

Example 1: Dr. Jones' repayable debt was $123,000 at the beginning of her two-year LRP contract and her quarterly payment amount was set at $7,687.50. She decides to leave the program after 10½ months, during which time NIH had made three equal quarterly loan payments on her behalf. The NIH determines there is a breach of contract with an unserved obligation penalty. Dr. Jones is liable for the $23,062.50 repayment benefit she received plus a $24,000 penalty ($1,000 * 24 months) for a total of $47,062.50. Additionally, the NIH would recover any Federal tax payments made during the calendar year of the breach from the Department of the Treasury.

Example 2: Dr. Jones' repayable debt was $165,000 at the beginning of her two-year LRP contract and her quarterly payment amount was set at $8,750. She decides to leave the program after completing her 15th month of research service, during which time NIH had made five equal quarterly payments. The NIH determines there is a breach of contract with an unserved obligation penalty. Four of the payments went to her lenders and one was to Dr. Jones to partially reimburse payments she made to her lenders during her LRP contract. Dr. Jones is liable for the $43,750 repayment benefit she received plus a $9,000 penalty ($1,000 * 9 months) for a total of $52,750. Additionally, the NIH would recover any Federal tax payments made during the calendar year of the breach from the Department of the Treasury.

A participant's breach of contract liability to the NIH may be released by a discharge in bankruptcy under Title 11 of the United States Code only if such discharge is granted after the expiration of the 5-year period beginning on the first date that payment of such damages is required, and only if the bankruptcy court finds that nondischarge of the obligation would be unconscionable.

Cancellation, Suspension, and Waiver of Obligation

1. Any service or payment obligation incurred by the participant under this contract will be canceled upon the participant's death.

2. The Secretary/NCMHD Director may waive or suspend the participant's service or payment obligation incurred under this contract if:

a. compliance by the participant with the Terms and Conditions of this contract is impossible or would involve extreme hardship, and enforcement of such obligation would be unconscionable. Any amounts pre-paid beyond the period of employment or affiliation must be repaid by the participant.

Damages Payable in One Year

Any amount that the United States is entitled to recover due to a breach of contract must be paid within one year from the date of the breach, unless the Secretary, DHHS, specifically authorizes a longer period.

Effects of Delinquency in Paying Damages

Collection agencies may be utilized when payment of damages in excess of $100 is delinquent by more than 60 days.

Discharge in Bankruptcy

Any obligation of the participant for payment of damages may be released by a discharge in bankruptcy under Title 11 of the United States Code only if such discharge is granted after expiration of the five-year period beginning on the first date that payment of such damages is required, and only if the bankruptcy court finds that non-discharge of the obligation would be unconscionable.

Waiver of Service Obligation or Penalties

A partial or total waiver of the service obligation, the payment obligation, or recovery of damages may be granted by the Secretary, DHHS, when compliance by the participant is impossible; would involve extreme hardship; or where enforcement with respect to the individual would be unconscionable.

Portability of Award

During the initial two-year period and subsequent renewal periods the LRP awards are portable and can be transferred across institutions and research projects.  However, the portability of the awards is subject to a review of continuing eligibility by the NIH Institute or Center (IC) that funded the award.  In their review of continuing eligibility, the funding IC will assess the appropriateness of the research project, research environment, and mentoring plan, as well as reconfirm that basic eligibility conditions will be satisfied, e.g., that the research is supported by non-profit funding and will occupy 50 percent or more of your total level of effort for an average of at least 20 hours per week during each quarterly service period. That is, during each contract quarter, you must conduct the required research for a minimum of 240 hours (based on a 12-week quarter) or 260 hours (based on a 13-week quarter).

You should notify the NIH LRP of any changes to your research assignment and/or institution during the two-year period, and we will provide you with instructions on requesting NIH approval for the changes to your institution or research project.  It is recommended that you advise us of these changes 2 months prior to their effective date, to allow sufficient processing time within the NIH.

If you are unable to establish qualifying research assignments for the two-year period, you should consider reapplying when you are in a better position to comply with the contract provisions.  Loan repayment is expected to be offered every year.



Date Last Updated: Sept. 14, 2010


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