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Arizona Loan Repayment Program

Contract Default

Loan repayment recipients who do not complete the service obligation as specified in the contract will be in default of their contract and will will incur a debt to the State in an amount not less than the damages that would be owed under the National Health Service Corps Loan Repayment Program (NHSC LRP).

The NHSC LRP default provision is found at 42 U.S.C. § 254o(c)(1) and reads as follows:

“If (for any reason not specified in subsection (a) of this section or section 254p(d) of this title) an individual breaches the written contract of the individual under section 254l–1 of this title by failing either to begin such individual’s service obligation in accordance with section 254m or 254n of this title or to complete such service obligation, the United States shall be entitled to recover from the individual an amount equal to the sum of—

(A) the total of the amounts paid by the United States under section 254l–1(g) of this title on behalf of the individual for any period of obligated service not served;
(B) an amount equal to the product of the number of months of obligated service that were not completed by the individual, multiplied by $7,500; and
(C) the interest on the amounts described in subparagraphs (A) and (B), at the maximum legal prevailing rate, as determined by the Treasurer of the United States, from the date of the breach;
except that the amount the United States is entitled to recover under this paragraph shall not be less than $31,000.”

In summary, there are 3 components to the damages formula:

  • (A) The amounts paid to the participant for any period not served;
  • (B) The # of months not served, multiplied by $7,500; and
  • (C) Interest on (A) and (B).

*But if the amount resulting from the above formula equals less than $31,000, then the defaulter owes $31,000.
The amount owed is due to be paid within one year of breach.

Example 1

Participant breaches after receiving SLRP funds: Dr. Jones had a 2-year (24-month) service obligation. His SLRP award of $65,000 was disbursed to him on January 1, 2014. He defaulted on July 1, 2014, after serving 6 months.

  • (A) Months not served = 18
    • Amounts paid for months not served = $65,000 × 0.75 (18 ÷ 24) = $48,750
  • (B) Months not served (18) × $7,500 = $135,000
  • (A) + (B) = $183,750
  • (C) Interest would accrue on $165,000 [(A) + (B)] at the rate of 9.625% per year, based on the default date of July 1, 2014. (See listing of interest rates and effective dates at http://www.hhs.gov/asfr/of/finpollibrary/chronorates.html.)

Example 2

Participant breaches before receiving any funds:

Dr. Smith had a 2-year (24-month) obligation and defaulted on February 1, 2013, after serving 3 months and before receiving any funds.

  • (A) Months not served = 21
    • Amounts obligated for months not served = 0
  • (B)Months not served (21) × $7,500 = $157,500
  • (A) + (B) = $157,500
  • (C) Interest would accrue on $157,500 [(A) + (B)] at the rate of 10.625% per year, based on the default date of February 1, 2013.

Listing of interest rates and effective dates.

The liquidated damages penalty for failure to complete obligated service can also be found in ARS § 36-2172 (J). At the discretion of ADHS, a loan repayment award recipient may be allowed to transfer to another eligible service site in Arizona to complete a service obligation.