RUS Rural Development Loan Deferments — Cushion of Credit Accounts for Rural Electric and Telephone Borrowers
Legal Authority
- 7 U.S.C. § 901 — Rural Electrification Act; authorizes USDA RUS to make loans for rural electric and telephone infrastructure and to set terms and conditions governing loan deferments and rural development investment requirements
- 7 CFR Part 1703, Subpart G — RUS implementing regulations for cushion of credit and loan deferment program; governs eligibility, security requirements, approved uses, and account mechanics
Key Mechanics
7 CFR Part 1703, Subpart G allows financially healthy RUS borrowers (rural electric cooperatives and rural telephone companies with direct or insured RUS loans) to defer principal and interest payments by depositing the deferred amount into a supervised "cushion of credit" account (§ 1703.300–1703.305). The deferred funds can then be used to finance rural development projects — local business investment, rural infrastructure, job creation — in the communities the borrower serves. The program is not automatic: borrowers must demonstrate the proposed rural development use is economically sound and in the public interest; RUS may reject proposals that don't meet the rural development purpose (§ 1703.301). Eligibility requires clean financial standing: borrowers must not be delinquent on any federal debt, in financial difficulty, or in bankruptcy (§ 1703.303). The cushion of credit account is supervised — funds cannot be withdrawn without RUS approval and cannot be used for purposes other than RUS-approved rural development investments (§ 1703.306). Security is maintained by requiring that the total deferred obligation (plus interest) never exceed the value of the cushion of credit account (§ 1703.304). Program status (2026): the 2018 Farm Bill (Pub. L. 115-334, § 6503) closed the program to new deposits as of December 20, 2018; withdrawals from existing accounts are permitted (to prepay RUS loans without penalty); interest rates on existing cushion accounts were reduced in phases (5% FY2020, 4% FY2021, 1-year Treasury rate thereafter). The Subpart G framework remains in effect for the wind-down of existing accounts. Only electric and telephone loans qualify for deferment; rural economic development loans cannot be deferred under this subpart.
Important update: Section 6503 of the 2018 Farm Bill (Pub. L. 115-334, Dec. 20, 2018) closed the Cushion of Credit program to new deposits as of the enactment date. Withdrawals from existing accounts are permitted (to prepay RUS loans without penalty), and a phased interest-rate reduction was implemented (5% through FY2020, 4% through FY2021, 1-year Treasury rate thereafter). The Subpart G framework below is therefore historical for new deposits but still governs the wind-down of existing accounts.
Current Rule (2026)
| Parameter | Value |
|---|---|
| Citation | 7 CFR Part 1703 |
| Issuing agency | USDA Rural Utilities Service (RUS) |
| Statutory authority | 7 U.S.C. § 901 (Rural Electrification Act) |
| Last major amendment | No recent Federal Register amendments |
What This Rule Does
Electric cooperatives and rural telephone companies that borrow from USDA's Rural Utilities Service (RUS) sometimes have an opportunity to invest in projects that benefit their rural communities — creating jobs, supporting local businesses, or expanding services — but doing so requires capital that would otherwise be used to make loan payments to RUS.
Seven CFR Part 1703, Subpart G, establishes a program that lets RUS borrowers defer principal and interest payments on their direct or insured electric and telephone loans, provided they deposit the deferred amount into a "cushion of credit" account. The deferred funds, parked in the cushion account, can then be used to finance rural development projects and job creation in the communities the borrower serves.
The arrangement creates a win-win: the borrower gets access to capital for community investment without going back to the bank for a new loan, and RUS receives a security deposit (the cushion of credit) that protects its financial interest in the loan — the money isn't gone, it's held in a supervised account that secures the deferred obligation.
Key Provisions
- § 1703.300 — Purpose: RUS may delay principal and interest payments on direct or insured electric or telephone loans (not rural economic development loans) when the borrower deposits the equivalent amount into a cushion of credit account
- § 1703.301 — Policy: RUS encourages borrowers to use deferred loan capacity to invest in projects that help rural areas and create jobs, as long as those projects are backed by solid economic plans; deferments are not automatic — borrowers must demonstrate that the intended rural development use is sound and in the public interest
- § 1703.302 — Definitions: "cushion of credit" means a supervised account into which the borrower deposits amounts equal to deferred loan payments; "deferred payment" means a loan payment delayed under this subpart; "rural development project" means an investment that creates or retains jobs or supports economic activity in a rural area served by the borrower
- § 1703.303 — Eligibility for deferment: borrowers may request deferment only if they are (1) not in financial difficulty, (2) not delinquent on any federal debt, and (3) not in bankruptcy; borrowers in trouble cannot use this program to shift capital away from loan obligations
- § 1703.304 — Security restrictions: deferment of loan payments must not impair the security for any RUS loan or guarantee; at no time can the total deferred obligation (plus interest) exceed the value of the cushion of credit account; RUS protects itself by ensuring the security deposit always covers the deferred amount
- § 1703.305 — Cushion of credit mechanics: to defer a payment, the borrower must simultaneously deposit the same amount into the cushion of credit account; the deposited funds accrue interest at rates set by RUS; the cushion account is supervised — the borrower cannot withdraw without RUS approval; it is specifically not funded from other cushion of credit deposits already held by the borrower
- § 1703.306 — Restrictions on deferred funds: money saved by deferring loan payments cannot be used for certain purposes; borrowers must notify RUS of any potential conflicts of interest in proposed rural development investments funded through the deferred capital; RUS may reject a proposed use if it conflicts with the program's rural development purpose
- § 1703.307 — Permitted uses: a borrower may defer a loan payment and use the freed-up capital to support rural development and job creation — financing local businesses, supporting rural infrastructure, or investing in projects that keep economic activity in rural communities served by the electric or telephone cooperative
How It Affects You
If you are a manager or board member of a rural electric cooperative or rural telephone company with an RUS loan, Part 1703 gives you a tool to invest in your community without requiring a new loan application. By deferring a loan payment and depositing the equivalent into a cushion of credit account, you create liquidity for rural development without violating your loan covenants.
The tradeoff: the deferred amount sits in a supervised account that you cannot freely withdraw. It earns interest, but it is not yours to spend on any purpose — only on rural development projects RUS approves. If you want the flexibility to deploy capital without RUS supervision, this tool may not fit your needs.
Eligibility requires clean financial standing. You cannot be delinquent on any federal debt, in financial difficulty, or in bankruptcy. RUS does not allow distressed borrowers to use deferment to defer their way out of financial trouble; the program is for financially healthy borrowers making proactive community investments.
Only electric and telephone loans qualify. Rural economic development loans (another RUS product) cannot be deferred under this subpart. Check your loan agreement type before applying.
Statutory Authority
This rule implements:
- 7 U.S.C. § 901 — Rural Electrification Act, which established the Rural Utilities Service's loan programs for electric and telephone infrastructure in rural areas and broadly authorizes RUS to promulgate regulations governing loan terms and conditions
Recent Rulemakings
No major Federal Register amendments reported. The cushion of credit framework has been stable since promulgation.