(1) Forgivable loans shall be made and based upon the following options for repayment or conversion to interest-free scholarships:

(a) Payment in full of principal plus a penalty of five percent (5%) of the principal and interest on the combined principal and penalty must be made in monthly installments, the maximum number of which will be determined by the board, unless set forth in this chapter. Interest will begin to accrue at the date of separation from the approved program of study at a rate equal to the unsubsidized Federal Stafford loan rate at the time of separation. Repayment will commence one (1) month after separation from the program of study, unless the recipient is granted a grace period or deferment by the board. The availability and length of a grace period will be determined by the board. The availability and length of any deferments will be determined by the board.

(b) In lieu of payment in full of both principal and interest, a loan recipient may elect to repay by entry into service employment. Service requirements for each forgivable loan program will be determined by the board, unless set forth in this chapter. Unless excepted by this chapter, repayment under this option shall convert loan to scholarship, and discharge the same, on the basis of one (1) year’s full-time service for one (1) year’s loan amount or its equivalent if the recipient attended part-time, or the appropriate proportion of the total outstanding balance of principal and interest, all as shall be established by rule and regulation of the board. The period of service shall in no event be less than one (1) year. If at any time prior to the repayment in full of the total obligation the recipient abandons or abrogates repayment by this option, the provisions of subsection (1)(c) of this section shall apply.

(c) In the event of abandonment or abrogation of the option for repayment as provided for in subsection (1)(b) of this section, the remaining balance of unpaid or undischarged principal plus a penalty of five percent (5%) of the unpaid or undischarged principal and interest on the combined principal and penalty shall become due and payable over the remaining period of time as if the option provided for in subsection (1)(a) of this section had been elected upon separation and the conclusion of any applicable grace and deferment periods.

(2) Any person failing to complete a program of study which will enable that person to enter service employment, or failing to obtain any required licensure or additional credentials necessary for that person to enter service employment shall become liable to the board for the sum of all forgivable loan awards made to that person plus a penalty of five percent (5%) of the loan awards and interest on the combined amount accruing at the current unsubsidized Federal Stafford loan rate at the time the person abrogates his participation in the program.

(3) If a claim for payment under this subsection is placed in the hands of a collection agency or an attorney for collection, the obligor shall be liable for an additional amount equal to a reasonable collection commission or attorney’s fee as well as any court costs.

(4) The obligations made by the recipient of a forgivable loan award shall not be voidable by reason of the age of the student at the time of receiving the scholarship.