direct loan consolidation process presented by: daniel weigle school support manager, fedloan...
TRANSCRIPT
Direct Loan Consolidation Process
Presented by: Daniel WeigleSchool Support Manager, FedLoan Servicing
Objectives
Consolidation overview
Consolidation application process
Counseling student loan borrowers
What is Direct Loan Consolidation?
Direct Loan Consolidation allows borrowers to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments.
There is no application fee to consolidate federal student loans into a Direct Consolidation Loan.
If contacted by someone offering to consolidate student loans for a fee, you are not dealing with the U.S. Department of Education’s loan consolidation servicer.
Direct Consolidation Loans have a fixed interest rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. The rate will not exceed 8.25%
Who is Eligible?
To qualify for Direct Consolidation Loans, borrowers must have:
At least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace or repayment status
Repayment status includes loans that are in a deferment or forbearance period
Loans that are in an in-school status cannot be included in a Direct Consolidation Loan
Borrowers may consolidate loans that are in an in-school deferment status
What Loan Types are Eligible?
Direct Subsidized and Unsubsidized Loans Subsidized and Unsubsidized Federal Family
Education Loans (FFEL) Perkins Loans PLUS Loans Certain Health Professions Loans
Health Professions Student Loans (HPSL) Health Education Assistance Loans (HEAL) Loans for Disadvantaged Students (LDS) Nursing Student Loans (NSL)
The Consolidation ProcessBorrowers will begin the Direct Loan Consolidation process at www.LoanConsolidation.ed.gov and selecting BORROWER SERVICES
Application Options
Consolidated Loan
Loan A
Loan B
Loan C
ONE
PAYMENT
Online Web Application Express Phone Application
(available if borrower has only Direct Loans)
Paper ApplicationDownload a paper copy of the application and promissory note - including the complete contents of the application package. Request an application package be mailed:
Phone at 1-800-557-7392 8AM to 8PM (EST) (TDD 1-800-557-7395) or (334) 206-7400 outside USA
E-mail at [email protected]
There are several ways for borrowers to apply
for a Direct Consolidation Loan
Signing In
Applicants will be prompted for sign in credentials: SSN First two digits of last
name DOB (MM/DD/YYYY) FSA PIN
Starting the Application
After a successful log-in, applicants will be directed back to the instructions page where they’ll select Apply Online … to proceed.
Choose Loan Types and Specify Status
If "No" is selected, further options are presented to allow applicants to consolidate either “only FFEL loans” or “only Direct loans”
Consolidation Hold Option
If the applicant states that one of more of their loans is in grace, they can elect to delay the processing of their application by up to 9 months from the application date.
If they select “No" to the initial question, or choose not to enter the “Expected Grace End Date”, they will forfeit any grace period by consolidating their loans.
Borrower and Reference Information
This section prompts the applicant for their information, giving them the option to save or email customer service
Next, the applicant must provide references
Loan SelectionNext, the applicant is shown a list of their individual loans
For each loan, the applicant must specify whether or not it should be included in the new Direct Consolidation Loan
If any of the loan detail information is inaccurate, the applicant will have an opportunity to review it in a later step
If more loans need to be added, click “Add More Loans” to enter information on each additional loan
If the list of loans is complete, the applicant must click “Done With Loans” to proceed to the next section
Additional Loans
If the applicant needs to include additional loans, this page will prompt them to provide the lender/loan information to include and select whether or not it should be included in the Direct Consolidation Loan
If the list of loans is complete, the applicant must click “Done With Loans” to proceed to the next section
Review Loan Information
After choosing the loans to consolidate, the applicant is given the opportunity to review their loan information
Repayment Plan Introduction After reviewing the list of
loans to consolidate for accuracy, applicants are encouraged to sign up for Direct Debit and ICR or IBR.
Repayment Plan Selection
The applicant is then given estimates and the option to select their repayment plan by a drop down menu.
Review Draft
Application Applicants will be
asked to review the following: Consolidation Hold (if
applicable) Borrower Information Reference Information Loan Information Repayment Plan Selection
Information To correct any errors, click
on the title bar of the appropriate section
Signature Options
E-signature option Print to mail option
Counseling Borrowers
Refer students to NSLDS to determine what they owe and to whom
Advise students of the Pros and Cons of Direct Loan Consolidation
Help students determine what repayment plan may be best for them
Inform students of the loan forgiveness programs available
Direct Loan Consolidation: Pros One monthly payment Reduced monthly payments Flexible repayment options No minimum or maximum loan amounts or fees Retention of subsidy benefits May qualify for renewed deferment benefits Defaulted loans can be consolidated to regain Title IV
eligibility Must establish satisfactory repayment arrangements
Direct Loan Consolidation: Cons Consolidation generally does not save money Slightly higher interest rate Loss of the remainder of the grace period
Repayment begins 60 days after consolidation loan is made Loss of favorable benefits on Perkins loans such as
subsidized interest and loan forgiveness Capitalization at status changes Some alternate repayment plans are available without
consolidation Extended 25-year repayment is available without consolidating
if you have $30,000 or more in debt with a single lender Income-based repayment is available without consolidation
Repayment Plans Eligible repayment plans for Direct Consolidated Loans:
Loan Balance Maximum Loan Term
Less Than $7,500 10 years
$7,500 to $9,999 12 years
$10,000 to $19,999 15 years
$20,000 to $39,999 20 years
$40,000 to $59,999 25 years
$60,000 or more 30 years
Standard Repayment Income Contingent Repayment
Extended Repayment Income Sensitive Repayment
Graduated Repayment Income Based Repayment
Repayment Terms If the applicant elects to repay the Direct Consolidation Loan
under either the Standard or Graduated Repayment Plans, the repayment term is determined based on their consolidation loan amount and the amount of other eligible education loans that are not part of the Direct Consolidation Loan as long as the applicant provided information about those loans on the application.
For this purpose, the amount of the applicant’s other eligible loans that are not being consolidated may not exceed the amount of the Direct Consolidation Loan.
Direct Consolidation Loan + Other Eligible Student Loan Allowance = Total Education Indebtedness
Repayment Terms and Total Indebtedness
Direct Consolidation Loan + Other Eligible Student Loan Allowance
= Total Education Indebtedness
Applicant’s Existing Loans
Loan A $2,500
Loan B $6,000
Loan C $2,500
Loan D $7,500
Loan E $7,500
Loan F $13,000
Total Outstanding Loan Amount $39,000
Consolidated Loans
Consolidated Loan Amount
Other Eligible Student Loans
Total Education Indebtedness
Loan Repayment
Term (approx.)
Example 1 Loans A and B $8,500 $30,500 $17,000 15 years
Example 2Loans A,B, C, D, and E
$26,000 $13,000 $39,000 20 years
Example 3 Loans A and B $8,500 $0 $8,500 11 years
Counseling Scenarios ? • Has FFELP loans in repayment with repayment incentive
benefits• Has been paying for 30 months and the 2% interest rate
reduction kicks in after 36 months
Borrower 1• Has FFELP loans and DL loans in repayment for 2
years • Is a teacher at a public school and just found out
about PSLF
Borrower 2
• Has multiple loans with multiple ratesBorrower 3• Has multiple federal servicersBorrower 4
• Is still in Grace• Has just gotten employment in Public ServiceBorrower 5
• Has multiple loans with 1 servicer and cannot afford the paymentBorrower 6
• Has FFELP loans in repayment with repayment incentive benefits
• Has been paying for 30 months and the 2% interest rate reduction kicks in after 36 months
Scenario #1
Considerations: Should the borrower wait to consolidate? Why or why not?
Borrower 1
Current Interest Rate
Consolidate Before Interest Rate Reduction
Consolidate After Interest Rate
Reduction
6.8% 6.875% 4.875%
• Has FFELP loans and DL loans in repayment for 2 years • Is a teacher at a public school and just found out about
PSLF
Scenario #2
Considerations: Should the borrower consolidate the FFELP and DL loan
together? Why or why not?
Borrower 2
Teach Loan Forgiveness
Public Service Loan Forgiveness
Use for FFELP Loans Use for Direct Loans
• Has multiple loans with multiple rates
Scenario #3
Considerations: Should the borrower wait to consolidate? Why or why not?
$5,000 * 5.0% + $10,000 * 6.8%_________________________ = 6.2%
$5,000 + $10,000
The weighted average, 6.2%, is then rounded up to the nearest 1/8th of a percent, yielding a consolidation loan interest rate of 6.25%.
Borrower 3
Loan TypeInterest
RateMonthly Payment
(120/10 year)Cumulative Payments
Total Amount Paid
Perkins Loan 5.0% $53.03 $6,364.03$20,173.69
Sub. Staff. Loan 6.8% $115.08 $13,809.66
Consol. Loan (15 Yr. Extended Plan)
6.25% $128.61 $23,150.82 $23,150.82
• Has multiple federal servicers
Scenario #4
Considerations: Should the borrower wait to consolidate? Why or why not?
Borrower 4
• Is still in Grace• Has just gotten full time employment in Public Service
Scenario #5
Considerations: Should the borrower wait to consolidate? Why or why not?
Borrower 5
• Has multiple loans with 1 servicer and cannot afford the payment
Scenario #6
Considerations: Should the borrower to consolidate? Why or why not?
Borrower 6
Monthly PaymentMonths in
Repayment
Current monthly payment total on Standard plan (6.8%)
$345.24 120
Consolidated Monthly
Payments (6.875%):
Standard $230.34 240
Graduated Initial payments of $171.88
240
Income Based $97.00 300
Income Contingent $210.42 300
Resources Direct Loan Consolidation Center
www.loanconsolidation.ed.gov 1-800-557-7392
Direct Consolidation Loans – Frequently Asked Questions http://loanconsolidation.ed.gov/help/faq.html
Questions?
32
Want to learn more? Contact your sector representative!
