split servicing of student loans a pending crisis or – just a temporary pain in the #$%...
TRANSCRIPT
Split Servicing of Student Split Servicing of Student LoansLoans
A Pending Crisis or – Just a Temporary Pain in the #$%
Presenters: William Cheetham – LeMoyne College John View – SUNY– Env. Science & Forestry Anne Del Plato – Nelnet
AgendaAgendaBackground on split-loan servicingFederally-owned loans and ED
servicersOptions available to help students
manage split-loan servicingTaking inventoryConsolidation OptionCommunicationResources
Background on Split-loan Background on Split-loan ServicingServicingSplit-loan servicing—borrowers with
multipleloans serviced by multiple servicers
• Split-loan servicing is not a new phenomenon
• An increased focus in today’s environment due to:
– Lenders exiting FFELP, selling portfolios tosecondary markets
– FFELP loans that have been purchased by ED
– Schools transitioning from FFELP to FDLP
Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersED owns both FDLP loans and FFELP
purchased loans– FFELP purchased loans are loans
made under FFELP by lenders and subsequently purchased by ED
– June 2009, ED awarded servicing contracts to four new servicers
– New servicers currently service FFELP purchased loans for ED and will be assigned FDLP loans by August 31, 2010
Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersNew ED servicers– Fedloan Servicing (PHEAA)– Great Lakes Educational Loan
Service,Inc.– Nelnet– Sallie MaeExisting ED servicers– Department of Education Student
Loan Servicing(ACS)– Direct Loan Servicing Center (ACS)
Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersServicer assignment:• The goal is to assign all of a borrower’s
federally-owned loans to the same servicer◦– This has not automatically occurred for all◦borrowers◦– ED is working to resolve situations where a◦borrower’s federally-owned loans are assigned◦ to two or more ED servicers◦– Over time, assignment of a borrower’s◦ federally-owned loans to the same servicer
will become standard operating procedure
Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersQ: How will a school know which ED servicer is servicing a borrower’s FFELP purchased loan?
A: The ED servicer is identified in NSLDS.• Schools can use the new report entitled “Status of Loans Purchased by ED report” (PLPED3)
NSLDS Access and SecurityNSLDS Access and Security
Rules of Behavior
You are “Agreeing”
Updated NSLDS Grant Display on Student SiteUpdated NSLDS Grant Display on Student Site
PLPED3 in PDF ReportPLPED3 in PDF Report
Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersQ: How long will it take for the ED
servicer to report information to NSLDS on the transfer of a FFELP purchased loan?
A: ED servicers report to NSLDS weekly. New servicer info is available within 7 to 10 business days after the transfer has been completed.◦ Contact the Federal Student Aid Research
and Customer Care Center at (800) 433-7327 or [email protected] for assistance
Split Servicing: Former FFELP Schools
Year Loan Program
Loans Federally-owned?*
Split servicing concern?**
2010-11 Direct Loan Y N
2009-10*
FFELP PUT Y N
2008-09*
FFELP PUT Y N
2007-08 and prior
FFELPCommercial
N Y* Most, but not all loans entered the PUT program during these years.
** ED plans to move these borrowers to one servicer.
Split Servicing – Direct Loan SchoolsAll loans are federally-owned.
Small percentage are split.
ED plans to move all borrowers to one servicer.
Most of this movement to occur by early Winter 2011
Split Servicing and Repayment
If more than one servicer, borrower will make payments to all.
Will increase minimum payments in most cases.
If deferment or forbearance needed, borrower will need to contact all.
Taking InventoryTaking InventoryQ: Where can borrowers obtain information about their federal student loan(s)?
A: National Student Loan Data System (NSLDS) at www.nslds.ed.gov
• Provides loan amount(s) and loan holder(s)
Taking InventoryTaking InventoryQ: What happens to a borrower’s
loan(s) when he or she leaves school?
A: A Perkins loan either:• Enters a 9-month grace period• Enters a 6-month post-deferment
grace periodA: A Stafford loan either:• Enters a 6-month grace period• Enters repayment
Taking InventoryTaking InventoryQ: What happens to a borrower’s
loan(s) when (s)he leaves school?
A: A Grad PLUS loan either:• Enters a 6-month deferment• Enters repayment
A: A parent PLUS loan either:• Enters a 6-month deferment, if requested • Enters repayment
Taking InventoryTaking InventoryQ: What happens to a borrower’s loan(s) when he or she leaves school?
A: A federal consolidation loan:• Enter repaymentA: For non-Title IV loans:• Enter repayment based on the
terms and conditions of loan
Taking InventoryTaking InventoryQ: What should a borrower expectfrom his or her loan holder(s)?
A: Repayment disclosure notice(s)• Outlines the terms of the loan(s)
borrowed• Provides the repayment options
available• Establishes the first payment due
date
Taking InventoryTaking InventoryQ: What does the loan holder
expect of the borrower?A: The loan holder expects the
borrower to:• Select a repayment plan• Make timely payments on the loan(s)• Provide updated contact information
whenever it changes• Contact the loan holder whenever he
or she is having difficulty managing repayment
Taking InventoryTaking InventoryQ: What should a borrower expect when a FFELP loan has been purchased by ED?
A: The borrower will receive correspondence from the ED servicer that contains the pertinent contact information.
• The borrower will be responsible for managing repayment with the ED servicer
Taking InventoryTaking InventoryQ: For those borrowers with FFELP purchased loans serviced by ACS, how will a borrower know when his or her loan(s) have been transferred to one of the new ED servicers?
A: ED is in the process of transferring FFELP purchased loans currently serviced by ACS to new ED Servicers
Taking InventoryTaking InventoryQ: Is it possible for the borrower
to have combined billing for both FFELP purchased loans and regular FFELP loans that are with the same servicer?
A: Combined billing is not possible in this instance. Because federal law requires federally-owned loans to be processed through a federal payment lockbox, and prohibits the processing of payments on loans that are not federally-owned through this lockbox, borrowers are required to make separate payments.
Options For BorrowersOptions For Borrowers
ConsolidationConsolidation Enables borrower to combine
one or more federal student loans into a single new loan with one holder (and consequently, a single servicer)
• At the time of consolidation, lender or ED pays off outstanding balances of loans included in the consolidation
ConsolidationConsolidationQ: Who can consolidate? Is there a fee?
A: Any federal student loan borrower, including:
• Borrowers with student loans• Borrowers with parent loans• Borrowers with student and
parent loansThere is no fee to obtain a
Consolidation loan
ConsolidationConsolidationTypes that may be consolidated
include:• Federal Family Education Loans• Federal Direct Loans• Federal Perkins Loans• Health Professions Student Loans• Nursing Student Loans• Health Education Assistance
Loans
ConsolidationConsolidationQ: What is the general eligibility
criteria?A: A borrower:• Must be in grace period or in repayment– No grace for a Grad PLUS loan; borrower
can consolidate while in school because loan is in repayment
– Repayment includes deferment periodsMay be delinquent or in default on one ormore existing loans
ConsolidationConsolidationFactors to consider:• Brings together loans with multiple
lenders for convenience of one payment• May lower loan payments by
lengthening repayment period• May be able to lock in a more favorable
interest rate (for loans with a variable interest rate, if those rates are low during the year the borrower consolidates)
ConsolidationConsolidationFactors to consider:• May lose some or all of grace
period• May lose certain borrower benefits• Perkins loans lose:– Deferment subsidy when
consolidated– Cancellation eligibility when
consolidated
ConsolidationConsolidationFactors to consider:• Certain deferments may be lost, but
theseolder deferments are not used frequently• Borrowers retain ability to request
most major deferments after consolidation
– In-school– Unemployment– Economic hardship
ConsolidationConsolidationFactors to consider:• May increase total cost of loan– If borrower lengthens repayment
period,will pay more interest over life of
the loan
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation Authority• New, temporary loan consolidation
authoritycreated by the Health Care and
EducationReconciliation Act of 2010– The main purpose of this temporary
authority is to allow borrowers who may have lender-held FFELP, Direct, and FFELP purchased loans to combine them into a single loan
• For Consolidation loan applications received by ED on or after July 1, 2010, and before July 1, 2011
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityEligibility: Borrower must have loans
in at least two of the following categories
– Federal Direct loan,– FFELP loan held by a lender --FFELP purchased loan• Borrower must have at least one
eligible loan in the above categories that has not yet entered repayment (this includes loans in a grace period
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityTerms and conditions:Direct Consolidation loan made under this
authority has the same terms and conditions that apply to regular Consolidation loans, except
– The weighted average interest rate applied to a Consolidation loan made under this provision will not be rounded up to the nearest 1/8th of one percent
– However, if the Consolidation loan includes one or more variable rate Stafford loans made July 1, 1994 June 30, 2006, the weighted average is rounded up to the nearest 1/8th of one percent
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityBenefits:• A borrower can obtain a single loan
with asingle holder before repayment begins• The weighted average interest rate
is not rounded up to the nearest 1/8th percent unless a variable rate Stafford loan made July 1,1994 – June 30, 2006 is included in the Consolidation loan.
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityConsiderations:• A Stafford loan borrower will lose the
sixmonth grace period if he or she consolidates
while in school• Parent and Grad PLUS borrowers will
lose the six-month post-enrollment deferment benefit if they consolidate while in school
• A borrower who consolidates while in school has not received exit counseling, therefore may not have enough information to make an informed decision
Temporary Loan Temporary Loan Consolidation AuthorityConsolidation Authority• The regular consolidation loan
program may continue to be used—it has not gone away.
– However, all of the loans that are being
consolidated must have entered repayment
prior to consolidation
CommunicationCommunicationStrategically communicate with
borrowers today to help set the right expectation
• Encourage borrowers to open and read loan holder correspondence
• Focus on the importance of NSLDS outside the realm of student loan counseling
Student view displays current contact Student view displays current contact informationinformation
Student view displays current contact Student view displays current contact informationinformation
CommunicationCommunicationOffer supplemental counseling above and
beyond traditional entrance and exit sessions• Provide comprehensive information on
consolidation– May be the right option on an individualized
basis to help students manage repayment– Encourage students to make larger paymentson the consolidation loan• As a reminder, extending the repayment
term will likely increase the overall cost of the loan
Resources for BorrowersResources for Borrowers
• www.federalstudentaid.ed.gov• www.nslds.ed.gov• ED’s Federal Student Aid
Information Center at 1-800-4-FED-AID or (800) 433-3243
Resources for SchoolsResources for Schoolswww.ifap.ed.gov– ED electronic announcements on
IFAP related to Loan Servicing Information dated:
• 08/28/2009, 09/16/2009, 03/26/2010www.fsaconferences.ed.gov/
pastconferences.html 2009 Federal Student Aid Conference
presentations entitled:• Direct Loan Servicing, Additional
Loan Servicers, and NSLDS Update
QuestionsQuestions