Loan consolidation enables a borrower with loans from different
lenders to obtain one loan, with one interest rate and repayment
schedule.
Once a borrower leaves school, he or she may consider consolidation
as an option to make repayment easier. The student must
contact his or her lender(s) for Federal FFEL Consolidation
or the Loan Origination Center for Direct Loan to request
these options and any
agreement to refinance or consolidate loans is between the
borrower and the lender or the Department, respectively.
A student should keep in mind that loan consolidation does
not increase Federal Stafford Loan limits; aggregate loan
limits must include any portion of a borrower’s Consolidation
Loan used to repay a Stafford Loan. Eligibility requirements,
interest rates, and the administration of Consolidation
Loans are different from Direct Loan and FFEL programs.
This chapter is split into two parts — Federal (FFEL)
Consolidation Loans and Direct Consolidation Loans to better
explain each program’s requirements.
FEDERAL (FFEL) CONSOLIDATION LOANS
A Federal Consolidation Loan enables a borrower with several
loans to obtain one loan with one interest rate and repayment
schedule. Stafford Loans (both subsidized and unsubsidized),
Federal Insured Student Loans (FLSs), Federal Perkins Loans,
National Direct Student Loans (NDSLs), PLUS Loans to students,
Auxiliary Loans to Assist Students (ALAS), parent PLUS Loans,
SLS loans, Health Professions Student Loans, and Nursing
Student Loan Program loans may be consolidated only by lenders
that have an agreement with the Department or a guaranty
agency for that purpose. (PLUS Loans to students and ALAS
are former names of the SLS Program.) These also include
certain existing Consolidated loans and Direct Loans, if
the application for the Consolidation Loan was received
on or after November 13, 1997.
Nonfederal loans made by state or private lenders are not
eligible for consolidation.
A defaulted loan may be included in a consolidation loan
if the borrower has made satisfactory repayment arrangements
with the holder to repay the loan. Three voluntary, on-time,
consecutive monthly payments under a "satisfactory
repayment arrangement" are required to consolidate
a defaulted loan. Satisfactory repayment arrangements are
discussed in Chapter 7 of this reference. A borrower can
also consolidate a defaulted loan without having to make
three required payments, if he or she agrees to repay the
Consolidation Loan under an income-sensitive repayment plan.
Loan consolidation allows a lender to pay off the existing
loans and make one Federal Consolidation Loan to replace
them. Consolidation may include, in addition to unpaid principal
and interest on the underlying loans being consolidated,
late charges and collection costs applied to those loans.
A guaranty agency (or the Department, if it is holding the
loan) may assess the borrower collection charges or late
fees up to 18.5 percent of the principal and interest that
is outstanding at the time of loan payoff certification
on the defaulted Stafford Loan that is to be included in
a Federal Consolidation Loan.
A lender must offer standard, graduated, and income-sensitive
repayment options on Federal Consolidation Loans.
APPLYING FOR A FEDERAL CONSOLIDATION LOAN
Generally, a borrower submits a Consolidation Loan application
to a lender holding at least one of the loans to be consolidated.
If none of those lenders agrees to consolidation, the borrower
may apply to any other lender participating in the Consolidation
Loan Program. A borrower whose loans are all held by one
lender must consolidate with that lender unless the borrower
certifies that he or she has sought and been unable to secure
a Federal Consolidation Loan with acceptable income-sensitive
repayment terms.
The Higher Education Amendments of 1998 specify that lenders
are not required to provide for consolidation of loans made
under Titles VII and VIII of the Public Health Service Act.
The borrower must give the lender all relevant information
concerning his or her existing loans. A borrower may add
to an existing Consolidation Loan eligible loans received
before the date of consolidation, if the loans are added
within 180 days after the date the Consolidation Loan is
made.
BORROWER ELIGIBILITY FOR A FEDERAL CONSOLIDATION LOAN
To be eligible for a Federal Consolidation Loan, a borrower
However, the Higher Education Amendments of 1998 eliminated
defaulted borrowers against whom a court has issued judgment
or against whom a wage garnishment order has been issued
from Federal Consolidation Loan eligibility.
· must not have another Consolidation Loan application
pending;
· must agree to notify the loan holder of any
address changes; and
· must certify that the lender holds at least
one of the borrower’s outstanding loans that are
being consolidated or that the borrower has unsuccessfully
sought a Consolidation Loan from the holders of the
outstanding loans and was unable to secure one.
There is no longer a minimum debt level a borrower must
have to qualify for consolidation.
The Higher Education Amendments of 1998 clarify treatment
of loans made before and after loan consolidation.
· An individual may receive a subsequent consolidation
loan to consolidate eligible loans received after the
borrower’s first consolidation is made;
· An individual may add loans made prior to
the date of the Consolidation Loan within 180 days following
making the Consolidation Loan;
· An individual may add loans received following
the making of the Consolidation Loan within 180 days
after making the Consolidation Loan;
· An individual may add loans made prior to
the date of a first Consolidation Loan to a subsequent
Consolidation Loan.
A married couple may consolidate individual loans if both
spouses agree to be held jointly and separately liable for
repayment of the Consolidation Loan regardless of the amount
of their individual debts and regardless of any future change
in marital status. If one spouse dies, becomes totally and
permanently disabled, has collection of his or her loan
obligation stayed by a bankruptcy filing, or has that obligation
discharged in bankruptcy, the other borrower remains obligated
to repay the loan.
Both spouses must meet the eligibility requirements to
qualify for a Consolidation Loan. Only one spouse is required
to certify that the lender holds at least one of his or
her outstanding loans that are being consolidated or that
he or she has unsuccessfully sought a Consolidation Loan
from the holders of the outstanding loans and was unable
to secure one.
Joint consolidators are held jointly and separately liable
for the Consolidation Loan. To receive a deferment, forbearance,
or discharge is due to school closure of false certification.
In that case, only one borrower must qualify; however, only
the portion of the Consolidation Loan affected by the school
closure of false certification can be discharged, unless
the borrower’s spouse qualifies for some type of discharge.
If a borrower is unable to obtain a Consolidation Loan
from a lender eligible to make such loans, the borrower
may apply through the U.S. Department of Education for a
Federal Direct Consolidation Loan under the Direct Loan
Program. The borrower must certify that he or she has been
unable to obtain from an eligible lender a Consolidation
Loan or a Consolidation Loan with income-sensitive repayment
terms acceptance to the borrower. The eligibility criteria
for Federal Direct Consolidation Loans differ from the criteria
for Federal Consolidation Loans.
INTEREST RATES
The interest rate for a Federal Consolidation Loan made
from July 1, 1994 to November 13, 1997 is the greater of
the weighted average of the interest rates of the loans
consolidated (rounded to the nearest whole percent) of 9
percent. When determining the weighted average of interest
rates, the interest rate used for each loan is that which
is in effect for it at the time the loan is paid in full
through consolidation.
The interest rate for a Federal Consolidation Loan made
from November 14, 1997 to September 30, 1998 is the bond
equivalent rate of 91-day Treasury bills sold at the final
auction before June 1, plus 3.10 percent. The interest rate
may not exceed 8.25 percent.
The interest rate for this category of loans from July
1, 1999 through June 30, 2000 is 7.72 percent.
If a Federal Consolidation Loan application was received
on or after October 1, 1998, the interest rate is the weighted
average of the interest rates of the loans being consolidated,
rounded to the nearest higher one-eighth of 1 percent, not
to exceed 8.25 percent.
There are no insurance premiums of other fees for loan
consolidation.
A borrower is entitled to an interest subsidy during deferment
only when the Consolidation Loan is made up exclusively
of subsidized Stafford Loans.
A borrower interested in consolidation should understand
that consolidating Perkins loans (or NDSLs) will result
in
· a higher interest rate than he or she is paying
on those loans;
· fewer deferment provisions than he or
she has available under the Perkins Loan (or NDSL)
Program; and
· the loss of Perkins Loan (or NDSL) cancellation
provisions on the loans being consolidate
The student should understand that consolidation Stafford
Loans and SLS loans may result in higher interest rates
than he or she was paying on those loans. However, because
Consolidation Loans may have repayment periods as long as
30 years, the borrower’s monthly repayment amount may
be reduced.
For loan applications received on or after August 10, 1993,
the borrower is entitled to an interest subsidy during deferment
only when the Consolidation Loan is made up exclusively
of subsidized Stafford Loans.
REPAYMENT
Generally, the first payment on a Federal Consolidation
Loan is due within 60 days after consolidation. (The repayment
period begins on the day the Consolidation Loan is disbursed.)
There are a number of repayment options, including the graduated
repayment and income-sensitive repayment options mentioned
previously. The repayment period varies from 10 to 30 years,
depending on the amount consolidated and on other student
loans the borrower may have. If the amount to be consolidated
is less than $7,500, for example, the repayment period must
not exceed 10 years.
All deferment and forbearance are options available to
FFEL Stafford Loan borrowers. If a married couple is jointly
liable for repayment of a Federal Consolidation Loan, the
lender may grant forbearance only if both persons meet the
conditions for forbearance.
The following are consolidation agencies that UMDNJ graduates
currently use:
United State Department of Education
Consolidation Department
P. O. Box 1723
Montgomery, AL 36102-1723
1-800-557-7392
Pennsylvania Higher Education Assistance Authority
Network Consolidation Program
1200 North 7th Street
Harrisburg, PA 17102-1444
1-800-338-5000
Educaid
P. O. Box 196
New Brunswick, NJ 08903
1-800-283-6221 (AFSA) or
1-800-388-5000 (SLSC)
Crestar Bank
Student Lending Department
P. O. Box 27172
Richmond, VA 23261-7172
1-800-552-3006
USA Group
MCH 637
Loan Consolidation
P. O. Box 6179
Indianapolis, IN 46206
1-800-448-3533
SALLIE MAE
Smart Loan Origination - Telemarketing Department
P. O. Box 5400
Wilkes-Barre, PA 18773
1-800-524-9100
Consolidation. Codes indicate if the lender will make consolidated
loans to (A)ll comers, or existing (C)ustomers only.
Code (1) Indicates a guarantor consolidates the loans; and
(2) indicates spousal considerations are not allowed.
Consolidation Loan Web Sites
| Organization |
School Phone |
Borrower Phone |
WWW Site |
Consolidation |
Consolidation
Phone
|
| Academic Management Services |
(800) 531-4300 |
(800) 635-0120 |
www.amsweb.com |
Yes A |
(800) 524-9100 |
| Access Group |
(800) 227-2151 |
(800) 282-1550 |
www.accessgroup.org |
Yes C |
(800) 282-1550 |
| ALL Student Loan Corporation |
(800) 330-9955 |
(800) 271-9721 |
www.allstudentloan.org |
Yes C |
(800) 271-9721 |
| American Express |
(800) 987-7770 |
(800) 814-4595 |
www.amercianexpress.com/edloans |
Yes A |
(800) 814-4595 |
| ASAP/Union Bank & trust |
(800) 272-7828 |
(800) 272-7828 |
www.eduloans.com |
Yes A |
(800) 274-9876 |
| Association of American Medical Colleges |
(800) 233-7575 |
(800) 858-5050 |
www.aamc.org/MEDLOANS |
Yes C |
(800) 858-5050 |
| Bank of America/Nations Bank |
(800) 445-5488 |
(800) 344-8382 |
www.bankofamerica,com |
Yes C |
(800) 283-6221 |
| Bank One |
(800) 487-4404 |
(800) 487-4404 |
www.educationone.com |
Yes C |
(800) 487-4404 |
| BankBoston NA |
(800) 879-6472 |
(800) 2BOSTON |
www.bankboston.com |
Yes A |
(800) 824-7045 |
| Beneficial Savings |
(800) 864-6725 |
(800) 864-6725 |
www.beneficialsavings.com |
Yes A |
(800) 338-5000 |
| BORROWSMART-TRUST.COM |
(800) 722-4867 |
(800) 722-4867 |
www.borrowsmart-trust.com |
Yes |
(800) 722-4867 |
| Brazos Higher Education |
(800) 375-0915 |
(800) 375-0915 |
www.bhesc.org |
Yes C |
(800) 375-0915 |
| Chase Manhattan Bank |
(800) 228-7605 |
(800) 242-7339 |
www.chase.com/educationfirst |
Yes |
(800) 524-9100 |
| Chela Financial |
(800) 282-4352 |
(800) 347-4352 |
www.chelsafinancial.com |
Yes A |
(800) 347-4352 |
| Citibank |
(800) 846-1290 |
(800) 967-2400 |
www.studentloan.com |
Yes A |
(800) 934-1900 |
| College Foundation Inc |
(800) 532-2832 |
(800) 234-6400 |
www.cfi.og |
Yes C |
(800) 234-6400 |
| Corus Bank |
(800) 345-4325 |
(800) 345-4325 |
www.corusbank.com |
Yes C |
(800) 345-4325 |
| Council for South Texas Economic Dvlpmt (CoStep) |
(800) 949-6371 |
(800) 949-6371 |
www.costep.org |
Yes |
(800) 949-6371 |
| Crestar Bank |
(800) 552-3006 |
(800) 552-3006 |
www.student-loans.com |
Yes A |
(800) 552-3006 |
| CSLF Connecticut Student Loan Foundation |
(800) 237-9721 |
(800) 237-9721 |
www.cslf.com |
Yes C |
(800) 237-9721 |
| EdSouth |
(800) 337-6884 |
(800) edsouth |
www.edsouth.org |
Yes C |
(800) 338-5000 |
| Educiad/First Union |
(800) 347-7667 |
(800) EDUCAID |
www.educaid.com |
Yes C |
(800) 776-2344 |
| Educational Credit Management Corp. |
(800) 775-3262 |
(800) 775-3262 |
www.ecmc.org |
Yes C |
(800) 775-3262 |
| Educational Finance Group |
(800) 254-9848 |
(800) 766-0084 |
www.efg.net |
Yes A |
(800) 254-9848 |
| EFS Services Inc. |
(800) 634-2533 |
(800) 635-1867 |
www.efsservices.com |
Yes C |
(800) 635-1867
|
| Organization |
School Phone |
Borrower Phone |
WWW Site |
Consolidation |
Consolidation Phone |
| First Tennessee Bank |
(800)
213-4933 |
(800)
844-8880 |
www.firsttennessee.com |
Yes |
(800) 844-8880 |
| IDAPP (Illinois Student Assistance Commission) |
(800)
961-4327 |
(800)
366-5755 |
www.idapp.org |
Yes C |
(800) 221-1366 |
| Iowa Student Loan |
(800)
542-6005 |
(800)
542-6005 |
www.studentloan.org |
Yes A |
(800) 542-6005 |
| Key Education Resources |
(800)
540-1855 |
(800) KEYLEND |
www.Key.com/educate |
Yes C |
(800) KEYLAND |
| Marquette Bank |
(800)
257-1501 |
(800)
257-1501
|
www.marquette.com/student |
Yes |
(800) 645-7403 |
| Mellon Bank |
(800)
366-7011 |
(800)
366-7011 |
www.mellon.com/edu |
Yes A |
(800) 338-5000 |
| Michegan Higher Ed Student Loan Authority
(MHESLA) |
(800)
242-0096 |
(800)
242-0096 |
www.unipac.com |
Yes C |
(800) 274-9896 |
| MOHELA |
(800)
666-4352 |
(800)
666-4352 |
www.mohela.com |
Yes A |
(800) 666-4352 |
| National City Bank |
(800)
622-5097 |
(800)
622-5097 |
www.national-city.com |
Yes A |
(800) 622-5097 |
| National Education (an IDAPP affiliate) |
(800)
251-1840 |
(800)
353-3357 |
www.nationaleducation.com |
Yes C |
(800) 221-1366 |
| Nellie Mae |
(800)
335-1900 |
(800)
634-9308 |
www.nelliemae.com |
Yes A |
(800) 634-9308 |
| New Hampshire Higher Ed Loan Corp (NHHELCO) |
(800)
330-0787 |
(800)
719-0708 |
www.nhhelco.org |
Yes C |
(800) 719-0708 |
| NorthStar Total Higher Education |
(800)
366-0603 |
(800)
366-0604 |
www.
northstar.org |
Yes C |
(800) 366-0604 |
| P.L.A.T.O. |
(800)
263-3527 |
(800) GOPLATO |
www. plato.org |
Yes A |
(800) GOPLATO |
| PHEAA |
(800)
699-2908 |
(800)
692-7392 |
www. pheaa.org |
Yes A |
(800) 338-5000
|
| PNC Bank |
(800)
762-1001 |
(800) 762-1001 |
www.edloans.pncbank.com |
Yes A |
(800) 762-1001 |
| Sallie Mae |
(800)
777-1136 |
(800)
891-4599 |
www.salliemae.com |
Yes A |
(800) 524-9100 |
| SLND ö Bank of North Dakota |
(800)
472-1266 |
(800)
472-1266 |
www.banknd.com/slnd |
Yes |
(800)
|
| South Carolina Student Services |
(800)
798-0916 |
(800)
798-0916 |
www.slc.sc.edu |
Yes C |
(800) 798-0916 |
| Southwest Students Services |
(800)
247-2357 |
(800)
367-2369 |
www.sssc.com |
Yes C |
(800) 367-2369 |
| Student Loan Funding Services |
(800)
477-SLFR |
(800)
477-SLFR |
www.studentloanfunding.com |
Yes A |
(800) 477-SLFR |
| UNIPAC |
(800)
375-7013 |
(800)
456-4757 |
www.unipac.com |
Yes C |
(800) 456-4757 |
| US Dept of Education(Ford Direct) |
(800)
433-3243 |
(800)
433-3243 |
www.ed.gov |
Yes A |
(800) 557-7392 |
| USA Group (USA Funds) |
(800)
428-9250 |
(800)
562-6872 |
www.usagroup.com |
Yes A |
(800) 448-3533 |
| Vermont Student Assistance Corp(VSAC) |
(800)
307-8722 |
(800)
798-8722 |
www.vsac.org |
Yes C |
(800) 226-1029 |
| Wells Fargo/Northwest Bank |
(800)
952-3939 |
(800)
658-3567 |
www.northwest.com |
Yes C |
(800) 658-3567 |
DIRECT CONSOLIDATION LOANS
Direct Consolidation Loans allow William D. Ford Federal
Direct Loan (Direct Loan) and Federal Family Education Loan
(FFEL) borrowers to combine one or more federal education
loans and create one Direct Loan with one monthly payment.
Borrowers can extend their repayment periods, thereby reducing
monthly payments and possibly lowering the interest rate.
Subsidized Student Financial Assistance loans can be consolidated
into a Direct Subsidized Consolidation Loan. Unsubsidized
Student Financial Assistance loans, as well as certain loans
authorized under Titles VII and VIII of the Public Health
Service Act (administered by the U.S. Department of Health
and Human Services), can be consolidated into a Direct Unsubsidized
Consolidation Loan. Direct PLUS Loans and Federal PLUS Loans
can be combined into one Direct PLUS Consolidation Loan.
Even if borrowers have more than one loan type of loan,
they receive only one Direct Consolidation Loan and make
just one monthly payment. However, the U.S. Department of
Education (the Department) will track the parts of the Direct
Consolidation Loan separately because the type of loan affects
interest rates, interest subsidies, and deferment on the
subsidized portion of a Direct Consolidation Loan.
Borrowers must consolidate at least one Direct Loan or
FFEL but generally are not required to consolidate all their
outstanding federal education loans. For example, a borrower
may choose not to consolidate a loan with an interest rate
lower than a Direct Consolidation Loan’s interest rate.
A borrower may not, however, exclude Student Financial Assistant
loan eligibility.
Nonfederal loans made by state private lenders are not
eligible for consolidation.
LOAN LIMITS
There are no minimum or maximum loan limits that apply
to direct consolidation loan’s principal balance equals
the sum of the amounts the department pays to the holders
of the loans being consolidated. The department pays each
holder the amount necessary to pay in full the loan being
consolidated.
Consolidation does not increase a borrower’s aggregate
loan limits for undergraduate and graduate/professional
students must include any portion of a direct consolidation
loan used to repay a direct subsidized or unsubsidized Federal
Stafford Loan, or a Federal Supplemental Loans for Students
(SLS) Loan.
INTEREST RATES
Direct Consolidation Loan interest rates are variable and
are determined on June 1 each year. The rate are actually
adjusted annually on July 1 and apply to the following 12
month period from July 1 to June 30.
The higher education amendments of 1998 also established
an interest rate formula for all direct consolidation loans
for applications received from February 1, 1999 through
June 30, 2002. The interest rate for these loans is fixed
for the life of the loan at the lesser of the weighted average
of the interest rates of the loans being consolidated, rounded
to the nearest higher one-eighth off one percent or 8.25
percent.
During in-school, grace, and deferment periods, the department
does not charge borrowers interest on direct subsidized
consolidation loans. Interest is charged during forbearance,
however, interest is charged on direct unsubsidized consolidation
loans and direct plus consolidation loans during all periods.
Borrowers may pay the interest for which they are responsible
during applicable period or postpone paying it and have
the interest capitalized (added to the principal owed).
ADDITIONAL BORROWING COSTS
Borrowers are not charged a loan fee for consolidation
of their loans,
Borrowers are not charged late fees on all or part of any
payments the borrower does not pay within 30 days of the
due date. The late charge may not exceed six cents for each
dollar of each late installment. Currently, however, the
department is not charging late fees.
On a Direct Consolidation Loan not in default, the Department
may require the borrower of endorser to pay any costs, in
excess of routine collection costs, incurred in collecting
installments not paid when due. Such charges do not include
the routine costs of preparing letters or notices or making
local or long-distance telephone calls. An example of non-routine
collection cost is the cost of processing checks returned
for insufficient funds. On a Direct Consolidation Loan in
default, the Department may require the borrower or any
endorser to pay additional costs.
ELIGIBILITY
Borrowers must send a Direct Consolidation Loan application
to the Department’s Loan Origination Center. A single
consolidation application is used, even if the borrower
is consolidating more than one type of loan, such as subsidized
student loans and unsubsidized student loans or subsidized
student loans and PLUS Loans (if the borrower has a loan
for a dependent student as well as a loan for him or herself).
The publication Direct Consolidation Loans: A Guide explains
the application process in detail.
Borrowers may add preexisting eligible loans to a newly
created Direct Consolidation Loan without submitting a new
application; borrowers simply submit a request to the Department
within 180 days after the loan is originated.
There are two types of consolidation, "regular"
and "in-school." Basically, however, borrowers
any consolidate loans any time after they are fully disbursed.
Consolidation eligibility criteria vary somewhat depending
on when borrowers consolidate and whether they are in default.
All Direct Consolidation Loan borrowers, however, receive
the same deferment, forbearance, and discharge provisions
available to borrowers of other Direct Loans. Note that
a borrower who consolidates a loan that is in deferment
must reapply for the deferment once the loan is consolidated.
Borrowers who were enrolled or accepted for enrollment
were prohibited from consolidating their loans under the
Direct Loan Program if they had FFELs and/or Perkins Loans
and their application were received from October 1, 1998
through January 31, 1999.
Regular Consolidation
-
A borrower can consolidate when his or her loans
are no longer in an in- school period, such as during
the borrower’s grace period, when a loan is in
repayment, or even when a loan is in default (in certain
circumstances described below). A borrower consolidation
at least one fully disbursed Direct Loan process.
A borrower may also include other student loans, such
as Federal Perkins Loans and eligible health professions
student loans.
-
A borrower with an outstanding FFEL but no outstanding
Direct Loans must meet one of two conditions to receive
a regular Direct Consolidation Loan: the borrower
must be unable to obtain a Federal Consolidation Loan
after checking with a lender that makes such loans;
or, if the borrower is eligible for the Income Contingent
repayment Plan, he or she must be unable to obtain
a Federal Consolidation Loan with acceptable income-sensitive
repayment terms after checking with a lender that
makes Federal Consolidation Loans.
-
For married borrowers who want to consolidated jointly,
only one borrower must meet the conditions described
in the preceding paragraph. Joint consolidators are
held jointly and severally liable for their consolidation
loan, however, both borrowers must quality for deferment,
forbearance, and discharge, unless a discharge is
due to school closure or false certification. In those
two cases, only one borrower has to qualify; however,
only the portion of the direct consolidation loan
affected by the school closure or false certification
can be discharged.
-
Regular consolidation requires that borrowers (both
borrowers, if married and consolidation jointly) have
no federal consolidation loan applications pending
with any other lenders (for example, an FFEL Program
lender). Also, borrowers must agree to notify the
Department of any address change.
-
Borrowers in repayment on any loans to be consolidated
should continue making payments to their current loan
holders until receiving written notice from the Department
that it has consolidated their loans. Once the loans
are consolidated, any payments a borrower makes to
the original holders will be sent to the Department
to reduce the Direct Consolidation Loan balance.
In-School Consolidation
-
In-school consolidation requires borrowers to meet
the requirements for regular consolidation, with some
exceptions. Unlike regular consolidation, borrowers
eligible for in-school consolidation may consolidate
only Direct Loans or FFELs; the other types of federal
education loans listed at the beginning of this chapter
may be consolidated only after borrowers leave school.
-
The borrower of an in-school Direct Consolidation
Loan receives a six-month grace period on the loan
when he or she reduces enrollment to less than half
time at an eligible school. If the underlying loan(s)
that is an in-school period enters the grace period
after the Direct Consolidation Loan application’s
submission but before the consolidation loan’s
first disbursement, borrowers do not have to make
payments on the loan for the amount of time remaining
in the grace period at the time of the first disbursement.
CONSOLIDATION OF DEFAULTED LOANS
Generally, defaulted student loans may be consolidated
if borrowers agree either to repay the Direct Consolidation
Loan under the Income Contingent repayment Plan or make
satisfactory repayment arrangements with the current loan
holder. However, the borrower has only one option–to
make satisfactory repayment arrangements with the current
loan holder–in the following two situations:
For purpose of consolidating a defaulted Direct Loan, FFEL,
or Perkins Loan, satisfactory repayment arrangements are
defined as three consecutive, voluntary, on-time, full monthly
payments that are reasonable and affordable given the borrower’s
total financial situation. Borrowers eligible to consolidate
defaulted health professions loans must contact the loan
holders to determine how a satisfactory repayment arrangement
is defined.
Borrowers may not exclude a defaulted Student Financial
Assistance Loan from consolidation unless they have made
repayment arrangements satisfactory to regain Student Financial
Assistance eligibility. For Direct Loans and FFELs, these
arrangements are the same as those described above, except
borrowers must make six payments instead of three. For Perkins
Loans, borrowers must repay the loan in full or sign a new
repayment agreement and make one payment each month for
six consecutive months. Note that regaining Student Financial
Assistance eligibility does not apply if only health professions
loans are in default.
For defaulted Direct Loans and FFEL’s, collection
costs up to a maximum of 18.5 percent of the outstanding
principal loan balance. For defaulted Perkins Loans and
health professions loans, collection costs equal to the
amount the borrower owes may be added to the outstanding
principal loan balance.
In general, a borrower may not consolidate any loan on
which a judgment has been obtained. For example, a borrower
with a judgment on a defaulted Direct Loan, FFEL, or Perkins
Loan who makes satisfactory repayment arrangements on the
judgement for purposes of regaining Student Financial Assistance
eligibility may still not include the judgment in a Direct
Consolidation Loan. A borrower with a judgment on a health
professions loan who is not in default on any Student Financial
Assistance loan may consolidate all loans except the judgment.
Note that borrowers who have judgments on Direct Loans
or FFELs but who rehabilitate those loans may include them
in a Direct consolidation Loan.
SUBSEQUENT CONSOLIDATION
REPAYMENT
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A regular Direct Consolidation Loan’s repayment
period begins the day the loan is first disbursed. If
a Direct Consolidation Loan includes at least one Direct
Loan or FFEL that is in an in-school period at the time
the Department receives the consoli-dation application,
the repayment period begins the day after the grace
period ends.
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The first payment on a Direct Consolidation Loan is
due within 60 days of the loan’s first disbursement,
unless a borrower is eligible for a deferment or the
loan includes at least one Direct Loan FFEL in an in-school
period and therefore qualifies for a grace period.
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For Direct Consolidation Loans, outstanding balances
consist of all the borrowers Direct Consolidation Loans,
Direct Loans, and other education loans not made by
an individual and not in default (unless satisfactory
repayment arrangements have been made). The total outstanding
balance for the other education loans used to determine
and Extended or Graduated repayment period may not exceed
the amount of the Direct Consolidation Loan.
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The Department forwards a repayment schedule to the
Direct Consolidation Loan borrower before the first
installment payment is due. The schedule presents the
borrower’s monthly repayment under the repayment
plan selected. If a borrower then adds an eligible loan
to the consolidation, the Department adjusts the monthly
repayment amount (and, if necessary, he repayment period
for loans in Graduated or Extended repayment plans).
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As is true for Direct Loans, a borrower who decides
the repayment plan selected for the Direct Consolidation
Loan no longer meets his or her needs can switch plans
by calling or writing the Direct Loan Servicing Center–as
long as the new plan’s maximum repayment period
is longer than the period the borrower’s loan has
already been in repayment.
