Borrowers to Be Contacted on Loan Consolidation
Since January 17, certain Federal Student Loan servicers have begun contacting borrowers who are eligible to consolidate their loans under a Special Direct Consolidation Loan program. This new, short-term opportunity is part of President Obama's initiative to reduce borrowers' cost of repaying student loans. (See Washington Update, November 7, 2011) The program is available to borrowers who meet certain conditions, and they must apply by June 30. The other part of the President's initiative is to make loan repayment less burdensome through improvements in the income contingent repayment plan. (See neg-reg loan story in this edition.)
Given the eligibility limitations, FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae are contacting borrowers, by U.S. mail or e-mail, to notify them of their eligibility, and to explain the online application process. (Eligible borrowers cannot apply through the traditional Direct Consolidation Loan website.) Additional borrower information is available on line.
To qualify for the special consolidation, borrowers must have either at least one Direct Loan Program loan or a Department-held Federal Family Education Loan (FFEL) and at least one bank-held FFEL Program loan (which can be subsidized, unsubsidized, PLUS, or consolidation). The bank-held FFELP loans may not be in default, although rehabilitated defaulted loans are eligible.
The purpose of the special consolidation is to bring all of a borrower's federal student loans under one servicer, enabling the borrower to make a single payment. Additionally, the interest rate for the bank-held FFELP loan will be reduced .25 percent when it converts to a direct loan. The rate will be reduced another .25 percent if the loan is paid through automatic debit.
Previous loan payments and time in repayment carry over rather than start anew. The bank-held FFELP loans will also become eligible for discharge under the Public Service Loan Forgiveness Program.
For more information, please contact:
Maureen Budetti