2002 MASFAA Conference

DIRECT LOAN CONSOLIDATION

David A. SoláU.S. Department of EducationBoston Regional Office

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What we’ll cover

• Benefits of consolidation• Repayment options• Interest rate calculation• Who is eligible• Counseling students• Application process

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What is consolidation?

• Multiple federal loans are combined into one new consolidation loan

• A simple way to manage debt• One lender• One payment

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What are the benefits?

• One lender and one payment• The Department of Education is the lender, and

always will be• One contact

• The Direct Loan Servicing Center

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What are the benefits? (Cont’d)

• Flexible repayment options• Four plans to choose from

• Standard• Extended• Graduated• Income Contingent Repayment (ICR)

• Can switch plans at any time

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What are the benefits? (Cont’d)

• Standard Repayment Plan• Fixed monthly payments ($50 min.) for up to

10 years

• Extended Repayment Plan• Fixed monthly payments ($50 min.) for 12-30

years, depending on total debt

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What are the benefits? (Cont’d)

• Repayment Period for Extended Plan:

Amount of Debt Length of Repayment PeriodLess than $10K 12 years$10-19,999 15 years$20-39,999 20 years$40-59,999 25 years$60K or more 30 years

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What are the benefits? (Cont’d)

• Graduated Repayment Plan• Payments start low, increase every two years

for 12-30 years• Monthly payment will never increase more

than 1.5 times what borrower would pay under the Standard Plan

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What are the benefits? (Cont’d)

•Income contingent repayment plan•Monthly payment based on annual AGI, family size, and total loan amount•Up to 25 years•Low income borrowers pay the lesser of the amount they would pay if they repaid in 12 years, or 20% of their discretionary income

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What are the benefits? (Cont’d)

• Reduced monthly payments• Interactive calculators on web site

www.loanconsolidation.ed.gov

• Varied deferment options

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What are the benefits? (Cont’d)

• .25 percent interest rate discount for EDA

• No fee to consolidate • Can prepay at any time without

penalty

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Interest rate

• Weighted average of the interest rates of loans being consolidated

• Rounded up one-eighth of one percent

• Will not exceed 8.25%• Fixed for life of loan

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• Direct Loan interest rates from July 1, 2002 to June 30, 2003:• If the loan was first disbursed between

7/1/98 and 6/30/03 and borrower is in school, grace, or deferment, the rate is 3.46%

• If the loan was first disbursed between 7/1/98 and 6/30/03 and borrower is in repayment or forbearance, the rate is 4.06%

Interest rate (Cont’d)

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Who is eligible?

• Out of School borrowers are eligible to consolidate if they:• Have at least one Direct Loan

OR

• Have at least one FFEL AND

Have been unable to obtain a FFEL Consolidation Loan or unable to obtain one with acceptable income-sensitive repayment terms

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Who is eligible? (Cont’d)

• In School borrowers are eligible to consolidate if they:• Are attending a Direct Loan school and• Include one DL or FFEL in an in-school period

OR• Are attending a FFEL school and• Have at least one DL and• Include one DL or FFEL in an in-school period

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Who is eligible? (Cont’d)

• If the borrower is in their grace period– • Secures lower interest rate• Repayment begins 60 days after first

disbursement of Consolidation loan

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Who is eligible? (Cont’d)

• If the borrower is in default on any federal loans, they are eligible to consolidate if they:• Agree to repay under the ICR plan

OR

• Have made satisfactory repayment arrangements on the defaulted loan

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Who is eligible? (Cont’d)

• What about joint consolidation with a spouse?

• DON’T.

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What loans can be consolidated?

• Most federal education loans• Ineligible loans include:

• Loans made by a state or private lender, not guaranteed by the federal government

• Law Access Loans• Primary Care Loans• Medical Assist Loans• PLATO Loans• TERI Loans

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Is Direct Loan Consolidation the way to go?

• Borrowers should consider these factors: • Interest rates of their loans• Current monthly payments

• Are they manageable?• How many are left?

• Lifetime cost of the consolidation• Multiple lenders

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The Application

Online• www.loanconsolidation.ed.gov• Sign prom note electronically with a PIN!

• pin.ed.gov

• Save unfinished application online• Check processing status• 60-90 days to complete process

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The Application

Express Phone Application• If the borrower has only Direct Loans to

consolidate• 1-888-758-9730

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The Application

Paper Application• Download from the web

OR• Request a paper application

• Phone 1-800-557-7392• E-mail at loan_consolidation@mail.eds.com

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And payments begin!

• Repayment begins 60 days after first disbursement

• Borrowers who consolidate while in-school have a 6-month grace period

• 180 days to add loans • Direct Loan Servicing website offers on-

line bill presentment and on-line payment• www.dlservicer.ed.gov

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Contacts for Borrowers

• Applicant Services/Loan Origination 1-800-557-7392 www.loanconsolidation.ed.gov

• Direct Loan Servicing Center1-800-848-0979www.dlservicer.ed.gov

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Contacts for Schools

• Federal Student Aid Office – Boston• 617 565-6911

• http://www.loanconsolidation.ed.gov/school/• “Forms and Publications” for Brochures, Applications, and

Guide for Schools

• www.dlservicer.ed.gov/schools• View student accounts, delinquency reports

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Please, Oh! Please don’t ask me any hard questions?

Q & A