Putting The Puzzle Together
Consolidation Loans
Parents
Robert Brooks, Director State Loan Division Tracy Ireland, Senior Manager Originations 2004 GSFC Annual Conference March 3 & 4, 2004
Financial Aid
Topics of Interest
Students
What is a Consolidation Loan Borrower Eligibility Loan Types Eligible for Consolidation Application Process Adding Subsequent Loans Lender Verification Certification (LVC)
Topics of Interest
Interest Rates Colleges Disbursements Repayment Terms Deferments and Forbearances Delinquency
What is a Consolidation Loan
College
Allows a borrower to combine one or more federal education loans into a new single FFEL or Direct Loan to facilitate repayment. Consolidating lender purchases qualifying student loans from other lenders and combines them into a single loan.
Benefits
Parents
No Processing Fees
No Early Repayment Penalties Possible Lower Monthly Payments Auto Debit Reduction
Benefits
Fixed Interest Rate
on weighted average – Will not exceed 8.25%
– Based
Varying Repayment Terms
–Standard –Graduated –Income-Sensitive –Extended
Maximum Repayment Periods
Consolidation Loan Balance Plus Balances of other Educational Loans Less than $7,500 $7,500 or more, but less than $10,000 Maximum Repayment Period 10 years 12 years
$10,000 or more, but less than $20,000
$20,000 or more, but less than $40,000 $40,000 or more, but less than $60,000 $60,000 or more
15 years
20 years 25 years 30 years
Borrower Eligibility Specific To GSFC
Financial Aid
Grace Or Repayment Not In Default At Least One Loan With Our Loan Division And Guaranteed By GHEAC Minimum Outstanding Debt -$7,500.00
Borrower Eligibility (Not GSFC Specific)
College
Refund Single Lender Request from a Borrower with a Single Lender
– Must Certify:
Unable to Obtain FCL from the Single Holder Holder Declined to Provide Income-Sensitive Repayment Schedule
Eligible Loans
Students
FFELP FDLP FISL Perkins ** HPSL NSL HEAL Service Cancelable**
Application Process
Fees Providing Information Application The Flow MTE
Financial Aid
Application Process
Fees – Guarantee and Origination Fees – Administrative Fees
Limitation
Maximum
Parents
The Application
Borrower Must Complete Consolidation Loan Application and Promissory Note – Submit it to the consolidating lender.
Students
Subsequent Loans
College
Requirements
–
–
New Consolidation Loan After Existing Consolidation Loan was made. Existing Consolidation and one other eligible loan
Adding Loans to Current Consolidation Loan
180 Day Provision
Lender Verification Certification (LVC)
Completing The LVC
Must Be Completed By The Holder Of Each Loan To Be Consolidated. An Authorized Official Of The Holder Must Sign And Return The LVC To The Consolidating Lender. Holder Has 10 Business Days To Respond.
Interest Rates
College
Applications received on or after 10.01.98
– Outstanding balance of all eligible loans to be considered in the consolidation are included in the weighted–average interest rate calculation.** – Rate is fixed. – Not to exceed 8.25%
Interest Rates
Interest Rate
Portion attributable to FFELP, FDLP, FISL, Perkins, HPSL, or NSL loans Fixed—Weighted average of the interest rates on the non-HEAL loans being consolidated, rounded up to the nearest 1/8th of one percent, not to exceed 8.25%
Students
Portion attributable to HEAL loans (if applicable)
Variable—Average of the bond equivalent rates of the 91-day Treasury bills auctioned for the quarter ending June 30, plus 3.0%
Calculating Interest Rates (Example)
Multiply the outstanding balance of each loan to be consolidated by that loans current interest rate. For variable rate, use the rate at which it is currently accruing.
Outstanding loan balances are $3,500, $3,200and $5,500-for a total of $12,200. The current rate: 7%, 5%, and 9% respectively.
– $3,500x.07=$245 – $3,200x.05=$160 – $5,500x.09=$495
Calculating Interest Rates (Example)
Calculating Interest Rates (Example)
– Add the results of all calculations made. Then divide this sum by the outstanding balance of all loans being consolidated. – $245 + $160 + $495 = $900
– $900 / $12,200 = .07377 or 7.377% – 7.377% is rounded up to 7.5%
Parents
Disbursements
Students
May disburse upon receiving the signed application and promissory note and completed LVC from holder(s) of all loans being consolidated. Loan is considered disbursed on the date that the first transfer of funds from the consolidating lender to the holder occurs.
Disbursements
College
Holder of a paid in full consolidation loan must: Notify the consolidating lender that the funds were received. Provide certification that the underlying loan has been fully discharged Report the payment to at least one appropriate national credit bureau. Report to the loan’s guarantor that the loan has been paid in full by consolidation.
Repayment
Parents
Loan enters repayment on the date the loan is disbursed. Lender must establish a first payment due date that is not more than 60 days after the last disbursement is made. Lender must consider borrower’s financial ability to repay the loan.
Repayment
College
Lender must offer the choice of:
– Standard repayment terms, – Graduated repayment terms, – Income-sensitive repayment terms, OR – If applicable, Extended repayment terms.
Deferments and Forbearances
Students
Deferment Types
A consolidation loan borrower may defer payment of principal during certain periods.
College
Deferment Types
Education-Related Deferments
Other Deferment Types
Unemployment Economic Hardship In School Deferment Temporary Total Disability
Students
Forbearances
Parents
FCL borrowers remain eligible for all types of forbearance. Forbearance provisions for borrowers are the same as those for the Stafford, PLUS, and SLS borrowers.
Delinquency, Default and Claim Filing
Due diligence, default, and claim filing requirements are identical to those applicable for other loans guaranteed by the guarantor.
College
GSFC Consolidation Program
Financial Aid
GSFC Launched Its Consolidation Program In February 2004. The Program Was Developed In Response To The Large Number Of Borrower Requests. The Initial Response Has Been Very Positive.
Putting the Puzzle Together!
Colleges Parents
Students
Financial Aid