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Federal Family Education Loan _FFEL_ Program vs. the Direct Loan _DL_ Program. Facts About Your Student Loans

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Federal Family Education Loan _FFEL_ Program vs. the Direct Loan _DL_ Program. Facts About Your Student Loans Powered By Docstoc
					BROWN UNIVERSITY WARREN ALPERT MEDICAL SCHOOL Facts About Your Student Loans
1. Federal Family Education Loan (FFEL) Program vs. the Direct Loan (DL) Program  The Federal Family Education Loan (FFEL) Program includes Stafford loans borrowed through banks or other lending institutions (e.g., T.H.E., Salliemae, Citibank, etc). FFEL loans are owed to the lender who originally approved the loan or to the entity to which the lender sold the loan, sometimes referred to as the secondary market or secondary lender. FFEL loans are guaranteed against default by a guarantee agency (e.g., United Student Aid Funds, Nebraska Student Loan Program, etc.). In addition, it is common for lenders to contract with companies to manage loan accounts. These companies typically are referred to as loan servicers. The US Department of Education ultimately guarantees federal student loans against default. Beginning with the 1994-1995 year, in an effort to streamline the loan application process and reduce the number of entities involved in processing student loans, Congress introduced the William D. Ford Federal Direct Loan (DL) Program in which institutions were approved to issue Stafford loans to their students directly through the U.S. Department of Education. For these loans, the lender is the U.S. Department of Education. There is no separate guarantee agency or loan servicing company. Students are able to borrow through the DL Program if their institution requested participation in the program. Beginning with the 1995-1996 year, Brown medical students borrowed their Stafford loans exclusively through the Direct Loan Program. If you completed undergraduate or graduate school studies at another institution, your school may or may not have participated in the Direct Loan Program. Check your Stafford promissory notes or your NSLDS record to determine if they are FFEL or DL loans. Brown-Dartmouth students who borrowed Stafford loans while at Dartmouth Medical School borrowed through the FFEL Program. For most Brown-Dartmouth students, the FFEL lender was T.H.E. (Total Higher Education).

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2. Grace Period  The grace period is a period of time during which you are not required to begin repayment. Your grace period begins either on or shortly after the day that you graduate, leave school, or drop below half-time status. Check the repayment schedule or the Truth-in-Lending statement from your lender for the start date of your grace period. Grace periods are automatic. You do not need to apply for them as you do with deferments. Grace periods are loan specific, meaning that the length of the grace period varies depending on the loan type. In most cases, the grace period must be used prior to requesting a deferment. Not all loans have a grace period. Refer to the Summary of the Terms and Conditions of Major Student Loan Programs (Section 3) for more information or check your promissory note.

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Federal Stafford loans have a 6-month grace period. Perkins loans have a 9-month grace period. You do not have to apply for grace periods. Grace periods usually commence immediately following graduation. No interest accrues on subsidized loans during grace periods. Interest does accrue on unsubsidized loans during grace periods. 1

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3. Deferments  A deferment is a borrower benefit that entitles you to suspend payments on your student loans. You are not charged interest during a deferment period, nor is the deferment period counted in the repayment period, on the Subsidized Stafford, Perkins, PCL, LDS, DMS, Subsidized Consolidation or Brown loans. Interest does accrue, however, on Unsubsidized Stafford, Graduate PLUS, Unsubsidized Consolidation, and other, alternative loans. The interest may be capitalized (i.e., added to the original loan amount) at regular intervals if you do not pay it as you are billed. Deferments are not automatic. In general, you must request deferments annually. Complete the deferment forms one month before the end of your grace or prior deferment period. It is your responsibility to request the forms, complete them and obtain the appropriate certification from your residency program (if required), and return them to your lender on time. Failure to return these forms may result in late charges and a delinquency status being reported to a credit bureau, or may result in default. Deferment forms may be downloaded from the following sites:

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For Brown Loans (Ellwood, Casperson, Medical, Plitt/Anderson, Tarandi, LDS, PCL and Perkins): http://brown.edu/Administration/Financial_Services/Loan/Publications/deferment.html

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For Stafford, Graduate PLUS and Federal Consolidation loans borrowed through the Direct Loan Program: https://www.dlssonline.com/borrower/DefermentFormList.do?cmd=initializeContext

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For Stafford and Federal Consolidation loans borrowed through the FFEL Program: Refer to your NSLDS report for the name of your lender or servicer, or consult the lender’s or servicer’s website.

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For Perkins loans issued to you from other institutions: Contact your prior institution directly for the deferment form.

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For alternative loans: Contact your lender directly or consult their website.

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Regarding the Economic Hardship Deferment (HRD): This deferment applies to certain federal student loans (Stafford, Graduate PLUS, Perkins, Federal Consolidation loans). Complete the Economic Hardship Deferment Worksheet (page 4) to determine if you meet the requirements for this deferment.

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Generally, you must apply for deferments on an annual basis. No interest accrues on subsidized loans during deferment periods. Interest does accrue on unsubsidized loans during deferment periods.

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3. Deferments continued ECONOMIC HARDSHIP DEFERMENT (HRD) WORKSHEET * Refer to the Economic Hardship Deferment Request Form, Section 2, condition # 6. A copy of this form is in your exit binder or you can download it from the Direct Loan website at: https://www.dlssonline.com/borrower/DefermentFormList.do?cmd=initializeContext.

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Economic hardship deferment is available to: “New” Stafford borrowers (i.e., borrowers with no outstanding Stafford, SLS, PLUS, or consolidation loans as of July 1, 1993 or who had no balance when they took out a new loan after that date), Graduate PLUS borrowers, and Federal Perkins borrowers.

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If you do qualify for the deferment, please refer to the HRD deferment form for details regarding the documentation that you must send with the deferment form to your loan servicer(s) to certify your eligibility. You will need to provide confirmation of monthly payment amounts in each Federal loan program (e.g., copy of your payment schedule or your truth-in-lending disclosure statement). In calculating your eligibility for the hardship deferment, the Direct Loan Program (DL) uses the maximum interest rates for Stafford loans that have variable interest rates, regardless of the current rate. For example, if a borrower has DL Stafford loans borrowed between July 1, 1998 and June 30, 2006, the DL Servicing Center will use monthly payments based upon an 8.25% interest rate. Your actual monthly payment schedule will be sent to you by your lender prior to the conclusion of your grace period. If you have borrowed Federal loans through Brown University (e.g., Perkins loans, Stafford loans), your payment schedules are either included in your exit binder or will be mailed to you from the Brown University Loan Office prior to graduation. In addition, you will need to provide income documentation (i.e., salary stubs for two or three months, or copy of federal tax return for previous year, if you filed within eight months prior to the time for which the deferment will go into effect). Be sure to file your salary stubs in your exit binder so that you will have them handy when you need to submit them later in the year. Always contact your loan servicer(s) to determine which forms they require, as documentation may vary slightly from servicer to servicer. IMPORTANT NOTE: The College Cost Reduction and Access Act (CCRAA) of 2007 established new eligibility criteria for the economic hardship deferment. The CCRAA eliminated the debt burden provision for all borrowers (Section 2, condition # 6 on the current Economic Hardship Deferment Form) and ties the income criteria to 150 percent of the poverty line applicable to the borrower's family size. The poverty guidelines are available at: http://aspe.hhs.gov/pverty/08poverty.shtml. To qualify under the new guidelines, an individual must earn less than $15,600 per year (less than $21,000 for a couple). It is unlikely that medical residents will qualify under these new guidelines. Borrowers may apply under the old criteria until July 1, 2009.

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ECONOMIC HARDSHIP DEFERMENT (HRD) WORKSHEET *

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Your total monthly payments on Federal education loans
(Stafford, Consolidation, Graduate PLUS, Perkins, PCL, LDS) in the standard, ten-year repayment period. Refer to your SLR report for estimated payments.

Do not include Brown loans or non-Federal debt. 2a. 2b. 3. Your monthly gross income from all sources **: 20% of borrower's monthly gross income from all sources: (#2a multiplied by 0.20) Does the figure in #1 Above EQUAL OR EXCEED #2b? If the answer is NO, you DO NOT qualify for the economic hardship deferment. If the answer is YES, continue to number 4. 4. 5.   * Monthly gross income from all sources minus total monthly payments on Federal educational loan debt (#2a minus #1) Is # 4 LESS THAN $2,510 *** (YES or NO)? If the answer is NO, you DO NOT QUALIFY for the economic hardship deferment. If the answer is YES, you QUALIFY for the economic hardship deferment.****  

This worksheet assumes that you are working full-time and making more than either a) the federal minimum wage or b) the 2008 poverty level for a family of two (subject to change each year by the US Department of Health and Human Services). The income poverty levels are published at: http://aspe.hhs.gov/pverty/08poverty.shtml. Monthly gross income is defined as compensation/income from your employer or any other source prior to deductions required by law. A spouse's income should NOT be included. However, please note that lenders or servicers may inadvertently include a spouse’s income if a joint tax return is submitted as income documentation. This figure is $3,139 and $2,888 for residents of Alaska and Hawaii, respectively. These income thresholds are subject to annual, incremental increases, which normally are published in February. Always check with your loan servicer to verify your eligibility.

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4. Repayment You are responsible for repaying the money you borrowed plus applicable fees. Your ability to manage this responsibility will positively or negatively affect your credit history. The exact amount of the monthly payment is determined by the amount borrowed, any accrued or capitalized interest, the number of months allowed to repay the loans, and the repayment plan you choose. Rev. 3/18/08 4

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4. Repayment continued For Direct Stafford and Federal Consolidation loans:  Repayment normally begins six months after you leave school or drop to less than half-time status. The six-month period prior to repayment is the grace period. During this period you may make payments though none are required. Your repayment period begins the day after your grace or deferment period ends. Your first payment will be due within 60 days after your repayment period begins. Once payments begin, you must continue to make monthly payments on your loan even if you do not receive a bill or repayment notice. Billing information is sent to you as a convenience, but you are obligated to make payments with or without notice. You can pay by check every month or by Electronic Debit Account (EDA). If you elect to pay by check, you should send all loan payments to the Direct Loan Payment Center. The address for mailing payments will appear on your billing statement. If you select EDA, loan payments will automatically be deducted from your checking account and you will receive a .25% reduction in your interest rate. If you have variable rate Stafford loans, the Direct Loan Servicing Center will notify you each year in writing about the new interest rate that will go into effect on July 1. Note that the fixed amount you pay each month will be adjusted to account for any changes in the interest rate. The length of your repayment period will not be adjusted unless you request it by contacting the Servicing Center. Standard Repayment:  Usually 10 years; fixed payments (not including periods of deferment or forbearance)  Minimum payment = $50.  Usually the least expensive option.  Available for most loan programs, including the Federal Stafford, Consolidation, Graduate PLUS, Perkins, PCL, LDS, and most institutional loans.  The standard repayment will be selected for you if you fail to select a repayment option when asked to do so by your lender. Graduated Repayment :  Fixed monthly payments that start out low and increase every two years.  Minimum payment = $25.  Repayment period varies from 12 – 30 years and depends on the total amount that you owe when your loans go into repayment.  Worth a look if you have cash flow concerns when you first enter repayment.  Available for Stafford, Consolidation and Graduate PLUS.  More expensive in the long run than standard repayment. Income-Contingent Repayment (ICR):  Payments are tied to income, family size, your interest rates and Direct Loan debt levels.  Payments must equal or exceed interest charges.  Monthly payments are capped at 20% of your monthly discretionary income.  Discretionary income is the difference between adjusted gross income (AGI) and 100% of the federal poverty line that corresponds to your family size and your state of residence (http://aspe.hhs.gov/poverty/08poverty.shtml)  Spousal income is included in the calculation of monthly payments.  Maximum repayment period is 25 years. If your loan is not fully repaid after 25 years in this plan, the remaining balance is forgiven. Income taxes are assessed on the discharged amount.  Graduate PLUS loans are not eligible for the ICR until July 1, 2009.  For FFEL loans, the income based plan is called “Income Sensitive Repayment”.  For Direct Loans, the income based plan is called “Income Contingent Repayment”. Rev. 3/18/08 5

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BROWN UNIVERSITY WARREN ALPERT MEDICAL SCHOOL Facts About Your Student Loans
4. Repayment continued Extended Repayment:  Payments are extended up to 30 years, depending on the total amount of your Direct Loans.  Minimum payment = $50.  Currently available for Direct Loans (Stafford, Consolidation, PLUS) and some private loans.  Available to FFEL borrowers only if you consolidate or if the outstanding balance is at least $30,000.  This may be a very expensive way to repay student loans and in most cases, should only be used if there are cash flow problems or concerns which are likely to last more than a few years during repayment.  Borrowers selecting extended repayment should attempt to pay down their loans early once their cash flow needs have been met. Income-Based Repayment (new repayment plan available July 1, 2009)  Alternative to income-sensitive and income-contingent repayment plans.  Monthly payments are capped at 15% of your monthly discretionary income.  Discretionary income is the difference between adjusted gross income (AGI) and 150% of the federal poverty line that corresponds to your family size and your state of residence.  No minimum monthly payment.  If the capped payments are insufficient to cover monthly interest charges, the program covers the remaining interest on the subsidized loans for up to three years.  Maximum repayment period is 25 years. If your loan is not fully repaid after 25 years in this plan, the remaining balance is forgiven. Income taxes are assessed on the discharged amount.  Spousal income is included in the calculation of monthly payments.

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Run the numbers before choosing a repayment option: http://www.ed.gov/offices/OSFAP/DirectLoan/calc.html http://www.finaid.org/calculators/ Ask your loan servicer about borrower benefits or repayment incentives.

5. Forbearance  Forbearance is a period of time during which your lender may postpone or temporarily reduce the amount of your regular payments. Forbearances generally are granted in up to twelve-month intervals when you are willing, but temporarily unable, to make full payments and you do not qualify for a deferment. For Stafford and Consolidation loans, a lender must grant full forbearance (i.e., suspension of all payments of principal and interest) in response to the written request of a borrower who either does not qualify for a deferment or whose deferment has expired.* This forbearance option, referred to as MANDATORY FORBEARANCE, covers the period of time remaining in the borrower's residency program. No administrative or other fees may be charged to the borrower and no adverse information may be reported to credit bureaus solely because of the granting of forbearance.

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“The statutory provision governing forbearance for borrowers serving in medical internships/residencies has been amended to provide that a forbearance for these borrowers must be the temporary cessation of all payments unless the borrower requests forbearance in the form of an extension of time for making payments of making smaller payments than were previously scheduled.” (Higher Education Amendments of 1992, Section 428 (b) (1) (V) (applies to Stafford and SLS loan)

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5. Forbearance continued  During forbearance interest will accrue on your loan. Accrued and unpaid interest will be capitalized at the end of each forbearance period. For loans with a ten-year repayment plan, forbearance does not lengthen the original ten-year schedule, but it may increase the total amount you repay because of additional accrued interest. Please also note that during forbearance, the rate on variable rate Stafford Loans goes up by 60 basis points (.6%) if the loans were previously in a deferment status. In all forbearance instances:  Both the borrower and the authorized official of the lender must agree to the forbearance.  Where the forbearance involves the postponement of all payments, the lender must contact the borrower at least once every three months in order to remind the borrower of the outstanding obligation to repay. To apply for forbearance contact the lender or servicer to obtain the necessary forms. Use the websites listed on page 2. Complete the form, have it certified by your residency program director, and return it to the lender or servicer one month before the end of your grace period, or one month before the end of your prior deferment or forbearance period. Continue to make scheduled payments until you receive confirmation from the lender or servicer that the forbearance has been processed. BROWN LOAN BORROWERS who are willing but unable to meet their loan obligations may be eligible for forbearance. Interest accrues and must be paid in full during periods of forbearance. To apply for forbearance, the borrower must complete the entire forbearance application and attach documentation to verify income (i.e., a recent pay stub or unemployment documentation). Contact the Brown Loan Office for more information.

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May be a costly option to the borrower since interest is accruing on the outstanding principal balance for a longer time period. Allows borrowers in a medical internship/residency program to suspend Stafford and Consolidation loan payments until completion of residency. Forbearance does not adversely impact a borrower’s credit rating. Brown loan borrowers must still make interest payments during forbearance.

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BROWN UNIVERSITY WARREN ALPERT MEDICAL SCHOOL Facts About Your Student Loans

6. Federal Loan Consolidation Loan consolidation is a practical, debt management tool that enables you to refinance your Federal student loans into a new, single loan with a fixed rate. At the time of consolidation, your consolidation lender pays off the outstanding balances of the loans that you choose to consolidate. The payoff amount includes the original principal amount borrowed plus any accrued interest charges. Which loans can be consolidated? The following Federal loans may be consolidated:  Federal Subsidized Stafford Loans (either FFEL or Direct)  Federal Unsubsidized Stafford Loans (either FFEL or Direct)  Federal Consolidation Loans (either FFEL or Direct)  Federal Supplemental Loans for Students (SLS)  Federal Parent Loan for Undergraduate Students (PLUS)  Graduate PLUS loans  Health Professions Student Loan (HPSL)  Federal Perkins Loans (formerly National Direct Student Loans)  Loans for Disadvantaged Students (LDS)  Nursing Student Loans (NSL) Note: Primary Care Loans (PCL) may not be consolidated. Why consolidate? Borrowers may consolidate for one or any combination of reasons. The most common reasons are:  To secure a fixed interest rate. Stafford loans issued prior to July 1, 2006 have variable rates that are re-set on July 1. The new rates are announced in late May. Consolidation allows borrowers to secure an interest rate that will be unaffected by the annual rate change. For convenience. Borrowers who have multiple loans at multiple loan servicers may find it easier to deal with one loan servicer. To access additional repayment plans that can improve monthly cash flow. Consolidation may offer borrowers more flexible repayment plans that result in lower monthly payments (though often with higher finance charges over the life of the loan.) To save money on overall repayment costs. In recent years, borrowers have opted to consolidate in order to secure a low, fixed rate on their entire Federal loan portfolio. Lower rates translate to lower monthly payments and reduced finance charges over the life of the loan. Since the interest rate on Stafford loans issued on or after July 1, 2006 is now fixed at 6.8%, this potential benefit is less likely to be a relevant factor in most consolidation decisions.

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How do I consolidate? In general, borrowers who are considering consolidation of their student loans should contact either their loan servicer(s) or the current holder(s) of their student loans. Direct Loan borrowers may apply for either Direct Loan (DL) Consolidation or Federal Consolidation with the FFEL lender of their choice. Please refer to the list of consolidation lenders, telephone numbers and web sites at the end of this section. Recent legislative changes have prompted many lenders to suspend or permanently exit one or more student loan programs, including consolidations. As these decisions are ongoing, borrowers are encouraged to contact lenders directly for the latest information. Rev. 3/18/08 8

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6. Federal Loan Consolidation continued How is the interest rate calculated? The interest rate for any Federal Consolidation loan (DL or FFEL) is calculated by taking a weighted average of the current interest rates for the underlying loans being consolidated, and then rounding that rate to the nearest higher one eighth of one percent. The interest rate is fixed for the life of the loan and will not exceed 8.25%. Some lenders may offer borrower benefits, such as a reduction in the fixed rate for electronic payments or after a certain number of on-time payments. When can I consolidate? When should I consolidate? Borrowers may apply for a Federal consolidation loan once their loans are in a grace, deferment or repayment status. Consolidation during the in-school period is no longer an option. There is no simple answer to the optimal timing for a consolidation loan. However, borrowers should consider several variables:   Grace periods are forfeited in a consolidation. Certain deferment options (particularly those that apply to pre-7/1/93 borrowers) and interest subsidies also may be forfeited in a consolidation. Consequently, borrowers may benefit from consolidating after those benefits have been exhausted. Borrowers with variable rate Stafford loans issued during the 7/1/98 to 6/30/06 period should consider the annual change in interest rates. The annual rate change is announced in late May of each year and takes effect on July 1. Since the interest rate on a consolidation loan is based upon a weighted average of the current interest rates applicable to the underlying loans, borrowers may want to consolidate before a higher rate takes effect or wait until after a lower rate goes into effect. Personal tolerance level for loan paperwork: you may prefer the simplicity of bundling your entire loan portfolio with one lender before you start residency rather than to have the responsibility for managing paperwork with several lenders or servicers while your loans are in a grace or deferment period. This convenience may be more important to you than any potential financial incentives that you would retain by deferring the consolidation decision.

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Advantages to Loan Consolidation        Consolidation simplifies record keeping by combining one or more types of loans into a single loan with one monthly payment, one deferment form, etc. Flexible monthly payment plans allow you to choose from several options and to change repayment plans as your financial circumstance change. Consolidation allows you to extend the loan repayment period, which may reduce your monthly payments to a more affordable level. Lower monthly payments improve your cash flow so that you can accelerate the payment of other financial obligations with higher interest rates, such as credit cards. If you consolidate through the Direct Loan Program, you may receive renewed or "refreshed" deferments or additional deferments. (This benefit applies only to borrowers with an outstanding FFEL Program loan (i.e., Stafford, SLS, PLUS, or Consolidation Loan) as of July 1, 1993.) If you are in default on a federal education loan, you may be allowed to consolidate if you make satisfactory repayment arrangements with your current lender. Some lenders offer borrower incentives or benefits, such as a reduced interest rate for on-time payments or electronic payments. Again, please note that recent legislative changes have prompted many lenders to suspend these benefits. Interest paid (up to $2,500) when you consolidate your loans may be taken as a deduction on your income tax return in the calendar year in which the underlying loans are paid off.

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6. Federal Loan Consolidation continued Disadvantages to Loan Consolidation  You may lose the discount that the lender applied to the original application fees on your loans. For example, the DL Program normally assesses a 3% application fee on Stafford loans. However, half of this fee (1.5% of the principal amount borrowed) was waived when your loan was processed, with the presumption that you would make the first twelve months of required payments on time. If you consolidate before the 12-month repayment expires, the additional 1.5% fee is applied to the principal balance of your loan. You may substantially increase the total cost of your educational debt if you extend your repayment beyond the standard, ten-year period. If you include a Perkins loan in a FFEL consolidation, you will lose the interest subsidy on any future deferment periods. In a DL consolidation, the interest subsidy is retained. If you include an LDS loan in a DL or a FFEL consolidation, you will lose the interest subsidy as well as the original deferment options (e.g., unlimited residency deferment). Therefore, you are strongly advised to leave this loan out of the consolidation or to consolidate it at the conclusion of your residency training period. Accrued interest charges are capitalized at the time of consolidation because the refinancing lender pays off the entire underlying loan, including the principal amount borrowed plus any accrued interest charges to your individual lender(s). Therefore, you may wish to either pay down or pay off the accrued interest prior to consolidating. You will lose your six- or nine-month grace period and thus the interest subsidy on any subsidized loans. Many lenders still offer a six-month grace period, but by regulation they are not obligated to do so.

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Instructions for Completing the Federal Consolidation Loan:     You have three choices for completing the Direct Consolidation Loan (DL) Application: Online Application – http://www.loanconsolidation.ed.gov Click on “Forms and Publications”. Email the application to: loan_consolidation@mail.eds.com Express Application - By phone (1-800-557-7392) if you are consolidating Direct Subsidized Stafford, Direct Unsubsidized Stafford, Direct Graduate PLUS Loans and/or Direct Consolidation Loans. Paper Application – You may obtain a paper application package by calling 1-800-557-7392. Direct Loan Consolidation (DL) U.S. Department of Education Loan Consolidation Center P.O. Box 242800 Louisville, KY 40224-2800  Phone: Website: Email: (800) 557-7392 www.loanconsolidation.ed.gov loan_consolidation@mail.eds.com

To complete the Federal Family Education Consolidation Loan (FFEL) Application: please refer to the list of consolidation lenders at the end of Section 3.

7. Private Loan Consolidation Although education loans borrowed through private lenders are not eligible for Federal loan consolidation, some lenders offer private consolidation programs. These lenders may charge application fees that are based upon your credit score. Unlike Federal consolidation loans which have fixed rates, private consolidation loans have variable interest rates that may be based upon the length of your repayment period or other factors. These lenders often

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offer Federal consolidation as well. Although the private and Federal consolidation loans must remain separate, the lender may be able to streamline the paperwork related to these loans (e.g., one statement, one payment, etc). 8. Prepayment    A prepayment is simply a payment made prior to the start of your repayment schedule or a larger payment than is ordinarily required. Unlike some consumer loans, there is no penalty for early payments. To make prepayment, send a separate check with instructions to credit the payment toward the principal balance. In the absence of instructions, the lender will apply it as an advanced payment. In addition, if you send a prepayment to your lender or servicer for an unsubsidized loan, and that lender also holds subsidized loans for you, be sure to include instructions to credit the extra payment regarding the account to which the payment should be credited. Otherwise, the lender will credit the payment equally to both accounts. Be sure to include your loan account number on all loan-related correspondence and checks.

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9. Loan Discharge  In the event of your death or total and permanent disability, your federal student loans will be forgiven. Discharge of your loan(s) is the forgiveness of all or part of your student loan. Death (requiring a death certificate) and disability (requiring a physician’s report) allow the cancellation of the total principal balance, accrued interest and late charges. To qualify for a disability discharge, the borrower must be unable to work or earn money or go to school because of injury or illness that is expected to continue indefinitely or result in death. The borrower may not have a pre-existing condition unless it has substantially deteriorated, the borrower is not eligible for future loans unless the condition improves, and if the borrower does obtain future loans, he/she will be responsible for the loans discharged due to disability. Refer to the Summary of the Terms and Conditions of Major Student Loan Programs for more information on discharge or cancellation provisions that apply to your loans. 10. Delinquency and Default  Generally, lending institutions require collateral or other security prior to making a long-term consumer loan. In the Federal Stafford Loan Program, a guarantee agency functioning on behalf of the federal government insures that the loan will be repaid if the borrower defaults. Thus, in the event of default, the guarantee agency may ultimately be required to repay the lender after a default claim has been filed. In turn, this action required the agency which paid the claim to pursue collection until every possible means of collection has been exhausted, at which time a claim may be submitted to the US Treasury. A loan in repayment becomes delinquent whenever a scheduled payment has not been made by the due date. The lender is required to send at least two written notices or collection letters to the borrower within the first 30 days of the delinquency in an attempt to re-establish payments. During days 31-60, the lender must attempt to contact the borrower by telephone. If the borrower cannot be contacted by telephone, at least two forceful collection letters must be sent, warning the borrower that the loan may be assigned to the guarantee agency, resulting in damage to the borrower's credit rating and possible litigation.

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BROWN UNIVERSITY WARREN ALPERT MEDICAL SCHOOL Facts About Your Student Loans
10. Delinquency and Default continued  During each 30-day period from day 61 through day 150, more attempts to contact the borrower by telephone or letter must be made. A final demand letter is sent between day 151 and day 270; 90 days are allowed following the final demand letter before the default claim is filed. Lenders may not file a default claim with the guarantor of the loan unless the delinquency has persisted for 270 days. During this time the lender is urged to use skip-tracing services, if the borrower cannot be located, as well as pre-claims services provided by state agencies and the federal government. The federal government requires lenders to use any information provided by an institution about a borrower's location. The lender is urged to resort to litigation (lawsuit) in an endeavor to re-establish payment. To this end, most of the notes used in the Stafford Loan Program contain an acceleration clause, which allows the lender to demand the entire balance of the loan due at one time, following other efforts to collect. The lender files a claim after all attempts at collection have failed and the loan has gone into default. The guarantor or insurer of the loan is obligated to pay the principal balance plus accrued interest to the lender. Once the claim has been paid, the defaulted loan then becomes the property of the guarantee agency, which then continues to pursue collection. These public agencies have various collection methods open to them that do not exist for the commercial lender (e.g., information available from a state licensing board on the borrower's address). In recent years, the federal government has been authorized to:      garnish federal salary checks for defaulters in public service report loan defaults to credit bureaus and other agencies which serve as repositories for individual credit histories. This action can result in the denial of credit cards, car loans, mortgages and types of consumer credit. attach bank accounts and seize tax refunds charge you for attorney fees, court costs, penalties and additional interest involved in the default claim, and suspend deferment and forbearance provisions

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In some instances, state governments have secured authority to offset defaulted loan amounts against state income tax refunds due an individual defaulter. The reauthorization legislation of 1986 and 1992 also requires guaranty agencies, eligible lenders, and subsequent holders of loans to enter into agreements with credit bureaus to exchange information regarding student borrowers. Institutions may also enter into arrangements with holders of delinquent loans for the purpose of providing information regarding a borrower's location or employment or for the purpose of assisting the holder in helping the borrower avoid default. Nearly all states have regulations and legislation that requires the suspension of licenses if a student loan repayment plan is in a default status. State guaranty agencies have established relationships with the state licensing agencies/boards to allow for electronic data exchange of respective loan and licensing application information. If you encounter problems during the deferment or repayment period remember to communicate with the lender to see what arrangements are available to keep the loan out of the delinquent and default category. Please note that student loans are not automatically discharged in bankruptcy. BROWN LOAN BORROWERS: If you become delinquent in the repayment of Brown loans, the Medical School and the University will withhold official correspondence, including Dean's letters and academic transcripts.

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Rev. 3/18/08

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BROWN UNIVERSITY WARREN ALPERT MEDICAL SCHOOL Facts About Your Student Loans
10. Delinquency and Default continued

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You are considered delinquent when you are late making scheduled payments on a student loan. Delinquency can lead to default. Default: usually defined as 270 or more days late on a scheduled student loan payment. Delinquency and default adversely affects your credit rating and your future borrowing potential. The Department of Education and the Department of Health and Human Services have numerous ways to collect on defaulted student loans.

The Department of Education may be able to assist you in resolving disputes with regard to your federal student loans. You may contact the Ombudsman’s Office at www.ombudsman.ed.gov.

Rev. 3/18/08

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