Summary: We wish to provide clarification on the expanded consolidation opportunity announced in GEN-00-06 and its effect on borrowers who consolidate during their grace period.
June 16, 2000
Clarification Consolidating During A Grace Period
We wish to provide clarification on the expanded consolidation opportunity announced in GEN-00-06 and its effect on borrowers who consolidate during their grace period.
What Has Not Changed?
The majority of rules applying to borrowers consolidating during their grace period have not changed:
Borrowers who consolidate during their grace period continue to go immediately into repayment and forfeit any remaining grace period. The first payment due date is within 60 days after the date of the first disbursement.
Borrowers who apply during their grace period do not receive an additional 6-month grace period.
Borrowers who consolidate during their grace period may receive a lower interest rate on their underlying loans - depending on the type of loans being consolidated.
Borrowers who consolidate while enrolled in school (and are otherwise eligible), may receive both the interest rate benefit AND a 6-month grace period. This is the only circumstance in which a borrower can consolidate AND be assured of receiving a 6-month grace period.
What Has Changed?
Borrowers have an expanded time period during their grace period to apply for a consolidation.
Previously, it was recommended that borrowers in their grace period apply for a consolidation during the 3rd or 4th month of their grace period. This allowed time for the loan holder(s) to certify the underlying loans while the borrower was still in their grace period. Borrowers who applied late in their grace period risked not getting their loan(s) certified in time to receive the in grace interest rate benefit.
Under the guidance set forth in GEN-00-06, the interest rate on the underlying loan(s) is based on the postmark date (application receipt date on or after July 1) as opposed to loan holder certification date. Therefore, a borrower could apply for consolidation on the last day of their grace period and, as long as their application is postmarked before their grace period expired, they would receive the interest rate benefit. After July 1, 2000, we will use the application receipt date rather than the postmark date.
Should Borrowers Forfeit Their Grace Period In Order To Consolidate Before July 1?
With the July 1 interest rate increase fast approaching, many borrowers may be faced with a choice of either keeping the remaining portion of their grace period OR locking in the lower interest rates. While each borrower needs to make their own decision, they should weigh the long term interest savings versus the short term benefits of a grace period.
If You Need Assistance
Please contact us if you have any questions on the Direct Consolidation Loan Program.
· E-mail firstname.lastname@example.org
· Web www.loanconsolidation.ed.gov
· Phone 1-800-557-7392 (1-800-557-7395 TDD for the hearing impaired)
8AM to 8PM (EST), Monday through Friday
Direct Consolidation Loans