Publication Date: April 29, 2004
DCL ID: FP-04-05
Federal Family Education Loan (FFEL) Consolidation loans for borrowers with both FFEL and non-FFEL Loans.
Posted on 04-30-2004
April 29, 2004
FP-04-05
SUBJECT: Federal Family Education Loan (FFEL) Consolidation loans for borrowers with both FFEL and non-FFEL loans.
REFERENCE: Section 428C of the Higher Education Act (HEA).
Dear Colleague:
On March 15, 2004, the Director of the Office of Postsecondary Education's Policy and Budget Development Staff wrote to the National Council of Higher Education Loan Programs (NCHELP) in response to inquiries from the lending community about the rules governing loan consolidation in the FFEL Program. That letter, a copy of which is attached, stated that in instances where a borrower had one or more FFEL loans held by a single FFEL holder and also non-FFEL loans, the borrower could obtain a FFEL Consolidation loan only from that single FFEL holder. The purpose of this letter is to provide further clarification for the entire higher education community.
The letter of March 15 addressed only those instances where a borrower has both (1) a FFEL loan(s) held by a single FFEL holder, and (2) one or more non-FFEL loans. In that situation, pursuant to section 428C(b)(1)(A) of the HEA, 20 U.S.C. 1078-3(b)(1)(A), and the FFEL Program regulations at 34 CFR 682.201(c), a borrower seeking a FFEL Consolidation loan must obtain such a loan from his or her current FFEL holder and must include at least one FFEL loan in the consolidation. However, if the borrower certifies that he or she has sought and has been unable to obtain a consolidation loan from that FFEL holder or is unable to obtain a consolidation loan from that holder with income-sensitive repayment terms, the borrower may obtain a FFEL Consolidation loan from another FFEL lender. In that case, again, the borrower must include at least one FFEL loan in the consolidation. Alternatively, a borrower may obtain a Federal Direct Consolidation Loan from the Department of Education if the borrower's non-FFEL loan(s) include a Direct Loan and the borrower selects at least one Direct Loan for consolidation.
The letter stated that we would not deny reinsurance for FFEL Consolidation loans that do not comply with the interpretation stated in that letter as long as all loan verification certificates were sent to the loan holders by May 1, 2004. It is important to note that eligibility for reinsurance is significant not only for the FFEL lender, but also for the borrower because reinsurance governs eligibility for certain borrower benefits. In light of the added clarification provided in this letter and to avoid harm to borrowers who may have recently applied or are in the process of applying for a FFEL Consolidation loan, we are extending the cutoff date noted above from May 1, 2004, to September 1, 2004.
We hope that this clarifying information is helpful.
Sincerely,
Sally L. Stroup
Assistant Secretary
Office of Postsecondary Education
Attachment: Letter to NCHELP