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(FP-04-06) Federal Family Education Loan (FFEL) Consolidation loans for borrowers with both FFEL and non-FFEL loans.

Publication Date: August 2004

DCL ID: FP-04-06

Federal Family Education Loan (FFEL) Consolidation loans for borrowers with both FFEL and non-FFEL loans.


Posted on 08-26-2004


August 2004

FP-04-06

Subject: Federal Family Education Loan (FFEL) Consolidation loans for borrowers with both FFEL and non-FFEL loans.

Summary: This letter expands upon guidance that was included in a prior Dear Colleague Letter (FP-04-05) regarding FFEL Consolidation loans.

Reference: Section 428C of the Higher Education Act (HEA)
Dear Colleague Letter FP-04-02 (Feb. 17, 2004)
Dear Colleague Letter FP-04-05 (Apr. 29, 2004)

Dear Colleague:

In an April 29, 2004 Dear Colleague Letter (FP-04-05), I clarified that an earlier letter from my office regarding loan consolidation in the FFEL program 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.

My letter additionally provided a statement of enforcement policy in pronouncing that the Department would not deny reinsurance for FFEL Consolidation loans that do not comply with the Department's interpretation of the "single-holder rule," see section 428C(b)(1)(A) of the HEA, 20 U.S.C. 1078-3(b)(1)(A); 34 CFR 682.201(c), in the circumstances described above, as long as all Loan Verification Certificates (LVCs) were sent to the loan holders by September 1, 2004. At the time, we expected the HEA to be reauthorized by that date and to address the single-holder rule in a manner that would ameliorate the situation. Because it has become clear that HEA reauthorization will not occur by September 1, 2004, the Department will not deny reinsurance for FFEL Consolidation loans that do not comply with the Department's interpretation of the single-holder rule in the circumstances described above, as long as all LVCs are sent to the loan holders by the date the HEA is reauthorized or September 30, 2005, whichever occurs first.

In the meantime, lenders that are requested to complete LVCs in connection with borrowers who fit the situation described above and who had their non-FFEL loan(s) paid off to obtain a FFEL Consolidation loan by another lender should not refuse to make the requested certifications on the ground that the FFEL loan held by the requesting lender was made in a manner that does not comply with the Department's interpretation of the single-holder rule. That is, lenders should not "look behind" an existing FFEL Consolidation loan in determining whether to complete the requested certifications because it is the Department's responsibility, not the lenders' responsibility, to enforce the single-holder rule. This guidance in no way diminishes our view, as stated in Dear Colleague Letter FP-04-02, dated February 17, 2004, that lenders may choose to not provide the requested certification if they believe that they are the single holder of the borrower's FFEL loans, as long as the lender provides information to support that claim.

Sincerely,

Sally L. Stroup
Assistant Secretary
Office of Postsecondary Education

Last Modified: 08/25/2004