Summary: Update on Direct Consolidation Loan Applications
Author: DLTF - Direct Loan Task Force
Posted October 2, 1997
I am writing to provide information on the progress we have made in resolving the
backlog of 84,000 Direct Consolidation Loan applications we had in process at the
beginning of September. In order to provide you with a context for considering this
progress, I also want to explain how a Direct Consolidation Loan is processed. As this
letter describes each of the stages a Direct Loan Consolidation application goes
through, I will include the current statistics related to that stage. At the end of this
letter I will provide a summary of all of our progress in processing Direct
Consolidation Loans since the process was transferred to our current contractor, EDS.
Before moving on though, I am pleased to inform you that, as of September 29, 1997
we have reduced the original backlog by more than 34% in just the first three weeks of
our twelve week recovery plan.
STAGES OF DIRECT LOAN CONSOLIDATION
There are five major steps in the process by which a borrower consolidates into the
Direct Loan program as discussed below.
1. Pre-Certification Review
An application for Direct Loan consolidation is completed by the borrower
and sent to the Direct Loan Consolidation Processing Center. The
application includes basic borrower demographic information, the account
numbers and the amount owed on each Federal student loan that the
borrower wishes to consolidate, the names and addresses of the holders of
those loans; and name, addresses and phone numbers of references.
Additional items include certifications and releases.
The applicant information is reviewed, edited and, if incomplete, a phone
call or follow-up letter is made to the applicant. When the application is
complete it moves to the certification stage.
As of September 29, there were only 1,396 applications in this first stage of
2. Certification of Loan Amounts
Once an application is complete, all the listed loan holders are contacted to
obtain certification of the actual "payoff" amount for each loan and that the
loan is eligible for consolidation. By regulation, loan holders are required
to respond to requests for these certifications within 10 business days.
When all certifications for the borrower have been returned, the application
moves to the promissory note stage.
As of September 29, there were 18,428 applications with one or more loan
holder certification outstanding.
3. Completion of the Promissory Note
After all of the loan holder certifications have been received a promissory
note is created for an amount equal to the total "payoff" for all the loans that
will be consolidated under that note. A summary page showing which loans
are being consolidated and the "payoff" amount for each loan is also
produced. This summary page also provides the borrower with information
showing what the monthly payment amount will be on the new consolidation
loan under each of the possible repayment plans. The packet that is mailed
to the student contains the promissory note, the summary page, a form that
the borrower will return selecting a repayment plan, and general information
about the process. When the borrower returns the signed promissory note
and the repayment selection form the application moves to the booking and
As of September 29, there were a total of 35,931 borrowers who had
received, but not yet returned, a promissory note.
4. Booking and Funding
When the promissory note is returned by the borrower it is reviewed for
signature and accuracy. A correct and properly signed note is noted in the
system and the loan is "booked". This means that the student now has a
Direct Consolidation Loan. At the same time, the system prepares payoff
funds for each of the holders of the consolidated loans. Finally, the
application record is sent to the last step in the process, billing.
As of September 29, 65,720 borrowers have had their loans booked.
When a consolidation loan has been booked it is transferred to the Direct
Loan Servicer for billing and other borrower services. In addition to the
monthly bills, the borrowers will receive additional information from the
servicer related to their loan and how to keep the servicer updated regarding
name and address changes. The borrower is also told how the selected
repayment plan can be changed.
You will note that, while much of the process is automated, there are several points
throughout the process when staff must become involved and intervene. This is
particularly true when information provided by the applicant or by a loan holder is
incomplete or in error.
In summary, student loan consolidation is a highly complex process with many
variations. Entrance and Exit counseling materials provided to borrowers routinely
address the opportunity for education loan consolidation. Through printed material,
direct mailings, the World Wide Web, and referral from the lender and postsecondary
education community, borrowers learn about the option of consolidation and consider
for themselves the importance of the unique features of each program. We have paid
particular attention in our outreach efforts to ensure that those borrowers who find it
difficult to repay their multiple student loans are aware of the loan consolidation
programs in general and the income contingent repayment plan of Direct Loan
consolidation specifically. In fact, we have developed a "Default Prevention Hotline"
to assist these borrowers.
I plan on providing you, each week, with an update on the status of the progress we are
making in processing the consolidation applications that remain in process. These
numbers will be posted each week to our BBS. For the current week, I am pleased to
report the following:
As of September 29, 1997:
Applications Received from September 1996 to August 1997: 142,856
Applications Consolidated (completed): 65,720
Applications Withdrawn/Deactivated: 21,381
Applications in Process: 55,755
Applications in Pre-Certification Review Stage: 1,396
Applications in Certification of Loan Amounts Stage: 18,428
Applications in Promissory Note Stage: 35,931
I hope this information is helpful in providing you with a basic understanding of the
consolidation process and the progress we are making in resolving the backlog. I
intend to keep you informed of our continued progress.
Elizabeth M. Hicks
Deputy Assistant Secretary
Student Financial Assistance