| PublicationDate: 10/2/97 Summary: Update on Direct Consolidation Loan Applications Author: DLTF - Direct Loan Task Force Posted October 2, 1997 Dear Colleague: 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 processing. 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 funding stage. 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. 5. Billing 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. Sincerely, Elizabeth M. Hicks Deputy Assistant Secretary Student Financial Assistance |