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Summary: Consolidation Loans made under the Federal Family Education Loan (FFEL) and William D. Ford Federal Direct Programs.

Publication Date: June 26, 2006

Author: Matteo Fontana, General Manager, Financial Partner Services, Federal Student Aid

Summary: Consolidation Loans made under the Federal Family Education Loan (FFEL) and William D. Ford Federal Direct Programs.

Posted on 06-26-2006

On June 15, 2006, President Bush signed the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006, Pub.L. 109-234, (the Act)." The Act eliminated the single holder rule from ยง428C(b)(1)(A)(i) of the Higher Education Act of 1965, as amended (HEA). As a result, effective for any Consolidation Loan made in the Federal Family Education Loan (FFEL) Program based on an application received by an eligible lender on or after June 15, 2006, an eligible borrower may consolidate loans with any eligible consolidation lender in the FFEL Program, even if the borrower's loans are held by only one FFEL holder.

On July 1, 2006, changes made to the HEA by Pub.L. 109-171 earlier this year will prohibit borrowers with only a Consolidation Loan in the FFEL Program or the Federal Direct Loan Program from reconsolidating those loans in either program. Based on the single holder rule and the pending statutory changes, the Department stopped processing applications for borrowers who wanted to use the "two-step" consolidation loan process. In light of the elimination of the single holder rule, we have been asked whether "two- step" consolidation loan processing will resume. The elimination of the single holder rule was enacted just 16 days before the effective date of the statutory restriction on reconsolidation. This short time frame does not give the Department enough time to process Direct Consolidation Loan applications so that they can be reconsolidated into the FFEL Program in the "two-step" process. Processing a consolidation loan application, including sending and receiving Loan Verification Certifications (LVCs), verifying the borrower's intent, and actually making the loan takes significantly longer than the 15 days remaining between the enactment of the Act and July 1, 2006. Accordingly, the "two-step" consolidation loan process will not be resumed.

Last Modified: 06/25/2006