Posted Date:November 23, 2011
|Author:||William Leith, Service Director, Program Management, Federal Student Aid|
Subject: Special Direct Consolidation Loan Information - High-Level Overview for FFEL Lenders and Lender Servicers
In an October 26, 2011 Electronic Announcement on the Information for Financial Aid Professionals (IFAP) Web site, we launched a series of communications through which we will inform the financial aid community about the availability of a short-term Special Direct Consolidation Loan opportunity through the William D. Ford Federal Direct Loan (Direct Loan) Program. This special consolidation opportunity will be offered to eligible borrowers by the Department of Education (the Department) from January - June 30, 2012.
The special consolidation initiative will offer eligible borrowers who currently have at least one Direct Loan Program loan or Department-held (also referred to as ED-held) Federal Family Education Loan (FFEL) Program loan and at least one commercially-held FFEL Program loan the opportunity to bring all of their loans together with one servicer by consolidating their commercially-held FFEL Program loans into a Special Direct Consolidation Loan. Currently, these borrowers have at least two loan servicers and must make at least two separate monthly student loan payments. After consolidating through this special opportunity, a borrower will have one federal loan servicer and one payment for all of the borrower’s Direct Loan and FFEL program loans.
As explained in the October 26th announcement, Special Direct Consolidation Loans are not the same as traditional consolidation loans offered under the Direct Loan Program. Only certain borrowers will be eligible for Special Direct Consolidation Loans, borrowers will apply through a new and different online process, and Special Direct Consolidation Loans will offer certain benefits that are not available with traditional consolidation loans. In addition, as stated above, Special Direct Consolidation Loans will only be available for a limited period of time.
FFEL lenders and lender servicers will assist us in completing the Special Direct Consolidation Loan process, just as they do with the traditional consolidation process. We appreciate the assistance lenders and lender servicers will provide and will ensure that they are kept informed throughout the duration of the special consolidation initiative.
Getting Started – High-Level Overview for FFEL Lenders and Lender Servicers
Through three basic questions, we provide FFEL lenders and lender servicers with a high-level overview of key information about the Special Direct Consolidation Loan Process and their role in that process. We will post additional process-related guidance on the IFAP and Financial Partners Portal Web sites as we finalize implementation plans.
What is the Special Direct Consolidation Loan process and how will FFEL lenders and lender servicers fit into that process?
Starting in January 2012 and continuing for several weeks, eligible borrowers will be contacted by one of four federal loan servicers—FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae. Eligible borrowers who choose to apply for special consolidation of their eligible commercially-held FFEL loans will follow the online application instructions provided by the federal loan servicers.
After receiving a borrower’s application, the federal loan servicer will contact the FFEL lender or lender servicer to verify the eligibility and payoff amounts of the commercially-held FFEL loans the borrower wishes to consolidate. Following the verification process, lenders will receive payoff funding from the Department.
What form will FFEL lenders and lender servicers use to verify loans for the Special Direct Consolidation Loan process?
FFEL lenders and lender servicers will use a different Loan Verification Certificate (LVC) for the Special Direct Consolidation Loan process than the LVC that is used for traditional consolidation loans. We are currently obtaining Office of Management and Budget (OMB) approval of the special LVC, which will be available for both paper and electronic submission. After we receive OMB approval, we will share the approved form and detailed instructions for its use with the lender and lender servicer community. Please monitor the IFAP and Financial Partners Portal Web sites for this guidance.
As is true with the traditional consolidation process, accurate and timely completion of an LVC will be critical to the Special Direct Consolidation Loan process. Each lender or lender servicer must complete and return the special LVC within 10 days of the date received. This timeframe is the same as the timeframe for the traditional consolidation process pursuant to 34 CFR 685.220(f)(1)(i). We appreciate the assistance lenders and lender servicers will provide in complying with this requirement.
What will be different about the special LVC FFEL lenders and lender servicers will use?
The special consolidation LVC will be very similar to the LVC used for making traditional consolidation loans; however, the layout of the section that collects information about the loans being consolidated will be different. To accommodate additional data elements needed for Special Direct Consolidation Loans, the list of required loan data elements will display vertically in the leftmost column of the chart and the individual loans (#1, #2, etc.) will display horizontally along the top of the chart.
As noted above, the LVC for Special Direct Consolidation Loans will collect certain additional data elements that are not included on the LVC for traditional consolidation loans (for example, information about a loan’s current repayment plan, including the remaining number of months in the repayment period under that plan). This additional information is required to ensure proper servicing of Special Direct Consolidation Loans, which have certain terms and conditions that differ from the terms and conditions of traditional consolidation loans. We will provide more detailed information about these additional data elements in the guidance we issue following OMB’s approval of the special LVC.
We look forward to offering the Special Direct Consolidation Loan opportunity to eligible borrowers starting in January 2012 and appreciate the support FFEL lenders and lender servicers will provide as we implement this initiative.
As explained above, we will keep you informed through subsequent communications on the IFAP and Financial Partners Portal Web sites. Generally, these communications will be Electronic Announcements that include the words "Special Direct Consolidation Loan Information" in the subject line.
Borrower information is available on our Special Direct Consolidation Loans Web page.