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(Loans) Subject: Special Direct Consolidation Loan Information - Payoff Process and NSLDS Reporting Information for FFEL Lenders and Lender Servicers

Posted Date:February 14, 2012

Author: William Leith, Service Director, Program Management, Federal Student Aid

Subject: Special Direct Consolidation Loan Information - Payoff Process and NSLDS Reporting Information for FFEL Lenders and Lender Servicers

Through a series of previously posted communications, we have informed the financial aid community about the availability of the Special Direct Consolidation Loan opportunity that the Department of Education (the Department) is offering through the William D. Ford Federal Direct Loan (Direct Loan) Program. This short-term consolidation opportunity began on January 17, 2012 and will be available to eligible borrowers through June 30, 2012. As explained in the previous communications, this initiative will allow certain borrowers who have at least one Direct Loan Program loan or Department-held Federal Family Education Loan (FFEL) Program loan and at least one commercially-held FFEL Program loan to consolidate their eligible commercially-held FFEL Program loans into a Special Direct Consolidation Loan.

Most recently, in Dear Colleague Letter FP-12-01, we announced the approval of the Loan Verification Certificate (LVC) that will be used for the Special Direct Consolidation Loan opportunity. In that letter, we reiterated that potentially eligible borrowers will be assigned to one of four federal loan servicers – FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae – for completion of the Special Direct Consolidation Loan process. After the federal loan servicer receives a borrower’s application, the servicer will send the Special Direct Consolidation Loan LVC to the appropriate FFEL lender or lender servicer to verify the eligibility and payoff amounts of the loan or loans the borrower wishes to consolidate. Following loan verification, the lenders of the FFEL loans being consolidated will receive payoff funding from the Department.

In this communication, we explain the flow of information and funds during the Special Direct Consolidation Loan payoff process. We also address National Student Loan Data System (NSLDS) reporting that will occur following the payoff process.

We present the information as follows:

  • Special Direct Consolidation Loan Payoff Process (multiple subsections)

  • Special Direct Consolidation Loan NSLDS Reporting

  • Contact Information

Special Direct Consolidation Loan Payoff Process

As explained above, the Special Direct Consolidation Loan payoff process will occur after the FFEL lender or lender servicer verifies that the commercially-held FFEL loans a borrower wishes to consolidate are eligible for consolidation by returning the completed Special Direct Consolidation Loan LVC to the federal loan servicer. The payoff process involves federal loan servicers, FFEL lenders and lender servicers, and the Department, and consists of three components – Rosters to FFEL Lenders and Lender Servicers, Payments to FFEL Lenders, and Overpayment and Underpayment Processing.

Rosters to FFEL Lenders and Lender Servicers

After processing the information provided by a FFEL lender on Special Direct Consolidation Loan LVCs for one or more borrowers, the assigned federal loan servicer – FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae – will create a payoff roster specific to that lender. The payoff roster will include detailed information on each eligible lender-held loan that will be paid off in an upcoming federal payment. Each federal loan servicer will determine when it will transmit the Special Direct Consolidation Loan payoff roster to the FFEL lender. Some federal loan servicers may also transmit the payoff roster to the FFEL lender servicer associated with the lender.

The Special Direct Consolidation Loan payoff roster will contain sufficient information to allow FFEL lenders and lender servicers to apply the federal payment to the specific loan or loans identified in the roster. For each loan, the roster will contain Borrower Social Security Number (SSN), Borrower Name, Loan Type, First Disbursement Date, Interest Rate (as reported by the lender on the LVC), and, if available, Original Loan Amount (OLA). The roster also will include the total federal payment amount for the loan’s principal, interest, and fees as well as the individual amounts that correspond to the three components of the total payment amount.

In determining data elements to include on the Special Direct Consolidation Loan payoff roster, we looked to the information that was exchanged among lenders and lender servicers in connection with processing Federal Consolidation Loans. Using the same standard for information exchange should assist FFEL lenders and lender servicers as they use business logic to interpret the Special Direct Consolidation Loan payoff roster and apply the federal funds accurately.

Payments to FFEL Lenders

The federal payment for each commercially-held FFEL loan identified in a Special Direct Consolidation Loan payoff roster will include the principal, interest, and any fee balances in the amount certified on the LVC. The payment will also include the calculated amount of interest that accrues from the day after the Special Direct Consolidation Loan LVC is certified to the day before the payoff occurs.

The payoff of a commercially-held FFEL loan will occur when the U.S. Treasury disburses funds on Federal Student Aid’s behalf directly to the bank account of the FFEL lender that holds the loan being paid off. This disbursement will be made to the bank account that was established by the lender with Federal Student Aid for the purpose of receiving funds related to processing the quarterly “Lender’s Interest & Special Allowance Request and Report” (799/LaRS).

In addition to the lender and/or the lender servicer receiving the Special Direct Consolidation Loan payoff roster described above from the assigned federal loan servicer, all points of contacts associated with the FFEL lender’s identification number will receive the following two types of confirmation in the form of a system-generated e-mail from Federal Student Aid:

  • Preliminary Confirmation of Payment – Will be sent two to three business days prior to when the U.S. Treasury deposits the funds into the lender’s bank account.

  • Final Confirmation of Payment – Will be sent one business day prior to when the U.S. Treasury deposits the funds into the lender’s bank account.

If a FFEL lender wishes to confirm or change its bank account and/or contact information on record with Federal Student Aid, the lender can e-mail Federal Student Aid’s finance staff at fsa_lr@ed.gov.

Upon receipt of funds in the bank account of the FFEL lender that holds the loan being paid off, the lender will work with its servicer or servicers to ensure that the payoff amounts are applied to the loans that have been paid through consolidation.

Underpayment and Overpayment Processing

The long-standing policy for handling underpayments and overpayments that may occur when the Department pays off loans that are consolidated into traditional Direct Consolidation Loans will apply to payoffs for commercially-held FFEL loans that are consolidated into Special Direct Consolidation Loans. For complete guidance on the underpayment and overpayment policy, refer to the June 28, 2011 Electronic Announcement on the IFAP Web site.

In the case of Special Direct Consolidation Loan payoff processing, each federal loan servicer will have a unique point of contact who will handle underpayment requests and a unique federal bank account into which overpayments must be submitted. As part of its communications with FFEL lenders and lender servicers, each federal loan servicer will provide the necessary contact and bank account information.

Special Direct Consolidation Loan NSLDS Reporting

After a FFEL lender receives the federal payment for a commercially-held FFEL loan and ensures proper posting of the payoff, the loan must be reported to the NSLDS as paid through consolidation. The NSLDS reporting will occur through the existing FFEL Program data flow process – lender or lender servicer to guaranty agency (GA) to the NSLDS.

When reporting a commercially-held FFEL loan that has been paid off through the Special Direct Consolidation Loan opportunity, the loan must be reported as having a zero ($0) balance with a loan status code of “PN – Paid in Full Through Consolidation Loan.” This is the same NSLDS reporting guidance that FFEL lenders, lender servicers, and GAs follow in the case of a loan that has been paid in full through a traditional Direct Consolidation Loan, as reflected in guidance posted on the NSLDS Guaranty Agency (GA) Data Provider Instructions page of the Information for Financial Aid Professionals (IFAP) Web site.

Each federal loan servicer will report the new Special Direct Consolidation Loan information to the NSLDS after the payoff process has been completed. In some cases, reporting of the new loan information may precede reporting of the loans that were paid off.

When a borrower consolidates eligible commercially-held FFEL loans into a Special Direct Consolidation Loan, the borrower’s consolidation loan will be composed of individual parts corresponding to each loan that the borrower consolidates. This approach allows each part of the consolidation loan to retain some of the terms of the original loan. The same loan type codes and data elements that are used to report traditional Direct Consolidation Loans will be used by the federal loan servicers to report the parts of the borrower’s Special Direct Consolidation Loan.

Generally, for each commercially-held FFEL loan that is consolidated through the Special Direct Consolidation Loan opportunity, one of the following three NSLDS consolidation loan type codes will be used to identify that part of the consolidation loan:

  • D5 – Direct Consolidation Unsubsidized

  • D6 – Direct Consolidation Subsidized

  • D7 – Direct PLUS Consolidation

As an example, if a borrower consolidates two commercially-held subsidized Federal Stafford Loans and two commercially-held unsubsidized Federal Stafford Loans through the Special Direct Consolidation Loan opportunity, the borrower’s consolidation loan will have four parts and four new NSLDS consolidation loan type codes will be used to identify those parts. There will be two D6 – Direct Consolidation Subsidized entries (one corresponding to each subsidized loan that was consolidated) and two D5 – Direct Consolidation Unsubsidized entries (one corresponding to each unsubsidized loan that was consolidated).

Note: For each commercially-held Federal Consolidation Loan that is consolidated through the Special Direct Consolidation Loan opportunity, there may be up to three parts and corresponding consolidation loan type codes that appear in the NSLDS (instead of one code per loan, as stated above) to reflect the fact that the Federal Consolidation Loan may have included subsidized, unsubsidized, and/or PLUS portions.

Regardless of the number of commercially-held FFEL loans that a borrower consolidates through the Special Direct Consolidation Loan opportunity, all parts of the consolidation loan will be serviced together, along with the borrower’s other Department-held loans by one federal loan servicer. The borrower’s new bill and payment after consolidation will reflect the loans that were consolidated through the Special Direct Consolidation Loan opportunity as well as the borrower’s Direct Loans or Department-held FFEL loans that were already owned and serviced by the Department.

Contact Information

We thank FFEL lenders and lender servicers for the support they are providing as we offer the Special Direct Consolidation Loan opportunity to eligible borrowers.

If you have questions about Special Direct Consolidation Loan payoffs or NSLDS reporting, you may direct them as follows:

  • For questions about the Special Direct Consolidation Loan payoff roster, contact the federal loan servicer that transmitted the roster to your organization.

  • For questions about a Special Direct Consolidation Loan federal payment, contact Miranda Mudd at miranda.mudd@ed.gov or fsa_lr@ed.gov.

  • For questions about NSLDS reporting, contact the NSLDS Customer Support Center at 800/999-8219 or by e-mail at NSLDS@ed.gov.

Last Modified: 02/13/2012