Posted Date:June 28, 2012
|Author:||William Leith, Service Director, Program Management, Federal Student Aid|
Subject: Special Direct Consolidation Loan Information - Key Reminders for FFEL Lenders and Lender Servicers
We appreciate the support Federal Family Education Loan (FFEL) Program lenders and lender servicers have provided throughout the Department of Education’s (the Department’s) Special Direct Consolidation Loan initiative. The application period will end at 11:59 P.M. (ET) on June 30, 2012; however, the Department’s work with FFEL lenders and lender servicers will continue until all special consolidation loan processing has been completed.
In preparation for post-application period processing, we want to share some key reminders with the FFEL lender and lender servicer community. Our goal is to continue to ensure a smooth and seamless experience for borrowers who have chosen to take advantage of the Special Direct Consolidation Loan opportunity.
Eligibility-Related Responsibilities – The Department has been and continues to be responsible for determining a borrower’s overall eligibility for the Special Direct Consolidation Loan initiative. The FFEL lender or lender servicer has been and continues to be responsible for verifying the eligibility and payoff amounts of the individual commercially-held FFEL loans the eligible borrower wishes to consolidate.
When a FFEL lender or lender servicer receives the Loan Verification Certificate (LVC) that is being used for the Special Direct Consolidation Loan initiative from FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae, it means that the borrower has met the overall eligibility requirements for the initiative and submitted the online application prior to the end of the application period. With its focus on providing the information requested about the commercially-held FFEL loans identified on the LVC, the lender or lender servicer is required to complete and return the Special Direct Consolidation Loan LVC to the federal loan servicer.
LVC Completion Timeframe – As is true with the traditional Direct Consolidation Loan process, accurate and timely completion of the Special Direct Consolidation Loan LVC is critical. Regardless of whether the paper or electronic distribution/return method has been chosen, a FFEL lender or lender servicer must complete and return each Special Direct Consolidation Loan LVC it receives 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).
For information about the Special Direct Consolidation Loan LVC, refer to Dear Colleague Letter FP-12-01.
Current Annual Interest Rate – The instructions for completing this data element on the Special Direct Consolidation Loan LVC specifies that the current annual interest rate that is assessed on each loan is to be reported. For the purpose of Special Direct Consolidation Loans, the current annual interest rate is the interest rate that the lender or lender servicer is using to calculate interest on the loan at the time the lender or lender servicer completes the LVC. The current rate reflects any adjustments to the statutory interest rate on the loan because the borrower is repaying through automatic debit and/or the borrower is receiving any other interest rate reduction.
For examples of what is meant by current annual interest rate, refer to Dear Colleague Letter FP-12-01.
Matching Loans Identified on LVC – The Special Direct Consolidation Loan LVC that is sent to a FFEL lender or lender servicer for completion will include information for each commercially-held FFEL loan identified on the LVC. The primary source for the loan information included on the LVC is the National Student Loan Data System (NSLDS); however, in some cases, the information may have been provided directly by the applicant. Occasionally, there may be a discrepancy between the information on the LVC and the information the FFEL lender or lender servicer has on record for a loan.
When a FFEL lender or lender servicer encounters a discrepancy between the information identified on the Special Direct Consolidation Loan LVC and the information in the lender’s or lender servicer’s records, the lender or lender servicer should make a reasonable effort to recognize that the loan identified on the LVC is the same loan as that in its records, update the information on the LVC as necessary, and return the LVC within the 10-day timeframe.
Return to In-School Status Prior to Payoff – Pursuant to 34 CFR 685.220(d)(1)(ii), a borrower must be in the grace period or in repayment at the time the borrower applies for a Special Direct Consolidation Loan. When signing and submitting the Special Direct Consolidation Loan online application, the borrower certifies that all loans selected for consolidation are in grace or repayment at that time. If a borrower whose loan is in the grace period at the time of application returns to school at least half-time subsequent to submitting the online application but before the borrower’s commercially-held FFEL loans have been paid off, payment to the lender or lender servicer will occur and the Special Direct Consolidation Loan will be made.
Loan-Level Payoff – Each commercially-held FFEL loan that a borrower consolidates through the Special Direct Consolidation Loan initiative is paid off individually. This means that FFEL lenders and lender servicers must apply the federal payment received from the Department to the specific loan or loans for which the payment is intended. Lenders and lender servicers use the Special Direct Consolidation Loan payoff roster to properly identify the commercially-held FFEL loan or loans to which a specific payment is to be applied. Improper application of the payment (for example, applying the payment amount intended to pay off one specific loan identified on the roster across all of the borrower’s loans on the lender’s or lender servicer’s account) will cause inaccuracy, confusion, and delay in the appropriate loan being paid off through consolidation.
For information about Special Direct Consolidation Loan payoff rosters and payments, refer to our February 14, 2012 Electronic Announcement posted on the Information for Financial Aid Professionals (IFAP) Web site.
- Underpayment/Overpayment and NSLDS Reporting Guidance – For information about Special Direct Consolidation Loan underpayment and overpayment processing and NSLDS reporting that occur following the payoff process, refer to the February 14th Electronic Announcement.
We thank FFEL lenders and lender servicers for their ongoing assistance in ensuring a smooth and seamless experience for borrowers who have chosen to take advantage of the Special Direct Consolidation Loan opportunity.
If you have questions about topics covered in this announcement, you may direct them as follows:
For questions about the Special Direct Consolidation Loan LVC, contact the federal loan servicer that transmitted the LVC to your organization.
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 NSLDS reporting, contact the NSLDS Customer Support Center at 800/999-8219 or by e-mail at NSLDS@ed.gov.