Bulletin ID
DLB - 00 - 42
| PublicationDate: 8/1/2000 BulletinID: DLB - 00 - 42 August 2000 DLB 00-42 Subject: New Direct Loan Repayment Incentives Dear Partner: We want to provide you with more information on the two new Direct Loan incentives recently announced by President Clinton and Secretary Riley. Each incentive benefit is contingent upon borrowers making their first 12 required loan repayments on-time. Secretary Riley will be sending a letter to your college president describing how these incentives will benefit your Direct Loan borrowers. We will send you a copy of that letter as soon as the Secretary signs it. Up-Front Interest Rebate: Beginning with disbursements made for the 2000-2001 Direct Loan program year, we will give borrowers (both students and parents) an up-front interest rebate approximately equal to a one-quarter of one percent interest rate reduction. As an up-front benefit the interest rebate is equal to 1.5 percent of the loan amount borrowed. We are offering this rebate to encourage timely repayment of Direct Loans. A borrower retains the rebate by making the first twelve monthly payments on time. If all twelve payments are not made on time, the borrower will be required to repay the amount of the rebate(s). Because we want to provide the benefit of this interest rebate to Direct Loan borrowers beginning this Fall without disrupting your financial aid delivery process, we will implement the rebate program in two phases – 2000-2001 Program Year Loans When the Direct Loan Servicing Center receives a record of a disbursement it will credit the borrower's account with an amount equal to 1.5 percent of the disbursement, which is the up-front equivalent of an interest rate reduction of approximately 0.24%. This first year phase-in of the rebate program will not require modification of processes and systems by Direct Loan schools or by the Loan Origination Center. Origination and disbursement software, specifications, and processes will remain the same. The Direct Loan Servicing Center will begin crediting borrowers’ accounts in early November. Initially, Servicing will credit accounts for all disbursements that have been reported from the beginning of the program year. Then it will credit accounts on an on-going basis as it receives disbursement records. Borrowers will be informed by the Servicing Center each time a rebate amount is credited to their account. Until Servicing begins crediting accounts, the Loan Origination Center will send each borrower an announcement of the rebate. For 2001-2002 Program Year Loans and Beyond Beginning with the 2001-2002 Direct Loan program year, the interest rebate will be provided to borrowers as an up-front add-on to each Direct Loan disbursement. The rebate amount, 1.5 percent of the gross disbursement (the equivalent of an interest rate reduction of approximately 0.24 percent) will be added after the 3 percent loan fee is subtracted from the gross disbursement amount. As a result, the net disbursement amount to the borrower will be more than if the borrower had not received the rebate. For example, assume that one of your students receives a Direct Loan of $1,000 for the Fall 2001 term. The net disbursed amount will be $985 because the 3 percent loan fee of $30 was deducted from the gross amount of the loan and then the 1.5 percent rebate of $15 was added back. Of course this change will require modifications to the software used by schools. We will work with Direct Loan schools and with third party software providers as we develop the operational details of the 2001-2002 process. And, of course we are committed to getting the software and specifications out to you and your partners as quickly as possible. Consolidation Loan Interest Rate Reduction: Beginning October 1, 2000, and continuing through September 30, 2001, borrowers (students or parents) who consolidate student loans under the Direct Consolidation Loan Program or the Direct PLUS Consolidation Loan Program will receive a reduction in the consolidation loan's interest rate of 0.80 percent. A borrower who is attending a school that participates in the Direct Loan Program may consolidate all of their student loans while they are still in school and, if done during this one-year window, will receive the 0.80% interest rate reduction. We will provide you and your students more guidance on this new consolidation benefit in the near future. ADDITIONAL INFORMATION: We know that your students will need your guidance in understanding how these new benefits help them and what they must do to retain them. Also, we know that you will need more details and information on your responsibilities for these new benefits, especially the 2001-2002 up-front interest rebate. We will develop a series of Questions and Answers (Q&As) to assist you in both helping your students and preparing for 2001-2002. We hope you agree with us that these new repayment incentives provide your students with another tangible benefit of the Direct Loan Program. We thank you for your continued support and look forward to working with you in the future. Sincerely, Margaret E. White Acting Lead, Title IV Delivery Schools Channel |