Posted Date: June 20, 2012

Author:  Jana Hernandes, Service Director, Operations, Federal Student Aid

Subject: Traditional Direct Consolidation Loan Information - Mandatory IBR or ICR Applicants Must Submit Income Documentation with Application

Under the William D. Ford Federal Direct Loan (Direct Loan) Program regulations, a borrower may consolidate a defaulted federal student loan into a traditional Direct Consolidation Loan either by making satisfactory repayment arrangements on the defaulted loan prior to consolidation, or by agreeing to repay the new Direct Consolidation Loan under the Income-Based Repayment (IBR) Plan or the Income Contingent Repayment (ICR) Plan.  We refer to borrowers who consolidate one or more defaulted loans by agreeing to repay the Direct Consolidation Loan under the IBR or ICR plan as “mandatory IBR or ICR applicants.”

This announcement informs all members of the financial aid community of a change in the processing of traditional Direct Consolidation Loan applications that affects mandatory IBR or ICR applicants.  However, the guidance is particularly intended for guaranty agencies (GAs) and their private collection agencies that assist mandatory IBR or ICR applicants with the consolidation of defaulted loans.

The traditional Direct Consolidation Loan processing change relates to the submission of income documentation by a mandatory IBR or ICR applicant.  Specifically, an applicant who wishes to consolidate one or more defaulted loans by agreeing to repay the new Direct Consolidation Loan under the IBR Plan or the ICR Plan must now submit documentation of his or her income upfront along with the traditional Direct Consolidation Loan Application and Promissory Note.

Given the new processing requirement, we will not pay off a mandatory IBR or ICR applicant’s underlying loans and originate the new consolidation loan until we have received the income documentation and determined the applicant’s eligibility to repay under the IBR Plan and IBR payment amount, or the applicant’s ICR Plan payment amount.  To meet the requirement, the mandatory IBR or ICR applicant may submit any one of the following items as income documentation:

    • Most recently filed Federal Income Tax Return Form (need not be signed)

    • Federal Income Tax Return Transcript

    • IRS Form 4506-T, Request for Transcript of Tax Return

    • Alternative Documentation of Income Form (OMB No. 1845-0016), with supporting documentation

If a mandatory IBR or ICR applicant does not submit one of the above forms of income documentation with his or her traditional Direct Consolidation Loan Application and Promissory Note, application processing will be delayed while we collect the required documentation from the applicant.  As explained above, we must receive the income documentation and determine the applicant’s eligibility for the IBR Plan and IBR or ICR payment amount before we originate the new consolidation loan.

Note: Direct Loan borrowers who wish to repay their loans under IBR or ICR, including mandatory IBR or ICR Direct Consolidation Loan applicants, are no longer required to submit the “William D. Ford Federal Direct Loan Program Income Contingent Repayment Plan & Income-Based Repayment Plan Consent to Disclosure of Tax Information” form (OMB No. 1845-0017).  The use of this form has been discontinued.  If a mandatory IBR or ICR  applicant submits the Consent to Disclosure of Tax Information form instead of the income documentation described in this announcement, processing of the applicant’s consolidation application will be delayed until we receive the required income documentation.

Contact Information

We appreciate the assistance that GAs, private collection agencies for GAs, and other members of the financial aid community will provide to borrowers who wish to consolidate defaulted loans into a traditional Direct Consolidation Loan.

If you have questions about the information in this announcement, contact the Direct Loan Consolidation Center at 888/799-2474.  You may also e-mail loan_consolidation@hp.com (loan_consolidation@hp.com).

   

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