Posted Date: December 28, 2011

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

Subject: Special Direct Consolidation Loan Information - Updated Information in Preparation for January 17, 2012 Start

In communications posted in October and November 2011 (October 26, 2011 and November 23, 2011), we informed the financial aid community about the Special Direct Consolidation Loan opportunity the Department of Education (the Department) will offer through the William D. Ford Federal Direct Loan (Direct Loan) Program.  This short-term special consolidation opportunity will be available to eligible borrowers from January 17 – June 30, 2012.

Our implementation tasks are almost completed, and we are pleased to announce that the Special Direct Consolidation Loan online application will be available to eligible borrowers beginning January 17, 2012.  As a reminder, one of four federal loan servicers will contact each eligible borrower and provide the borrower with online application instructions.

In this announcement, we provide additional and updated information in anticipation of the mid-January 2012 start.

We present the information as follows:

  • Special Direct Consolidation Loan High-Level Summary Update

  • Federal Loan Servicer Contact Starting in Mid-January 2012

  • Cancellation of Traditional Direct Consolidation Loan Applications

  • Further Information

We continue to look forward to offering the Special Direct Consolidation Loan opportunity to eligible borrowers starting in mid-January 2012 and appreciate the financial aid community’s support and assistance as we implement this initiative.

Special Direct Consolidation Loan High-Level Summary Update

In our October 26, 2011 Electronic Announcement on the Information for Financial Aid Professionals (IFAP) Web site, we provided high-level summary information about the process, borrower eligibility, loan eligibility, and benefits associated with Special Direct Consolidation Loans.  Since then, we have further refined and clarified some of that information.  We provide this updated information in the attachment to this announcement titled “Special Direct Consolidation Loan High-Level Summary Update.”

The main clarification reflected in the updated high-level summary attached to this announcement is in regard to borrower eligibility.  To be eligible, a borrower must meet both of the following criteria:

 

1)

The borrower must have at least one Direct Loan or ED-held (also referred to as Department-held) Federal Family Education Loan (FFEL) Program loan to be eligible for a Special Direct Consolidation Loan.

 

 

 

 

2)

The borrower must have at least one commercially-held FFEL loan that meets the requirements outlined in the high-level summary.

In the attachment to this announcement, we have clarified that when considering the first of the two criteria (whether the borrower has at least one Direct Loan or ED-held FFEL loan) delinquency status must be considered.  To meet the first of the two criteria, the borrower must have at least one Direct Loan or ED-held FFEL loan that is current or less than 270 days delinquent.

Federal Loan Servicer Contact Starting in Mid-January 2012

As previously explained, one of four federal loan servicers will contact eligible borrowers about the Special Direct Consolidation Loan opportunity.  These servicers are FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae.

All four federal loan servicers will begin communicating with eligible borrowers at the time the online application becomes available on January 17, 2012.  The Department’s assignment of eligible borrowers to servicers will be done in a manner that supports our goal to have all of borrower's ED-held loans serviced by one federal loan servicer.  Due to the number of eligible borrowers assigned to each servicer, the initial communication with eligible borrowers will occur over a several-week period.

For the most part, the four federal loan servicers will communicate with eligible borrowers through correspondence that is mailed via the U.S. Postal Service and/or e-mailed to borrowers’ e-mail addresses on file with the servicer.  In the correspondence, the federal loan servicer will explain the steps the borrower must complete to apply for a Special Direct Consolidation Loan.  In addition, the servicer will provide the URL for the borrower to use to access and complete the online application.

Each eligible borrower will enter his or her FSA PIN to access the online application and follow the step-by-step instructions for completing the application.  The application will be pre-populated with the borrower’s eligible loan information obtained from the National Student Loan Data System (NSLDS).

Reminder: The online application process for Special Direct Consolidation Loans is unique to this short-term opportunity and is not the same as the application process for traditional Direct Consolidation Loans.  For this reason, it is critical that potentially eligible borrowers wait to receive correspondence from one of the four federal loan servicers identified above before attempting to apply for a Special Direct Consolidation Loan.

After receiving a borrower’s completed application, the federal loan servicer will contact the FFEL lenders or lender servicers that hold the borrower’s commercially-held FFEL loans to verify the eligibility and payoff amounts of the commercially-held FFEL loans the borrower wishes to include in the Special Direct Consolidation Loan.  Following this verification process, the FFEL lenders will receive payoff funding from the Department and the Special Direct Consolidation Loan will begin to be serviced by the federal loan servicer.  The NSLDS will also be updated to reflect the status of the commercially-held FFEL loans paid through consolidation and the new Special Direct Consolidation Loan.

Note: As explained in our November 23, 2011 Electronic Announcement on the IFAP Web site, 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.  However, the requirement to complete and return the LVC within 10 days of receipt will remain.  We have recently received Office of Management and Budget (OMB) approval of the LVC and will share the approved form and detailed instructions for its use with the FFEL lender and lender servicer community through a Dear Colleague Letter.  Monitor the IFAP and Financial Partners Portal Web sites for this posting.

Cancellation of Traditional Direct Consolidation Loan Applications

We have been asked by many borrowers who have traditional Direct Consolidation Loan applications in process if they are allowed to cancel those applications so that they can apply for a Special Direct Consolidation Loan.  The answer will vary from borrower to borrower and is dependent on whether “Step 4 – Loan Statement” of the traditional consolidation process has already been completed when the borrower requests a cancellation of the earlier application.

The guidelines that apply to canceling a traditional Direct Consolidation Loan application are summarized as follows:

If the borrower has…

The borrower may…

Received his or her loan statement and the 15-day period during which the borrower may make adjustments has passed

Not Cancel the traditional application

Received his or her loan statement and the 15-day period during which the borrower may make adjustments has not passed

Cancel the traditional application

Not yet received his or her loan statement

Cancel the traditional application

Borrowers who have questions about canceling a traditional Direct Consolidation Loan application should visit http://loanconsolidation.ed.gov.

Further Information

Again, we look forward to offering the Special Direct Consolidation Loan opportunity to eligible borrowers starting in mid-January 2012 and appreciate the financial aid community’s support of this initiative.

We will continue to keep the community informed through subsequent “Special Direct Consolidation Loan Information” Electronic Announcements on the IFAP Web site (and on the Financial Partners Portal Web site when applicable).

Borrower information is available on our Special Direct Consolidation Loans Web page.

Attachments/Enclosures:

Special Direct Consolidation Loan High Level Summary Update in PDF Format, 117KB, 2 Pages

   

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