Understanding Direct Loan Consolidation: Helping Borrowers Make Wise Choices. Agenda. The New Direct Loan Consolidation Process

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1 Understanding Direct Loan Consolidation: Helping Borrowers Make Wise Choices ILLINOIS ASSOCIATION OF STUDENT FINANCIAL AID ADMINISTATOR ANNUAL CONFERENCE April 8 10, 2015 Embassy Suites, East Peoria, IL Agenda We will review: The new Direct Loan Consolidation process The pros and cons of consolidation to the borrower Application steps students must take to process a new Direct Consolidation Loan The servicer role Resources for counseling borrowers The New Direct Loan Consolidation Process 1

2 New Direct Loan Consolidation Program ACS contract phased out at end of 2013 Original provider of consolidation loan services Four loan servicers can now offer consolidation to qualified borrowers Borrowers may choose their consolidation servicer when they apply for the new loan Borrowers apply for Direct Consolidation Loan at studentloans.gov Who is Eligible? Borrowers who: Have at least one federal loan under the FFEL or Direct Loan programs Are consolidating loans that are in Grace or Repayment Are in default on a federal student loan but who agree to enter into satisfactory payment arrangements with the original servicer or who enter into Income Driven Repayment with the new consolidation loan Which Loans are Eligible? Direct Subsidized loans Direct Unsubsidized loans Subsidized Federal Stafford loans Unsubsidized Federal Stafford loans PLUS loans (both FFEL and Direct) Supplemental loans for Students (SLS) Federal Perkins loans Federal Nursing loans Health Education Assistance loans Some existing consolidation loans 2

3 Which Loans are Not Eligible? Private or state loans not guaranteed by the federal government Primary Care loans Law Access loans Medical Assist loans PLATO loans Note: Parent PLUS loans cannot be consolidated into the student s name Pros and Cons of Consolidation Consolidation Benefits for Borrowers + No consolidation fee + The servicer of their choice One monthly payment with fixed interest rate for the life of the loan Choose their loan servicer No application fee 3

4 Consolidation Benefits for Borrowers More manageable monthly payments Borrowers who select either the standard or extended plans can report all education loans to the servicer when applying for the new loan and the servicer will include that information when determining their new monthly consolidation loan payment May result in a lower monthly payment Meet Johnny Graduated from Consolidation University in fall 2013 Will be selecting the Standard repayment plan Doesn t want to include all of his loans in the consolidation based on borrower benefits Johnny s Loan Debt Existing Loans Amount Borrowed Loan A $4,000 Loan B $4,500 Loan C $5,500 Loan D $5,500 Loan E $7,500 Loan F $10,000 Total Outstanding Amount $37,000 4

5 Johnny s Decision Johnny Consolidates Direct Loan Consolidation Loan Amount Johnny s Other Eligible Education Loans Johnny s Total Education Indebtedness Decision 1 Loans A & B $8,500 $28,500 $17,000 Decision 2 Loans B,C,D and E $23,000 $14,000 $37,000 Decision 3 Loans B,C,D, and E $23,000 $0 $23,000 Consolidation Benefits for Borrowers Flexible repayment plans available Pay as You Earn, ICR, and IBR available Ability to change plans at any time based on changes to financial circumstances As an example, loss of employment or changes to income Consolidation Benefits for Borrowers A way to resolve defaulted loans by entering into consolidation with one of the Income Driven Plans Students may also resolve default with current servicer before entering into Consolidation 5

6 Consolidation A Note about PSLF Public Service Loan Forgiveness (PSLF) continues to be available for borrowers who qualify For borrowers without Direct Loans or who have both Direct Loans and non-direct Loans and who consolidate their non-direct loans into the new Consolidation Loan and who meet the other criteria for PSLF PSLF applicants will be directed to the FedLoan Servicing (PHEAA) site to process this application Consolidation Drawbacks May pay a slightly higher interest rate Consolidation loan interest rates will be calculated based on the weighted average of all the original loans rates rounded up to the nearest 1/8 of a percent. New rate is fixed for life of the loan Perkins Loans borrowers may need to consider the impact of Consolidation and can choose not to consolidate these loans May pay more interest over time if they choose a longer repayment period Consolidation Drawbacks Borrowers may lose: Some benefits including interest subsidy, deferment, and forgiveness options originally available Specific interest rate reductions offered by their original lender/servicer Borrowers in IDR may have their IDR re-set 6

7 Helping your Students Understand the New Process: Application Steps Step 1: Prepare Students are advised to gather information in advance Federal Student Aid PIN Student loan records (located on NSLDS) Employer name/address; income information Contact information References Step 2: Choose a Repayment Plan Student should choose repayment plan best suited for their financial needs Information about the various plans, including IDR, is available at studentaid.ed.gov/ repay-loans 7

8 Step 3: Apply Student accesses the appropriate site Student must submit the entire application at one time Data will not be saved if they navigate away from the site Note: a PDF application is available for students who prefer to apply via mail Step 3: Applying Online Once student enters federal PIN: Loans automatically populated into application from NSLDS Student can add additional loans Student chooses repayment plan Student chooses loan servicer Student reviews, signs, and submits application Step 3: Applying Online By using the user s authenticated PIN data to retrieve the user s loan information from NSLDS, borrowers are able to select or deselect pre-populated loans. Users are also capable of adding additional loans. 8

9 Step 3: Applying Online Loans are displayed with Loan Type and Loan Servicer in the Select the Loans to Consolidate box; when the user scrolls over the Loan Type or Loan Servicer, more information is displayed. Step 3: Applying Online Transferred IRS Tax Return Information will display on this second conditional page associated with selecting an IDR plan. User may re-link to the IRS. Yes/No questions are presented asking the user to verify the transferred information (more questions appear conditionally upon the user s responses). Step 3: Applying Online If student is married, spousal information may be included at this step Note: if spouse is included, they must also sign the application 9

10 Step 3: Applying Online Borrower selects one of four loan servicers Borrower cannot change servicers once the new Direct Loan has been issued The dropdown within the Add Loan pop-up lists possible servicers for the user. Step 3: Applying Online The Terms and Conditions will consist of legal conditions and information relating to borrower rights, responsibilities, and understandings. The user is required to read through the LC Terms and Conditions in its entirety and click the checkbox with an associated message that states that the user has read and understands the LC Terms and Conditions. The user must mark the checkbox in order to continue to the next page of the flow. Step 3: Applying Online The user will be required to submit personal information along with information for two references. Note: If a user has previously submitted Reference information in a StudentLoans.gov application (i.e. PLUS Application, Exit Counseling), that information appears in a dropdown and can be selected. Otherwise, the user may supply a new reference. 10

11 Step 3: Applying Online The Review & Sign page for the LC flow will display a summary of the following information provided by the user. Loans the borrower elected to consolidate Consolidated Balance and Interest Rate Length of time for servicer to hold application due to In Grace loan (if applicable) Selected servicer Selected repayment plan Transferred IRS tax information (if applicable) Family size (if applicable) Spouse Information (if applicable) Personal information References Step 3: Applying Online A confirmation page will be displayed to the user upon submission Step 4: Track Application Students will receive an online confirmation as soon as they submit their application Most servicers will confirm application status within 48 hours of receiving completed application Borrower can review and request changes or cancel the loan within the 10 day business days of receiving the loan summary statement 11

12 Step 5: Repaying the New Direct Consolidation Loan In most cases, repayment on the new Direct Loan will begin within 60 days Students are advised to continue making payments on the original loans until the new loan is approved Remember, students can change their repayment plan in the future if their needs or situations change The Servicer Role Servicer Responsibility The selected servicer will: Review the application data and follow up with student if needed Determine the applicant s eligibility for the selected repayment plan Send Loan Verification Certificates (LVC s) to loan holders to verify payoff amounts 12

13 Servicer Responsibility The selected loan servicer will: Send loan summary to the applicant within 10-day borrower confirmation period Work with all loan holders and servicers to resolve under and overpayment issues Servicer Responsibility At the end of the 10-day borrower confirmation period, the servicer will process the loan and request funds from the Treasury Report new consolidation loan to NSLDS Servicer Responsibility Great Lakes Servicing is set up as the single point of contact for all current loan holders with questions about set up issues Not the single point of contact for borrowers Contact Great Lakes at (855) Or by at 13

14 Borrower Tools and Resources Resources The financial aid office ensures students: Understand the pros and cons of consolidation at exit counseling Understand the various repayment options they can select with the Direct Loan Consolidation program Resources The financial aid office ensures students: Understand that they will select their servicer for the new Direct Consolidation Loan Organize their application data in advance of accessing the site 14

15 Resources Repayment Option Eligible Loan Program(s) Borrower Eligibility Payment Terms/Calculation Standard Direct or FFEL loans All Payments are fixed; up to 10 years to repay Graduated Direct or FFEL loans All Payments start lower and increase over a 10-year period Extended Direct or FFEL loans Must have $30,000 loan debt in DL or FFEL Consolidation Direct or FFEL loans Must be in grace, repayment, or default Payments are fixed or graduated; up to 25 years to repay Range of 10 to 30 years, depending on repayment plan and/or total education loan debt Resources Repayment Plan Eligible Loan Program Borrower Eligibility Pay As You Earn Direct loans Partial Financial Hardship plus new borrower as of 10/1/07 and received a disbursement of loan on or after 10/1/11 Income-Based Repayment (IBR) (effective 7/1/14) Income-Contingent Repayment (ICR) Income-Based Repayment (IBR) (prior 7/1/14) Direct or FFEL loans Partial Financial Hardship Payment Calculation 10% of discretionary income 10% of discretionary income Direct loans All Lesser of: 12-year standard repayment schedule multiplied by income percentage factor or 20% of discretionary income Direct loans Partial Financial Hardship 15% of discretionary income Forgiveness 20 years 20 years 25 years 25 years Resources The Department of Education: loanconsolidation.ed.gov studentaid.ed.gov/repay-loans/consolidation studentloans.gov studentaid.ed.gov/repayloans/understand/plans 15

16 Conclusion New Direct Loan Consolidation process is designed to help students facilitate repayment Requires student to make good decisions about available repayment plans and the pros and cons of consolidation You can help by providing counseling, tip sheets, and information about all repayment plans Thanks for Attending Jamie Malone Senior Operational Policy Analyst Great Lakes Doug Hess Senior Marketing Associate (IN, IL) Great Lakes Phone: (800)