USA Funds University. Federal Direct Loans: Repayment Relief

Transcription

1 USA Funds University Federal Direct Loans: Repayment Relief Aug. 19, 2015

2 Special Note These materials are for the benefit of financial aid professionals and other campus administrators. They are intended to provide current facts and information and are not intended to be legal advice. These materials contain information related to Federal Title IV student aid programs and have neither been reviewed nor approved by the U.S. Department of Education. You are encouraged to seek your own competent legal counsel in connection with the topics covered in these materials. USA Funds disclaims all responsibility for any claim arising from reliance on the information provided. Copyright 2015 United Student Aid Funds, Inc. All Rights Reserved. Questions regarding the content of this publication should be addressed to USA Funds University, P.O. Box 6028 Indianapolis, IN or by calling (317)

3 Federal Direct Loan Repayment Relief Borrowers of Direct Subsidized, Unsubsidized and PLUS loans have greater flexibility in the repayment of their loans than with almost any other kind of debt. A variety of repayment options are available and some borrowers may qualify to temporarily postpone making payments through deferment or forbearance. In addition, federal regulations allow Direct Loans to be discharged or forgiven under certain circumstances. Making use of these options can help borrowers who may be struggling to keep their loans in good standing to avoid delinquency or default. The following information applies to provisions of both the Federal Family Education Loan Program and the William D. Ford Federal Direct Loan Program, unless specified otherwise. These provisions do not necessarily apply to Federal Perkins loans. Private education loans are governed by the individual provisions of the programs under which they are made. Repayment Before receiving a federal education loan, borrowers sign a promissory note in which they agree to repay the amount borrowed plus any interest and other charges according to the specified terms and conditions. Prepayments may be made at any time, without penalty. For the remaining balance due, the start of the repayment period depends on the type of federal loan. u Direct Subsidized and Unsubsidized loan repayment of principal and any accrued interest begins the day after the sixmonth grace period ends. u PLUS loan repayment of principal and any accrued interest begins on the day after the loan is finally and fully disbursed, which typically occurs while the student still is enrolled. Student PLUS Loan borrowers who are enrolled at least half time when repayment begins are not expected to make any loan payments while enrolled, unless they request otherwise. u Consolidation loan repayment begins on the date the loan is disbursed, unless the borrower qualifies for a deferment. The borrower's first loan payment is due within 60 days of the loan entering repayment. Before the due date, the borrower receives information and disclosures, including payment due dates and repayment options. Borrowers also are reminded that they may prepay all or part of any federal education loan at any time without financial penalty. Borrowers having trouble making loan payments at any time during the repayment period need to contact their lenders or loan servicers immediately and ask for assistance. Federal education loans offer very flexible terms for borrowers who are having problems with their loan payments, including solutions such as: u Repayment options. u Deferment. u Forbearance. u Forgiveness. 1

4 Repayment Options 34 CFR CFR CFR CFR CFR CFR Several repayment options are available to borrowers of Direct Subsidized, Unsubsidized, PLUS and Consolidation loans. With the exception of the various income-driven repayment plans, all plans require that each payment must at least equal the interest accrued on the loan between scheduled payments. Most borrowers may change repayment plans at any time and as many times as they wish, as long as they are eligible for the plan selected. The repayment period of the new option must exceed the length of time the borrower already has been in repayment; the monthly payment for the remaining balance due usually will be based on the new plan s repayment term. Trainer s Tidbit Repayment calculators are available to help borrowers compare repayment options, including: u U.S. Department of Education Calculators and Interest Rates (www2.ed.gov/offices/osfap/directloan/calc.html). u U.S. Department of Education Repayment Estimator ( u USA Funds Loan Repayment Calculator ( Standard FFELP and DL borrowers entering repayment are placed on a standard repayment schedule unless they request otherwise. Borrowers pay a fixed amount of at least $50 each month for up to 10 years, not including deferment and forbearance periods. This plan generally repays the loan with the lowest interest cost to the borrower. Case Study Marlena is an independent student who is about to graduate. She has been enrolled continuously at your school, and she knows she owes $10,000 in unsubsidized loans at a fixed interest rate of 8.25 percent. Rather than wait for exit counseling, she has come to you to ask about repayment. Use the Repayment Charts in the Rights and Responsibilities Statement in the Appendix to provide Marlena with the following estimates: 1. Monthly payment amount: $ per month. 2. Total repayment period: years. 3. Estimated total interest she will pay: $. Graduated Borrowers monthly payments are lower at first and then increase in increments over the 10-year repayment period, which may be a good choice for borrowers with limited income initially who expect higher earnings in the future. An important feature of this plan is that no monthly payment will exceed three times the amount of any other monthly payment. Borrowers using this plan typically pay more interest than they would under the standard repayment plan. 2

5 Extended Borrowers with outstanding FFELP or Direct Loan balances of $30,000 or more may qualify to make fixed or graduated payments for a period of up to 25 years. A minimum monthly payment of $50 is expected of DL borrowers. For FFEL borrowers, the minimum repayment amount is the lesser of $50 or the amount of interest accruing on their principal balance. Loans obtained through the FFEL and the DL programs may not be combined to equal the $30,000 minimum requirement. Alternative Direct loan borrowers who are not able to make payments under the standard, graduated or extended repayment plans may establish an alternate payment plan with ED. FFEL borrowers may be able to make alternative arrangements with their loan holders as well. Documentation of the borrower's unusual circumstances may be required. This may also be used when borrowers want to regularly pay more than under the other established repayment options. Income-Driven Repayment Plans 34 CFR CFR Certain borrowers may be able to take advantage of a repayment plan where the payment amount relates to income. Over the past several years, legislative and regulatory changes expanded the range of options and changed some of the provisions. Income-Sensitive FFELP loan borrowers can request to have the calculation of their monthly payments based on annual income and total loan amounts. As a borrower s income rises or falls, so does the student loan payment amount. If early payments are low, then the borrower will pay more interest than with a standard repayment plan. Borrowers must apply for this option each year, which is available only to FFELP borrowers on their FFELP Loans. Income-Contingent Direct Subsidized and Unsubsidized loan borrowers and student borrowers of PLUS loans can request to have the calculation of their monthly payments based on annual income, family size and outstanding loan balance. As a borrower s income rises or falls, so does the student loan payment amount. Payments are at least $5 per month. The maximum loan repayment period is 25 years, at which point any remaining balance may be forgiven. Borrowers must apply for this option each year, which is available only for DL student-borrowers. Income-Based FFELP and Direct Loan student-borrowers in repayment who demonstrate a partial financial hardship may qualify for IBR. Borrowers can estimate whether they might qualify using the U.S. Department of Education s IBR calculator at Changes to the provisions of the IBR plan affect new student-borrowers of Direct Loans whose first disbursement is made on or after July 1, New student-borrowers are those with no outstanding FFELP or DL balance when receiving a Direct Loan on or after the effective date. A PFH exists when the annual student loan payments based on a standard 10-year repayment period would be more than 15 percent of discretionary income. For new borrowers on or after July 1, 2014, the threshold is 10 percent of discretionary income. Discretionary income is any amount of adjusted gross income above 150 percent of the applicable poverty guideline for the borrower s family size and the state in which they live. Monthly payments may be less than accruing interest, and could be as little as zero. If the borrower has Direct Subsidized loans and the monthly payment is so low that it does not cover the accrued interest, ED may pay some or all of the interest that would otherwise accrue on those loans for up to three years. Borrowers of unsubsidized loans always are responsible for paying the interest that accrues. For married borrowers, each with their own qualifying loans, both borrowers standard repayment amounts are added together when determining whether a partial financial hardship exists. In general, this will increase the likelihood that both borrowers will qualify for IBR. When married borrowers both qualify for IBR, the actual payment amount for each borrower will be prorated based on their individual percentage of their total IBR-eligible loan debt. Unpaid loan principal and interest may be forgiven after making 300 qualifying payments over at least 25 years and for new borrowers 240 qualifiying payments over at least 20 years. Effective July 1, 2014, new student-borrowers may qualify after making 240 qualifying payments over at least 20 years of repayment. The repayment period includes periods under other repayment plans and any periods of economic hardship deferment. Once a borrower qualifies for IBR, all of the borrower's loans must be paid under IBR. Additionally, the borrower retains eligibility for loan forgiveness by continuously making on-time payments, even if the borrower chooses not to repay under IBR or no longer qualifies for an IBR payment due to increased income. While borrowers with one or more federal education loans in default do not qualify, once a defaulted loan is assigned to ED the borrower may be required to repay under IBR. 3

6 Pay As You Earn New DL borrowers with no FFELP or DL balance due as of Oct. 1, 2007, or on the date a new Direct Loan is disbursed, who also receive Direct Loan disbursements on or after Oct. 1, 2011, may choose to repay under this newest federal repayment option. This plan is not available for : u Borrowers with an outstanding FFELP or Direct Loan balance as of Oct. 1, u Borrowers without a Direct Loan disbursement on or after Oct. 1, u Borrowers of: FFELP loans. Parent PLUS loans. Consolidation loans that include Parent PLUS loans. Borrowers must demonstrate a partial financial hardship to qualify for this repayment option. A PFH exists when the annual amount due on all of the borrower s eligible loans exceeds 10 percent of discretionary income, which is defined as the difference between the borrower s adjusted gross income and 150 percent of the applicable poverty guideline for the borrower s family size and the state in which they live. For married borrowers, the spouse s loans and the spouse s income are factored into the PFH calculation. The Pay As You Earn option applies only to Direct Loans. Only the borrower s Direct loans Subsidized, Unsubsidized and PLUS are considered in the calculation of whether a PFH exists. DL borrowers with FFELP loan balances must use a different repayment plan for those loans. Monthly payments may be less than accruing interest, and could be as little as zero. Unpaid interest may be capitalized, but only up to the point that it equals 10 percent of the loan's principal balance at the time that the borrower entered the Pay As You Earn plan. Interest will continue to accrue after reaching the 10 percent threshold, but the loan holder may not capitalize the interest. After 240 qualifying payments over at least 20 years, any remaining balance on the borrower s loans may be forgiven. Trainer s Tidbit Federal Register, Vol. 80, No On July 9, 2015, the Department of Education published in the Federal Register proposed rules that would create the Revised Pay As You Earn repayment option. Final regulations are expected by Nov. 1, 2015, with early implementation in December NOTES 4

7 Loan Deferments 34 CFR CFR Loan deferments allow borrowers who meet certain conditions to postpone principal repayment for a period of time. Deferments are entitlements under federal law and must be granted to borrowers who qualify. During periods of deferment, the federal government pays the accruing interest on Direct Subsidized loans and any portion of Direct Subsidized loans that are included in most Consolidation loans. Borrowers are responsible for all interest that accrues during deferment on Direct Unsubsidized loans and PLUS loans, as well as any unsubsidized portion of Consolidation loans Loan holders generally can process a deferment for the borrower s entire eligible deferment period, but some deferments must be processed in increments. For instance, unemployment deferments must be renewed and re-certified every six months. Some deferments can be applied retroactively. For example, initial requests for unemployment deferments can be backdated up to six months from the date that the lender receives adequate documentation. Borrowers must request deferments on a timely basis and should check with their loan holders to confirm specific documentation requirements and procedures for documenting eligibility. In general, a borrower s first payment after a deferment period ends will be due within 60 days. The Consolidated Appropriations Act of 2012 (P.L ) eliminated the interest subsidy during the six-month grace period on Direct Subsidized loans first disbursed between July 1, 2012, and June 30, Any unpaid interest that accrues during the grace period is capitalized. The subsidy during periods of authorized deferment is not affected by this legislation. NOTES 5

8 Deferment Types There are various types of deferments available. Deferment options have changed over time, which means eligibility can be different from one borrower to the next. All relevant deferment options apply to all of the borrower's loans, regardless of the disbursement date of each individual loan. Borrowers of FFEL loans prior to July 1, 1993, or first time DL borrowers with outstanding FFEL loans prior to July 1, 1993, may qualify for additional deferment options. Servicers, lenders and guarantors are the best source of information about the types of deferment available to a particular borrower. Types of Deferment Currently Available to Most Borrowers Deferment Type* Description Time Limit In-School Unemployment Economic Hardship Rehabilitation Training Graduate Fellowship Military Service Post-Active Duty Student Borrower enrolled at least half time at a Title IV-eligible school, or a parent PLUS loan borrower whose dependent student is enrolled at least half time. Borrowers serving in a medical internship or residency program, other than a residency program in dentistry, are ineligible. Not working at least 30 hours per week, or employed in work that will not last at least three months, and actively looking for a job. Typically approved in sixmonth increments. Circumstances having a financial impact, such as receiving public assistance, volunteering in the Peace Corps, earning minimum wage or other financial hardship. Typically granted for one year at a time. Participation in qualifying vocational rehabilitation, mental health services or drug/alcohol abuse treatment rehabilitation training programs. Participation in a full-time graduate fellowship for a period of at least six months. Serving on active duty for other than training purposes during a war or other military operation or a declared national emergency, including qualified National Guard duty. College students who were enrolled at least half time at activation or within six months of activation. Terminates early if re-enrolled at least half time before the deferment period ends. Unlimited. Up to three years. Up to three years. Unlimited. Unlimited. Unlimited.** 13 months. * For Direct and FFELP loans first disbursed from July 1, 1993, to present. Other deferments may be available for older loans. ** Unlimited duration while continuing to serve on active duty. Extended periods of deferment are available to borrowers after demobilization. This deferment is available to all qualifying borrowers regardless of new borrower date provided the military service begins on or after Oct. 1, 2007, or includes that date. NOTES 6

9 Trainer s Tidbit Borrowers of PLUS loans whose loans first were disbursed on or after July 1, 2008, may qualify to postpone repayment. u Parent-borrowers of PLUS loans may request deferment of repayment during the student-beneficiary s enrollment and for a six-month post-enrollment deferment period after the student-beneficiary ceases to be enrolled at least half time. u Student-borrowers qualify automatically for a post-enrollment deferment of up to six months after each period of at least half-time enrollment. Case Study Toney is having a hard time finding a job after graduating with his undergraduate biology degree. He still is actively looking for employment and has enrolled half time in a graduate program at State College. He is concerned about making his student loan payments and contacts his lender(s) for assistance. Which deferments may pertain to Toney's situation? In-school. Graduate fellowship. Rehabilitation training. Unemployment. Economic hardship. Military service. Post-active duty student. NOTES 7

10 Forbearance 34 CFR CFR Forbearance is an agreement between borrowers and their loan holders to reduce or temporarily suspend previously agreed-upon monthly payments to prevent delinquency and default. In some circumstances forbearance may be granted retroactively for up to 12 months. The decision to grant forbearance generally is at the discretion of the lender. Unlike deferment, most forbearances are not entitlements. Borrowers may make a variety of forbearance arrangements with loan holders, including: u Temporarily ceasing payment of principal and interest. u Temporarily ceasing payment of principal. u Arranging to make lower payments. u Temporarily altering the payment agreement. A key difference between forbearance and deferment is that interest is not paid by the government during forbearance on any type of loan. Borrowers are responsible for all interest that accrues. This can become very costly, because outstanding interest may be capitalized if the borrower chooses not to make interest payments during a period of forbearance. At least every 180 days, lenders must contact borrowers whose loans are in forbearance status and provide all of the following information: u Reminder of the obligation to repay the loan. u That interest will continue to accrue on the loan for the entire forbearance period. u The amount of unpaid principal and accrued interest. u The amount of interest accrued since the last interest accrual information was provided to the borrower. u The amount of interest that will be capitalized and when it will occur. u The borrower s option to pay the interest before it is capitalized. u A borrower s right to discontinue the forbearance at any time. u The projected capitalized interest as of the date that the notice is sent. NOTES 8

11 Types of Forbearances Forbearance Type Discretionary Mandatory Description Granted if the lender reasonably believes the borrower is willing, but temporarily unable, to make payments. Loan holders and borrowers must agree to the terms, which may be granted for up to 12 months. Denials must be communicated and documented. Granted to borrowers who sufficiently document they qualify for: u Medical or Dental Internship/Residency. u National Service. u Loan Forgiveness. u Department of Defense Student Loan Repayment. u Debt Exceeds Monthly Income. u Active Military State Duty. Administrative Granted for any payments that are overdue or would be due under certain circumstances. Does not require prior written consent, but loan holders must provide notification and opportunity to cancel. Common uses include: u Delinquent when deferment or forbearance is authorized. u Less than 60 days delinquent when the loan is sold or transferred. u Enrolled at an educational institution when it closes, not to exceed 60 days. u Lender correctly granted a deferment and later learns the borrower was not eligible. u Late notification that the student no longer is enrolled. u National military mobilization, other national emergencies or natural disasters, as authorized by ED. u Borrower has filed a bankruptcy petition. u Delinquency before bankruptcy. u Pending additional total and permanent disability discharge documentation, not to exceed 120 days. u Pending claim of false certification of a federal student loan, not to exceed 60 days. Mandatory Administrative Granted for borrowers who qualify, even without filing a borrower request or a forbearance agreement. Common uses include: u Lenders directed by ED to grant forbearance to borrowers who live in a designated disaster area, are affected by a national emergency, are subject to military mobilization or are Reservists called to active duty or members of the U.S. Armed Forces mobilized to an area other than current tour of duty. u Repayment accommodations on variable-rate FFELP loans to keep monthly payments stable, or for up to five years if income-sensitive payments are so low that the loan cannot be repaid within the standard 10-year repayment period. u While waiting for a period not to exceed 60 days for documentation that the borrower, or the student-beneficiary of a parent PLUS loan, is deceased. u Teacher Loan Forgiveness application processing period, not to exceed 60 days. 9

12 Case Study Julia is unable to make payments on her Direct Subsidized loan and does not qualify for a deferment. After contacting her former school, she decides to request a forbearance from the holder of her loan. Which of the following statements will be true for Julia? The holder of her loan is required to grant forbearance to her, regardless of the circumstances. Repayment is suspended while the holder of her loan considers her request. She will not qualify for the interest subsidy during authorized periods of forbearance. She must re-apply for forbearance every 60 days. NOTES 10

13 Loan Discharge and Forgiveness 34 CFR CFR All or part of a Direct Subsidized, Unsubsidized or PLUS loan may be discharged or forgiven, which relieves the borrower and any endorser from any further obligation to repay the discharged or forgiven amount due. Direct Subsidized and Unsubsidized loans that are discharged or forgiven no longer count towards the borrower's aggregate loan limit. Discharged and forgiven loans do not prevent borrowers from receiving further Title IV aid and defaults on loans prior to discharge will not affect eligibility for further Title IV aid. Loan Discharge Borrowers may qualify to have Direct Subsidized, Unsubsidized, PLUS and Consolidation loans discharged under specific circumstances. Further details may be found at Loan Discharge Programs Discharge Type Total and Permanent Disability Death Description Borrower is injured or otherwise unable to engage in any substantial gainful activity due to physical or mental impairment that either: u Can be expected to result in the borrower s death. u Has lasted or can be expected to last for a continuous period of not less than 60 months. For three years following a TPD Discharge, the borrower cannot receive another student loan until the borrower resumes payment on any previously discharged loans (or acknowledges reinstatement of the TEACH Grant Agreement to Serve, if applicable). Does not apply to borrowers with a determination of unemployability by the Veterans Administration due to a serviceconnected disability. Borrowers whose loans (or TEACH Grant service obligations) were discharged can qualify for a new Direct Subsidized or Unsubsidized loan if they provide: u Physician s certification of ability to engage in substantial gainful activity. u Acknowledgement that the new loan will not qualify for disability discharge for an impairment that currently exists, unless the condition deteriorates substantially. Borrower of a Direct Subsidized, Unsubsidized, PLUS or Consolidation loan dies, or if the studentbeneficiary of a parent PLUS loan dies. The borrower s estate is not obligated to make any further payments. Application Contact the Nelnet Total and Permanent Disability Servicer by phone or or visit the TPD Discharge website at: Collection is suspended for up to 120 days from the date of first contact, while the application is being filed and reviewed. A Physician's Certification of Borrower Total and Permanent Disability must accompany the Discharge Application, unless the borrower has either a: u Determination of unemployability by the Veterans Administration due to a serviceconnected disability. u Notice of award for Social Security Disability Insurance or Supplemental Security Income benefits, which must state that the borrower's next disability review is scheduled to occur within five to seven years. Original or certified copy of the death certificate must be provided to the loan holder or loan servicer. A certified copy or an accurate and complete photocopy is acceptable but a faxed copy is not. 11

14 Discharge Type School Closure False Certification Bankruptcy Unpaid Refund Description Borrower is unable to complete the program of study because the institution closed. Borrower proves that the loan was falsely certified as a result of identity theft. Alternatively, if the school: u Admitted the student based on ability to benefit from its training, even though the student did not meet the ability to benefit requirements. u Signed the borrower s name on the application and promissory note without the borrower s authorization. u Endorsed the borrower s name on the loan check or signed the authorization for electronic funds transfer or master check without the borrower s authorization. Borrower proves to the bankruptcy court that repaying the loan would cause undue hardship. Borrower was eligible for a student loan refund from the school, but did not receive it. Application Borrower contacts the loan holder or loan servicer. Once approved, ED will attempt to recover from the school or other resources the amount of the loan that was discharged, including any refund owed the borrower. Borrower contacts the loan holder or loan servicer. For discharge under the identity-theft provision, the borrower must present evidence of a judicial verdict naming the perpetrator of the identity theft. Borrower contacts the loan holder or loan servicer. Certain criteria must be met and documentation must be submitted to the loan holder or loan servicer. Trainer s Tidbit Electronic Announcement, May 17, Effective July 1, 2013, borrowers applying for TPD discharge no longer apply through the holders of their loans. Instead, one application submitted to the Nelnet Total and Permanent Disability Servicer triggers consideration for all of the borrower's Title IV loans and TEACH Grant service obligations. More information is available at NOTES 12

15 Loan Forgiveness 34 CFR CFR Some borrowers may qualify to have a portion of the loan principal reduced. Usually, this reduction is tied to employment in certain fields for a specified period of time. Loan Forgiveness Programs Forgiveness Type Teacher Loan Forgiveness Public Service Loan Forgiveness Service in Areas of National Need Civil Legal Assistance Attorney Student Loan Repayment Description Two levels of forgiveness are available to certain teachers: u Up to $5,000 may be forgiven after teaching for five consecutive academic years in a designated elementary or secondary school serving students from low-income families. u A maximum of $17,500 may be forgiven for service as a highly qualified full-time mathematics or science teacher in an eligible secondary school, or as a highly qualified special education teacher. For loan borrowers employed full time by qualifying public service organizations, any Direct Loan balance at the end of the 10-year repayment period is cancelled. To qualify, the borrower must have made 120 on-time monthly payments on a Direct Loan first disbursed on or after Oct. 1, 2007, and the loan cannot be in default status. Up to $2,000 may be forgiven for each year of service in one of the targeted professions, up to a maximum of $10,000. A list of qualifying professions is maintained by the U.S. Department of Education. Note: This program is subject to appropriations and is not funded currently. Up to $6,000 may be forgiven for each year of service, up to a maximum of $40,000. Note: This program is subject to appropriations and is not funded currently. Trainer s Tidbit Teacher Loan Forgiveness. 34 CFR CFR A borrower who previously received TLF cannot use the same years of service to qualify for TLF again for another loan. As a result, a borrower cannot receive TLF for the same qualifying service for which they benefitted from: u AmeriCorps service loan forgiveness. u National Need loan forgiveness. u Public Service loan forgiveness. u Prior TLF for one or more FFELP or Direct Loans. NOTES 13

16 Case Study While in the hospital for several months recovering from life-threatening injuries sustained during a car accident, Dustin makes no payments on his Direct loan. When his loan is more than 180 days delinquent, he contacts his loan servicer to discuss his outstanding loan principal balance of $18,374. Faced with huge medical expenses, he is not able to pay the loan in full or take on any additional expenses or debt. In fact, he does not know when he will be able to resume making payments on the loan because the doctor has informed Dustin that he will not be able to return to work again for the foreseeable future. Under these circumstances, which of the following actions is the loan servicer most likely to take? Place the loan in retroactive administrative forbearance while Dustin files an application for a total and permanent disability discharge. Recommend that Dustin enroll at least half time in an eligible program of study in order to qualify for in-school deferment. Warn Dustin that his loan will be considered in default in less than 90 days unless he resumes making on-time payments on his loan. Declare Dustin in default on his loan immediately and refer his account to ED's Default Resolution Group. NOTES 14

17 Federal Consolidation Loans 34 CFR CFR (a)-(b). Loan consolidation combines one or more eligible federal education loans into a new loan with a single lower payment, a fixed interest rate and, in most cases, a longer repayment period. For some borrowers, loan consolidation may provide some repayment relief by reducing their monthly payment amounts and simplifying the repayment process. Numerous federal education loans may be consolidated, including: u FFELP and Direct Subsidized and Unsubsidized loans. u FFELP and Direct PLUS loans. u FFELP and Direct Consolidation loans. u Federal Perkins loans. u Federal Nursing Student Loans. u Health Professions Student Loans. u Health Education Assistance Loans. u Federal Supplemental Loans for Students. u Guaranteed Student Loans. u Federal Insured Student Loans. u National Direct Student Loans. u Auxiliary Loans to Assist Students. u Loans for Disadvantaged Students. Borrower Eligibility 34 CFR (d). The status of the loans being consolidated not the borrower s enrollment status determines eligibility for loan consolidation. Direct Consolidation Loans Eligible Loan Statuses Defaulted Loans Subsequent Consolidations Adding Loans to Existing Consolidation Consolidating FFELP Loans into DL Ineligible Borrowers Student borrowers: grace, repayment, deferment or forbearance. Parent borrowers: loan is fully disbursed. Make satisfactory payment arrangements or agree to pay under the income-contingent or income-based repayment plan. Have at least one additional eligible loan to add to an existing consolidation loan. Must request that additional eligible loan(s) are added within 180 days of the date on which the consolidation loan was disbursed. May consolidate eligible FFELP loans in the DL Consolidation program to take advantage of certain benefits that were not part of the FFEL Consolidation program: u To utilize Public Service Loan Forgiveness Program. u To use the 'no accrual of interest' benefit for active-duty service members. Subject to wage garnishment or judgment related to repaying federal financial assistance. 15

18 Consolidation Loan Limits Federal rules do not set a minimum or maximum limit on the amount that can be included in a Federal Consolidation loan. Consolidation Loan Interest Rates 34 CFR (a)(3)(i)(E). Student loan interest rates may be fixed or variable based on the type of loan, the disbursement date, and other factors. Upon consolidation, a fixed interest rate is set based on the interest rates of loans being consolidated. The consolidation loan fixed interest rate is set by taking the weighted average of interest rates on the loans being consolidated, then rounding that number up to the nearest one eighth of one percent. Any variable-rate loans in the consolidation are, in effect, converted to a fixed rate. Effective for loan applications received on or after July 1, 2013, the interest rate is no longer capped at 8.25 percent. Example How to Calculate a Weighted Average Consolidation $30, % Unsubsidized $18, % Grad PLUS $13, % Perkins $4, % $ 30,000 x.047 = $ 1,410 $ 18,500 x.068 = $ 1,258 $ 13,000 x.085 = $ 1,105 $ 4,000 x.050 = $ 200 $65,500 $ 3,973 $3,973 $65,500 = *6.1% rounded up to the nearest one-eighth of 1% = 6.125% Consolidation Loan Fees There are no application fees or prepayment penalties with a consolidation loan. NOTES 16

19 Putting It To Work The topics covered in this training session are conveyed in general terms to encompass learners from all types of postsecondary institutions. You should consider how the concepts covered in the training session apply to your school. Schools often are given flexibility in administering and applying guidelines to certain federal student aid programs. That s why it is essential that you discuss these items (shown below) with your supervisor. Your supervisor can give you institution-specific guidelines on how the material we discussed in this training session can be applied to your job. 1. What opportunities exist for you to share information about deferment, forbearance, discharge and consolidation with current students? With past students? 2. How does your school assist eligible borrowers with obtaining deferment, requesting forbearance, or applying for loan consolidation? 3. How might you identify which of your students might be at greatest risk for delinquency or default, and therefore in greatest need of repayment relief? 17

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21 Trainer s Toolkit The Trainer s Toolkit is a listing of websites and reference material directly related to Federal Direct Loan Repayment Relief. References, Resources and Websites Federal Legislation or Regulations Consolidated Appropriations Act, 2012 P.L Dec. 23, Program Integrity Issues Final Rule. 75 FR Oct. 29, Health Care and Education Reconciliation Act of 2010 P.L March 30, Final Rule; Institutions and Lender Requirements Relating to Education Loans, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program 74 FR Oct. 28, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program; Final Rule 73 FR Oct. 23, U.S. Department of Education Notice of Proposed Rulemaking: Revised Pay As You Earn 80 FR Subject: Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program. June 9, Electronic Announcement Subject: Update on Direct Loan Interest Rates Effective July 1, Aug. 9, Electronic Announcement Subject: TPD Discharge Information Changes to Total and Permanent Disability Discharge Regulations Effective July 1, May 17,

22 Dear Colleague Letter GEN Subject: Revised Income-Driven Repayment Plan Request Form. April 18, Dear Colleague Letter GEN Subject: Changes Made To The Title IV Student Aid Programs By The Recently Enacted Consolidated Appropriations Act, Jan. 18, Repayment Plans and Calculators Student Aid on the Web: Understanding Repayment. Accessed: July 17, Sample Master Promissory Notes and Disclosures Funding Your Education: The Guide to Federal Student Aid September USA Funds Borrowing for College: A Guide to Federal Loans for Higher Education Loan Repayment Calculator Loan Repayment Estimators USA Funds University Online Course Repayment Options. Course Other Resources Common Manual U.S. Department of Health and Human Services HHS Poverty Guidelines. Today s Campus Webinar: Default Prevention: The School Experience. June 10,

23 Appendices Appendix A Direct Subsidized/Unsubsidized Master Promissory Note Rights and Responsibilities Statement Appendix B Case Study Answers 21

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25 Appendix A Direct Subsidized/Unsubsidized Master Promissory Note Rights and Responsibilities Statement William D. Ford Federal Direct Loan Program Direct Subsidized Loan and Direct Unsubsidized Loan Borrower s Rights and Responsibilities Statement Important Notice: This Borrower s Rights and Responsibilities Statement provides additional information about the terms and conditions of the loans you receive under the accompanying Master Promissory Note (MPN) for Federal Direct Stafford/Ford Loans (Direct Subsidized Loans) and Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans). Please keep this Borrower s Rights and Responsibilities Statement for your records. You may request another copy of this Borrower's Rights and Responsibilities Statement at any time by contacting your servicer. Throughout this Borrower s Rights and Responsibilities Statement, the words we, us, and our refer to the U.S. Department of Education. The word loan refers to one or more loans made under the accompanying MPN. 1. The William D. Ford Federal Direct Loan Program. The William D. Ford Federal Direct Loan (Direct Loan) Program includes the following types of loans, known collectively as Direct Loans : Federal Direct Stafford/Ford Loans (Direct Subsidized Loans) Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans) Federal Direct PLUS Loans (Direct PLUS Loans) Federal Direct Consolidation Loans (Direct Consolidation Loans) The Direct Loan Program is authorized by Title IV, Part D, of the Higher Education Act of 1965, as amended (HEA), 20 U.S.C et seq. You must complete a Free Application for Federal Student Aid (FAFSA) before you receive a Direct Subsidized Loan or Direct Unsubsidized Loan. Direct Loans are made by the U.S. Department of Education. We contract with servicers to process Direct Loan payments, deferment and forbearance requests, and other transactions, and to answer questions about Direct Loans. We will provide you with the address and telephone number of your servicer after the school notifies us that the first disbursement of your loan has been made. 2. Laws that apply to this MPN. The terms and conditions of loans made under this MPN are determined by the HEA and other applicable federal laws and regulations. These laws and regulations are referred to as the Act throughout this Borrower s Rights and Responsibilities Statement. Under applicable state law, except as preempted by federal law, you may have certain borrower rights, remedies, and defenses in addition to those stated in the MPN and this Borrower s Rights and Responsibilities Statement. NOTE: Any amendment to the Act that affects the terms of this MPN will be applied to your loans in accordance with the effective date of the amendment. 3. Direct Subsidized Loans and Direct Unsubsidized Loans. Direct Subsidized Loans and Direct Unsubsidized Loans are made to students to help pay for the cost of education beyond high school. Direct Subsidized Loans are available only to undergraduate students. Direct Unsubsidized Loans are available to both undergraduate students and graduate or professional students. To receive a Direct Subsidized Loan, you must have financial need. Except as explained in Item 10 of this Borrower s Rights and Responsibilities Statement ( Payment of interest ), you are not required to pay the interest that accrues on Direct Subsidized Loans while you are in school, during the grace period, during deferment periods, and during certain periods of repayment under the Income-Based Repayment Plan and the Pay As You Earn Repayment Plan. Direct Unsubsidized Loans are not based on financial need. You must pay the interest that accrues on Direct Unsubsidized Loans during all periods. For more information on interest charges, see Item Time limitation on Direct Subsidized Loan eligibility for first-time borrowers on or after July 1, If you are a first-time borrower on or after July 1, 2013, there is a limit on the maximum period of time (measured in academic years) that you can receive Direct Subsidized Loans. You are a first-time borrower on or after July 1, 2013 if you had no outstanding balance on a Direct Loan Program loan or a Federal Family Education Loan (FFEL) Program loan on July 1, 2013, or you have no outstanding balance on a Direct Loan or FFEL program loan on the date you obtain a Direct Loan Program loan after July 1, In general, if you are a first-time borrower on or after July 1, 2013 you may not receive Direct Subsidized Loans for more than 150% of the published length of your program of study. This is called your maximum eligibility period. For example, if you are enrolled in a 4-year bachelor s degree program, the maximum period for which you can receive Direct Subsidized Loans is 6 years (150% of 4 years = 6 years). Your maximum eligibility period is based on the published length of the program in which you are currently enrolled. This means that your maximum eligibility period can change if you change programs. If you receive Direct Subsidized Loans for one program and then change to a different program, the period of time for which you received Direct Subsidized Loans for the earlier program will generally count against your new maximum eligibility period. After you have received Direct Subsidized Loans for your maximum eligibility period, you are no longer eligible to receive additional Direct Subsidized Loans, and if you are enrolled in school, you may become responsible for paying interest on your Direct Subsidized Loans. You may continue to receive Direct Unsubsidized Loans. We will notify you if you are no longer eligible to receive additional Direct Subsidized Loans. With certain exceptions as provided under the Act (for example, if you graduate from your program of study before or at the time you receive Direct Subsidized Loans for your maximum eligibility period), if you continue to be enrolled in any undergraduate program after you have received Direct Subsidized Loans for your maximum eligibility period, or if you enroll in another undergraduate program that is the same length as or shorter than your previous program, you will become responsible for paying all of the interest that accrues on your Direct Subsidized Loans, during all periods, beginning on the date of the enrollment that causes you to become responsible for paying the interest. You will become responsible for paying all of the interest that accrues on your Direct Subsidized Loans based solely on your enrollment as described above, regardless of whether you apply for, request, or receive federal financial aid. We will notify you if you become responsible for paying all of the interest that accrues on your Direct Subsidized Loans. Additional information about the limitation on Direct Subsidized Loan eligibility for first-time borrowers on or after July 1, 2013 will be provided during entrance counseling (see Item 13 of this Borrower s Rights and Responsibilities Statement). You may also obtain additional information from your school s financial aid office, or at StudentAid.gov. 5. About the MPN. You may receive more than one loan under this MPN over a period of up to 10 years to pay for your educational costs, as long as the school you are attending is authorized to use the multi-year feature of the MPN and chooses to do so. If your school is not authorized to use the multi-year feature of the MPN or chooses not to do so, or if you do not want to receive more than one loan under this MPN, you must sign a new MPN for each loan that you receive. If you do not want to receive more than one loan under this MPN, you must notify your school or your servicer in writing. 6. Use of your loan money. You may use the loan money you receive only to pay for your authorized educational expenses for attendance at the school that determined you were eligible to receive the loan. Authorized expenses include the following: Tuition Room Page 5 of 11 Board Institutional fees Books Supplies Equipment Dependent child care expenses Transportation Commuting expenses Rental or purchase of a personal computer Loan fees Other documented, authorized costs 7. Information you must report to us after you receive your loan. You must notify your servicer and/or the financial aid office at your school about certain changes. Until you graduate or otherwise leave school, you must notify your school s financial aid office if you: Change your address or telephone number; Change your name (for example, maiden name to married name); Do not enroll at least half-time for the loan period certified by the school; Do not enroll at the school that determined you were eligible to receive the loan; Stop attending school or drop below half-time enrollment; Transfer from one school to another school; or Graduate. You must also notify your servicer if any of the above events occur at any time after you receive your loan. In addition, you must notify your servicer if you: Change your employer, or your employer s address or telephone number changes; or Have any other change in status that would affect your loan (for example, if you receive a deferment while you are unemployed, but you find a job and therefore no longer meet the eligibility requirements for the deferment). 8. Amount you may borrow. The charts that follow show the maximum amounts of Direct Subsidized Loans and Direct Unsubsidized Loans that you may borrow for a single academic year (annual loan limits), and the maximum amounts that you may borrow in total for undergraduate and graduate study (aggregate loan limits). The aggregate loan limits are combined limits for Direct Subsidized Loans and Direct Unsubsidized Loans, and any Subsidized Federal Stafford Loans and Unsubsidized Federal Stafford Loans you may have previously received through the Federal Family Education Loan (FFEL) Program. The annual and aggregate loan limits for independent undergraduates also apply to dependent undergraduates whose parents are unable to borrow under the Direct PLUS Loan Program. If you are enrolled in certain health professions programs, you may qualify for higher annual and aggregate limits on Direct Unsubsidized Loans. The actual loan amount you receive will be determined by your school, based on your academic level, dependency status, and other factors such as: The length of the program or the remaining portion of the program in which you are enrolled, if it is less than a full academic year; Your cost of attendance; Your Expected Family Contribution; Other financial aid you receive; and Your remaining eligibility under the annual or aggregate loan limits. The actual amount you receive for an academic year may be less than the maximum annual amounts shown in the charts. If you are an undergraduate student, your school must determine your eligibility for a Federal Pell Grant before you may receive a Direct Subsidized Loan or a Direct Unsubsidized Loan, and must determine your eligibility for a Direct Subsidized Loan before determining your eligibility for a Direct Unsubsidized Loan. 23