2002 MASFAA Conference DIRECT LOAN CONSOLIDATION David A. Solá U.S. Department of Education Boston Regional Office

2 What we’ll cover Benefits of consolidation Repayment options Interest rate calculation Who is eligible Counseling students Application process

3 What is consolidation? Multiple federal loans are combined into one new consolidation loan A simple way to manage debt One lender One payment

4 What are the benefits? One lender and one payment The Department of Education is the lender, and always will be One contact The Direct Loan Servicing Center

5 What are the benefits? (Cont’d) Flexible repayment options Four plans to choose from Standard Extended Graduated Income Contingent Repayment (ICR) Can switch plans at any time

6 What are the benefits? (Cont’d) Standard Repayment Plan Fixed monthly payments ($50 min.) for up to 10 years Extended Repayment Plan Fixed monthly payments ($50 min.) for years, depending on total debt

7 What are the benefits? (Cont’d) Repayment Period for Extended Plan: Amount of Debt Length of Repayment Period Less than $10K12 years $10-19,99915 years $20-39,99920 years $40-59,99925 years $60K or more30 years

8 What are the benefits? (Cont’d) Graduated Repayment Plan Payments start low, increase every two years for years Monthly payment will never increase more than 1.5 times what borrower would pay under the Standard Plan

9 What are the benefits? (Cont’d) Income contingent repayment plan Monthly payment based on annual AGI, family size, and total loan amount Up to 25 years Low income borrowers pay the lesser of the amount they would pay if they repaid in 12 years, or 20% of their discretionary income

10 What are the benefits? (Cont’d) Reduced monthly payments Interactive calculators on web site Varied deferment options

11 What are the benefits? (Cont’d).25 percent interest rate discount for EDA No fee to consolidate Can prepay at any time without penalty

12 Interest rate Weighted average of the interest rates of loans being consolidated Rounded up one-eighth of one percent Will not exceed 8.25% Fixed for life of loan

13 Direct Loan interest rates from July 1, 2002 to June 30, 2003: If the loan was first disbursed between 7/1/98 and 6/30/03 and borrower is in school, grace, or deferment, the rate is 3.46% If the loan was first disbursed between 7/1/98 and 6/30/03 and borrower is in repayment or forbearance, the rate is 4.06% Interest rate (Cont’d)

14 Who is eligible? Out of School borrowers are eligible to consolidate if they: Have at least one Direct Loan OR Have at least one FFEL AND Have been unable to obtain a FFEL Consolidation Loan or unable to obtain one with acceptable income-sensitive repayment terms

15 Who is eligible? (Cont’d) In School borrowers are eligible to consolidate if they: Are attending a Direct Loan school and Include one DL or FFEL in an in-school period OR Are attending a FFEL school and Have at least one DL and Include one DL or FFEL in an in-school period

16 Who is eligible? (Cont’d) If the borrower is in their grace period– Secures lower interest rate Repayment begins 60 days after first disbursement of Consolidation loan

17 Who is eligible? (Cont’d) If the borrower is in default on any federal loans, they are eligible to consolidate if they: Agree to repay under the ICR plan OR Have made satisfactory repayment arrangements on the defaulted loan

18 Who is eligible? (Cont’d) What about joint consolidation with a spouse? DON’T.

19 What loans can be consolidated? Most federal education loans Ineligible loans include: Loans made by a state or private lender, not guaranteed by the federal government Law Access Loans Primary Care Loans Medical Assist Loans PLATO Loans TERI Loans

20 Is Direct Loan Consolidation the way to go? Borrowers should consider these factors: Interest rates of their loans Current monthly payments Are they manageable? How many are left? Lifetime cost of the consolidation Multiple lenders

21 The Application  Online Sign prom note electronically with a PIN! pin.ed.gov Save unfinished application online Check processing status days to complete process

22 The Application  Express Phone Application If the borrower has only Direct Loans to consolidate

23 The Application  Paper Application Download from the web OR Request a paper application Phone at

24 And payments begin! Repayment begins 60 days after first disbursement Borrowers who consolidate while in- school have a 6-month grace period 180 days to add loans Direct Loan Servicing website offers on-line bill presentment and on-line payment

25 Contacts for Borrowers Applicant Services/Loan Origination Direct Loan Servicing Center

26 Contacts for Schools Federal Student Aid Office – Boston “Forms and Publications” for Brochures, Applications, and Guide for Schools View student accounts, delinquency reports

27 Please, Oh! Please don’t ask me any hard questions? Q & A