1. Direct Loan Consolidation Process Presented by: Daniel Weigle School Support Manager, FedLoan Servicing dweigle@pheaa.org

2. Objectives Consolidation overview Consolidation application process Counseling student loan borrowers

3. What is Direct Loan Consolidation? Direct Loan Consolidation allows borrowers to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments.  There is no application fee to consolidate federal student loans into a Direct Consolidation Loan.  If contacted by someone offering to consolidate student loans for a fee, you are not dealing with the U.S. Department of Education’s loan consolidation servicer.  Direct Consolidation Loans have a fixed interest rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%.  The rate will not exceed 8.25%

4. Who is Eligible? To qualify for Direct Consolidation Loans, borrowers must have:  At least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace or repayment status  Repayment status includes loans that are in a deferment or forbearance period  Loans that are in an in-school status cannot be included in a Direct Consolidation Loan  Borrowers may consolidate loans that are in an in-school deferment status

5. What Loan Types are Eligible?  Direct Subsidized and Unsubsidized Loans  Subsidized and Unsubsidized Federal Family Education Loans (FFEL)  Perkins Loans  PLUS Loans  Certain Health Professions Loans Health Professions Student Loans (HPSL) Health Education Assistance Loans (HEAL) Loans for Disadvantaged Students (LDS) Nursing Student Loans (NSL)

6. The Consolidation Process Borrowers will begin the Direct Loan Consolidation process at www.LoanConsolidation.ed.gov and selecting BORROWER SERVICES www.LoanConsolidation.ed.gov

7. Application Options  Online Web Application  Express Phone Application (available if borrower has only Direct Loans)  Paper Application Download a paper copyDownload a paper copy of the application and promissory note - including the complete contents of the application package. Request an application package be mailed:  Phone at 1-800-557-7392 8AM to 8PM (EST) (TDD 1-800-557-7395) or (334) 206-7400 outside USA  E-mail at loan_consolidation@hp.comloan_consolidation@hp.com

8. Signing In Applicants will be prompted for sign in credentials:  SSN  First two digits of last name  DOB (MM/DD/YYYY)  FSA PIN

9. Starting the Application After a successful log-in, applicants will be directed back to the instructions page where they’ll select Apply Online … to proceed.

10. Choose Loan Types and Specify Status If "No" is selected, further options are presented to allow applicants to consolidate either “only FFEL loans” or “only Direct loans”

11. Consolidation Hold Option If the applicant states that one of more of their loans is in grace, they can elect to delay the processing of their application by up to 9 months from the application date. If they select “No" to the initial question, or choose not to enter the “Expected Grace End Date”, they will forfeit any grace period by consolidating their loans.

12. Borrower and Reference Information  This section prompts the applicant for their information, giving them the option to save or email customer service  Next, the applicant must provide references

13. Loan Selection Next, the applicant is shown a list of their individual loans  For each loan, the applicant must specify whether or not it should be included in the new Direct Consolidation Loan  If any of the loan detail information is inaccurate, the applicant will have an opportunity to review it in a later step  If more loans need to be added, click “Add More Loans” to enter information on each additional loan  If the list of loans is complete, the applicant must click “Done With Loans” to proceed to the next section

14. Additional Loans  If the applicant needs to include additional loans, this page will prompt them to provide the lender/loan information to include and select whether or not it should be included in the Direct Consolidation Loan  If the list of loans is complete, the applicant must click “Done With Loans” to proceed to the next section

15. Review Loan Information  After choosing the loans to consolidate, the applicant is given the opportunity to review their loan information

16. Repayment Plan Introduction  After reviewing the list of loans to consolidate for accuracy, applicants are encouraged to sign up for Direct Debit and ICR or IBR.

17. Repayment Plan Selection  The applicant is then given estimates and the option to select their repayment plan by a drop down menu.

18. Review Draft Application  Applicants will be asked to review the following: Consolidation Hold (if applicable) Borrower Information Reference Information Loan Information Repayment Plan Selection Information  To correct any errors, click on the title bar of the appropriate section

19. Signature Options  E-signature option  Print to mail option

20. Counseling Borrowers  Refer students to NSLDS to determine what they owe and to whom  Advise students of the Pros and Cons of Direct Loan Consolidation  Help students determine what repayment plan may be best for them  Inform students of the loan forgiveness programs available

21. Direct Loan Consolidation: Pros  One monthly payment  Reduced monthly payments  Flexible repayment options  No minimum or maximum loan amounts or fees  Retention of subsidy benefits  May qualify for renewed deferment benefits  Defaulted loans can be consolidated to regain Title IV eligibility  Must establish satisfactory repayment arrangements

22. Direct Loan Consolidation: Cons  Consolidation generally does not save money  Slightly higher interest rate  Loss of the remainder of the grace period Repayment begins 60 days after consolidation loan is made  Loss of favorable benefits on Perkins loans such as subsidized interest and loan forgiveness  Capitalization at status changes  Some alternate repayment plans are available without consolidation Extended 25-year repayment is available without consolidating if you have $30,000 or more in debt with a single lender Income-based repayment is available without consolidation

23. Repayment Plans  Eligible repayment plans for Direct Consolidated Loans: Loan BalanceMaximum Loan Term Less Than $7,50010 years $7,500 to $9,99912 years $10,000 to $19,99915 years $20,000 to $39,99920 years $40,000 to $59,99925 years $60,000 or more30 years  Standard Repayment  Income Contingent Repayment  Extended Repayment  Income Sensitive Repayment  Graduated Repayment  Income Based Repayment

24. Repayment Terms  If the applicant elects to repay the Direct Consolidation Loan under either the Standard or Graduated Repayment Plans, the repayment term is determined based on their consolidation loan amount and the amount of other eligible education loans that are not part of the Direct Consolidation Loan as long as the applicant provided information about those loans on the application.  For this purpose, the amount of the applicant’s other eligible loans that are not being consolidated may not exceed the amount of the Direct Consolidation Loan. Direct Consolidation Loan + Other Eligible Student Loan Allowance = Total Education Indebtedness

25. Repayment Terms and Total Indebtedness Direct Consolidation Loan + Other Eligible Student Loan Allowance = Total Education Indebtedness Applicant’s Existing Loans Loan A$2,500 Loan B$6,000 Loan C$2,500 Loan D$7,500 Loan E$7,500 Loan F$13,000 Total Outstanding Loan Amount $39,000 Consolidated Loans Consolidated Loan Amount Other Eligible Student Loans Total Education Indebtedness Loan Repayment Term (approx.) Example 1Loans A and B$8,500$30,500$17,00015 years Example 2 Loans A,B, C, D, and E $26,000$13,000$39,00020 years Example 3Loans A and B$8,500$0$8,50011 years

26. Counseling Scenarios ? Has FFELP loans in repayment with repayment incentive benefits Has been paying for 30 months and the 2% interest rate reduction kicks in after 36 months Borrower 1 Has FFELP loans and DL loans in repayment for 2 years Is a teacher at a public school and just found out about PSLF Borrower 2 Has multiple loans with multiple rates Borrower 3 Has multiple federal servicers Borrower 4 Is still in Grace Has just gotten employment in Public Service Borrower 5 Has multiple loans with 1 servicer and cannot afford the payment Borrower 6

27. Has FFELP loans in repayment with repayment incentive benefits Has been paying for 30 months and the 2% interest rate reduction kicks in after 36 months Scenario #1  Considerations: Should the borrower wait to consolidate? Why or why not? Borrower 1 Current Interest Rate Consolidate Before Interest Rate Reduction Consolidate After Interest Rate Reduction 6.8%6.875%4.875%

28. Has FFELP loans and DL loans in repayment for 2 years Is a teacher at a public school and just found out about PSLF Scenario #2  Considerations: Should the borrower consolidate the FFELP and DL loan together? Why or why not? Borrower 2 Teach Loan Forgiveness Public Service Loan Forgiveness Use for FFELP LoansUse for Direct Loans

29. Has multiple loans with multiple rates Scenario #3  Considerations: Should the borrower wait to consolidate? Why or why not? $5,000 * 5.0% + $10,000 * 6.8% _________________________ = 6.2% $5,000 + $10,000 The weighted average, 6.2%, is then rounded up to the nearest 1/8th of a percent, yielding a consolidation loan interest rate of 6.25%. Borrower 3 Loan Type Interest Rate Monthly Payment (120/10 year) Cumulative Payments Total Amount Paid Perkins Loan 5.0%$53.03$6,364.03 $20,173.69 Sub. Staff. Loan 6.8%$115.08$13,809.66 Consol. Loan (15 Yr. Extended Plan) 6.25%$128.61$23,150.82

30. Has multiple federal servicers Scenario #4  Considerations: Should the borrower wait to consolidate? Why or why not? Borrower 4

31. Is still in Grace Has just gotten full time employment in Public Service Scenario #5  Considerations: Should the borrower wait to consolidate? Why or why not? Borrower 5

32. Has multiple loans with 1 servicer and cannot afford the payment Scenario #6  Considerations: Should the borrower to consolidate? Why or why not? Borrower 6 Monthly Payment Months in Repayment Current monthly payment total on Standard plan (6.8%) $345.24120 Consolidated Monthly Payments (6.875%): Standard$230.34240 Graduated Initial payments of $171.88 240 Income Based$97.00300 Income Contingent$210.42300

33. Resources  Direct Loan Consolidation Center www.loanconsolidation.ed.gov 1-800-557-7392  Direct Consolidation Loans – Frequently Asked Questions http://loanconsolidation.ed.gov/help/faq.html

34. Questions? 32 Want to learn more? Contact your sector representative!