Direct Loan Consolidation: Manage Debt Efficiently with Flexible Repayment Options

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

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 12-30 years, depending on total debt

7. What are the benefits? (Cont’d) • Repayment Period for Extended Plan: Amount of DebtLength of Repayment Period Less than $10K 12 years $10-19,999 15 years $20-39,999 20 years $40-59,999 25 years $60K or more 30 years

8. What are the benefits? (Cont’d) • Graduated Repayment Plan • Payments start low, increase every two years for 12-30 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 www.loanconsolidation.ed.gov • 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. Interest rate (Cont’d) • 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%

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 • www.loanconsolidation.ed.gov • Sign prom note electronically with a PIN! • pin.ed.gov • Save unfinished application online • Check processing status • 60-90 days to complete process

22. The Application Express Phone Application • If the borrower has only Direct Loans to consolidate • 1-888-758-9730

23. The Application Paper Application • Download from the web OR • Request a paper application • Phone 1-800-557-7392 • E-mail at loan_consolidation@mail.eds.com

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 • www.dlservicer.ed.gov

25. Contacts for Borrowers • Applicant Services/Loan Origination 1-800-557-7392 www.loanconsolidation.ed.gov • Direct Loan Servicing Center 1-800-848-0979 www.dlservicer.ed.gov

26. Contacts for Schools • Federal Student Aid Office – Boston • 617 565-6911 • http://www.loanconsolidation.ed.gov/school/ • “Forms and Publications” for Brochures, Applications, and Guide for Schools • www.dlservicer.ed.gov/schools • View student accounts, delinquency reports

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