Know Who You Owe Helping Students Manage Split-Loan Servicing

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1 Know Who You Owe Helping Students Manage Split-Loan Servicing David Garza Senior Policy and Legislative Liaison TG Policy and Regulatory Affairs Agenda Background on split-loan servicing Federally-owned loans and ED servicers Options available to help students manage split-loan servicing Taking inventory Consolidation Communication Resources Background on Split-Loan Servicing 1

2 Background on Split-loan Servicing Split-loan servicing borrowers with multiple loans serviced by multiple servicers Split-loan servicing is not a new phenomenon An increased focus in today s environment due to: Lenders exiting FFELP, selling portfolios to secondary markets FFELP loans that have been purchased by ED Schools transitioning from FFELP to FDLP Federally-owned loans and ED servicers Federally-owned Loans and ED Servicers ED owns both FDLP loans and FFELP purchased loans FFELP purchased loans are loans made under FFELP by lenders and subsequently purchased by ED June 2009, ED awarded servicing contracts to four new servicers New servicers currently service FFELP purchased loans for ED and will be assigned FDLP loans by August 31,

3 Federally-owned Loans and ED Servicers New ED servicers Fedloan Servicing (PHEAA) Great Lakes Educational Loan Service, Inc. Nelnet Sallie Mae Existing ED servicers Department of Education Student Loan Servicing (ACS) Direct Loan Servicing Center (ACS) Contact info available on TG s website: Federally-owned Loans and ED Servicers Servicer assignment: The goal is to assign all of a borrower s federally-owned loans to the same servicer This has not automatically occurred for all borrowers ED is working to resolve situations where a borrower s federally-owned loans are assigned to two or more ED servicers Over time, assignment of a borrower s federally-owned loans to the same servicer will become standard operating procedure Federally-owned Loans and ED Servicers Q: How will a school know which ED servicer is servicing a borrower s FFELP purchased loan? A: The ED servicer is identified in NSLDS. Schools can use the new report entitled: Status of Loans Purchased by ED report (PLPED3) 3

4 Federally-owned Loans and ED Servicers Q: How long will it take for the ED servicer to report information to NSLDS on the transfer of a FFELP purchased loan? A: ED servicers report to NSLDS weekly. New servicer info is available within 7 to 10 business days after the transfer has been completed. Contact the Federal Student Aid Research and Customer Care Center at (800) or fsa.customer.support@ed.gov for assistance Helping Borrowers Understand Their Options Taking Inventory Taking Inventory Q: Where can borrowers obtain information about their federal student loan(s)? A: National Student Loan Data System (NSLDS) at sdsedgo Provides loan amount(s) and loan holder(s) 4

5 Taking Inventory Q: What happens to a borrower s loan(s) when he or she leaves school? A: A Perkins loan either: Enters a 9-month grace period Enters a 6-month post-deferment grace period A: A Stafford loan either: Enters a 6-month grace period Enters repayment Taking Inventory Q: What happens to a borrower s loan(s) when he or she leaves school? A: A Grad PLUS loan either: Enters a 6-month deferment Enters repayment A: A parent PLUS loan either: Enters a 6-month deferment, if requested Enters repayment Taking Inventory Q: What happens to a borrower s loan(s) when he or she leaves school? A: A federal consolidation loan: Enter repayment A: For non-title IV loans: Enter repayment based on the terms and conditions the loan 5

6 Taking Inventory Q: What should a borrower expect from his or her loan holder(s)? A: Repayment disclosure notice(s) Outlines the terms of the loan(s) borrowed Provides the repayment options available Establishes the first payment due date Taking Inventory Q: What does the loan holder expect of the borrower? A: The loan holder expects the borrower to: Select a repayment plan Make timely payments on the loan(s) Provide updated contact information whenever it changes Contact the loan holder whenever he or she is having difficulty managing repayment Taking Inventory Q: What should a borrower expect when a FFELP loan has been purchased by ED? A: The borrower will receive correspondence from the ED servicer that contains the pertinent e t contact information. The borrower will be responsible for managing repayment with the ED servicer 6

7 Taking Inventory Q: For those borrowers with FFELP purchased loans serviced by ACS, how will a borrower know when his or her loan(s) have been transferred to one of the new ED servicers? A: ED is in the process of transferring FFELP purchased loans currently serviced by ACS to new ED servicers Transfers are expected to continue through June 2010 The new ED servicer will provide correspondence to the borrower with pertinent contact information Taking Inventory Q: Is it possible for the borrower to have combined billing for both FFELP purchased loans and regular FFELP loans that are with the same servicer? A: Combined billing is not possible in this instance. Because federal law requires federally-owned loans to be processed through a federal payment lockbox, and prohibits the processing of payments on loans that are not federally-owned through this lockbox, borrowers are required to make separate payments. Helping Borrowers Understand Their Options Consolidation 7

8 Consolidation Enables borrower to combine one or more federal student loans into a single new loan with one holder (and consequently, a single servicer) At the time of consolidation, lender or ED pays off outstanding balances of loans included in the consolidation Consolidation Q: Who can consolidate? Is there a fee? A: Any federal student loan borrower, including: Borrowers with student loans Borrowers with parent loans Borrowers with student and parent loans There is no fee to obtain a Consolidation loan. Consolidation Types that may be consolidated include: Federal Family Education Loans Federal Direct Loans Federal Perkins Loans Health Professions Student Loans Nursing Student Loans Health Education Assistance Loans 8

9 Consolidation Q: What is the general eligibility criteria? A: A borrower: Must be in grace period or in repayment No grace for a Grad PLUS loan; borrower can consolidate while in school because loan is in repayment Repayment includes deferment periods May be delinquent or in default on one or more existing loans Consolidation Factors to consider: Brings together loans with multiple lenders for convenience of one payment May lower loan payments by lengthening repayment period May be able to lock in a more favorable interest rate (for loans with a variable interest rate, if those rates are low during the year the borrower consolidates) Consolidation Factors to consider: May lose some or all of grace period May lose certain borrower benefits Perkins loans lose: Deferment subsidy when consolidated Cancellation eligibility when consolidated 9

10 Consolidation Factors to consider: Certain deferments may be lost, but these older deferments are not used frequently Borrowers retain ability bl to request most major deferments after consolidation In-school Unemployment Economic hardship Consolidation Factors to consider: May increase total cost of loan If borrower lengthens repayment period, will pay more interest over life of the loan Temporary Loan Consolidation Authority New, temporary loan consolidation authority created by the Health Care and Education Reconciliation Act of 2010 The main purpose of this temporary authority is to allow borrowers who may have lender-held FFELP, Direct, and FFELP purchased loans to combine them into a single loan For Consolidation loan applications received by ED on or after July 1, 2010, and before July 1,

11 Temporary Loan Consolidation Authority Eligibility: Borrower must have loans in at least two of the following categories Federal Direct loan, FFELP loan held by a lender FFELP purchased loan Borrower must have at least one eligible loan in the above categories that has not yet entered repayment (this includes loans in a grace period) Temporary Loan Consolidation Authority Terms and conditions: Direct Consolidation loan made under this authority has the same terms and conditions that apply to regular Consolidation loans, except The weighted average interest rate applied to a Consolidation loan made under this provision will not be rounded up to the nearest 1/8 th of one percent However, if the Consolidation loan includes one or more variable rate Stafford loans made July 1, 1994, June 30, 2006, the weighted average is rounded up to the nearest 1/8 th of one percent Temporary Loan Consolidation Authority Benefits: A borrower can obtain a single loan with a single holder before repayment begins The weighted average interest rate is not rounded up to the nearest 1/8 th percent unless a variable rate Stafford loan made July 1, 1994 June 30, 2006 is included in the Consolidation loan. 11

12 Temporary Loan Consolidation Authority Considerations: A Stafford loan borrower will lose the sixmonth grace period if he or she consolidates while in school Parent and Grad PLUS borrowers will lose the six-month post-enrollment deferment benefit if they consolidate while in school A borrower who consolidates while in school has not received exit counseling, therefore may not have enough information to make an informed decision Temporary Loan Consolidation Authority The regular consolidation loan program may continue to be used it has not gone away. However, all of the loans that are being consolidated must have entered repayment prior to consolidation Communication and Borrower Resources 12

13 Communication Strategically communicate with borrowers today to help set the right expectation Encourage borrowers to open and read loan holder correspondence Focus on the importance of NSLDS outside the realm of student loan counseling Communication Offer supplemental counseling above and beyond traditional entrance and exit sessions Provide comprehensive information on consolidation May be the right option on an individualized basis to help students manage repayment Encourage students to make larger payments on the consolidation loan As a reminder, extending the repayment term will likely increase the overall cost of the loan Resources for Borrowers ED s Federal Student Aid Information Center at FED-AID or (800) mytg SM TG s Customer Assistance at (800)

14 Resources for Schools ED electronic announcements on IFAP related to Loan Servicing Information dated: 08/28/2009, 09/16/2009, 03/26/ f f 2009 Federal Student Aid Conference presentations entitled: Direct Loan Servicing, Additional Loan Servicers, and NSLDS Update TG Resources for Schools TG conference presentations on: Financial Literacy, Entrance and Exit counseling, Income Based Repayment, and Money Management 101 Positive+Balance Integrated Default Assistant Shoptalk TG s Account Executives and Default Aversion Consultants Questions? To order additional copies, or to request permission to reproduce any of the information provided, please call TG Communications at (800) Texas Guaranteed Student Loan Corporation 14