Publication Date: May 2006
DCL ID: FP-06-09
Subject: Lender options for determining Federal Consolidation Loan interest rates as of July 1, 2006Summary: This letter provides options for lenders in the Federal Family Education Loan (FFEL) Program to use when determining Federal Consolidation Loan interest rates as of July 1, 2006 and shortly thereafter.
Posted on 05-30-2006
Federal Consolidation Loans in the FFEL Program have fixed interest rates that are based on the weighted average of the interest rates of the loans being consolidated. Many of the loans that borrowers plan to consolidate over the next several weeks have variable interest rates that are expected to increase significantly on July 1. In response to a similar situation last year, the Department issued guidance to the student loan community in Dear Colleague Letter GEN-05-08 http://ifap.ed.gov/dpcletters/GEN0508.html to help borrowers obtain the lowest statutory weighted average interest rate, by authorizing lenders to use the lower of the weighted average of the interest rates on the loans being consolidated as of July 1 or on the date the lender received the borrower's substantially complete consolidation loan application.
We are providing the same authority to FFEL lenders again this year, and will apply the same treatment to applicants for a Direct Consolidation Loan. In exercising this authority, a lender -
Important Note: Dear Colleague Letter GEN-05-08 also included a discussion about the procedures for permitting in-school borrowers to request early conversion to repayment for the purpose of qualifying for a Consolidation Loan. A borrower's request for early repayment must be received by the holder of the underlying loan prior to July 1, 2006. An applicant whose consolidation application is received on or after July 1, 2006 must be in grace or repayment status, or in default with satisfactory repayment arrangements, on the loans the borrower requests to consolidate. See page 2 of Dear Colleague Letter GEN-06-02 http://ifap.ed.gov/dpcletters/GEN0602.html
If you have questions concerning the guidance provided in this letter, please contact Pam Moran at (202) 502-7732 or George Harris at (202) 502-7521.