Posted Date: November 27, 2013

Author:  Sue O'Flaherty, Service Director, Program Management, Federal Student Aid

Subject: New Direct Consolidation Loan Process Information - High-Level Overview of Phased Implementation Approach

As explained earlier this year (July 12, 2013), we are bringing closure to all functions performed by ACS (Xerox) due to the end of our contract with this servicer. One such function is management of the existing Direct Consolidation Loan system and process. Using a phased approach, we will bring closure to the existing loan consolidation system and transition to a new Direct Consolidation Loan process.

At this time, we want to provide the financial aid community with a high level overview of the phased approach we will use to transition to the new Direct Consolidation Loan process. Through a series of subsequent announcements titled "New Direct Consolidation Loan Process Information," we will provide more detailed information about specific aspects of the new process. This will include information for loan holders and servicers—Federal Perkins Loan schools and Federal Family Education Loan Program lenders and lender servicers—that will verify loans for consolidation, as well as information for schools that will counsel borrowers about consolidation.

We present the information in this announcement as follows:

  • Phased Implementation Approach

  • New Direct Consolidation Loan Process

  • Forthcoming Information

Phased Implementation Approach

We will bring closure to the existing loan consolidation system and transition to a new Direct Consolidation Loan process using a phased approach.

Phase One – In the first phase, some consolidation applicants will begin using the new Direct Consolidation Loan process while other consolidation applicants will continue to use the existing loan consolidation process. The first phase is targeted for implementation in January 2014.

Phase One Implementation – January 2014
If an applicant has… The applicant will use the…
No defaulted federal education loans New Direct Consolidation Loan Process
One or more defaulted federal education loans, none of which are assigned to the Department New Direct Consolidation Loan Process
One or more defaulted federal education loans assigned to the Department Existing Loan Consolidation Process

(Direct Consolidation Loans Web site)

Phase Two – In the second phase, all borrowers will use the new Direct Consolidation Loan process explained below. The second phase is targeted for implementation in spring 2014.

Phase Two Implementation – Spring 2014
If an applicant has… The applicant will use the…
No defaulted federal education loans New Direct Consolidation Loan Process
One or more defaulted federal education loans, none of which are assigned to the Department New Direct Consolidation Loan Process
One or more defaulted federal education loans assigned to the Department New Direct Consolidation Loan Process

New Direct Consolidation Loan Process

The new Direct Consolidation Loan process begins with an electronic five-step application through which an applicant will review and confirm loans for consolidation, choose a consolidation servicer, and select a repayment plan for the new consolidation loan. Once the applicant submits his or her completed application, the chosen consolidation servicer will review the application, verify information about the loans the applicant wants to consolidate, pay off these loans, and begin to service the new consolidation loan.

From an applicant's standpoint, the new Direct Consolidation Loan process will be very similar to the existing process. The most significant differences for applicants will be additional electronic application features that bring many steps together in one location and the option of choosing one of several servicers to complete the consolidation. For loan holders and servicers, the most significant difference is that they will be interacting with multiple consolidation servicers instead of just one consolidation servicer.

Upon implementation of the new Direct Consolidation Loan process, we will have four consolidation servicers—FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae—from which applicants may choose and with which loan holders and servicers will interact. We appreciate the support of the financial aid community as we prepare to launch the new Direct Consolidation Loan approach.

Through three basic questions, we provide a high-level overview of the new Direct Consolidation Loan process.

Q1: How will an applicant apply for a Direct Consolidation Loan?

A1: An applicant will sign in to the StudentLoans.gov Web site using his or her personal identifiers and Federal Student Aid PIN to electronically complete the Federal Direct Consolidation Loan Application and Promissory Note. We will refer to the Federal Direct Consolidation Loan Application and Promissory Note as the "application" throughout the rest of this announcement.

Note: Although we strongly encourage electronic completion of the application, an applicant will be able to download and print a paper application from StudentLoans.gov for submission by U.S. mail.

Key features of the electronic application on StudentLoans.gov include the following:

  • A National Student Loan Data System (NSLDS) lookup will be performed, and information about an applicant's federal education loans will populate within the application. The applicant will have the opportunity to add loans to and/or remove loans from the information obtained from the NSLDS.

  • An applicant who has at least one loan that is still in the grace period and wants to consolidate that loan will be able to delay processing of his or her application until closer to the end of the grace period.

  • An applicant will choose the federal loan servicer that he or she wants to complete the consolidation.

  • An applicant will select the repayment plan under which he or she wants to repay the Direct Consolidation Loan. When making this selection, an applicant who is interested in one of the "income-driven" repayment plans will be able to complete the Electronic Income-Based Repayment (IBR)/Pay As You Earn/Income-Contingent Repayment (ICR) Plan Request as part of the Direct Consolidation Loan process.

Q2: What will the consolidation servicer do after an applicant submits an application?

A2: Once an applicant submits his or her application electronically via StudentLoans.gov or by mailing a paper application, the consolidation servicer will complete the actions required to consolidate the applicant's eligible loans.

Key actions that the consolidation servicer will complete include the following:

  • Review the application and follow up with the applicant as necessary to complete or correct information.

  • Use the Federal Direct Consolidation Loan Verification Certificate to confirm with the current loan holder the eligibility and payoff amount of each loan the applicant wants to consolidate.

  • Confirm with the applicant the loans that will be part of the consolidation.

  • Pay off each eligible loan the applicant wants to consolidate.

  • Determine the applicant's eligibility for the repayment plan selected in the application.

  • Begin servicing the new Direct Consolidation Loan.

  • Report the new Direct Consolidation Loan to the NSLDS.

Q3: What role will loan holders and servicers have in the new Direct Consolidation Loan process?

A3: Loan holders and servicers will have the same role in the new Direct Consolidation Loan process as they have in the existing loan consolidation process. The difference will be that loan holders and servicers will interact with multiple consolidation servicers instead of just one.

Key actions that the loan holder or servicer will complete include the following:

  • Complete the Federal Direct Consolidation Loan Verification Certificate within 10 days of the date received. This timeframe is pursuant to 34 CFR 685.220(f)(1)(i).

  • Report the underlying loan to the NSLDS as Paid In Full Through Consolidation once the payoff amount is received.

  • Work with the consolidation servicer to resolve underpayments and overpayments.

Forthcoming Information

We appreciate the community’s support as we bring closure to the existing loan consolidation system and transition to a new Direct Consolidation Loan process.

Please monitor the IFAP Web site for subsequent Electronic Announcements that will provide more detailed information about specific aspects of the new process. We will begin the subject line of each subsequent communication with "New Direct Consolidation Loan Process Information."

   

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