Posted Date: February 28, 2014

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

Subject: New Direct Consolidation Loan Process Information - Additional Guidance for FFEL Program Lenders and Lender Servicers

As we explained in announcements posted on November 27, 2013 and January 7, 2014, loan holders and servicers have the same role in the new Direct Consolidation Loan process that we implemented on January 2, 2014 as they have had in the loan consolidation process we are phasing out. Loan holders and servicers include 1) Federal Family Education Loan (FFEL) Program lenders and lender servicers and 2) schools and third party servicers that verify and/or receive payoffs for Federal Perkins Loans and eligible health professions loans. The primary difference between the new process and the process we are phasing out is that loan holders and servicers will interact with multiple consolidation servicers in the new Direct Consolidation Loan process instead of interacting with just one consolidation servicer as they have done in the past.

The four consolidation servicers for the new Direct Consolidation Loan process are FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae. When interacting with the four consolidation servicers, loan holders and servicers will find that delivery methods for Federal Direct Consolidation Loan Verification Certificates (LVCs) and payoff manifests may be slightly different than the methods used in the loan consolidation process we are phasing out. In addition, payment receipt, underpayment processing, and overpayment processing may be different under the new process depending on how a loan holder or servicer is currently configured to receive consolidation payoffs.

In this announcement, we provide guidance on what is expected and required of FFEL Program lenders and lender servicers in the new Direct Consolidation Loan process. Also included in the audience for this communication are FFEL Program guaranty agencies that service defaulted FFEL Program loans selected for consolidation. We will use the terms “FFEL Program lenders and lender servicers” and “lenders and lender servicers” throughout this announcement to refer to all three FFEL Program entities—lenders, lender servicers, and guaranty agencies.

Note: We will post a separate announcement that provides guidance for schools and third party servicers that verify and/or receive payoffs for Federal Perkins Loans and eligible health professions loans. Monitor the Information for Financial Aid Professionals (IFAP) Web site for the forthcoming announcement.

We present the information for FFEL Program lenders and lender servicers as follows:

  • FFEL Program Lenders and Lender Servicers – Consolidation Servicer Outreach

  • FFEL Program Lenders and Lender Servicers – Key Processing Steps

  • Contact Information

FFEL Program Lenders and Lender Servicers – Consolidation Servicer Outreach

The four consolidation servicers for the new Direct Consolidation Loan process—FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae—have been reaching out to FFEL Program lenders and lender servicers to establish preferences and contacts for the exchange of LVCs and payoff manifests. In some cases, a lender or lender servicer may have been contacted by only one consolidation servicer. If this occurred, the lender’s or lender servicer’s information has been shared with the other three consolidation servicers.

We appreciate the response by lenders and lender servicers to date. Past and future efforts on the part of lenders and lender servicers will assist us in ensuring a smooth consolidation experience for applicants.

If a FFEL Program lender or lender servicer could potentially receive a pay off through the new Direct Consolidation Loan process and has not yet been contacted by one of the four consolidation servicers, we ask that the lender or lender servicer contact Great Lakes Educational Loan Services, Inc. for assistance. Great Lakes will serve as a central point of contact and provide the information to the other three consolidation servicers. The contact information for Great Lakes is as follows:

  • E-mail: originationservices@glhec.org

  • Phone: 855/412-5731

FFEL Program Lenders and Lender Servicers – Key Processing Steps

FFEL Program lenders and lender servicers will complete the following key steps as part of the new Direct Consolidation Loan process:

    1) Establish delivery method preferences for LVCs and payoff manifests with the four consolidation servicers and establish access to each consolidation servicer’s loan holder services Web site.
    2) Complete LVC requests within 10 business days of the date each request is received.
    3) Receive payoff manifests from each of the four consolidation servicers.
    4) Receive payoff transactions from the U.S. Department of the Treasury (Treasury).
    5) Report underlying loans to the National Student Loan Data System (NSLDS) as Paid In Full Through Consolidation.
    6) Work with the consolidation servicer to resolve underpayments and overpayments.
    7) Perform appropriate reconciliation activities.

The key processing steps are explained in further detail below.

1)

Establish delivery method preferences for LVCs and payoff manifests with the four consolidation servicers and establish access to each consolidation servicer’s loan holder services Web site. These setup items are being completed as part of the community outreach conducted by the consolidation servicers.

Note: The four consolidation servicers must ensure that the most current contact and delivery information is available and used. For this reason, we have not transferred such information that FFEL Program lenders and lender servicers provided previously through the loan consolidation process we are phasing out.

2)

Complete LVC requests within 10 business days of the date each request is received.
This timeframe is pursuant to 34 CFR 685.220(f)(1)(i).

  • Each of the four consolidation servicers will provide the LVC request to a FFEL Program lender or lender servicer through one of several available delivery methods agreed upon by the consolidation servicer and the lender or lender servicer.

    Note: Some lenders or lender servicers may need time to evaluate the delivery methods associated with the new Direct Consolidation Loan process and make changes to accommodate the new process. In this case, the lender or lender servicer should select a delivery method the lender or lender servicer can support now and then change to a different delivery method later.

    Available delivery methods for LVC requests and responses include the following:

      Download requests in text format (or comma-delimited format if offered) from the consolidation servicer’s loan holder services Web site and then upload responses to that same Web site
      sFTP push in text format (or comma-delimited format if offered)
      Encrypted e-mail delivery in text format (or comma-delimited format if offered)
      U.S. mail delivery of paper LVC
      Online completion via the consolidation servicer’s loan holder services Web site (offered by a limited number of consolidation servicers)

    As explained in item 1, the consolidation servicers are confirming delivery method preference and establishing loan holder services Web site access through their outreach to FFEL Program lenders and lender servicers. A lender or lender servicer may choose one delivery method for LVCs and a different delivery method for payoff manifests (explained in item 3).

    The electronic LVC is used with the download, sFTP push, encrypted e-mail, and online completion delivery methods. The file layout for the electronic LVC is the same as the electronic LVC layout used in the loan consolidation process we are phasing out. In the new Direct Consolidation Loan process, all consolidation servicers use the same electronic LVC file layout.

    Note: Later this year, we will complete the Office of Management and Budget (OMB) clearance process for all Direct Consolidation Loan forms, including the LVC. Until the revised forms are approved by OMB and implemented, the current forms (with a 2/28/2014 expiration date) will remain valid for use. We will inform FFEL Program lenders and lender servicers when we receive OMB approval of the new LVC and when the consolidation servicers will implement a new file layout for the electronic version of the new LVC.

  • Each of the four consolidation servicers will notify a FFEL Program lender or lender servicer that chooses the download delivery method if there is an electronic LVC request available for download from the consolidation servicer’s loan holder services Web site.

  • A FFEL Program lender or lender servicer will return an LVC response to the appropriate consolidation servicer using the same method through which the consolidation servicer delivered the LVC request to the lender or lender servicer.

3)

Receive payoff manifests from each of the four consolidation servicers. Each payoff manifest will provide detail on the individual loan payoffs that will be included in the payment the FFEL Program lender or lender servicer will receive from Treasury. Each manifest also will include the “manifest ID” that the lender or lender servicer will use to match the manifest to the payment.

  • Each of the four consolidation servicers will provide payoff manifests to a FFEL Program lender or lender servicer through one of several available delivery methods agreed upon by the consolidation servicer and the lender or lender servicer.

    Note: Some lenders or lender servicers may need time to evaluate the delivery methods associated with the new Direct Consolidation Loan process and make changes to accommodate the new process. In this case, the lender or lender servicer should select a delivery method the lender or lender servicer can support now and then change to a different delivery method later.

    Available delivery methods for the payoff manifest include the following:

      Download in text format (or comma-delimited format if offered) from the consolidation servicer’s loan holder services Web site
      sFTP push in text format (or comma-delimited format if offered)
      Encrypted e-mail delivery in text format (or comma-delimited format if offered)
      U.S. mail delivery of paper payoff manifest

    As explained in item 1, the consolidation servicers are confirming delivery method preference and establishing loan holder services Web site access through their outreach to FFEL Program lenders and lender servicers. A lender or lender servicer may choose one delivery method for payoff manifests and a different delivery method for LVCs (explained in item 1).

    The electronic payoff manifest is used with the download, sFTP push, and encrypted e-mail delivery methods. The file layout for the electronic payoff manifest is not the same as the layout used in the loan consolidation process we are phasing out. However, all consolidation servicers in the new Direct Consolidation Loan process use the same electronic payoff manifest file layout.

  • Each of the four consolidation servicers will notify a FFEL lender or lender servicer that chooses the download delivery method if there is a payment manifest available for download via the consolidation servicer’s loan holder services Web site.

4)

Receive payoff transactions from Treasury. Underlying loan payments will be made to FFEL Program lender servicers (not to lenders). In accordance with 31 CFR Part 208, all federal non-tax payments must be made via Automated Clearing House (ACH). Beginning October 1, 2014, ACH will be the only available payment method.

  • Work with Federal Student Aid’s Finance staff to ensure that updated bank account information is set up correctly in the Financial Management System (FMS) to facilitate ACH payments from Treasury for consolidation payoffs.

    Note: Federal Student Aid’s Finance staff and FFEL Program lenders and lender servicers have worked together to ensure proper setup for receipt of ACH payments. To ask questions or make updates to bank account information, FFEL Program lenders and lender servicers should contact Federal Student Aid’s Finance staff via e-mail to fsa_lr@ed.gov.

  • Receive payments from Treasury and match manifest IDs associated with payments to payoff manifests received from consolidation servicers.

  • Apply payments to underlying loans.

5)

Report underlying loans to the NSLDS as Paid In Full Through Consolidation. The FFEL Program lender or lender servicer completes this step once the payoff amount is received from Treasury.

Note: There has been no change to the NSLDS reporting process.

6)

Work with the consolidation servicer to resolve underpayments and overpayments. The processes for resolving underpayments and overpayments are different than under the loan consolidation process we are phasing out.

  • Underpayments

      Submit an adjusted payoff manifest to the consolidation servicer identifying specific loans for which the FFEL lender or lender servicer has identified underpayments.
  • Overpayments

      Submit an adjusted payoff manifest to the consolidation servicer identifying specific loans for which the FFEL lender or lender servicer has identified overpayments.
      Submit the overpayment refund via ACH payment to the consolidation servicer’s Credit Gateway Account (REX Account) or by check payment to the consolidation servicer’s lockbox.

During the community outreach explained in item 1, consolidation servicers will provide FFEL lenders and lender servicers with the bank account information needed for overpayment refunds. As explained above, in accordance with 31 CFR Part 208, all federal non-tax payments must be made via ACH. Beginning October 1, 2014, ACH will be the only available payment method.

The electronic adjusted payoff manifest is used with the download, sFTP push, and encrypted e-mail delivery methods. The file layout for the electronic adjusted payoff manifest is new. In the new Direct Consolidation Loan process, all consolidation servicers use the same electronic adjusted payoff manifest file layout.

7)

Perform appropriate reconciliation activities related to the FFEL Program lender’s or lender servicer’s internal records.

Contact Information

We appreciate the support of FFEL Program lenders and lender servicers as we transition to the new Direct Consolidation Loan process.

As explained above, if you are a FFEL Program lender or lender servicer that could potentially receive a pay off through the new Direct Consolidation Loan process and your organization has not yet been contacted by one of the four consolidation servicers, contact Great Lakes Educational Services, Inc. for assistance. Great Lakes will serve as a central point of contact and provide the information to the other three consolidation servicers. The contact information for Great Lakes is as follows:

  • E-mail: originationservices@glhec.org

  • Phone: 855/412-5731

If you are a FFEL Program lender or lender servicer and have a question about items 2 through 7 in the “FFEL Program Lenders and Lender Servicers – Key Processing Steps” section of this announcement, contact the consolidation servicer—FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae—that has communicated with your organization about the certification and payoff of a loan identified for consolidation. Contact information for the consolidation servicers is available on the IFAP Web site’s Loan Consolidation for Loan Holders and Servicers page.

General information about Direct Consolidation Loans is available on the StudentAid.gov Web site at http://studentaid.ed.gov/repay-loans/consolidation.

   

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