split servicing of student loans a pending crisis or – just a temporary pain in the #$%...

Split Servicing of Student Split Servicing of Student LoansLoans

A Pending Crisis or – Just a Temporary Pain in the #$%

Presenters: William Cheetham – LeMoyne College John View – SUNY– Env. Science & Forestry Anne Del Plato – Nelnet

AgendaAgendaBackground on split-loan servicingFederally-owned loans and ED

servicersOptions available to help students

manage split-loan servicingTaking inventoryConsolidation OptionCommunicationResources

Background on Split-loan Background on Split-loan ServicingServicingSplit-loan servicing—borrowers with

multipleloans 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 tosecondary markets

– FFELP loans that have been purchased by ED

– Schools transitioning from FFELP to FDLP

Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersED 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, 2010

Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersNew ED servicers– Fedloan Servicing (PHEAA)– Great Lakes Educational Loan

Service,Inc.– Nelnet– Sallie MaeExisting ED servicers– Department of Education Student

Loan Servicing(ACS)– Direct Loan Servicing Center (ACS)

Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersServicer 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 Federally-owned Loans and ED ServicersED ServicersQ: 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)

NSLDS Access and SecurityNSLDS Access and Security

Rules of Behavior

You are “Agreeing”

Updated NSLDS Grant Display on Student SiteUpdated NSLDS Grant Display on Student Site

PLPED3 in PDF ReportPLPED3 in PDF Report

Federally-owned Loans and Federally-owned Loans and ED ServicersED ServicersQ: 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) 433-7327 or fsa.customer.support@ed.gov for assistance

Split Servicing: Former FFELP Schools

Year Loan Program

Loans Federally-owned?*

Split servicing concern?**

2010-11 Direct Loan Y N

2009-10*

FFELP PUT Y N

2008-09*

FFELP PUT Y N

2007-08 and prior

FFELPCommercial

N Y* Most, but not all loans entered the PUT program during these years.

** ED plans to move these borrowers to one servicer.

Split Servicing – Direct Loan SchoolsAll loans are federally-owned.

Small percentage are split.

ED plans to move all borrowers to one servicer.

Most of this movement to occur by early Winter 2011

Split Servicing and Repayment

If more than one servicer, borrower will make payments to all.

Will increase minimum payments in most cases.

If deferment or forbearance needed, borrower will need to contact all.

Taking InventoryTaking InventoryQ: Where can borrowers obtain information about their federal student loan(s)?

A: National Student Loan Data System (NSLDS) at www.nslds.ed.gov

• Provides loan amount(s) and loan holder(s)

Taking InventoryTaking InventoryQ: 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 periodA: A Stafford loan either:• Enters a 6-month grace period• Enters repayment

Taking InventoryTaking InventoryQ: What happens to a borrower’s

loan(s) when (s)he 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 InventoryTaking InventoryQ: What happens to a borrower’s loan(s) when he or she leaves school?

A: A federal consolidation loan:• Enter repaymentA: For non-Title IV loans:• Enter repayment based on the

terms and conditions of loan

Taking InventoryTaking InventoryQ: What should a borrower expectfrom 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 InventoryTaking InventoryQ: 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 InventoryTaking InventoryQ: 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 contact information.

• The borrower will be responsible for managing repayment with the ED servicer

Taking InventoryTaking InventoryQ: 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

Taking InventoryTaking InventoryQ: 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.

Options For BorrowersOptions For Borrowers

ConsolidationConsolidation 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

ConsolidationConsolidationQ: 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 loansThere is no fee to obtain a

Consolidation loan

ConsolidationConsolidationTypes 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

ConsolidationConsolidationQ: 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 periodsMay be delinquent or in default on one ormore existing loans

ConsolidationConsolidationFactors 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)

ConsolidationConsolidationFactors 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

ConsolidationConsolidationFactors to consider:• Certain deferments may be lost, but

theseolder deferments are not used frequently• Borrowers retain ability to request

most major deferments after consolidation

– In-school– Unemployment– Economic hardship

ConsolidationConsolidationFactors to consider:• May increase total cost of loan– If borrower lengthens repayment

period,will pay more interest over life of

the loan

Temporary Loan Temporary Loan Consolidation AuthorityConsolidation Authority• New, temporary loan consolidation

authoritycreated by the Health Care and

EducationReconciliation 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, 2011

Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityEligibility: 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 Temporary Loan Consolidation AuthorityConsolidation AuthorityTerms 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 1/8th 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 1/8th of one percent

Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityBenefits:• A borrower can obtain a single loan

with asingle holder before repayment begins• The weighted average interest rate

is not rounded up to the nearest 1/8th percent unless a variable rate Stafford loan made July 1,1994 – June 30, 2006 is included in the Consolidation loan.

Temporary Loan Temporary Loan Consolidation AuthorityConsolidation AuthorityConsiderations:• 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 Temporary Loan Consolidation AuthorityConsolidation 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

CommunicationCommunicationStrategically 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

Student view displays current contact Student view displays current contact informationinformation

Student view displays current contact Student view displays current contact informationinformation

CommunicationCommunicationOffer 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 paymentson the consolidation loan• As a reminder, extending the repayment

term will likely increase the overall cost of the loan

Resources for BorrowersResources for Borrowers

• www.federalstudentaid.ed.gov• www.nslds.ed.gov• ED’s Federal Student Aid

Information Center at 1-800-4-FED-AID or (800) 433-3243

Resources for SchoolsResources for Schoolswww.ifap.ed.gov– ED electronic announcements on

IFAP related to Loan Servicing Information dated:

• 08/28/2009, 09/16/2009, 03/26/2010www.fsaconferences.ed.gov/

pastconferences.html 2009 Federal Student Aid Conference

presentations entitled:• Direct Loan Servicing, Additional

Loan Servicers, and NSLDS Update

QuestionsQuestions