# Presentation: 772067

## <date/time>

***Consolidation -***
***Why It’s a Good Deal***
***for Student Borrowers***

- Session 10 -

**Notes:**
Introductions

Dept supports both Direct Consolidation and FFEL Consolidation

Many similarities but notable differences as well.  Differences will be highlighted as we proceed.  

Awareness of distinctions allows borrowers to “wear the shoe that fits best”

## Today’s agenda

- I.	  Consolidation -  the basics
- II.  Direct Consolidation - specifics
- III. FFEL Consolidation - specifics
- IV.  Questions and Answers

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**Notes:**
Time split between the two program.
- Provide candid look at when consolidation is most beneficial.
- General consolidation information

Time for Q and As at the end.

PC lab for specific borrower acct questions.  Come visit us!

## Consolidation in a nutshell

- 	A tool to help borrowers manage their student loan debt successfully.

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**Notes:**
Definition - Combine federal education loans into a single new loan that offers several advantages

Keep in mind, consolidation is  one option of many for borrowers interested in ways to manage their debt -  and may not be for everyone.

## Meeting today’s need

**Total Annual Dollar Volume **
** **

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**Notes:**

Total annual dollar volume for FFEL/DL - 1995 - $23.3 billion
	                                              2000 - 33.5 billion
44% increase in total annual dollar loan volume between 1995 and 2000

Total consolidation volume increase - 1995 - $3.5 billion
		              2000 - $12 billion
233% increase in total annual dollar consolidation volume between	 1995 and 2000	

## Meeting today’s need

- FFEL and Direct Loan Trends
- 1995 - 2000
- Average loan size
- Increased $400 from 1995 to 2000
- Greatest growth in Unsubsidized and PLUS loans
- Subsidized Loan growth remains constant
- Average number of loans borrowed per year	Consistent - 1.2 loans per borrower annually

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**Notes:**
1). All Loans - ave annual increase in size
1995 -$4,300 
2000 - $4,700
Increase in ave. size = 6.9%

2). Subsidized - ave annual increase in size
1995 -$3,345 
2000 - $3,408
Increase in ave. size = 1.9% 

3). Unsubsidized - ave annual increase in size
1995 -$3,444 
2000 - $3,943
Increase in ave. size = 14.5%

4). PLUS - ave annual increase in size 
1995 -$5,451 
2000 - $6,849
Increase in ave. size = 25.6%

## Meeting today’s need

**Typical Consolidation Borrower**
- Average age			34
- Average debt		$20,800
- Average # of loans	4

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**Notes:**
Typical consolidation borrower based on Direct Consolidation statistics.  

Ave # of Loan Holders -. number of separate lending institutions that a borrower typically has (Charter Bank, Sallie Mae, Citibank)  

Percentage of consolidation containing loans from more than one program type - (Perkins Program, FFEL Program, Direct Loan)

## When is consolidation a good choice?

- Multiple loan holders
- Large debt
- Trouble making payments
- Defaulted or delinquent
- Regain Title IV eligibility if in default

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## Other options to consider

_***Consolidation is not for everyone***_
- Rehabilitation
- Partial consolidation
- Deferment/Forbearance

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**Notes:**
Consolidation is not for everyone. 

Other options to consider.

For defaulted borrowers, Rehabilitation should be pushed first -
	-  removes the default notation from a borrowers credit history -  
	   consolidation only provides a “paid in full” notation.

Perkins and HHS could be better off left out of the consolidation 
- longer grace period, 
- lower interest rates 
- extra cancellation benefits 

Some borrower better off not consolidating at all (able to comfortably make the regular payments, single loan, low balance etc.)

Timing Important- If variable rates are high borrower could hurt themselves by locking in at higher rates.  

If a borrowers set back is temporary, a temporary break may be all they need to get back on track.

## Consolidation Benefits

- Fixed weighted average interest rate
-  Grace period interest rate savings
-  Capped at 8.25% (PLUS at 9%)
- No origination fees
- Flexible repayment options
- Second chance for defaulted borrowers
- No minimum or maximum amount

***Consolidation Benefits***

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**Notes:**

Borrower consolidating in their grace bring in variable rate FFEL and DL at the lower “in-school” rate.  Up to 6% difference for each affected loan brought into the consolidation.

Fixed rate protects borrower from rate future rate increases  (Careful - some years with high variable rate can have opposite affect...locking in high rates)

## Fixed Weighted Average Interest Rate Advantage

- Example based on 2 Direct Loans and 2 FFEL Loans with a combined total of $20,000

- Session 10 -

**Notes:**
NOTE: Lower fixed rate also reduces overall term under ICR 

Income based:  based on 20,000 debt, $25,000 income, and 4 dependents.  Term will vary based on fluctuations in income.   236 month term is based on assumptions that borrowers income increases steadily with maximum monthly payments not to exceed $205 ($181/6%).

## Your Role in Consolidation

- Borrower Counseling:
- Provide information and options to borrower
- Help compare options, benefits, and programs

- Session 10 -

**Notes:**
We rely on schools to inform, educate and guide student borrowers - You are our front line:
basic information (rates, good time to consolidate?)
contact information.
comparison tools (calculator)
 application material/information

## Your Role in Consolidation

- Perkins Loan Schools
- Complete verification certificates
- Timely payoff of borrower loans
- Prompt over and underpayment adjustments

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**Notes:**
Additional role - Perkins Loan Schools act as loan holder in event borrower consolidates Perkins Loans.

Must complete and return VC within 10 days

Once again, pls. counsel your student borrowers on the implications of consolidating this loan type.

Additional guidance on VC is on our web site (loan holder section)

## Eligibility Factors

- Borrower type
- Student Borrowers
- Parents
- Married Borrowers
-  Loan status
- Out of school
- (Includes at least one FFEL or Direct Loan)
- Defaulted
- (Make satisfactory repayment arrangements - 3 consecutive payments)

- Session 10 -

**Notes:**
Eligibility for borrower is broken down by borrower type and borrower status.

Eligibility criteria can vary with each combination of type and status

## Repayment Options

- Standard
- 10 yr. repayment period
- $50 min. monthly fixed payment
- Extended
- 12-30 yr repayment period
- $50 min. monthly fixed payment
- Graduated
- 12-30 yr. repayment period
- Monthly payments increase every 2 yrs.
- Income Based
- Amount and term based on debt and income

- Session 10 -

**Notes:**
Repayment plans between FFEL Consolidation  and Direct Consolidation are very similar - with the exception of ICR.  

Borrower can change repayment plans at any time - not locked in to one plan

Important to remind borrowers when selecting a plan - lower monthly payments are nice BUT cost them more over the life of the loan.

## Direct Consolidation Eligibility  In-School

- Direct Consolidation
- includes at least one
- FFEL and/or Direct
- Loan in an in-school
- period.
**FFEL Loan(s) - must be attending a Direct Loan School**

- Session 10 -

**Notes:**
Generally, a loan is considered in an in school period if  the borrower is enrolled in an eligible school at least half time and has an eligible loan which has never entered grace or repayment.

Loan must be fully disbursed to consolidate

We must receive the borrower’s application while they are still “in school”

In-school consolidation borrowers receive a 6 month grace period

## Direct Consolidation Eligibility In-School

- _Loan Term_	      _SAVINGS_
- 		    10 years		     $779
- 		    12 years	  	     $968
- 	           15 years	 	     $1,271
- 	           25 years        	     $2,422
- Savings based on 4 Direct/FFEL with a combined balance of $20,000 brought into the weighted
- average calculation at the lower in-school rate and fixed for the life of the loan.

**Example: **
**In-School/ In-Grace Consolidation **
**Interest Savings**

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**Notes:**
Both FFEL/Direct Consolidation borrowers can lock in lower variable rates while their underlying loans are grace.  In addition Direct Consolidation borr. can obtain the same advantage by consolidating in school.

The FFEL and DL grace period/In school variable rate is .6% lower than the variable repayment rate

Above example based on 4 loans, each $5,000.  Based on the example rates used:
- the in-school weighted ave = 7% 
- repayment weighted ave = 7.625%

Example based on overall consolidation of $20,000 with a
weighted average interest rate .625% lower than if the
same amount were consolidated when the borrower was
in repayment.  Actual reduction in weighted ave. interest rate will vary depending on the type and size of loans brought in.

## Direct Consolidation  Income Contingent Repayment Plan

- Payments based on:
- Annual income (AGI)
- Family size
- Total debt
- Monthly payment changes annually as income changes

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**Notes:**
One of strongest features of a Direct Consolidation Loan

Very similar to the FFEL Income Sensitive Plan but takes into account family size and Direct Loan debt.

## Direct Consolidation  Electronic Tools 

- On-line application/promissory note
- On-line repayment calculator
- Application status look up
- FAQs, application materials
- Electronic funds transfer (EFT)
- Electronic signature on application

- loanconsolidation.ed.gov

- Session 10 -

**Notes:**
Array of web tools to help you and your borrowers:
gives student  borrowers capabilities and information that puts them in the driver’s seat 
	AND 
provides you with some powerful counseling and administrative tools

If your school processes VC requests for Perkins borrowers,  note our new EFT process.   EFT can save you time and money  by automating the payoff process.   (see loan holder section on our web site for details)

## Direct Consolidation How Can We Help You?

** **
-  1-800-557-7392
-  TDD 800-557-7395
-  loan_consolidation@mail.eds.com

- Session 10 -