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School Loans
Applying for a Student Loan
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Consolidation Loan Student | StudentLoan Consolidation
Process | College Loan
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School Loan Consolidation or Refinancing
refers to applying for a School Loan
intended to replace an existing student loan.
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School Loan Consolidation
Process
When a borrower consolidates
loans in the Direct Consolidation Loan Program, the U.S.
Department of Education (Department) pays off the original Federal
education loans and originates a new loan for the total amount of the
loan(s) consolidated.
Here's how that works (from
the USDE Site):
Step 1: Application
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We review
the borrower's application and enter it into our system. If there is
missing or incorrect information, we attempt to contact the borrower
directly and/or send a letter identifying the needed information. If a
borrower applied for the loan by phone or through the web, the Loan
Consolidation Department sends a promissory note to be signed and
returned by the borrower. The borrower has 14 days to provide the
information to us or the application is cancelled. |
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Step 2: Loan Verification
We request verification of the information on the borrower's
application to determine each loan's eligibility for consolidation and
its payoff balance. Currently, we electronically verify Direct Loans,
defaulted loans held by the Department, loans serviced by loan holders
enrolled in our Electronic Verification Certification (EVC) service,
and loans held by Sallie Mae. For all other loans, we send a
verification certificate to each loan holder to obtain the required
information. Loan holders have ten business days to complete the
verification certificate and return it to us.
Step 3: Income Contingent Repayment Processing
A borrower who must use the Income Contingent Repayment (ICR) Plan due
to a defaulted loan OR who selects the ICR plan as a matter of choice
must submit an "ICR Consent to Disclosure of Tax Information" form.
This form, which verifies income information, is forwarded to the IRS
for approval. If the waiver is denied, we request additional
information from the borrower.
Step 4: Loan Statement Sent to Borrowers
A loan statement summary package is mailed to the borrower and
payments are mailed to the lenders simultaneously after his or her
loans are verified.
Step 5: Payment to Loan Holders
If a loan is not in default, we send the loan pay-off to the loan
holder or credit the borrower's Direct Loan account. If a loan is in
default, the Department’s Default Resolution Group or the Guarantee
Agency will receive an electronic payment manifest, SF-1081, for the
principal and interest, and a check for the collection costs.
Participants in EFT (Electronic Funds Transfer) receive these payments
electronically.
When a loan holder receives a payment from the Consolidation
Department, the loan holder(s) is required by regulation to fully
discharge the debt upon receipt of proceeds and notify the borrower
that the loan(s) has been paid in full, even if we underpay the loan.
Any payment a borrower makes to the previous loan holder(s) after the
loan(s) is paid off is forwarded to us as an overpayment. These
payments are applied to the consolidation loan balance. If our payment
does not satisfy the borrower's account balance, the loan holder is
prohibited from billing the borrower and must notify us of the
underpaid amount. We work with the loan holder(s) to resolve any
underpayment or overpayment issues. (See "How do I request an
underpayment or return an overpayment?" or "What are the Tolerances
for Under and Over Payments?")
Step 6: Account Set-Up
Borrowers' Direct Consolidation Loan accounts are set up when their
loans are paid off. Once account set up is complete, borrowers receive
important information about their loan status and payment due dates.
Normally, their first payment is due within 60 days of the
disbursement of the Direct Consolidation Loan.
NOTE: Borrowers are required to continue making payments with their
current loan holder(s) until they receive written notification that
their loan(s) has been successfully consolidated.
Step 7: Adding Loans to an Existing Direct Consolidation Loan
Borrowers have 180 days after the first disbursement of their
consolidation loan to add a loan(s) to the consolidation by completing
the Request to Add a Loan to an Existing Federal Direct Consolidation
Loan form. After 180 days, the borrower must complete a new
application.
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Sources: Wikipedia, FCIC, Department of Education and other public sources.
Consolidation Loan Student | StudentLoan Consolidation
Process | College Loan
SchoolLoan Consolidation or Refinancing
refers to applying for a School Loan
intended to replace an existing student loan.
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