Tips for Borrowers

Here is a interesting iformation I found and I thought I should share this with you.
Link is http://www.pirg.org/consolidation/#how
Here it goes:
What is student loan consolidation?
Students and parents who have at least one loan through the federal government's Stafford or PLUS programs can lock in a low fixed interest rate by refinancing their variable-rate loan(s) into a consolidation loan.
- Advantages of consolidation: Not only can you get the advantage of just one loan payment each month, but most importantly right now, when you consolidate, you can lock in a fixed interest rate that will not change for the life of your loan repayment. Interest rates are at a historic low right now-by consolidating before July 1st, you can lock in an extremely low rate. The rate today for borrowers in school or in grace is 2.77 percent and the rate after June 30th, 2005 will be 4.7 percent. The rate for borrowers in repayment is currently 3.37 percent and is going to rise to 5.3 percent after June 30th. The current PLUS interest rate is 4.17 percent, which will rise to 6.1 percent.
How do I consolidate my loans? What advice do you have for borrowers?
First steps: Contacting your lender is the first step. If you have a Direct Loan through the Department of Education or if you are attending a school that is participating in the Federal Direct Loan program, whether or not you have taken out your Stafford loan there, you can call 1-800-557-7392 or apply at http://www.loanconsolidation.ed.gov. If you have bank-based loans, you can contact any of the companies that own or service your Stafford loan(s). As long as you have loans with more than one company, you can also choose to consolidate with the Department of Education OR with any company that provides consolidation loans. If you don't know who owns your loans, you can find out by visiting http://www.nslds.ed.gov/SAStatic/PrivAct.asp.
If you're still in school: If you have at least one Direct Loan, you can consolidate with the Department of Education (see contact info above) and maintain your grace period, whether or not you are continuing or leaving school. If you have only bank-based loan(s), you must obtain the cooperation of your lender to place your Stafford loans in "repayment status" that will be deferred while you're in school. Then you should apply for a consolidation loan at the "in school" interest rate (2.8 percent) You may be forced to forfeit your grace period, although your lender may agree to maintain it. When you finally do leave school, the consolidation loan that you are making now will go into repayment without a grace period, but if you are unable to start payments, you can apply for an "unemployment deferment," an "economic hardship deferment," (both of which will maintain your interest subsidy) or a forbearance (interest will accrue).
- If you have multiple lenders: You can shop around and choose to consolidate with any bank or company that provides consolidation loans or with the Department of Education (see contact info above). Terms and conditions can vary-some lenders will reduce your interest rate even further if you opt to pay directly through your electronic checking account or if you have a certain number of on-time payments. Promises of discounts that are not spelled out in the language of the promissory note may not be enforceable during the entire repayment period.
- Pay back quickly: You should generally pay off your student loans as quickly as you can, as the longer your repayment term is, the more interest you pay overall. You should also take into account other debts you may have, like credit card, and prioritize paying off your highest interest rate debts. Like a credit card balance, you can always pay more than the minimum amount due each month; student loans do not have any pre-payment penalties.
- Don't delay! The terms and conditions on consolidation loans do not vary dramatically from company to company, so the most important thing is that you apply for consolidation right away. The deadline is June 30, but you should apply before then to beat the rush of applications. As long as your application is received by June 30, your lender must honor locking in the lower rate, but you should verify the rate with your loan company.
- Get the lowest interest rate: Many lenders will offer interest rate reductions for borrowers who set up electronic payments through their bank accounts, as well as for a certain number of on-time payments. Ask about whether your lender offers these benefits or others.
- If you have private education loans: It's not a good idea to take out a non-federal consolidation loan in order to include both your federal and non-federal loans, since private loans carry higher interest rates generally and you will typically lose benefits.
- Read the fine print: Like any loan or credit agreement, read the terms and conditions of your consolidation loan carefully. You should know any of the benefits or interest rate reductions to which you may be entitled, and you should never be charged any fees to consolidate your federal student loans. When you receive the new promissory note for your consolidation loan, read that carefully, as well, to make sure everything you were promised is included.
- Beware false advertising: Some student loan consolidation companies market their materials to look like official Department of Education documents. If you're ever unsure, or to verify the authenticity of your materials, call the Department of Education's loan consolidation center at 1-800-557-7392.
How much will I save by consolidating ?
The average undergraduate student borrower with $19,000 in student loans would save nearly $2,100 by consolidating before July 1st as opposed to later in the year. For those who never consolidate their loans, repayment could be even more expensive, as interest rates are projected to continue increasing in the future. Borrowers without fixed-rate consolidation loans will be subject to the variable rates that change on July 1st of each year, up to the cap of 8.25 percent for student and to 9 percent for PLUS borrowers.
- To figure out your own savings, you can go to www.finaid.org/calculators and click on their 'Loan Payment Calculator.' By entering the current interest rate on your loans-2.77 for borrowers in school or in their grace period or 3.37 for borrowers in repayment-as well as your loan balance and repayment length, you can view your repayment amount. You can calculate the repayment amount you would have after July 1st by adding 1.93 percentage points to your current interest rate and going through the same process.
Is consolidating now definitely right for me?
If you have a low loan balance: Consolidation will save high-balance borrowers more than low-balance borrowers, but all borrowers will save. Most bank-based lenders require a balance of at least $7,500 to consolidate. Check with the company that owns your loan. Direct Consolidation loans are available to any eligible borrower, regardless of balance.
- If you have a Perkins loan, Nursing Student Loan, or any other Fixed Rate Loan: Consolidating these loans is generally not advantageous, as the interest rate on Perkins loans is fixed at 5 percent, which would increase your consolidation rate. Because many of the federal fixed rate loans have good deferment and cancellation benefits, in most cases you should not include them in a consolidation loan. For example, consolidating a Perkins loan requires you to give up possible loan forgiveness, your in-school subsidy if you're still a student, and your 9-month grace period. If your lender says that you are not going to qualify for a consolidation loan unless you include a Perkins loan, for example, check with the Federal Direct Consolidation loan help desk (contact info above).
- If you're in school: If you have a Direct Loan, you are not required to give up your grace period if you consolidate while in school. Consolidating your bank-based (FFEL) loan while you're in school may require you to give up your six-month grace period, although some lenders are maintaining these. However, the savings that you would incur by consolidating now at such a low rate may be worth it for you to start repayment immediately after graduation. In addition, you may be eligible for an unemployment deferment, underemployment (economic hardship), or a forbearance of all or part of the payments, which would allow you to delay starting repayment. It's always a good idea to pay at least the interest as it comes due, if you have the means to do so. If you have a subsidized Stafford loan or a Perkins loan, consolidating those loans while in school is usually not a good idea, as you would likely lose that subsidy. You should check with your lender to inquire about their terms and conditions for in-school consolidation.
How can I stop Congress from eliminating the fixed rate benefit in consolidation?
Call and write your members of Congress! Unfortunately, there are two bills right now that would eliminate the ability of borrowers to lock in low, fixed rates through student loan consolidation, H.R. 609, sponsored by Congressman John Boehner (R-OH) and H.R. 1293, sponsored by Congressman Rob Andrews (D-NJ). Ask your members of Congress to oppose these bills and to support maintaining the fixed rate for student borrowers!Press Release:
Student and Consumer Groups Give Advice to Student
Borrowers on Congress on Consolidation 6/7/05

Questions and Answers on Tax Liability

Q1: If an agency repays the student loan incurred by an agency employee, is the repayment includible in the employee's gross income and in wages for Federal employment tax purposes?
A1. Yes. The repayment is includible in the employee's gross income and in wages for Federal employment tax purposes, notwithstanding the agency's repayment of the loan directly to the lender.
Q2: What are the Federal employment tax obligations of an agency that repays a student loan incurred by an agency employee?
A2: The agency must–
Pay the employer's share of social security and Medicare taxes on the loan repayment;
Withhold and pay Federal income tax withholding (and appropriate State and local income tax withholding) on the loan repayment;
Withhold and pay the employee's share of social security and Medicare taxes on the loan repayment; and
Report the loan repayment and taxes withheld and paid as required under Federal law and applicable State and local laws.
Q3: How must an agency report the repayment of a student loan incurred by an agency employee?
A3: The loan repayment must be reported as wages in Box 1 of Form W-2, Wage and Tax Statement, and as Medicare wages in Box 5 of Form W-2. If wages paid to an agency's employee are subject to social security taxes, the repayment is also reported as social security wages in Box 3 of Form W-2. The repayment is includible in social security wages, however, only to the extent that the repayment together with other wages previously paid during the calendar year does not exceed the social security wage base for that year.
Q4: How does a Federal employee report the repayment of a student loan by his or her employer?
A4: The repayment is reported as wages on line 7 of Form 1040 or, alternatively, on line 1 of Form 1040EZ.
Calculation of Employment Taxes
Q5: How does an agency calculate the amount of employment tax withholding due with respect to a loan repayment?
A5: One of two methods may be used–(1) the regular method or (2) the flat rate method. These methods apply because the loan repayments are supplemental wages paid in addition to regular wages. These two methods are described below and, more specifically, in Publication 15, Circular E, Employer's Tax Guide.
Q6: How does an agency calculate the amount of employment tax withholding due on supplemental wages (such as the loan repayment) under the regular method?
A6: To use this method the agency follows these steps:
The Federal agency calculates the correct amount of employment tax withholding on all wages paid during the payroll period by treating the supplemental wages and the regular wages as a single wage payment for the payroll period.
The Federal agency calculates the correct amount of employment tax withholding on the regular wages paid to the employee during the payroll period.
The Federal agency subtracts the amount determined in step 2 from the amount determined in step 1 to calculate the amount of any employment tax withholding due with respect to the supplemental wages.
Q7. How does an agency calculate the amount of employment tax withholding due on supplemental wages under the flat rate method?
A7. The correct amount of income tax withholding is calculated by taking a flat 25 percent of the supplemental wages. Social security tax and Medicare tax withholding are calculated at the usual rates and are in addition to the 25 percent income tax withholding.
Q8. When may an agency use the flat rate method of withholding on supplemental wages?
A8. The flat rate method of withholding on supplemental wages may be used if income taxes have been withheld from the regular wages of the employee. Consequently, if income taxes have been withheld from an employee's regular wages, an agency may use the flat rate method to determine the correct amount of income tax to be withheld with respect to the loan payment. The resulting employment taxes may be withheld from either the employee's regular wages, the loan repayment, or a separate tax payment made by the employee. (See Questions 10, 12, and 15.)
Withholding of Employment Taxes
Q9: What methods may an agency use to withhold income taxes and the employee's share of social security and Medicare taxes (employment taxes) when the agency repays a student loan incurred by an employee?
A9: An agency may use any of the following methods. Different methods may be used for different groups of employees. The agency may–
Withhold employment taxes from regular wages paid to the employee as described in Question 10;
Withhold employment taxes from the loan repayment as described in Question 12; or
Require a separate tax payment from the employee as described in Question 15.
Withholding from Regular Wages
Q10: How does an agency withhold and pay employment taxes from regular wages paid to an employee?
A10: To use this method, the agency must–
Determine the correct amount of employment tax withholding on all wages paid to the employee during the payroll period, including both the loan repayment and regular wages. (The agency may use either the regular method described in Question 6 or the flat rate method described in Question 7 to calculate the correct amount of employment tax withholding on the loan repayment);
Deduct the total amount of employment tax withholding from the employee's regular wages; and
Deposit the amounts withheld and report them on Form 941, Employer's Quarterly Federal Tax Return, and Form W-2 in accordance with normal depositing and reporting procedures.
Q11: What if the agency does not process its own payroll but, instead, contracts with another agency to process its payroll?
A11: The agency making the loan repayment is responsible for transmitting the necessary information to the payroll agency and for ensuring that the withholding is properly implemented. If the agency processing the payroll is unable or unwilling to implement withholding, the agency repaying the loan must use one of the alternative withholding methods listed in Question 9.
Withholding from Loan Repayment
Q12: How does the agency withhold employment taxes directly from a loan repayment?
A12: To use this method, the agency must–
Calculate the correct amount of employment tax withholding on the loan repayment using one of two methods–the regular method described in Question 6 or the flat rate method described in Question 7;
Deduct the amount of employment tax withholding from the loan repayment; and
Deposit the amounts withheld and report the employment tax withholding and wages on Forms 941 and W-2 in accordance with normal deposit and reporting procedures.
Q13: May an agency that deducts the amount of employment tax withholding from loan repayments repay the $10,000 annually that is permitted?
A13: No. The deduction for employment tax withholding reduces the maximum loan repayment.
Q14: If an agency deducts the amount of employment tax withholding from the gross loan repayment, is the amount of the employment tax withholding and the net loan repayment includible in the employee's gross income and in wages for Federal employment tax purposes?
A14: Yes. However, the amount of income tax withheld is credited against the employee's income tax liability for the year.
Withholding from Separate Tax Payment
Q15: What are the obligations of an agency that requires employees to pay the agency an amount equal to employment tax withholding before the agency repays a student loan?
A15: An agency is obligated to pay amounts required to be withheld from an employee's wages even if those amounts are not actually withheld. Federal tax law requires agencies, like other employers, to withhold employment taxes from employees' wages. The repayment of student loans, however, may be subject to such terms, limitations, or conditions as the agency and the employee may mutually agree. Consequently, an agency's repayment of the student loan may be made contingent on an employee's payment of employment taxes (including income taxes and the employee's portion of social security and Medicare taxes) to the agency. In this case, to fulfill its tax obligations, the agency must–
Determine the correct amount of employment tax withholding on the loan repayment using either the regular method described in Question 6 or the flat rate method described in Question 7;
Obtain a check or other payment from the employee for the amount determined above;
Make the loan repayment and deposit and report on Form 941 an amount equal to the payment received from the employee in accordance with normal deposit and reporting procedures; and
Report the income, social security, and Medicare tax components paid by the employee in the appropriate boxes of Form W-2. These amounts are not included as income or wages in Boxes 1 , 3, and 5 of Form W-2.
Q16: May an agency treat the loan repayment as a noncash fringe benefit and use the withholding rules applicable to noncash fringe benefits?
A16: No. The rules for withholding on noncash fringe benefits do not apply to an employer's repayment of an employee's loan obligation.
More Details:
http://www.opm.gov/oca/pay/studentloan/HTML/
QandAsTax.asp

Pay Off Student Loans

Are you worried about paying off student loans? With the cost of a college education on the rise, many students and recent college graduates are finding themselves overwhelmed by debt. The Navy can help you manage your college debt with special loan repayment programs for qualified students.
For college students and graduates who qualify for the Loan Repayment Program (LRP), the Navy will pay for up to $65,000 of qualified loans acquired from a post-secondary education. To be eligible for this enlisted program the loan cannot be in default and it must be the applicant’s first enlistment. The LRP is available to all active duty Navy enlisted positions!
In addition, the Navy can be a great first job for college graduates. You can get real-world experience in almost any field, and your pay goes further since many of your living expenses are covered. Your college degree may also make you eligible for Officer Candidate School. As an officer, you earn a level of responsibility usually much greater than that found in the civilian world — which is a great way to accelerate your career.
Talk to your recruiter to see if your situation qualifies for the loan repayment program. Your recruiter can also help you explore other opportunities the Navy has to offer.
http://www.navy.com/benefits/education/payoff/

Student Loan Discharge/Cancellation

In some cases, your federal student loan can be discharged (canceled).
A discharge releases you from all obligation to repay the loan.
Lists of cancellation provisions for FFEL/Direct Loans and
Federal Perkins Loans are given on this page and the next.
Your loan can’t be discharged because you didn’t complete
the program of study at the school (unless you couldn’t complete
the program for a valid reason
(Closed school (before student could complete program of study) or false
loan certification), you didn’t like the school or the program of study, or you
didn’t get a job after completing the program of study.For more information
about discharge, contact the Direct Loan Servicing Center by calling
1-800-848-0979 if you have a Direct Loan. If you have a FFEL, contact
the lender or agency that holds your loan. If you have a Federal Perkins
Loan, contact the school that made you the loan.
Beginning July 1, 2002, a borrower who is determined to be totally and
permanently disabled will have his or her loan placed in a conditional
discharge period for three years from the date the borrower became
totally and permanently disabled. During this conditional period, the
borrower doesn’t have to pay principal or interest. If the borrower
continues to meet the total-and-permanent disabilityrequirements
during, and at the end of, the three-year conditional period, the
borrower’s obligation to repay the loan is canceled. If the borrower
doesn’t continue to meet the cancellation requirements, the borrower
must resume payment. Total and permanent disability is defined
as the inability to work and earn money because of an injury or
illness that is expected to continue indefinitely or to result indeath.
More information on this discharge can be found in the promissory
note and by contacting the loan holder.
Are there any other options?Your state might offer programs that
cancel or reduce part of your loan for certain types of service
you perform (such as teaching or nursing). Contact your state
agency for postsecondary education to see what programs are
available in your state. For the address and telephone number
of your state agency, call the
Federal Student Aid Information Center at 1-800-4-FED-AID
(1-800-433-3243). You can also find this information at
http://www.studentaid.ed.gov/. At the site, click on
the “Funding” tab, thengo to “State Aid.”You should also
contact professional, religious, or civic organizations to see
if any benefits would be available to you.Although not a loan
cancellation, some branches of the military offer loan repayment
programs as an incentive for service. Check with your local
recruiting office for more information.Another type of
repayment assistance (again, not a discharge) is available
through the Nursing Education Loan Repayment Program (NELRP)
to registered nurses in exchange for service in eligible facilities
located in areas experiencing a shortage of nurses. All NELRP
participants must enter into a contract agreeing to provide
full-time employment in an approved eligible health facility (EHF)
for 2 or 3 years. In return, theNELRP will pay 60 percent of
the participant’s total qualifying loan balance for 2 years or 85 percent
of the participant’s total qualifying loan balance for 3 years.
For more information, call NELRP, toll-free, at
1-866-813-3753 or visit
http://www.bhpr.hrsa.gov/nursing/loanrepay.htm
http://studentaid.ed.gov/students/publications/repaying
_loans/2003_2004/english/loan-discharge-cancellation.htm

Student Loan Repayment

Q1. What is the student loan repayment program?
A1. Under 5 U.S.C. 5379, agencies are authorized to establish a program under which they may agree to repay certain types of Federally insured student loans as a recruitment or retention incentive for highly qualified personnel.
Q2. Are employees entitled to a student loan repayment?
A2. No. An agency has discretionary authority to repay certain types of Federally insured student loans as a recruitment or retention incentive for highly qualified candidates or current employees.
Q3. How does a candidate or current employee go about applying for a student loan repayment?
A3. Current Federal employees or potential candidates may contact their current or potential employing agency for further information. Each participating agency must develop a plan that describes how the agency will implement the student loan repayment program.
Q4. What is the maximum amount of a student loan repayment?
A4. For any one individual, an agency may agree to provide student loan repayment benefits of up to $10,000 per calendar year, subject to a cumulative maximum of $60,000 per employee.
Q5. Who receives the actual loan repayment check?
A5. The employing agency makes student loan payments directly to the loan holder. Student loan payments are not paid to employees.
Q6. May an agency make a loan repayment for a student loan that was previously repaid by the employee?
A6. No. An agency may not make a loan repayment for a student loan that was previously repaid by the employee. (See 5 U.S.C. 5379(b)(3).) Student loan repayments may be paid only for outstanding student loans.
Q7. May an agency agree to repay any future student loans accrued by an employee?
A7. No. An agency may agree only to make payments on those student loans taken out prior to the student loan repayment agreement. (See 5 U.S.C. 5379(b)(1).)
Q8. May an agency offer student loan repayment benefits in addition to existing bonuses and incentives?
A8. Agencies may offer student loan repayment benefits in conjunction with recruitment and relocation bonuses and retention allowances. Agencies may also use student loan repayment benefits in conjunction with a physicians’ comparability allowance (PCA). However, 5 CFR 595.105(e) requires that the amount of the PCA be reduced by the amount of the student loan repayment.
Q9. May an agency offer a student loan repayment benefit to recruit an individual from another Federal agency?
A9. The intent of this authority is to help agencies recruit individuals for Federal service, not for agencies to compete with one another for employees. Thus, agencies should not use this authority to recruit current Federal employees from other agencies.
Q10. May an agency offer a student loan repayment benefit to retain an employee likely to leave for a position in another Federal agency?
A10. Agencies may not offer to repay a student loan for an employee who is likely to leave for any position in any branch of the Federal Government.

Consolidate Info

What is the interest rate?
Your consolidation loan interest rate will be fixed, and is calculated by taking the weighted average of the interest rates on the loans being consolidated, rounded to the nearest one-eighth of one percent.
I am still in school or in grace: Why should I consolidate now?
By consolidating your loans while you are still in school or during your grace period, you will benefit by receiving the lowest possible interest rate.
I am in grace: Will I keep my grace period when I consolidate?
Timing is important! Borrowers who apply too early may lose some of their grace period. But, you must make sure the Loan Consolidation Center receives your loan consolidation application while you are still in your grace period. If your application is received after your grace period has expired, you will not receive the lowest possible interest rate.

Student Loan Consolidation Process

Student Loan Consolidation ProcessWhen a borrower consolidates loans in the Direct Consolidation Loan Program, the Department of Education 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:
Step 1: Application ReviewThey review the borrower's application and enter it into our system. If there is missing or incorrect information, They 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 Center 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 deactivated.
Step 2: Credit Check (for PLUS borrowers only)If the application includes a PLUS Loan, They perform a credit check on the borrower. If the borrower has an adverse credit history, they send a letter that outlining his or her options for including the loan in the consolidation. The borrower may appeal the credit check, document extenuating circumstances, obtain an eligible endorser for the PLUS part of the consolidation loan, or exclude the PLUS Loan from the consolidation.
Step 3: Loan VerificationThey request verification of the information on the borrower's application to determine each loan's eligibility for consolidation and its payoff balance. Currently, They electronically verify Direct Loans, defaulted loans held by the Department, and loans held by Sallie Mae. For all other loans, they send a verification certificate to each loan holder to obtain the required information. Schools will receive verification certificates for Perkins Loans that are included in the consolidation. Loan holders have ten days to complete the verification certificate and return it to them.
Step 4: Income Contingent Repayment ProcessingA 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 a "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, they request additional information from the borrower.
Step 5: Loan Statement Sent to BorrowersA 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 6: Payment to Loan HoldersIf a loan is not in default, they mail a pay-off check to the loan holder or credit the borrower's Direct Loan account. If a loan is in default, the Department's Debt Collection Service 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 Loan Origination Center, 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 them of the underpaid amount. They work with the loan holder(s) to resolve any underpayment or overpayment issues.
Step 7: Account Set-UpThe 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 first disbursement of the Direct Consolidation Loan.NOTE: Borrowers are required to continue making payments with their current lender(s) until they receive written notification that their loan(s) has been successfully consolidated.
Step 8: Adding Loans to an Existing Direct Consolidation LoanBorrowers 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.

Student Loan Consolidation Process

Student Loan Consolidation Process
When a borrower consolidates loans in the Direct Consolidation Loan Program, the Department of Education 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:Step 1: Application ReviewThey review the borrower's application and enter it into our system. If there is missing or incorrect information, They 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 Center 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 deactivated.Step 2: Credit Check (for PLUS borrowers only)If the application includes a PLUS Loan, They perform a credit check on the borrower. If the borrower has an adverse credit history, they send a letter that outlining his or her options for including the loan in the consolidation. The borrower may appeal the credit check, document extenuating circumstances, obtain an eligible endorser for the PLUS part of the consolidation loan, or exclude the PLUS Loan from the consolidation.Step 3: Loan VerificationThey request verification of the information on the borrower's application to determine each loan's eligibility for consolidation and its payoff balance. Currently, They electronically verify Direct Loans, defaulted loans held by the Department, and loans held by Sallie Mae. For all other loans, they send a verification certificate to each loan holder to obtain the required information. Schools will receive verification certificates for Perkins Loans that are included in the consolidation. Loan holders have ten days to complete the verification certificate and return it to them.Step 4: Income Contingent Repayment ProcessingA 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 a "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, they request additional information from the borrower.Step 5: Loan Statement Sent to BorrowersA 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 6: Payment to Loan HoldersIf a loan is not in default, they mail a pay-off check to the loan holder or credit the borrower's Direct Loan account. If a loan is in default, the Department's Debt Collection Service 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 Loan Origination Center, 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 them of the underpaid amount. They work with the loan holder(s) to resolve any underpayment or overpayment issuesStep 7: Account Set-UpThe 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 first disbursement of the Direct Consolidation Loan.NOTE: Borrowers are required to continue making payments with their current lender(s) until they receive written notification that their loan(s) has been successfully consolidated.Step 8: Adding Loans to an Existing Direct Consolidation LoanBorrowers 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.

Student Loan Consolidation Process

Student Loan Consolidation Process

When a borrower consolidates loans in the Direct Consolidation Loan Program, the Department of Education 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:
Step 1: Application Review
They review the borrower's application and enter it into our system. If there is missing or incorrect information, They 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 Center 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 deactivated.
Step 2: Credit Check (for PLUS borrowers only)
If the application includes a PLUS Loan, They perform a credit check on the borrower. If the borrower has an adverse credit history, they send a letter that outlining his or her options for including the loan in the consolidation. The borrower may appeal the credit check, document extenuating circumstances, obtain an eligible endorser for the PLUS part of the consolidation loan, or exclude the PLUS Loan from the consolidation.
Step 3: Loan Verification
They request verification of the information on the borrower's application to determine each loan's eligibility for consolidation and its payoff balance. Currently, They electronically verify Direct Loans, defaulted loans held by the Department, and loans held by Sallie Mae. For all other loans, they send a verification certificate to each loan holder to obtain the required information. Schools will receive verification certificates for Perkins Loans that are included in the consolidation. Loan holders have ten days to complete the verification certificate and return it to them.
Step 4: 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 a "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, they request additional information from the borrower.
Step 5: 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 6: Payment to Loan Holders
If a loan is not in default, they mail a pay-off check to the loan holder or credit the borrower's Direct Loan account. If a loan is in default, the Department's Debt Collection Service 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 Loan Origination Center, 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 them of the underpaid amount. They work with the loan holder(s) to resolve any underpayment or overpayment issues
Step 7: Account Set-Up
The 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 first disbursement of the Direct Consolidation Loan.
NOTE: Borrowers are required to continue making payments with their current lender(s) until they receive written notification that their loan(s) has been successfully consolidated.
Step 8: 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.