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AwardYear: 1995-1996 EnterChapterNo: 10 EnterChapterTitle: Federal Family Education Loan Programs SectionNumber: 5 SectionTitle: Loan Refinancing and Consolidation PageNumbers: 51-56 Refinancing and consolidation options must be presented to student borrowers during exit counseling. The following summary may assist financial aid administrators in providing information to students. Once a borrower leaves school, he or she may consider loan refinancing and consolidation as options to make repayment easier. The student must contact his or her lender(s) to request these options, and any agreement to refinance or consolidate loans is between the borrower and lender. Students should keep in mind that loan consolidation does not increase Federal Stafford Loan limits; aggregate loan limits must include any portion of a borrower's Federal Consolidation Loan used to repay a Stafford Loan. LOAN REFINANCING Loan refinancing is available only to Federal SLS and Federal PLUS borrowers. There are three refinancing options: refinancing to combine payment, refinancing to obtain a variable interest rate, and refinancing to make a new loan. For more detail on loan refinancing than is provided here, see the FFEL Program regulations, Section 682.209(d)-(g). - REFINANCING TO COMBINE LOANS INTO A SINGLE PAYMENT. A lender may refinance all loans it holds to combine them into a single repayment schedule. The interest rate on the refinanced loan will be the weighted average of the rates of all the loans included, and the repayment period may not exceed ten years from the first day of repayment for the most recent loan included. The borrower is not charged an additional insurance premium for refinancing, and a new promissory note is not required. - REFINANCING TO OBTAIN A VARIABLE INTEREST RATE (FOR LOANS MADE PRIOR TO 7/1/87). Outstanding fixed-rate SLS or PLUS loans may be refinanced at the variable interest rate. Refinancing does not extend the repayment period of the loans refinanced. The borrower may be charged a fee of up to $100 for administrative costs, but no additional insurance premium may be charged. - REFINANCING TO DISCHARGE PREVIOUS LOANS AND MAKE A NEW LOAN (FOR LOANS MADE PRIOR TO 7/1/87). If the lender refuses the borrower's request for refinancing to obtain the variable interest rate, the borrower may apply to ANOTHER lender for a new loan to pay off (discharge) the original loans held by the previous lender. The borrower may be charged an insurance premium, but may not be charged a refinancing fee. The repayment period of the original loans may not be extended. The new loan will be subject to the deferments of repayment in effect when that loan is made. If any of the loans included in refinancing is a PLUS, the deferment conditions applicable to PLUS borrowers will apply to the new loan. If the loans are all SLS, SLS deferments will apply. CONSOLIDATION LOANS Loan consolidation enables a borrower with loans from different lenders to obtain one loan, with one interest rate and repayment schedule. Stafford Loans (subsidized and unsubsidized), Federal Insured Student Loans FISLs), Federal Perkins Loans, PLUS loans to students, parent PLUS loans made after 1986, SLS, Health Professions Student Loans, Health Education Assistance Loans, and Nursing Student Loan Program loans may be consolidated only by lenders that have an agreement with the Department or a guaranty agency for that purpose. [[Satisfactory repayment arrangement]] In addition, please note that a defaulted loan may be consolidated if the borrower has made satisfactory repayment arrangements with the holder to repay the loan. Please note that, effective July 1, 1995, only three payments under a "satisfactory repayment arrangement" are required for the purposes of consolidating a defaulted loan. "Satisfactory repayment arrangement" is defined as making a required number of consecutive, voluntary, full monthly payments on a defaulted loan in order to regain eligibility for federal student aid. Please refer to page 10-69 of Section Six (Comparing Loan Programs) for further discussion of this term. Loan consolidation allows a lender to pay off the existing loans and make one Consolidation Loan to replace them. Consolidation of loans may include, in addition to unpaid principal and interest, late charges and collection costs applied to those loans. A guaranty agency may assess collection charges or late fees up to 18.5 percent of the outstanding principal and interest on a defaulted FFEL Program Loan that is included in a Federal Consolidation Loan. CONSOLIDATION LOAN ELIGIBILITY Generally, a borrower submits a Consolidation Loan application to a lender holding at least one of the loans to be consolidated. If none of those lenders agree to consolidation, the borrower may apply to any other lender participating in the Consolidation Loan Program. A Consolidation Loan must be made without security or endorsement, and the lender making the loan must comply with the laws and regulations governing consolidation of loans. A lender must offer the option of standard, graduated, or income-sensitive repayment to a borrower whose Consolidation Loan application is received by the lender on or after January 1, 1993. These options must also be offered to individuals who have no outstanding principal or interest balance on an FFEL Program Loan when the Consolidation Loan is made at any point on or after July 1, 1993. Options for repayment are described in detail in a regulation published on June 29, 1994. Please note that since July 1, 1994, if a borrower is unable to obtain a Federal Consolidation Loan from a lender eligible to make such loans, the borrower may apply to the U. S. Department of Education for a Federal DIRECT Consolidation Loan. The borrower must certify that he or she has been unable to obtain from an eligible lender a (Federal) Consolidation Loan, or a (Federal) Consolidation Loan with income-sensitive repayment terms acceptable to the borrower. Guidance regarding eligibility criteria and repayment plans for Federal Direct Consolidation Loans is set forth in a Direct Loan Final Rule published December 1, 1994 for the 1995-96 academic year (and subsequent academic years) for the new William D. Ford Federal Direct Loan Program. The eligibility criteria for Federal Direct Consolidation Loans differ from the criteria listed below for Federal Consolidation Loans. To be eligible for a Federal Consolidation Loan, a borrower- - must be in the grace period or in repayment status on all loans being consolidated; - if in default, must have made satisfactory arrangements to repay the defaulted loan. Please note that for purposes of consolidating a defaulted loan, a borrower is required to make three consecutive reasonable and affordable monthly payments. (This provision is effective as of July 1, 1995.) For clarification on what constitutes a "reasonable and affordable monthly payment", please refer to the section entitled "Loan Rehabilitation" on pages 10-68 to 10-69; - must not have another consolidation loan application pending; - agrees to notify holder of any changes in address; and - certifies that the lender holds the borrower's outstanding loan that is being consolidated, or that the borrower has unsuccessfully sought a loan from the holders of the outstanding loans and was unable to secure a Consolidation loan from the holder. NOTE: Borrowers no longer will be required to have a debt of at least $7,500 in loans eligible for consolidation in order to get their loans consolidated. This was a requirement for Consolidation Loans made on or after January 1, 1993 but prior to July 1, 1994. [[Consolidation of loans of married couples]] Since January 1, 1993, a married couple may consolidate their individual loans if they agree to be held jointly (and separately) liable for repayment of the Consolidation Loan regardless of the amount of their individual debts, and in spite of any future change in their marital status. If one spouse dies, becomes totally and permanently disabled, has collection of his or her loan obligation stayed by a bankruptcy filing, or has that obligation discharged in bankruptcy, the other borrower remains obligated to repay the loan. Both spouses must meet the eligibility requirements listed above in order to qualify for a Consolidation Loan. However, only one spouse must meet the certification requirement listed before the "Note" on the previous page. Applying for a Consolidation Loan As part of the application process for a Consolidation Loan, the borrower must give the lender all relevant information concerning his or her existing loans. For Consolidation Loan applications received by a lender on or after January 1, 1993, a borrower may be allowed to add eligible loans received before the date of consolidation to an existing Consolidation Loan, if the loans are added within 180 days of the date the Consolidation Loan is made. The interest rate for Consolidation Loans disbursed before July 1, 1994 is 9 percent or the weighted average of the interest rates of the loans consolidated (rounded to the nearest whole percent), whichever is greater. There is no minimum interest rate for Consolidation Loans disbursed on or after July 1, 1994. In determining the weighted average of interest rates of loans consolidated, the interest rate used is that in effect for each loan at the time the borrower's repayment obligations have been discharged on all loans selected for consolidation. For example, for a Stafford Loan at the 8 changing to 10 percent rate, or for an SLS with a variable rate, the interest rate used would be the rate at the time the Stafford or SLS loan was discharged by payment from the consolidating lender. Deferment and repayment For Consolidation Loan applications received before January 1, 1993, the borrower is responsible for the interest on the loans during periods of deferment; however, the lender may agree to capitalize the interest that accrues during the deferment. For Consolidation Loan applications received by the lender between January 1, 1993 and August 10, 1993, interest during periods of deferment is paid by the federal government. For loan applications received on or after August 10, 1993, borrowers will be entitled to an interest subsidy during deferment ONLY when the Consolidation Loan is made up exclusively of subsidized Stafford Loans. For borrowers with Consolidation Loans made before July 1, 1993, deferments are the same as those for PLUS borrowers with loans disbursed before July 1, 1993 (see page 10-48). For Consolidation Loans first disbursed on or after July 1, 1993 to borrowers with no outstanding FFEL Program loans, deferments are the same as those for any new FFEL borrowers with loans disbursed on or after July 1, 1993 (see pages 10-35 to 10-36). Students should understand that consolidation of Stafford, Perkins, and SLS loans may result in fewer deferment options than were available to them under those loan programs, and may result in a higher interest rate. However, since Consolidation Loans may have repayment periods as long as 30 years, the borrower's monthly repayment amount may be reduced. THERE ARE NO INSURANCE PREMIUMS OR OTHER FEES FOR CONSOLIDATION OF LOANS. Generally, the first payment on the Consolidation Loan is due within 60 days after consolidation. (The repayment PERIOD begins on the day the Consolidation Loan is disbursed.) There are a number of repayment options, including graduated repayment or income- sensitive repayment, as mentioned above. The repayment period varies from 10 to 30 years, depending on the amount consolidated and other student loans the borrower may have. If the amount to be consolidated is less than $7,500, for example, the repayment period may not exceed 10 years. For more detail on repayment of Consolidation Loans than is provided here, see the FFEL Program regulations, Section 682.209(h).

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