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Know who you owe? SM. Helping Borrowers Manage Split-Loan Servicing Laura Kowalski TG Asst. Manager, Policy. Agenda. Background on split-loan servicing Federally-owned loans and ED servicers Options available to help students manage split-loan servicing Taking inventory Consolidation

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Know who you owe sm

Know who you owe?SM

Helping Borrowers Manage Split-Loan Servicing

Laura Kowalski

TG Asst. Manager, Policy


Agenda

Agenda

  • Background on split-loan servicing

  • Federally-owned loans and ED servicers

  • Options available to help students manage split-loan servicing

    • Taking inventory

    • Consolidation

  • Communication

  • Resources


National student loan cohort default rates

National Student Loan Cohort Default Rates

Issue date

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Percentage

Fiscal Year

Source: Department of Education Briefing on National Default Rates 9/12/2011


Wiifm

WIIFM

  • Students—manage successful repayment

  • Schools—maintain low CDRs

  • Taxpayer—reduce costs associated with defaulted student loans


Background on split loan servicing

Background on split-loan servicing


Background on split loan servicing1

Background on split-loan servicing

  • Split-loan servicing—borrower with multiple loans serviced by multiple servicers

  • An increased focus due to:

    • Lenders exiting FFELP, selling portfolios to secondary markets

    • FFELP loans purchased by ED

    • Elimination of new FFELP originations

  • Split-loan servicing is not a new phenomenon


Navigate split loan servicing

Navigate split-loan servicing

  • Key to helping borrowers navigate split-loan serving is ensuring they:

    • Have an understanding of who “owns” their loan debt

    • Know how much they have borrowed

    • Know where to send or make their monthly loan payments

    • Know who to contact if they have trouble managing repayment


Federally owned loans and ed servicers

Federally-owned loans and ED servicers


Federally owned loans and ed servicers1

Federally-owned loans and ED servicers

  • ED owns both FDLP loans and FFEL purchased loans (“federally-owned loans”)

    • FFEL purchased loans are loans made under FFELP by lenders and subsequently purchased by ED

    • ED awarded servicing contracts to four additional servicers (June 2009)

    • ED servicers manage both FFELP purchased loans and FDLP loans


Federally owned loans and ed servicers2

Federally-owned loans and ED servicers

  • ED servicers

    • Fedloan Servicing (PHEAA)

    • Great Lakes Educational Loan Service, Inc.

    • Nelnet

    • Sallie Mae

    • Department of Education Student Loan Servicing (ACS)

    • Direct Loan Servicing Center (ACS)

  • Contact info available for ED servicers

    • http://studentaid.ed.gov/PORTALSWebApp/students/english/FSALoanServicers.jsp


Federally owned loans and ed servicers3

Federally-owned loans and ED servicers

  • Servicer assignment:

    • ED’s goal is to assign all of a borrower’s federally-owned loans to the same servicer

      • Assignment of a borrower’s new FDLP loans to the same servicer is now standard operating procedure

      • However, this has not automatically occurred for some borrowers


Federally owned loans and ed servicers4

Federally-owned loans and ED servicers

  • Federally-owned loan transfer initiatives

    • E-ANN (September 16, 2011); plan for September – October 2011

      • Initiatives will address borrowers who have FDLP and FFEL purchased loans split across ED servicers

      • To simplify transfer process, one servicer will be focal point—Great Lakes


Federally owned loans and ed servicers5

Federally-owned loans and ED servicers

Q: How will a borrower know if his federally-owned loans have been transferred?

A: When ED transfers loans from one servicer to another, the new servicer will:

  • Correspond with the borrower

  • Explain that loans have been transferred

  • Explain that new servicer will service borrower’s loans going forward

  • Provide both toll-free phone number and Web site information for the servicer


Federally owned loans and ed servicers6

Federally-owned loans and ED servicers

Q: How will a school know which ED servicer is servicing a borrower’s federally-owned loans?

A: The ED servicer is identified in NSLDS.

  • Schools can request the report titled:

    • “School Portfolio Report” (SCHPR1)—includes information about all FDLP and/or FFELP loans associated with school code

    • Delivered to school’s SAIG mailbox


Federally owned loans and ed servicers7

Federally-owned loans and ED servicers

Q: How long will it take for the new ED servicer information to be reflected in NSLDS?

A: ED servicers report loan information to NSLDS on a weekly basis.

  • New servicer information available in NSLDS within 7 to 10 business days

  • Majority of servicer-to-servicer transfers are completed on schedule

  • For assistance, contact Federal Student Aid Research and Customer Care Center


Federally owned loans and ed servicers8

Federally-owned loans and ED servicers

Q: Will it be necessary for a borrower to reinitiate actions related to the current status of his account (for example, reapply for a deferment or forbearance)?

A: No. The borrower should experience no break or gap in any current status that applies to his federally-owned loans as a result of the transfer.


Federally owned loans and ed servicers9

Federally-owned loans and ED servicers

Q: Will it be necessary for a borrower to reinitiate services related to his account (for example, automatic debit or Web payments)?

A: It will most likely be necessary for the borrower to contact the new servicer to reinitiate services related to the borrower’s account.


Not for profit nfp servicer program

Not-for-profit (NFP) servicer program

  • HCERA/SAFRA legislation authorized the NFP Servicer Program

  • Estimated NFP “go-live” dates for servicing begin in October 2011 and continue through January 2013

  • ED will continue to evaluate all proposals received and make additional determinations

    https://www.fbo.gov/download/675/67518946260e8fbb775ec45bebdefdcd/Estimated_NFP_goliveDates_09092011(1).pdf


Helping borrowers understand their options taking inventory

Helping borrowers understand their options: Taking inventory


Taking inventory

Taking inventory

Q: Where can a borrower obtain information about his or her federal student loan(s)?

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

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

  • Borrower needs PIN to access NSLDS


Taking inventory1

Taking inventory

Q: 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 period

    A: A Stafford loan either:

  • Enters a 6-month grace period

  • Enters repayment


Taking inventory2

Taking inventory

Q: What happens to a PLUS borrower’s loan(s) when he or she 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 inventory3

Taking inventory

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

A: A Federal Consolidation loan:

  • Enters repayment

    A: A non-Title IV loan:

  • Enters repayment based on the terms and conditions of the loan


Taking inventory4

Taking inventory

Q: What should a borrower expect from 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 inventory5

Taking inventory

Q: What does the loan holder expect of the borrower?

A: 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 inventory6

Taking inventory

Q: Is it possible for a borrower to have combined billing for both FFEL purchased loans and regular FFELP loans that are with the same servicer?

A: Maybe. However, separate payments will still be required.


Helping borrowers understand their options consolidation

Helping borrowers understand their options: Consolidation


Consolidation

Consolidation

  • Consolidation 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, ED pays off outstanding balances of loans included in the Federal Consolidation loan


Consolidation1

Consolidation

Q: 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 loans

  • There is no fee to obtain a Federal Consolidation loan


  • Consolidation2

    Consolidation

    Q: What loans may be consolidated?

    A: Types 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


    Consolidation3

    Consolidation

    Q: 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 periods

    • May be delinquent or in default on one or more existing loans


    Consolidation4

    Consolidation

    • Factors 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)


    Consolidation5

    Consolidation

    • Factors 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


    Consolidation6

    Consolidation

    • Factors to consider:

      • For borrowers with older loans, certain deferments may be lost, but these older deferments are not frequently requested

      • Borrowers retain ability to request most major deferments

        • In-school

        • Unemployment

        • Economic hardship


    Consolidation7

    Consolidation

    • Factors to consider:

      • May increase total cost of the loan

        • If borrower lengthens repayment period, he or she will pay more interest over life of the loan.

      • Illustration: $35,000 Federal Consolidation loan @ 6.0% interest rate


    Communication

    Communication


    Communication1

    Communication

    • Strategically communicate with borrowers today to help set the right expectation as they approach and enter repayment

    • Encourage borrowers to open and read loan holder correspondence

    • Focus on the importance of NSLDS outside the realm of student loan counseling


    Communication2

    Communication

    • Offer supplemental counseling above and beyond traditional entrance and exit sessions

    • Provide borrowers with comprehensive information on consolidation


    Communication3

    Communication

    Consolidation:

    • May be the right option on an individualized basis to help borrowers manage repayment

    • Encourage borrowers to make larger payments on their Federal Consolidation loan

      • As a reminder, extending the repayment term will likely increase the overall cost of the loan


    Resources

    Resources


    Resources for borrowers

    Resources for borrowers

    • www.nslds.ed.gov

    • www.federalstudentaid.ed.gov

    • ED’s Federal Student Aid Information Center at 1-800-4-FED-AID or (800) 433-3243

    • www.AIE.org


    Tg resources for schools

    TG resources for schools

    • www.tgslc.org/schools

      • Financial literacy, entrance and exit counseling, income-based repayment

      • Repayment information

      • Shoptalk newsletter/blog

      • Free brochures, stuffers can be ordered at:

        • http://www.tgslc.org/order/


    Questions

    Questions?

    ©2011 Texas Guaranteed Student Loan Corporation

    To order additional copies, or to request permission to reproduce anyof the information provided, please call TG Communications at (800) 252-9743.


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