The phrase “limited time offer” is taking on a whole new meaning for some student loan borrowers who are being contacted by the Department of Education’s student loan servicers and offered a “Special Direct Loan Consolidation”. This opportunity is part of President Obama’ “Pay As You Earn” initiative announced in October focused on increasing college affordability through better management of student loan debt.
The Special Direct Loan Consolidation is indeed being offered for a limited time (January 1-June 30, 2012) and only to a select group of borrowers deemed to have the greatest opportunity to benefit. In order to qualify for the Special Direct Loan Consolidation you must have:
- at least one student loan held by the Department of Education (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers); and
- at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).
The requirements were set up this way to offer borrowers with both Direct and commercially held FFEL loans the ability to better management their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment .
Beyond the better loan management aspects, the Special Consolidation offers two other significant benefits not available in a traditional Direct Consolidation Loan. First, the terms of each commercially held FFEL loan brought into the Special Consolidation will remain intact such as the interest rates on the individual FFEL loans and the arranged repayment terms (i.e.10 year, 25 year, IBR). Normally when you consolidate in a traditional Direct Consolidation, all loans involved are factored into one single fixed interest rate based on weighted average of the interest rates of all the eligible loans (rounded up to the nearest one-eight of 1%, not to exceed 8.25%). More importantly in a traditionally Consolidation Loan, the repayment terms clock starts over again ultimately leading to more interest building on the loan. So the Special Consolidation does allow you to take advantage if you have good interest rates on your existing commercially held FFEL loans and providing you a shorter time period for repayment of those loans.
Second, the Special Consolidation Loan is offering a very tangible financial incentive- a .25% interest rate reduction on any of the commercially FFEL loans brought into the Special Consolidation. So on top of being allowed to retain your original interest rates on the individual loans, you also get the extra .25% reduction. And just like the traditional Consolidation Loan, the Special Consolidation still offers another .25% interest rate reduction if automatic debit is chosen for repayment.
So how do you apply for this “special” Special Consolidation Loan offer? Well you can’t apply on your own until one of the Department of Education’s loan servicers (FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae) contacts you to let you know that based on your borrowing history you meet the basic eligibility of holding both the DOE Direct loans and the commercially held FFEL loans. Notification began in late January and is expected to continue for several weeks.
If you are deemed eligible, do not hesitate to reach out to the Financial Aid Office for guidance or assistance in weighing your loan options and whether the Special Consolidation is ultimately going to be a true benefit for you. For more information on the “Special Consolidation Loan” see the Department of Education website.
All of this talk of DOE Direct loans vs. commercially held FFEL loans making your head spin? One of the best places to get a better understanding of your student loan history is the National Student Loan Database where you can log in and review each of your loans in depth including loan periods, amount borrowed, disbursed, balances, interest rates and most important who the lender and servicer on each loan is and how to contact them.