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 Communication Resources

National Student Loan Cohort Default Rates Percentage Issue date Source: Department of Education Briefing on National Default Rates 9/12/2011 Fiscal Year

WIIFM Students—manage successful repayment Schools—maintain low CDRs Taxpayer—reduce costs associated with defaulted student loans

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 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

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 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 – /students/english/FSALoanServicers.jsphttp://studentaid.ed.gov/PORTALSWebApp /students/english/FSALoanServicers.jsp

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 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 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 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 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 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 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 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 e8fbb775ec45bebdefdcd/Estimated_ NFP_goliveDates_ (1).pdf

Helping borrowers understand their options: 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 –Provides loan amount(s) and loan holder(s) –Borrower needs PIN to access NSLDS

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 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 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 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 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 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

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

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

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

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

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)

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

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

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 6.0% interest rate

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

Communication Offer supplemental counseling above and beyond traditional entrance and exit sessions Provide borrowers with comprehensive information on consolidation

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 for borrowers ED’s Federal Student Aid Information Center at FED-AID or (800)

TG resources for schools –Financial literacy, entrance and exit counseling, income-based repayment –Repayment information –Shoptalk newsletter/blog –Free brochures, stuffers can be ordered at:

Questions? To order additional copies, or to request permission to reproduce any of the information provided, please call TG Communications at (800) ©2011 Texas Guaranteed Student Loan Corporation