Special Direct Consolidation Loans

The U.S. Department of Education (the Department) began offering Special Direct Consolidation Loans to eligible borrowers in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012, for borrowers with

Special Direct Consolidation Loans are intended to help borrowers manage their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment (borrowers repay loans to a loan servicer). Borrowers will also receive an interest rate reduction on Special Direct Consolidation Loans as a repayment incentive.

The information below describes the following aspects of taking out a Special Direct Consolidation Loan:

• Eligibility Requirements, Benefits, and Repayment
• Notification of Potential Eligibility
• Online Application Process
• Additional Information

Eligibility Requirements, Benefits, and Repayment TOP

Who is eligible for a Special Direct Consolidation Loan?

You must have at least one loan owned by the Department that is current or less than 270 days delinquent and at least one eligible commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.

Note: If you do not have at least one Department-owned loan that is current or less than 270 days delinquent, you may become eligible for consolidation under this initiative after working with your federal loan servicer to bring at least one Department-owned loan current or less than 270 days delinquent.

What federal student loans are eligible for consolidation under the Special Direct Consolidation Loan initiative?

While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:

In order to be eligible for consolidation under this initiative, these loans must be in grace, repayment, deferment, or forbearance.

The following loans are not eligible for consolidation under this initiative:

What are the benefits of Special Direct Consolidation Loans?

How are Special Direct Consolidation Loans different than traditional Direct Consolidation Loans?

When you consolidate into a traditional Direct Consolidation Loan, you combine all of your eligible loans into one new loan with new terms. When you consolidate your eligible commercially-held FFEL loans into a Special Direct Consolidation Loan, your consolidation loan will be composed of individual parts corresponding to each loan that you consolidate, and each part will retain some of the terms of the original loan. The .25% interest rate reduction will be applied to each eligible loan that is consolidated.

With a traditional Direct Consolidation Loan, you can include all eligible federal loans that you have in the consolidation. With a Special Direct Consolidation Loan, however, the only federal loans that are eligible for consolidation are your eligible commercially-held FFEL loans. Despite this limitation, all of the eligible commercially-held FFEL loans you consolidate will be serviced together with your other Department-held loans by one of the Department’s servicers, resulting in one bill and one payment. Your new bill after consolidation will include those loans that you have consolidated into a Special Direct Consolidation Loan as well as your Direct Loans or Department-held FFEL loans already owned and serviced by the Department.

The chart below highlights some of the other differences between a traditional Direct Consolidation Loan and a Special Direct Consolidation Loan.

Note: If you’re interested in taking out a Special Direct Consolidation Loan, it is critical that you do not start the traditional Direct Consolidation Loan process. If you consolidate your loans into a traditional Direct Consolidation Loan, you will not be eligible for a Special Direct Consolidation Loan.

Do I need to pay a fee to consolidate my loans?

No, the U.S. Department of Education never charges a fee for consolidation.

Should I consolidate my loans into a Special Direct Consolidation Loan?

You should assess your personal student loan situation to determine if you should consolidate your loans into a Special Direct Consolidation Loan. While Special Direct Consolidation Loans offer certain benefits, such as a reduced interest rate, some borrowers may choose not to take advantage of this limited time offer because they are satisfied with the current repayment arrangements on their existing loans, or they wish to consolidate all of their federal loans (including those loans ineligible for this special consolidation opportunity) into a traditional Direct Consolidation Loan.

How much money will I save in interest if I obtain a Special Direct Consolidation Loan?

Your interest savings must be evaluated on a loan-by-loan basis. If you are eligible for a Special Direct Consolidation Loan, the federal loan servicer that contacts you will be able to provide you with detailed interest reduction information. The Department’s servicers for this special initiative are FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae.

What repayment options are available for Special Direct Consolidation Loans?

You can choose any of the following repayment plans to repay your Special Direct Consolidation Loan:

However, it is important to remember that your repayment term does not start over when you receive a Special Direct Consolidation Loan. Instead, each commercially-held FFEL loan that you consolidate will retain its original repayment term. This means, for example, that if you had made three years of loan payments on a 10-year standard repayment plan prior to consolidating a Federal Stafford Loan and you choose the Standard Repayment Plan for your Special Direct Consolidation Loan, your remaining repayment term for the part of the Special Direct Consolidation Loan that repaid the Federal Stafford Loan would continue to be 7 years.

Please note that if your Special Direct Consolidation Loan includes parent PLUS Loans, or Consolidation Loans that repaid parent PLUS loans, those parts of your consolidation loan may not be repaid under the IBR Plan. However, you have the option of paying those parts of your loan under the ICR Plan.

For more information about each repayment plan, visit Repayment Plans and Calculators.

Notification of Potential EligibilityTOP

How will I know if I am eligible for a Special Direct Consolidation Loan?

There are two ways you will know if you’re eligible.

Note: If you have been contacted by one of the Department’s servicers but when you sign on to StudentLoans.gov the Alert message states that you are not eligible to apply, contact the servicer for assistance.

What should I do if I’m concerned about being contacted by an entity other than the U.S. Department of Education servicers listed above?

Generally, if an entity other than FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae contacts you about “special consolidation,” it will not be in reference to the Special Direct Consolidation Loan opportunity that is being offered by the Department through June 30, 2012. However, you may be contacted directly by the Secretary of Education, other offices of the U.S. Department of Education, and/or schools you have attended as they are assisting the Department’s servicers in spreading the word about this opportunity. If you are concerned about being contacted about “special consolidation” by an entity other than one of the Department’s servicers, you should contact the Inspector General’s Hotline at 1 800-MIS-USED or http://www2.ed.gov/about/offices/list/oig/hotline.html?src=rt.

If I have a traditional Direct Consolidation Loan application in process, can I cancel that application in order to apply for a Special Direct Consolidation Loan?

In some cases, you may cancel a pending traditional Direct Consolidation Loan application. However, once you have received your loan statement and the specified 15-day adjustment period has ended, the application cannot be cancelled.

The guidelines that apply to canceling a traditional Direct Consolidation Loan application are summarized as follows:

If you have questions about canceling a traditional Direct Consolidation Loan application, visit http://loanconsolidation.ed.gov.

Online Application ProcessTOP

How do I apply for a Special Direct Consolidation Loan?

Once you are contacted by one of the Department’s servicers or find out about your eligibility by checking the StudentLoans.gov website (as explained above), you can apply for a Special Direct Consolidation Loan by submitting an electronic application and promissory note. To begin the online application process, you will be required to log on to www.studentloans.gov with your student aid credentials (including name, social security number, date of birth and your Federal Student Aid PIN). After logging on to the website, you will click on the word “here” in an Alert message located on the top right side of the page to begin the online application process.

Note: If you do not have a Federal Student Aid PIN or do not know your PIN, visit www.pin.ed.gov.

What will I need to complete the online application for a Special Direct Consolidation Loan?

When you go to the StudentLoans.gov website to complete the online application, you should be prepared to provide loan records for eligible loans including account statements or bills and contact information for two references. References must be individuals with different U.S. addresses who do not live with you and who have known you for at least three years. If needed, you will be able to obtain assistance with completing the online application.

Your Special Direct Consolidation Loan application will be pre-filled with information from the National Student Loan Data System (NSLDS) about your loans, but you may make changes to the information as necessary. The loan information will be clearly labeled to identify loans that are potentially eligible for consolidation and loans that are not eligible for consolidation.

It is important to remember that only commercially-held FFEL loans are eligible for consolidation under this initiative. Direct Loans or FFEL loans already owned and serviced by the U.S. Department of Education may not be consolidated under this initiative. However, by consolidating your commercially-held FFEL loans into a Special Direct Consolidation Loan, you will have one bill with one payment for all of your FFEL and Direct Loans that are held by the Department.

Will I be required to sign a new promissory note to obtain a Special Direct Consolidation Loan?

Yes, by consolidating your eligible commercially-held FFEL loans into a Special Direct Consolidation Loan you are securing a new loan. This requires a new promissory note. You will be required to read and agree to the terms and conditions of the promissory note when completing the online application.

Can I get a copy of the application and promissory note that I submit online?

Yes. At the end of the Special Direct Consolidation Loan online application process, you will be able to access and print a paper copy of the entire electronic record of your application and promissory note. You will also be able to return to the website at any time and log on to view your completed application (and to print a copy for your records).

What happens after I submit my online application for a Special Direct Consolidation Loan?

After you submit your application through the online process, you will first view a screen confirming your submission and providing the name and contact information for the Department’s servicer to which your application will be transmitted. If you include an e-mail address during the application process, you will receive an e-mail that includes the confirmation information. The Department will then transmit your application to the servicer for next steps. If you include an e-mail address during the application process, you will receive a second e-mail confirming the transmission of your application to the servicer and providing the servicer’s name and contact information.

The servicer that receives your application will contact the FFEL Program lenders or lender servicers that hold your commercially-held FFEL loans to verify the eligibility and payoff amounts of the loans that you wish to consolidate. After this verification process is complete, the FFEL lender will receive the payoff funding from the Department and your Special Direct Consolidation Loan will begin to be serviced by the Department’s servicer. Until your commercially-held FFEL loans have been paid off, you will continue to receive statements and bills from the FFEL Program lenders or lender servicers of those loans.

Will my consolidation be complete as soon as I submit my online application for a Special Direct Consolidation Loan?

No. As explained in the previous question and answer, the servicer that handles your consolidation will need to verify the eligibility and payoff amounts of the commercially-held FFEL loans that you wish to consolidate. Then, your loans will be paid off and your Special Direct Consolidation Loan will begin to be serviced by the Department’s servicer. Until your commercially-held FFEL loans have been paid off, you will continue to receive statements and bills from the FFEL Program lenders or lender servicers of those loans.

Can I make changes to my application for a Special Direct Consolidation Loan after I submit my application through the online process?

If it is necessary to make changes after you submit your Special Direct Consolidation Loan online application, you will do so through the Department’s servicer that is handling your consolidation. You will not be able to make any changes to the application through the website after the application has been submitted.

The Department’s servicers for this special initiative are FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae. To locate contact information for the servicer handling your consolidation, refer to:

Can I cancel my application for a Special Direct Consolidation Loan after I submit my application through the online process?

You may cancel a pending Special Direct Consolidation Loan application up to the point when the first commercially-held FFEL loan you wish to consolidate has been paid off by the Department of Education. However, once the first loan has been paid off, the application cannot be cancelled.

To request cancellation of a pending Special Direct Consolidation Loan application, you must communicate with the Department’s servicer that is handling your consolidation. The servicer will let you know if it is still possible for you to cancel the application. When making this determination, the servicer will evaluate whether the funding activities for the first loan payoff have yet begun.

The Department’s servicers for this special initiative are FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, and Sallie Mae. To locate contact information for the servicer handling your consolidation, refer to:

Additional InformationTOP

Where can I get more information about Special Direct Consolidation Loans?

If you have not been contacted by a U.S. Department of Education servicer but you want to find out if you meet the eligibility criteria for a Special Direct Consolidation Loan, you can check the StudentLoans.gov website right now. To do so, follow these three easy steps:

Note: If you have been contacted by FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae but when you sign on to StudentLoans.gov the Alert message states that you are not eligible to apply, contact the servicer for assistance.

If you have been contacted by FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae about your potential eligibility for a Special Direct Consolidation Loan and you have questions, you need to call that servicer. Refer to the correspondence from the servicer for contact information.

If you have general questions about Special Direct Consolidation Loans, you can call 1-800-4-FED-AID (1-800-433-3243).