Special Direct Consolidation Loans | 02.10.12
In a recent State of the Union Address, President Obama mentioned a Special Direct Consolidation Loan available to some borrowers with federal loans. This loan is not your typical Direct Consolidation Loan, and is only available for a brief period this year. This is a great opportunity for borrowers with the old, FFEL loans, as it will make managing repayment a much simpler task. Let’s take a look at how this loan works.
First, let’s understand a little bit about historical student loans. Before Direct Loans came into play, the Federal Family Education Loan (FFEL) Program included four types of loans: Stafford, Unsubsidized Stafford, PLUS, and Consolidation. These loans, while still federally guaranteed loans, were made by private lenders and serviced privately. Now under the Direct Loan Program, federal loans are funded directly through the government (though there are four companies who service the loan on behalf of the Dept. of Education).
How Special Consolidation Loans Work
For borrowers who hold loans under both the FFEL and Direct Loan Programs, repayment can be difficult because FFEL loans are held by one or more lenders, while Direct loans are held by another. This Special Direct Consolidation opportunity will allow borrowers who have both types to consolidate their FFEL loans into a Direct loan, allowing all loans to be serviced by the same company.
- One loan servicer, one payment
- Public Service Loan Forgiveness eligibility
- 0.25% interest rate reduction (another 0.25% reduction if you choose auto-debit)
- Change from Variable to Fixed rate
Borrowers must have both an FFEL and a Direct Loan in order to take advantage of this opportunity, however, only the FFEL loans are eligbile. Additionally, the loans must be in good standing (not in default or bankruptcy) and in either grace, repayment, deferment, or forbearance.
How to Get Started
Borrowers who are eligible to consolidate under this loan will be contacted by their current Direct Loan Servicer with instructions. Notifications of eligibility began January 17, 2012. This option will only be available until June 30, 2012, so make sure to take action as soon as you hear from your servicer if you plan to participate.
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