session # 74 loan servicing update
DESCRIPTION
Session # 74 Loan Servicing Update. Sue O’Flaherty Cynthia Battle U.S. Department of Education. Session Agenda. 1. The Servicing Landscape Measuring Performance and Managing Change in Multiple Servicer Environment Looking Back Looking Forward. 2. 3. 4. Background. - PowerPoint PPT PresentationTRANSCRIPT
Session # 74
Loan Servicing Update
Sue O’FlahertyCynthia Battle
U.S. Department of Education
Session Agenda
The Servicing Landscape
Measuring Performance and Managing Change in Multiple Servicer Environment
Looking Back
Looking Forward
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Background
Authority that Changed the Federal Loan Programs:
Ensuring Continued Access to Student Loans Act (ECASLA)Secretary runs two main programs under ECASLA:
– Loan Purchase Program (PUT)– Conduit
Health Care and Education Reconciliation Act of 2010 (HCERA)The Student Aid and Fiscal Responsibility (SAFRA) Act:
– Ended new loans under the Federal Family Education Loan (FFEL) Program– Required the Secretary to contract with not-for-profit
servicers
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Our Federal Loan Servicers must comply with all legislative and regulatory requirements.
Through the multi-servicer, borrower-centric approach schools may experience different processes and procedures offered by the servicers. Schools see many; but Borrowers see ONE!
The competitive structure of the servicing contracts allows for more innovation and creativity.
Together with our servicing team, we will work to serve borrowers and schools as efficiently as possible to: Educate and inform regarding the tools and options available to assist
borrowers in the management of their student loansOffer multiple repayment options tailored to borrower preferences (i.e.
online payments, ACH, check, etc.)Provide self-service tools for borrowers and options to receive bills
and/or correspondence electronically
Federal Loan Servicers:
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Session Agenda
The Servicing Landscape
“TIVAS”Title IV Additional Servicers
“TIVAS” An acronym used by FSA which stands for the Title IV Additional Servicers. In communications with schools, borrowers, and the financial aid community, FSA uses the term “federal loan servicers.”
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COD LDE • Origination• Disbursement • Loan Allocation• Servicer Assignment • Customer Service
COD = Common Origination and Disbursement System
COD
LDE : Loan Distribution Engine: interface to assign loans to the federal loan servicers.
“Booked” Loan: occurs when the COD system accepts an origination record; links p-note to the record and accepts actual disbursement.
The federal loan servicer is assigned upon “booking” of loan.
Federal Loan Servicers:
FedLoan / PHEAA
Great Lakes
Nelnet
Sallie Mae
* Direct Loan Servicing (ACS)
* Direct Loan Servicing Center (ACS) Decommission
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Federal Loan Servicers:
Loan Servicing Information – Federal Loan Servicer Team Changes
Direct Loan Servicing Center (ACS) Contract End: Brings closure to the ACS servicer’s system and contact
center for handling the day-to-day servicing of its William D. Ford Federal Direct Loan (Direct Loan) Program loan portfolio.
By August 29, 2013 – FSA will finish transferring the remaining Direct Loans to FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae.
The contact center will remain open for a short period of time after transfers have been completed to support transition related activities.
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Federal Loan Servicers:
Loan Servicing Information – Federal Loan Servicer Team Changes
Direct Loan Servicing Center (ACS) Contract End: Over the next several months FSA will bring closure to other
functions performed by ACS (Xerox). Function Performed by ACS (Xerox) Anticipated Transition
Servicing Teacher Education Assistance for College and Higher Education (TEACH) Grants
July 22-25, 2013
Managing Civil Legal Assistance Attorney Student Loan Repayment Program (CLAARP)
August 12, 2013
Servicing Direct Loans Ongoing through August 29, 2013
Managing Direct Consolidation Loan system Transition dates being finalized
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Session Agenda
The Servicing Landscape
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Not-For-Profit awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.
“NFP” Not-For-Profit Servicers
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NFP Facts: 11 Not-For-Profit Servicers (Prime) implemented and
awarded federal loan servicing contracts under the HCERA/SAFRA Not-For-Profit (NFP) Servicer Program solicitation.
As of April 2013 (due to the Sequestration), the implementation of additional NFP’s was placed on hold.
Sequestration Affect on New Not-For-Profit Servicers The sequester provisions of the Budget Control Act of 2011 limit spending levels in the account used to fund not-for-profit (NFP) servicing operations. In order to stay within these levels, the Department will be unable to bring any additional NFP servicers on board in FY 2013. This includes NFP servicers scheduled for implementation during the remainder of the year and any servicers wishing to join existing servicing teams. The impact of a potential sequester in FY 2014 is unclear at this time but could be a factor in implementation schedules and other decisions regarding NFP activities beyond FY 2013.
Not-For-Profit Servicers
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NFP Servicer NSLDS Name NSLDS Code
Aspire Resources Inc. DEPT OF ED/ASPIRE RESOURCES INC.-ISL 503
CornerStone DEPT OF ED/CORNERSTONE-UHEAA 502
COSTEP DEPT OF ED/COSTEP 510
EdManage DEPT OF ED/EDMANAGE 505
EDGEucation DEPT OF ED/EDGEUCATION 509
ESA/Edfinancial DEPT OF ED/ESA-EDFINANCIAL 501
Granite State – GSMR DEPT OF ED/GRANITE STATE-GSMR-NH 504
KSA Servicing DEPT OF ED/KSA SERVICING 508
MOHELA DEPT OF ED/MOHELA 500
OSLA Servicing DEPT OF ED/OSLA SERVICING 506
VSAC Federal Loans DEPT OF ED/VSAC SERVICING 511
Not-For-Profit Servicers
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Q. When are loans assigned to an NFP servicer? A. Once the NFP has met and demonstrated compliance with all requirements
and is deemed qualified and eligible.
Q. Do the NFP servicers perform under the exact same servicing guidelines as the TIVAS?
R. Requirements for the NFP servicers and TIVAS are basically the same. However, they are not exact. For example, NFP servicers do not service newly originated loans from COD.
Q. Which Direct Loan borrower accounts were transferred to the NFP’s?
S. We transferred existing Direct Loan borrower accounts currently assigned to the Direct Loan Servicing Center (ACS / Xerox).
Not-For-Profit Servicers
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Q. How will a borrower know if his or her Direct Loans were transferred to a new NFP servicer ?
A. When we transfer a student or parent borrower’s Direct Loans from ACS/Xerox to a NFP servicer, the new servicer will correspond with the borrower after the transferred loans have been fully loaded to the system.
Additionally, ACS/Xerox notifies the borrower via e-mail they have been transferred and information about the new servicer. The notice usually occurs 1-2 days after the transfer.
Q. Where will the NFPs receive their loans once all of the loans have been removed from ACS/Xerox?
A. The current plan is the NFPs will get loan volume from the TIVAS.
Q. How long will the NFPs participate in the program?A. The NFP contracts are for five years with a 5-year additional option.
Not-For-Profit Servicers
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Loans Transferred from:
Direct Loan Servicing
System (ACS /Xerox)
Aspire Resources
Inc.
CornerStone
ESA/Edfinancial
Granite State GSMR
MOHELAOSLA VSAC Federal
Loans
EDManage
KSA Servicing
COSTEP
EDGEucation
Not-For-Profit Servicers - Transfers
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Federal Loan Servicers:
FedLoan / PHEAA
Great Lakes
Nelnet
Sallie Mae
Servicing Platform Partnerships FedLoan (PHEAA) MOHELA Cornerstone Aspire
Nelnet ESA/Edfinancial Granite State OSLA VSAC
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Borrowers with federally-owned loans serviced by more than one federal loan servicer.
FSA owns both Direct Loans and FFELP (PUT).(PUT: Loans made under FFELP by lenders and subsequently purchased by ED)
Ongoing processes to resolve situations where a borrower’s federally-held loans are assigned to two or more federal servicers.
Federally-owned and commercial loans may still be split among servicers.
Consolidation sometimes viable option, but not in all circumstances.
Goal: All of a borrower’s federally-owned loans will be maintained by a single servicer.
Split Servicing
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Session Agenda
Measuring Performance and
Managing Change in Multiple Servicer
Environment
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Allocations based on rankings Survey results Default statistics
Most points for first place One point for last place
Borrower Satisfaction
School Satisfaction
FSA and Partner Satisfaction
Default Prevention Measures
Servicer Performance
Score
Measuring Performance
Percent of new loans = percent of points
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Oversight and Monitoring
FSA provides oversight of servicer activities through monitoring to ensure that there is proper attention to customer service, operational processes, servicer requirements, and adherence to applicable regulations.
Monitoring Activities include (but not limited to): Process and Operational Monitoring Weekly Issue Tracking and Resolution Meetings Program Compliance Reviews Call Monitoring Internal & Financial Controls Audits Monthly Data Reconciliation
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Managing Change – Multi-Servicer Environment
Requirement changes evolve from regulatory changes, policy updates, and new business decisions.
Changes to Business Process
FSA Business Decisions
Policy Decisions
NPRM’s
Servicer Requirements
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FedLoan / PHEAA
Great Lakes
Nelnet
Sallie Mae
Remember … Changes made to servicing platforms (systems)
FedLoan (PHEAA) MOHELA Cornerstone Aspire
Nelnet ESA/Edfinancial Granite State OSLA VSAC
Servicer Requirements
Managing Change – Multi-Servicer Environment
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Campus Partner EdManage COSTEP KSA EDGEucation
Session Agenda
Looking Back Servicing Issues and Challenges
Borrowers Schools
Process Improvements Decision to Standardize Process
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Looking Back
Servicing Issues and Challenges
Top Borrower
Issues
• Transfer Process• Payment Processing• Understanding Repayment Options• Consolidation
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Looking Back
Servicing Issues and Challenges Borrower Issue
s
• Transfer Process• Payment Processing• Understanding Repayment• Consolidation
Transfer and Payment Processing Challenges:
Why did my loan get “sold” to a new servicer?
Notification of transfer
Loan status discrepancies
Payments made to prior servicer not applied timely
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Looking Back
Servicing Issues and Challenges
Understanding Income-Driven Repayment Options and Consolidation:
Confusion about repayment options
Application and documentation requirements
Selecting PAYE for new consolidations
Borrower
Issues
• Transfer Process• Payment Processing• Understanding Repayment• Consolidation
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Looking Back
Borrowers: Key Improvements Borrower Issue
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• Transfer Process• Payment Processing• Understanding Repayment• Consolidation
Redesign of on-boarding communications
Coordination and collaboration with previous servicer
Extended call center hours for problem resolution
Experienced and dedicated resources to resolve data issues
Communicating with borrower in the way they choose
Targeted communications and options for recently transferred borrowers (to assist with delayed payment posting)
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Looking Back
Borrowers: Key Improvements Borrower Issue
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• Transfer Process• Payment Processing• Understanding Repayment• Consolidation
Increase Customer Awareness of IDR Plans
Implemented Electronic Income-Driven Application:
Can be used by borrowers with ED-held loans (Direct Loans or FFEL)
Can be used by borrowers with commercially held FFEL loans serviced by an entity that also services ED-held loans
On StudentLoan.gov
Retrieves the most recent tax information from two most recently completed tax years
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Looking Back
Borrowers: Key Improvements Borrower
Issues
• Transfer Process• Payment Processing• Understanding Repayment• Consolidation
Consolidation - Operational Solution for PAYE:
Borrower Selects IBR during the consolidation process
The newly-made consolidation loan is booked on the servicing system (with IBR selection)
The servicer will evaluate eligibility for PAYE before communicating with the borrower regarding selection
Updates to the LC web in process to explain revised steps
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Looking Back
Servicing Issues and Challenges
Top School Issues
• Split Servicing • Standardization among Servicers• Transfer Issues – ACS Decommission• Increasing Cohort Default Rates
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Looking Back
Servicing Issues and Challenges School
Issues
• Split Servicing • Standardization among Servicers• Transfer Issues – ACS Decommission• Increasing Cohort Default Rates
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Borrowers are split between multiple servicers
Why don’t the servicers do everything the same way?
What are the servicers doing to help support our default prevention activities?
Looking Back
Schools : Key Improvements
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School
Issues
• Split Servicing • Standardization among Servicers• Transfer Issues – ACS Decommission• Increasing Cohort Default Rates
Servicers have improved the counseling to push the different repayment options before deferment and forbearance options
Some servicers have dedicated staff for different school segments
More financial literacy materials and support
Reporting improvements
Working with third party servicers
Delinquency Support Activities:
Provide outbound targeted calling campaigns along with inbound call center representatives to help borrowers become current
Utilize electronic communication methods, such as e-mail, to keep borrowers informed about account status
Work with schools to obtain current available contact information - Utilize a variety of tools to get the most current data to contact borrowers (skip tracing on delinquent accounts)
Work in partnership with the school community to assist borrowers in the later stages of delinquency
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Federal Loan Servicers - Support
Delinquency Support Activities for Schools: (Examples)
Default Management Training and Webinars
Analyzing Servicer Specific Reports and Tools
Late Stage Delinquency Efforts
Incorrect Data Challenges
Work the CDR data
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Federal Loan Servicers - Support
Federal Loan Servicers - Support
Delinquency Support Activities:
Servicers work to gather feedback and find ways to partner with schools on default prevention
Face-to-face meetings or conference calls with schools Financial aid conference attendance Presentations at conferences Proactive phone calls E-mail communication
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Reminder...Visit the Federal Loan Servicers in the exhibit hall!
Need Assistance?
FSA – Default Prevention Team
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FSA - Default Prevention Team was created to assist schools with:
Developing / refining their default prevention plan.
Assessing the resources schools have available in order to establish their team.
Understanding default risk through the use of servicer and NSLDS reports and tools.
Please send your request to:
Contact Us!
All counseling products on StudentLoans.gov highlight financial literacy concepts:
Entrance Counseling – required to receive a federal loan
Exit Counseling – required when the student graduates, leaves school or drops below half-time enrollment
Financial Awareness Counseling – optional• Cannot be required as condition for disbursement• Cannot replace Entrance Counseling
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Looking Back
Process Improvements
Make informed decisions about postsecondary funding
Understand their repayment obligation, using the students’ loan information in NSLDS
Develop a budget Estimate monthly student loan payments Explore paying interest while in-school and during
periods of deferment and forbearance Explore the impacts of deferment and forbearance Learn about income-driven repayments plan options Indicate a repayment plan preference (Exit
Counseling)
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Looking Back
Dynamic counseling tools help the student:
Compare Repayment Plans
Indicate Repayment Plan preference
(which will be passed to the servicer)
Exit Counseling
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Looking Back
Process Improvements
Financial Awareness Counseling Tool (FACT)
Provides students with financial management basics, information about current loan debt, and estimates for student loan debt levels after graduation.
The tool offers five interactive tutorials covering topics ranging from managing a budget to avoiding default.
Students are able to access their individual loan history and receive personal feedback that can help them better understand their financial obligations.
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Repayment Estimator
Retrieves federal student loan information available in NSLDS.
View and compare the repayment amount under each of the repayment plans.
At a glance comparisons between monthly payment amounts, total amounts paid, and total interest paid
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Looking Back
Decision to Standardize Servicing Processes
In order to provide the best service to our customers, our servicing contracts are structured to allow for servicer creativity and innovation. However, there are times when decisions are made to standardize our servicing processes.
Why the need for consistency or standardization?
Standardization makes sense when differences in servicer processing cause different results to borrowers in the same circumstance.
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Decision to Standardize
Examples of Decisions to Standardize Servicing Processes
Forbearance Limits Capitalization Prepayments
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Identify Issue or Impact
Determine Objectives
Decision to Standardize
Forbearance Limits
The Basics: A forbearance is used to postpone or reduce a borrower's monthly
payment amount for a limited and specific period during which the borrower is charged interest.
A general forbearance can be granted on a borrower's loan(s) for up to 1 year (12 months) at a time.
After 1 year (12 months), the borrower is required to reapply to renew the forbearance.
A general forbearance does not have a specified time limit.
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Identify Issue or Impact
Determine Objectives
Decision to Standardize
Decision to Standardize
Forbearance Limits
Identifying the Issue: Through monitoring our loan portfolio, we discovered that some
borrowers were on general forbearances for extended periods of time. Goal to ensure borrowers are adequately advised or counseled of
alternative repayment options.
Therefore, the forbearance process and rules were reevaluated to place a limit on a borrower request to extend forbearance, in cases where there was 36 months of consecutive forbearance.
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Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Forbearance Limits
Objectives: To establish healthy repayment habits and behaviors Counsel borrowers on all the eligible repayment plans (with focus on the income-
driven repayment options) before a forbearance granted Standardization Rules: When a borrower has received 36 months of consecutive forbearance, the request
to extend the forbearance will not be automatically granted To allow for extenuating circumstances, a forbearance may only be extended if a
supervisor has reviewed and determined that efforts to place the borrower on an affordable repayment plan or deferment (if eligible) have been attempted and an extension justified
The justification for the extension must be noted on the borrower's account
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Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
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Decision to Standardize
Capitalization
Background: All of our servicers were compliant with the rules and
requirements for capitalization. The capitalization regulations provide a certain amount of
discretion on the frequency of capitalization (for example, the Secretary may capitalize at point “x”).
The update to our practice ensures consistency in interest capitalization between Direct Loans and federally-held Federal Family Education Loans (ED – held loan portfolio) for all the federal loan servicers.
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Capitalization: Rules
Interest capitalization occurs when the interest that has accrued is added to the principal balance of the loan, and interest is then calculated on the new principal balance. Our servicers have updated their systems to consistently capitalize interest at the following events: At the end of the grace period At the end of a deferment or forbearance period, or consecutive
periods of deferment or forbearance (specifically, this covers the scenario if a borrower enters a period of back-to-back deferment or forbearance. The servicer would only capitalize once – at the end of the final status change)
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Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Capitalization : Rules
For ICR:o During periods of negative amortization, annually o Negative amortization interest capitalizes only until principal balance is 10%
greater than original principal from when borrower entered repaymento Otherwise, normal capitalization rules apply
For IBR:o No longer qualifies for payments based on income (no longer has a partial
financial hardship) oro Leaves IBR entirely
For Pay As You Earn:o No longer qualifies for payments based on income (no longer has a partial
financial hardship) oro Leaves Pay As You Earn entirelyo Interest capitalizes only until principal balance is 10% greater than original
principal amount when borrower entered plan
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Decision to Standardize
Identify Issue or Impact
Determine Objectives
Decision to Standardize
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Decision to Standardize
Prepayments
The Basics: A prepayment is a payment that is made when no payment is
due or when a payment is made for more than what is due. When a borrower makes a prepayment, the excess amount is
applied first to interest, then principal. Issue: how much is the borrower billed for in the next month.
– Default rule – excess payments treated as intended to cover next month.
– Borrower can always express contrary intent.
Identify Issue or Impact
Determine Objectives
Decision to Standardize
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Decision to Standardize
Prepayments
Identifying the Issue: Borrowers mistakenly believe that treating payment as intended for next
payment does not secure additional principal reduction It does, because payment immediately applied.
Identified that how borrowers provide instruction was inconsistent between servicers.
Borrowers are accustomed to writing payment instruction on the check or transmittal, which servicers don’t necessarily receive.
Not all servicers provide easy way for the borrower to indicate what intent is when making online payment.
Not all servicers explain on the bill how to handle instructions for prepayments.
Identify Issue or Impact
Determine Objectives
Decision to Standardize
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Decision to Standardize
Prepayments
Objectives: Make sure that all borrowers have easy ways to express intent
on the handling of excess payments. Make sure that servicers interpret statements of intent
consistently– Example: “apply excess to principal” already happens.
– To secure maximum principal reduction and pay less interest over time, servicers recognize statements of intent consistently as evidence that excess not be used to lower next month’s bill.
Identify Issue or Impact
Determine Objectives
Decision to Standardize
Session Agenda
Looking Forward Future Changes
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Total and Permanent Disability (TPD) Discharge Regulation Changes: Effective July 1, 2013
All individuals seeking a TPD discharge will submit their discharge applications directly to the U.S. Department of Education (the Department) rather than to their individual loan holders
An individual will be required to submit only one application to the Department to apply for a TPD discharge
An individual can qualify for TPD discharge if: Receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI)
benefits, and submits a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that the individual’s next scheduled disability review will be within 5 to 7 years from the date of the individual’s most recent SSA disability determination.
An individual who provides SSA documentation is not required to obtain a separate certification from a physician on the TPD discharge application.
The new TPD discharge regulations apply to TPD discharge applications received on or after July 1, 2013. TPD discharge applications received prior to July 1, 2013 will be processed under the regulations that are currently in effect.
Nelnet is our Total and Permanent Disability Servicer: www.disabilitydischarge.com
Looking Forward
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Loan Consolidation Assignment of newly-made traditional consolidation loans
sent to FedLoan/PHEAA and Sallie Mae
Beginning August 5, 2013 - we will begin assigning newly-made consolidation loans to Nelnet.
Upon assignment of a borrower’s newly-made traditional consolidation loan, FedLoan Servicing (PHEAA), Sallie Mae or Nelnet will correspond directly with the borrower.
Looking Forward
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150% - Loss of Interest Subsidy (tentative – March 2014)
NSLDS will determine when enrollment results in loss of interest subsidy benefits
NSLDS will notify the federal loan servicers and the servicer will notify the borrower of interest responsibility
The federal loan servicers will communicate the loss of interest subsidy to the borrower at the loan level
Looking Forward
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Federal Loan Servicers Borrower Contact #
Aspire Resources Inc. 1-855-475-3335
CornerStone 1-800-663-1662
COSTEP 1-877-292-8639
Direct Loan Servicing Center (ACS) 1-800-848-0979
EDGEucation Loans 1-877-292-7470
EdManage 1-855-479-0490
ESA/Edfinancial 1-855-337-6884
FedLoan Servicing (PHEAA) 1-800-699-2908
Granite State – GSMR 1-888-556-0022
Great Lakes Educational Loan Services, Inc. 1-800-236-4300
KSA Servicing 1-877-292-4825
MOHELA 1-888-866-4352
Nelnet 1-888-486-4722
OSLA Servicing 1-866-264-9762
Sallie Mae 1-800-722-1300
VSAC Federal Loans 1-888-932-5626
Resources – Federal Loan Servicers
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Thank You!
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FSA Contact Information
Sue O’FlahertyPhone: 202-377-3393E-mail: Sue.O'[email protected]
Cynthia BattlePhone: 202-377-3261E-mail: [email protected]
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