description: tags: helping%20students%20in%20default

8/14/2019 description: tags: helping%20students%20in%20default

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1 We Help Put America Through School

Helping Students Deal with Default

H Pam Moran and Don WatsonH US Department of EducationH Office of Student Financial AssistanceH Program Development Division


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H Choosing the right repayment planH Changing repayment plansH Using Deferment optionsH Using Forbearance options

Students Can Prevent Default By--


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Repayment plans

H

StandardH ExtendedH GraduatedH Income-sensitive (FFEL) or

Income contingent (Direct Loans)H Changing repayment plans

FFEL & Direct Loan


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Repayment plans

H May require minimum monthly Repayment -

maximum 10-year repayment

H Flexibility in reducing scheduled repaymentamounts

H Flexibility to extend repayment period for illnessor unemployment

Perkins Loan


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Types of Deferments

H Student or in-school,H Graduate fellowship,H Rehabilitation Training Program,H Unemployment,H Economic Hardship

All Title IV Loan Programs:


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Forbearance

All Title IV Loan Programs:

H Temporary cessation of payments

H Extension of Time for making payments

H Temporarily making smaller payments


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Types of ForbearancesFFEL / Direct Loans

H Optional (FFEL) - willing but unable to paydue to poor health or other acceptablereasons

H General (Direct Loans) same as optional inFFEL


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Types of Forbearance

FFEL / Direct Loans (contd)

H Mandatory Forbearance MEDICAL OR DENTAL interns/residents Borrowers with title IV loan payments > 20% of

borrowers monthly income NATIONAL SERVICE


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FFEL / Direct Loans (contd)

H Eligible Borrowers for: DOD Loan Repayment Program Teacher Loan Forgiveness Program

H NATIONAL MILITARY MOBILIZATION


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ForbearanceFFEL / Direct Loans (contd)

H Interval not to exceed 12 months

H Requires request/documentation andwritten agreement


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Perkins

H Borrowers with title IV loan payments >20% of borrowers monthly gross income

H Poor health or other acceptable reasons

H National Military Mobilization


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Types of ForbearancePerkins (contd)

H Intervals of up to 12 months for total nogreater than 3 years

H Requires written request/documentationand written agreement


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Taking care of the default andregaining title IV eligibility

Students can resolve their default and regain titleIV eligibility through--

H Satisfactory Repayment Arrangements, or

H Loan ConsolidationH Loan Rehabilitation


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Satisfactory Repayment Arrangements

FFEL / Direct Loans

Satisfactory repayment arrangements are--H

to regain title IV eligibility, making 6 consecutive,on-time, voluntary, full monthly payments. By law,a student can only do this once.

H For purposes of loan consolidation, making 3consecutive, on-time, voluntary, full monthlypayments

In either case, the monthly payments should bereasonable and affordable based on borrowersfinancial circumstances.


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Satisfactory Repayment Arrangements

Perkins Loan Program

H Satisfactory repayment arrangement is 6consecutive, on-time, monthly payments on adefaulted loan. A student can only do this once.


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Consolidation

To consolidate a defaulted loan, astudent may--

H Make satisfactory repayment arrangements (alltitle IV Loan Programs), orH Agree to repay the consolidation loan under the

ICR Plan. (Direct Loans only)


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Consolidation

FFEL / Direct LoansH Pays off loans being consolidated

FFEL only: A consolidating lender is a current loan

holder unless the borrower has multiple loans.H Eligible loans include all title IV loans and HealthProfessions Loans


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Consolidation

FFELH Satisfactory arrangements required on defaulted

loansH

Applicant must be in grace or repaymentException: Direct Loan borrowers can be in-schoolH Interest rate is weighted average of loans being

consolidated


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Consolidation

Direct Loan/ FFELH Provides for extended repayment and reduced

payment amountsH

Defaulted Loans Consolidated:- Reported as paid-in-full to Credit Bureaus- Borrower regains title IV eligibility

H Perkins not recommended for consolidation


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Rehabilitation

Direct Loan / FFELH To rehabilitate a loan, a defaulted borrower must

make 12 consecutive on-time, reasonable, andaffordable, voluntary, full monthly payments.

H FFEL only - Loan is not rehabilitated until it isrepurchased by an eligible lender

H Borrower regains all benefits of normalrepayment.

HNew maximum repayment period is establishedbeginning with the first of the 12 payments.


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Rehabilitation

Direct Loan / FFELH Borrower regains title IV eligibility.H Record of default is removed from borrowers

credit reportH Up to 18.5 percent of the default-related

collections costs included in the rehabilitated loanamount.


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Rehabilitation

PerkinsH To rehabilitate a defaulted borrower must

make 12 consecutive, on-time, full monthlypayments as determined by the school.

H Borrower must request rehabilitation.H Borrower regains all benefits of normal

repayment


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Rehabilitation

Perkins (contd)H New maximum repayment period up to 10

years established beginning with the first of

the 12 paymentsH Borrower regains all title IV eligibilityH School must request the credit bureau to

remove the default from the borrowerscredit history


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Rehabilitation

PerkinsH Collection costs related to the default are capped at24 percent.

H Borrower may rehabilitate a loan one time onlyH

School must notify borrower of option and theconsequences of rehabilitation.


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ED ResourcesH Ombudsman

1-877-557-2575 (toll free)

www.sfahelp.ed.gov

description: tags: helping%20students%20in%20default

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