Special Direct Consolidation Loan Program

The U.S. Department of Education (ED) will implement a Special Direct Consolidation Loan program for eligible borrowers beginning in January 2012, and ending June 30, 2012. This program will offer certain borrowers a short-term consolidation opportunity.

Below is a series of questions and answers for borrowers regarding this temporary program. Additional information is available on ED's Special Consolidation Loan Program website.

What is this program?

• This program does not offer borrowers a traditional federal Consolidation loan.
• The program is intended to assist borrowers with loans split among loan servicers by simplifying the repayment process, resulting in one monthly bill and payment.

Who is eligible for this program?

• A borrower must have at least one loan held by ED and at least one lender-held Federal Family Education Loan Program (FFELP) loan to qualify.
• The lender-held FFELP loan cannot be in default (that is, at least 270 days past due).
• The lender-held FFELP loan must be in its grace period or in repayment status — including in delinquency, deferment, or forbearance status.

How does a borrower apply for this program?

• Beginning in January 2012, the four ED servicers (Sallie Mae, Nelnet, Great Lakes, and FedLoan Servicing/PHEAA) will contact each borrower that is considered eligible for this program, based on ED's analysis.
• These borrowers will be provided information on how to apply for this program via an online process. Note: By consolidating loans into a Special Direct Consolidation Loan, the borrower is securing a new loan. This requires a new promissory note.
• If an eligible borrower is not contacted, the borrower can call the ED servicer currently servicing his or her ED-held loan(s) for assistance.

What are the benefits of this program?

• Interest rate reduction: ED will honor the current interest rate for each lender-held FFELP loan at the time the loan(s) is consolidated under this program. Then:
  • ED will give a 0.25% interest rate reduction from that rate as of the date of consolidation.
  • ED will give an additional 0.25% interest rate deduction if the borrower chooses to repay his or her consolidation loan by auto-debit from the borrower's bank account.
• Repayment term(s) will not change: The repayment term(s) — the length of time the borrower has to repay each lender-held FFELP loan(s) — will not restart upon consolidation under this program.
• Credit for previous Income-Based Repayment (IBR) payments: If a borrower made any payments on his or her lender-held FFELP loan(s) under an IBR plan prior to consolidation under this program, those payments will count toward the required number of payments for loan forgiveness if the borrower remains under the IBR plan. See TG's IBR page for additional information on the IBR plan.
• Eligibility for Public Service Loan Forgiveness (PSLF): By consolidating into a Special Direct Consolidation Loan, any previously lender-held FFELP loan(s) becomes a Direct loan. As a result, the loan(s) may be eligible for PSLF if the borrower meets the additional eligibility requirements.

What are issues that a borrower should consider before consolidating under this program?

• If a borrower consolidates a lender-held FFELP loan that is in its grace period, the borrower may lose part of the grace period upon consolidation.
• If a borrower wants to use consolidation to extend his or her repayment term, he or she may want to consider first consolidating under the Special Direct Consolidation Loan program to maximize the reduced interest rates, and then seek a traditional Direct Consolidation Loan.

Back to Top