Consolidation Conundrums

The 1998 Reauthorization of the Higher Education Act altered the Federal Family Education Loan Program (FFELP) Consolidation loan, making it more attractive to borrowers. One benefit of Reauthorization is that it broadens the rules for obtaining subsequent Consolidation loans. Although the intent of the Reauthorization legislation is to help borrowers consolidate their debt into one payment, there are situations in which a borrower may have concurrent Consolidation loans. The following list of frequently asked questions addresses issues about obtaining Consolidation loans.

1. If a borrower did not include one of his or her loans in the original Consolidation loan, and the 180-day add-on period has already elapsed, can the excluded loan be included in a subsequent Consolidation loan?

Answer A: Yes. A borrower may include the outstanding loan and the original Consolidation loan in a new, subsequent Consolidation loan. Effective for Consolidation loans made on or after July 1, 2000.

Example A: Carroll has two loans, a Stafford loan (made April 1999) and a Consolidation loan (made January 2000). He can obtain a Consolidation loan that contains these two loans.

2. When consolidating an outstanding Consolidation loan with another outstanding eligible loan, does the borrower have to obtain a new loan?

Answer: No. The borrower is not required to obtain a new loan in order to consolidate an existing Consolidation loan with an existing eligible loan made before or after the original Consolidation loan. Effective for Consolidation loans made on or after July 1, 2000.

Example A: Chris has two loans, a Stafford loan (made September 1998) and a Consolidation loan (made July 1999). She can consolidate these two loans into a new Consolidation loan.

Example B: Chris has two loans, a Consolidation loan (made July 1999) and a Stafford loan (made March 2000). She can consolidate these two loans into a new Consolidation loan.

Example C: Chris has three loans, a Stafford loan (made September 1998), a Consolidation loan (made July 1999), and a Stafford loan (made March 2000). She can consolidate all of these loans into a new Consolidation loan. She can also obtain a Consolidation loan that contains the original Consolidation loan and either of the two Stafford loans.

3. Does a borrower with an outstanding Consolidation loan have to obtain a new loan in order to receive a second, concurrent Consolidation loan that does not include the original Consolidation loan?

Answer: Yes. A borrower's eligibility to obtain a new Consolidation loan ends upon receipt of a Consolidation loan except when the borrower receives a new loan after the date of the original consolidation. Effective for Consolidation loans made on or after July 1, 2000.

Example A: Kelly has two loans, a Consolidation loan (made July 1999) and a Stafford loan (made March 2000). He wants to consolidate only the Stafford loan. He does not want to include the Consolidation loan. Kelly can obtain a second Consolidation loan that consists of only the Stafford loan because it was made after the original Consolidation loan.

Example B: Kelly has two loans, a Stafford loan (made January 1997) and a Consolidation loan (made July 1999). He wants to consolidate only the Stafford loan. He does not want to include the Consolidation loan. Kelly cannot obtain a Consolidation loan that consists of only the Stafford loan.

Example C: Kelly has three loans, a Stafford loan (made January 1997), a Consolidation loan (made July 1999), and a Stafford loan (made March 2000). He wants to consolidate the two Stafford loans. He does not want to include the original Consolidation loan. Kelly can obtain a Consolidation loan that consists of only the two Stafford loans.

4. Can a borrower consolidate a single Consolidation loan?

Answer: No. A borrower is not eligible to obtain a new Consolidation loan that is comprised solely of a single, outstanding Consolidation loan. Effective for Consolidation loans made on or after July 1, 2000.

Example A: Pat has a Consolidation loan and no other loans. She cannot "reconsolidate" just the Consolidation loan.

5. If a borrower has two outstanding Consolidation loans, can they be consolidated into one?

Answer: A borrower may obtain a new Consolidation loan if the borrower consolidates an outstanding Consolidation with at least one other eligible loan. A Consolidation loan is an eligible loan. Effective for Consolidation loans made on or after July 1, 2000.

6. Can a married couple consolidate their respective Consolidation loans into a single joint Consolidation loan?

Answer: Yes. The loans of one spouse are considered eligible loans for the other spouse. Effective for Consolidation loans made on or after July 1, 2000.

7. Is a borrower required to use a specific lender when consolidating?

Answer A: If only one lender holds a borrower's outstanding loans, the borrower is required to use that lender for a Consolidation loan. If the lender does not offer Consolidation loans or does not offer Consolidation loans with an income-sensitive repayment plan, the borrower may choose a different lender. Effective for Consolidation loans made on or after July 1, 2000, unless implemented earlier by the lender.

Answer B: If two or more lenders (multiple lenders) hold a borrower's outstanding loans, the borrower may choose any participating lender. The borrower is not required to choose one of the lenders that holds the outstanding loans. Effective for Consolidation loans made on or after July 1, 2000, unless implemented earlier by the lender.

8. What loans are eligible for consolidation?

Answer: Any of the following loans may be included in a FFELP Consolidation loan:

• Subsidized Federal Stafford Loans
• Direct Subsidized Stafford Loans
• Unsubsidized and Nonsubsidized Federal Stafford Loans
• Direct Unsubsidized Stafford Loans
• Federal Supplemental Loans for Students (SLS)
• Federal PLUS Loans
• Direct PLUS Loans
• Subsidized Federal Consolidation Loans
• Direct Subsidized Consolidation Loans
• Unsubsidized Federal Consolidation Loans
• Direct Unsubsidized Consolidation Loans, including direct PLUS Consolidation Loans
• Perkins Loans
• Federal Insured Student Loans (FISL)
• Health Professions Student Loans, including Loans for Disadvantaged Students (lender discretion)
• Health Education Assistance Loans (lender discretion)
• Nursing Student Loans (lender discretion)

For questions concerning Consolidation loans, contact TG Customer Support at (800) 252-9743, ext. 4444, or send an message to customer.services@tgslc.org.

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