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Shoptalk 532, December 8, 2009

Policy Resources

Common Manual Updates

Guarantor representatives who serve on the Common Manual Governing Board have approved several changes to the Common Manual. Details on these changes and a newly updated Integrated Common Manual incorporating the changes will be available on TG Online. These changes will appear in the Manual's next annual update.

Questions
Please note the effective date of each policy change. If you have questions about any of the changes, contact TG customer assistance at (800) 845-6267, or send an email message to cust.assist@tgslc.org.

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Ask the Policy Expert

Q.: What options are available for resolving a defaulted loan?

A: After a borrower defaults, it's not too late to resolve a defaulted loan. Here is a list of options available to help a borrower resolve a defaulted loan, with details that follow. A borrower can:

  • Make satisfactory repayment arrangements
  • Consolidate the defaulted loan
  • Rehabilitate the defaulted loan
  • Pay the defaulted loan in full
  • Receive a discharge on the defaulted loan

Make satisfactory repayment arrangements: To have eligibility for Title IV aid reinstated, a borrower must make six consecutive full monthly payments to the appropriate holder for each defaulted loan. These payments must be made on time (within 15 days of the payment due date), voluntarily (directly by the borrower, regardless of whether there is a judgment against the borrower), and must be reasonable and affordable. Any court-ordered payments or involuntary payments obtained by state offsets or federal Treasury offsets, wage garnishment, or income or asset execution will not count toward the six payments required for reinstatement. A lump sum prepayment of future installments does not satisfy the requirement for six consecutive monthly payments and will not reinstate a borrower's Title IV eligibility.

It's important to remember that the borrower may reestablish Title IV eligibility only once. If a borrower has reestablished his or her eligibility and then fails to maintain satisfactory payment arrangements on that defaulted loan, or a defaulted loan for which a judgment has been obtained, the borrower may not reestablish his or her eligibility again under this provision.

Consolidate the defaulted loan: A defaulted Title IV loan is eligible for consolidation if the borrower, at the time of application for the Consolidation loan, meets one of the following conditions:

  • The borrower has made satisfactory repayment arrangements with the holder of the defaulted loan.
  • The borrower has agreed to repay the Consolidation loan under an income-sensitive or income-based repayment schedule.

Consolidation will remove the loan from a defaulted status, but will not remove the default's negative impact on the borrower's credit history.

Rehabilitate the defaulted loan: To rehabilitate a FFELP loan, a borrower must make nine, on-time (i.e., received within 20 days of the due date), full monthly payments to the guarantor or its contracted vendor during a period of 10 consecutive months. Payments must be made voluntarily by the borrower and must be equal to or greater than the amount determined to be reasonable and affordable. Payments obtained by state offsets or federal Treasury offsets, wage garnishment, trustee payments, or income or asset execution will not satisfy requirements for rehabilitation. If a borrower successfully completes rehabilitation, the guarantor will assist the borrower in securing a lender to purchase the loan. If it is purchased, the loan will be removed from a defaulted status, and the guarantor or any other holder of the loan that previously reported it as in a defaulted status to a national credit reporting agency will remove that status.

Pay the defaulted loan in full: A borrower may choose to pay the defaulted loan in full. This option will not remove the record of the default from the borrower's credit history.

Receive a discharge on the defaulted loan: A borrower may receive a discharge if he or she demonstrates eligibility for the discharge. Discharges available to borrowers include: total and permanent disability, bankruptcy, closed school, death, false certification by the school or due to the crime of identity theft, unpaid refund, and spouses and parents of September 11, 2001, victims. Loan discharge may remove the record of default from the borrower's credit history, depending on the type of discharge.

Do you have a question?
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