LOSFA Modifies Policies on Consolidation Loans

To assure that your Common Manual remains current, please record this document on your LPM/LPB index, and retain it in Appendix E of your manual.

LOSFA has modified its policies on Consolidation Loans effective December 16, 1996, in order to protect borrowers and the federal fiscal interest from the consequences of a second default:

• Federal regulations and Common Manual policy effective July 1, 1996 permit a Consolidation loan borrower to establish eligibility for his defaulted loans without having made satisfactory repayment arrangements on the loan by agreeing to repay the new Consolidation loan under an income-sensitive repayment plan. LOSFA requires that the lender insure that the borrower has made satisfactory repayment arrangements with the loan holder before applying for the Consolidation loan. For these purposes, satisfactory repayment arrangements are defined as three consecutive, on-time, voluntary monthly payments which at least satisfy the interest accruing on each defaulted loan and do not result in negative amortization.
• In addition, LOSFA will guarantee a Consolidation loan for an otherwise eligible borrower who certifies that he or she has been unable to obtain a Consolidation loan with income sensitive repayment terms satisfactory to him or her from the holders of the borrower's outstanding loans, provided that the lender will not assign any Consolidation loans where the borrower requested income sensitive repayment terms on his or her application if none of the borrower's underlying loans were held by the lender.
• LOSFA will not guarantee a Consolidation loan made jointly to a married couple.

These requirements will be included in the Appendix C Guarantor-Specific Information of the next update of the Common Manual.