LOSFA to Continue Participation in Consolidation Program Under Provisions of Emergency Student Loan Consolidation Act of 1997

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The Louisiana Office of Student Financial Assistance will continue to participate in the FFELP Consolidation Loan Program under the terms of the Emergency Student Loan Consolidation Act (ESLCA) of 1997. LOSFA will continue to provide full service to Louisiana students and their parents, as well as to those participating lenders who have also expressed their commitment to continue to offer consolidation loans.

The ESLCA was signed by President Clinton on Nov. 13 and offers several new benefits to borrowers under the FFELP Consolidation Loan Program. In addition to FFELP loans, Federal Direct Student Loans can now be included in a FFELP consolidation. Loan rates are annually variable but are capped at an interest rate of 8.25 percent, replacing the previous fixed interest rate which was calculated on the weighted average rate of the loans being consolidated, rounded up to the nearest whole percent. For the period ending June 30, 1998, loans made under the ESLCA will carry the capped rate of 8.25 percent. For most borrowers, this change will result in substantial savings of interest.

Another new borrower benefit results from a change in the payment of subsidies on some consolidation loans made under the ESLCA. It provides that for the portion of the consolidation loan which is made up of subsidized Federal Stafford Loans and/or subsidized Federal Direct Loans, USDE will pay the interest which accrues during periods of deferment. The borrower is responsible for paying the interest during the deferment period on the remaining portion of the consolidation loan. Prior to the ESLCA, FFELP consolidation loans were not eligible for interest subsidies unless all the underlying loans were subsidized Stafford loans.

LOSFA’s participation under the provisions of the Act will allow the agency to pass these benefits on to borrowers. These provisions of ESLCA are effective for applications received on or after Nov. 13, 1997, and before Oct. 1, 1998. Some or all of the provisions may be extended or revised if they are included in the Reauthorization of the Higher Education Act scheduled for later this year.

The ESLCA also prohibits discrimination against borrowers by lenders based on the type and number of eligible loans included in the consolidation, the institution attended by the borrower, the interest rate applied to the consolidation loan and the types of repayment schedules offered to borrowers.

 Pending further policy clarification which is expected from USDE, LOSFA will continue to operate its consolidation program as before, incorporating the newly established provisions of the ESLCA. LOSFA will still require that at least one of the underlying loans be guaranteed by the agency. Married couples will not be able to combine their individual loans for consolidation. Borrowers who have defaulted loans must show that they have made satisfactory payment arrangements before their loans can be consolidated. The minimum loan balance required for consolidation will continue to vary according to each lender’s policy.

Because of the complexity of administering the new rules, LOSFA understands that some lenders/servicers may secure separate promissory notes for each type of loan being consolidated. The purpose of this procedure is to allow separate tracking of the different loan types in order to implement the provisions unique to each type of loan. LOSFA will accept, but does not require, multiple notes on a single consolidation loan. However, only one default claim, which must include all underlying loans, will be accepted for a consolidation loan. Claims filed on only a portion of a consolidation loan will be returned to the lender or servicer with instructions to file on the entire consolidation loan.

For more information about LOSFA’s Federal Consolidation Loan Program, call Customer Services at (800) 259-5626, ext. 1012.