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• Financial Literacy and Debt Management
  • Creating a Spending Plan
  • Managing Repayment
    • Loan Repayment Plans
    • Loan Consolidation
    • Deferment and Forbearance
    • Loan Forgiveness, Cancellation and Repayment Assistance
    • President Obama’s Loan Initiatives
  • Loan Terms Dictionary
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• Graduating Students and Alumni
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President Obama’s Loan Initiatives

On October 26th, President Obama announced two new federal loan initiatives in a speech he gave at the Auraria Campus in Downtown Denver.

These initiatives have received a good deal of media attention but certain details of these programs have not yet been released. Here is the latest information on these initiatives. As additional information becomes available, we will keep you updated.

Special Direct Consolidation Loans

Between January 1st and June 30th, 2012, the Department of Education will be authorized to issue Special Consolidation Loans to eligible students.

These special consolidation loans will be available to students who have (1) at least one federal loan that is held by the Department of Education, and (2) at least one federal loan that is held by a commercial lender (FFEL). The special consolidation will allow students to “transfer” the loans that are held by a commercial lender into a direct loan, thereby reducing the number of lenders to which a student has to make payments.

Loans consolidated under the Special Consolidation program will retain their same repayment terms as the existing loan (i.e. If you were in year 3 of a 10 year repayment to your commercial lender, your new special consolidated loan would still be in year 3 of the 10 year repayment). Additionally, borrowers would receive a .25% rate reduction.

Borrowers who are eligible for the special consolidation will be contacted by the Department of Education’s loan servicers beginning January 17th, 2012 and will be able to apply online.

Important Details

• Since most loans that were borrowed under the FFEL program during the 08-09 and 09-10 academic years were sold to the Department of Education, most borrowers will probably not have any commercially-held loans unless they were borrowed in the 07-08 academic year or earlier.
• To see who services your loans, go to NSLDS.
  • Loans serviced by the Department of Education will list the Department as either the lender or the servicer.
  • Keep in mind that the same servicer could be servicing both your commercially-held and your Department of Education-held loans.

More information about Special Consolidation Loans is available on the Department of Education’s website.

Implementation of a More Favorable Income-Contingent Repayment Plan

The President asked the Department of Education to implement a more favorable Income-Contingent Repayment plan in the near future, the “Pay As You Earn” plan.

This more favorable plan reduces the payments from the current IBR plan by 1/3rd and grants cancellation to students who have a remaining balance after 20 years (currently a cancellation is granted if there is a remaining balance after 25 years).

It is still unclear exactly who benefits from this new program. The Department of Education has stated that, to qualify, students must not have borrowed loans prior to 2008 and must have at least one federal loan borrowed in 2012; however, the specific dates have not been released. One possible interpretation is that students must not have borrowed loans prior to October 1st, 2007 and must have at least one loan that disbursed to them after after October 1st, 2011. Specific eligibility guidelines will be set through the Negotiated Rulemaking process the Department has in place for setting new policies. The final rules regulating this new plan will be available November 1st, 2012 and this plan will be available to borrowers beginning July 2013.