Loan Consolidation Questions and Answers

In response to recent questions surrounding the Federal Consolidation Loan Program the Utah Higher Education Assistance Authority (UHEAA) offers the following information.

1. Question: Can a qualified borrower retain eligibility for loan discharge through the Teacher Loan Forgiveness Program after consolidating eligible Stafford loans?  

Answer: Subject to limitations and other qualifying conditions, the U.S. Department of Education will repay loans obtained under both the FFELP and FDLP through the Teacher Loan Forgiveness Program. Stafford loan obligations, and Consolidation loan obligations to the extent that a Consolidation loan repaid a borrower’s qualifying Stafford loan(s), are eligible for this benefit. See 34 CFR 682.215(a) and (d)(1), the Common Manual Ch. 12.9.B and GEN-05-02

2. Question: When a Federal Perkins Loan is included in a Consolidation loan, does that portion of the Consolidation loan qualify for an interest subsidy during periods of deferment?  

Answer: A Perkins loan effectively loses its identity when consolidated in the FFELP or FDLP consolidation programs. Interest subsidies, loan forgiveness benefits and any remaining grace period on a Perkins loan are forfeited when such a loan is included in a Consolidation loan. Borrowers with Perkins loans should carefully consider these ramifications when exploring options to consolidate student loans while still enrolled at least half time. See 34 CFR 674.31, 34 CFR 682.300(a), CFR 682.301(a)(3)(iii) and ED Direct Loan Consolidation FAQs, July 17, 2002, question 5 at http://loanconsolidation.ed.gov/borrower/bfaq.shtml

In summary, Stafford loans included in a Consolidation loan retain eligibility for the Teacher Loan Forgiveness Program. Borrowers wishing to include Perkins loans in a Consolidation loan should be counseled to consider the effects of consolidation on the Perkins forgiveness provisions and interest subsidies during subsequent deferment periods and the loss of any remaining grace period.

Any questions related to this Bulletin should be directed to UHEAA Policy and Training at 801.321.7166 or by e-mail to mjohnson@utahsbr.edu.