UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF POSTSECONDARY EDUCATION
July 1998
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This letter announces the Department's new
business practice for processing underpayments and overpayments during
the consolidation of Federal Family Education Loan (FFEL) Program,
Federal Perkins Loan Program, William D. Ford Federal Direct Loan
(Direct Loan) Program and other eligible loans. |
Dear Loan Holder:
I am pleased to announce a new business practice in our
Direct Consolidation Loan Program that many of you have suggested we
adopt. The practice relates to tolerances for processing overpayments
and underpayments and improves the consolidation process for loan holders,
borrowers, and the Department.
When consolidating a FFEL, Perkins, Direct Loan or other
eligible loans, the payoff amount provided to the underlying loan
holder often is not the exact amount owed on the loan on the date
the payoff is received. This results in either an underpayment or
an overpayment of the underlying loan.
It is costly both to loan holders and to the Department
to process these small adjustments, which have only a very slight
impact on the borrower's consolidation loan. Many FFEL participants
have addressed this issue by establishing the business practice of using
tolerance for processing underpayments and overpayments within the Federal
Consolidation Loan Program.
In order to promote processing efficiency and cost-effective
program administration, we are implementing the following practices for
processing underpayments and overpayments:
Underpayment Tolerance Procedures
- If a loan holder receives a payoff from the Direct Consolidation
Loan Program for a borrower's loan(s) that results in a net shortage
(underpayment) for the borrower by a loan program type* of less
than $25.00, the holder may write off the shortage.
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* Loan program type refers to the individual
loan programs such as Perkins, Subsidized, or Unsubsidized Stafford or
PLUS loan.
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NOTE: The net underpayment
tolerance amount applies to each loan program type being consolidated
by the borrower. Thus, a borrower with both Subsidized Stafford
and Unsubsidized Stafford loans would have a net underpayment
tolerance of $24.99 or less for the Subsidized Stafford loans, and
a separate tolerance of $24.99 or less for the Unsubsidized Stafford loans. |
- If a borrower has a net underpayment for one or more loan program
types that is $25.00 or greater, the LOC will provide payment upon
loan holder request. Please refer to the information that was
provided with the initial payment for processing instructions.
If the holder has a tolerance level greater than $25.00, it may
use that higher amount. All underpayment requests must be reported
promptly and adjusted to the correct underlying loan account, by
loan program type, and must be identified in the request to the LOC.
- Whether the LOC is notified of a Direct Consolidation Loan request
or not, loan holders are prohibited from billing the borrower for any
underpayment and must notify the borrower that the loans are paid
in full. See 34 CFR 685.215 (f)(2) and (5).
- In addition, the Direct Loan Servicing Center will not request
an underpayment for less that $25.00 when a FFEL Consolidation of a
Direct Loan has been made.
Overpayment Tolerance Procedure
- If a loan holder receives a payoff from the Direct Consolidation
Loan Program for a borrower's loan(s) and there is a net overpayment
for an individual borrower by loan program type of less than
$10.00, the loan holder may retain the overpayment. The
Loan Origination Center will not expect payment from the loan holder.
- If a borrower has a net overpayment for one or more loan program
types that is $10.00 or greater, the loan holder must promptly return
the overpayments to the LOC. Please refer to the information that
was provided with the initial payment for processing instructions.
All overpayment returns must be adjusted to the correct underlying
loan account, by loan program type.
- In addition, the Direct Loan Servicing Center will not return
an overpayment of less than $10.00 when a FFEL Consolidation of a
Direct Loan has been made.
For Both Underpayments and Overpayments
- The tolerance policies apply to the aggregate eligible balance
of principal, interest, fees and collection costs.
The Department hopes that these changes, which are common
practice in the FFEL industry, will simplify accounting procedures,
reduce loan holder costs associated with payment processing, and provide
for increased efficiencies for borrowers.
Thank you for you cooperation.
Sincerely,
Diane E. Rogers
Acting Deputy Assistant Secretary
Student Financial Assistance Programs
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