Lobby Congress, Learn More About Student Loan Consolidation

These bills would restore the right to relief through bankruptcy on private loans.

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Educational debt has received a lot of national attention lately. It is heartening to see that increasing public awareness can be an impetus for further reform.

Mass movements such as the Occupy Student Debt Campaign and ForgiveStudentLoanDebt.com have highlighted the tremendous scope of those affected and, perhaps because of that pressure, the Obama administration has also been cautiously weighing in.

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We discussed the details of President Obama's recently issued Executive Orders a few weeks ago and, on November 29, the New York Times reported that Education Secretary Arne Duncan was urging higher-education officials to "think more creatively—and with much greater urgency" about ways to contain costs and reduce student debt, establishing the start of a "national conversation."

We haven't, however, heard a lot from Congress, so we urge you to personally call or E-mail your Representative and Senators to urge Congress to take action on H.R. 2028 in the House and S. 1102 in the Senate. These bills would restore the right to relief through bankruptcy on private loans. Because private loans lack vital protections—such as extended repayment plans, consolidation, and deferment—that federal student loans possess, it is vital that we restore this basic consumer protection to protect borrowers with private loans. And you can say exactly that in your E-mail or phone call.

[Read about a recent report on college student debt.]

As you know, you and your financial situation are unique, so we don't provide specific legal or financial advice, and we encourage you to reflect carefully on your options and to consult a financial adviser.

That said, we'll start the mailbag with a list of frequently asked questions about Obama's Special Direct Consolidation program because we've received so many questions about it. The initiative is designed to encourage borrowers with at least one Federal Family Education Loan (FFEL) and one Federal Direct loan to consolidate their FFEL loans into a Special Direct Consolidation Loan.

1. When can I take advantage of this? Only from Jan. 1, 2012, through June 30, 2012.

2. How do I apply? Beginning in January 2012, the department will reach out to qualified borrowers to alert them of the opportunity. If you don't hear from them in early 2012, call 1-800-4-FED-AID (1-800-433-3243).

3. What federal student loans are eligible for the Special Direct Consolidation Loan program? Only your commercially held FFEL loans are eligible for consolidation. These include: FFEL Subsidized and Unsubsidized Stafford Loans; FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and FFEL Consolidation Loans.

One note of caution: Parent PLUS loans are not eligible for Income-Based Repayment (which we're discussing next) so if you want to take advantage of that program you may want to keep those loans separate.

4. What loans are ineligible for this program? Perkins Loans, Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS), and private student loans are ineligible.

5. What if my loans are in default? Your loans must be in grace, repayment, deferment, or forbearance to be eligible. Student Loan Borrower Assistance is a great resource if you need help getting out of default.

6. What should I not do? Do not start the traditional Direct Consolidation Loan process. If you consolidate your loans into a traditional Direct Consolidation Loan before the Special Consolidation Loans are available, you will not be eligible for a Special Direct Consolidation Loan (or its interest reduction offers).

And the question on everyone's minds:

7. What benefits will I receive? As with any consolidation loan, it will mean you will only have one loan to repay. You will also be eligible for a 0.25 percent interest rate reduction on the FFEL loans you consolidate and, if the loan is repaid through the department's automatic debit system, you will receive an additional 0.25 percent interest rate reduction on the entire consolidated loan balance. Only Federal Direct loans are eligible for PSLF, so that's a benefit too.

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If you have questions about IBR, PSLF, your federal loans, or loan repayment assistance programs, register for one of our upcoming student debt relief webinars. And follow us on Twitter @EJW_org #studentdebthelp and visit us on Facebook to get all the latest educational debt information.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.