January 14, 2009
Do You Service Consolidation Loans?
Due to system constraints, many servicers must track the different portions (subsidized, unsubsidized, and HEAL loans) of a single consolidation loan separately in their systems. In some cases, the separate portions of the loan may reflect different due dates and different due diligence histories as a result of, for instance, the application of a deferment to only one portion of the loan.
To address this problem, the Common Manual Governing Board approved Policies 991 and 997 at its November 20, 2008 meeting. These policies were developed to specify the violations and penalties that may be incurred when the separate portions of a single consolidation loan are not serviced synchronously, and how a lender may cure those violations.
Policy 991 updated various sections of the manual to state that:
- The first disbursement date for the consolidation loan, or the application receipt date, establishes the terms and conditions for every loan servicing record established under a single promissory note.
- The assignment, sale or transfer of a consolidation loan must be reported simultaneously for the entire consolidation loan.
- A single repayment schedule, with a single due date and amount, must be established for the consolidation loan.
- A deferment or forbearance must be applied for the same period of time to each portion of a consolidation loan.
- Due diligence must be performed on a single due date and payment amount for a single consolidation loan.
- For claim filing purposes, all loan records related to a single consolidation loan promissory note must be filed as one claim package or at the same time with the guarantor.
Policy 997 updates the manual to state that the lender may incur due diligence violations sufficient to cause a loss of guarantee on the entire loan if separate portions of a single consolidation loan are not serviced synchronously. Due diligence activities will be evaluated based on the correct due date, and penalties for any violations identified will be assessed in the normal manner. If the violations result in a loss of guarantee, the lender must follow the established procedures to cure the violations.
For more information about consolidation loans, contact OGSLP’s Policy, Compliance and Training (PCT) department at 405.234.4432 or pct@ogslp.org. We’re here to help!