Boston University Medical Campus
Student Financial Services

FFELP CONSOLIDATION

The Emergency Student Loan Consolidation Act of 1997 (passed on November 13, 1997) allowed Direct Loan borrowers to consolidate their federal loans through the Federal Family Education Loan Program (FFELP) Consolidation Loan Program as long as all loans were in grace, deferment or repayment status. This type of consolidation – owned, originated and serviced by a private lender – was previously available only to those whose Stafford loans were all borrowed from private lenders. Once issued, additional loans could only be added during the ensuing 180 days. A lender had the right to exclude certain loan types from their consolidation program as long as they did so for every applicant. Therefore, if planning to include a HEAL loan, verification that the lender would allow it was needed in the beginning.

There are three types of Federal Consolidation Loans: Subsidized, Unsubsidized and HEAL. The interest rate on the Subsidized and Unsubsidized portions of the account is identical to the Direct Consolidation rate: 3.1% above the 91-Day U.S. Treasury Bill rate, set each June 1st for the following July-June period, capped at 8.25%. But the HEAL portion, if there is one, is subject to a rate calculated by adding 3% to the 91-Day T-Bill rate, without a cap. Since your current HEAL terms are likely superior, there is little incentive to include HEAL in a Federal Consolidation Loan. The .5% interest rate discount during in-school, grace and deferment periods on Stafford Loans issued on/after July 1, 1995 does not apply on a Federal Consolidation Loan. Deferment provisions on the entire consolidated debt are identical to those of your current Stafford loans; deferment eligibility is not renewed.

Repayment schedule options are similar to those of the Federal Direct Consolidation Loan program described above, with the exception that the income contingent schedule is not available. In its place is an income sensitive schedule, which works in the same way but requires that a minimum of the accrued interest must be paid each month. Options may vary depending on which lender you choose. To obtain specific information, contact the current servicer of the loans you wish to consolidate.

CONSOLIDATING HEAL: Once you graduate, you may consolidate all of your HEAL loans under the HEAL Refinancing program. You may only consolidate once, and all of your HEAL loans must be included in the consolidation. There are four reasons why you may want to consider HEAL Refinancing: cost, expanded deferment eligibility, payment relief, and/or convenience.

Cost: You could lower your interest charges by consolidating. It is possible, though not certain that your older HEALs are charging a higher rate than you may obtain through this program. The margin added to the 91-Day U.S. Treasury Bill rate ranges from 1.8% to 3%, depending on which consolidation lender you select. Compare this rate with your current loan’s interest rates. (It is important to note that a consolidated HEAL has no cap on the interest rate, whereas some of your older loans may have an 18% cap.) In addition, you may be able to decrease the number of times interest is capitalized, which occurs between graduation and repayment (during deferment periods). If you do not plan to defer repayment, compare lenders on the basis of interest rate and quality of customer service only. If you plan to defer payments, also take the interest capitalization policy into account. A current chart comparing the terms offered by HEAL Refinancing lenders may be found at the Dept. of Health and Human Services Division of Student Assistance (DHHS/DSA) website.

Renewal of Deferment Eligibility: When a consolidated HEAL is created, you become eligible for the full range of deferments that you were eligible for on your original loans. This is particularly valuable for residents whose training programs will exceed the four year period permitted for residency deferment. For instance, if you use one year of residency deferment eligibility on your separate loans and then consolidate, you will be eligible for four additional years of deferment on the consolidated loan, for a total of five years. Consolidation may also be valuable to primary health care practitioners, whose older loans may not offer the three year deferment for primary care practice (following a residency). Keep in mind that interest accrues during periods of deferment. You may, however, make unlimited payments to the principal balance during deferment periods without penalty.

Flexibility: If you are unable to make the minimum monthly payment that is required for your HEAL loans, HEAL Refinancing offers you a variety of graduated and income contingent repayment options. Typically, your payments are initially lower than usual and gradually increase as your income increases. Although such options offer some relief to your monthly budget, they are more costly than a standard repayment schedule since you are decreasing the principal balance at a slower rate. It is also possible that the monthly payment amount during the latter part of the repayment period will be higher than you would have experienced under a standard schedule, since you may not take more than 25 years to repay the loan.

Convenience: You may find it more convenient to have one (as opposed to multiple) HEAL loan when making payments and filing deferment forms. If you have HEAL loans being serviced in more than one location, you may request that one of those organizations purchase your other HEAL loans and either consolidate them or combine them. With loan combination, the individual loans remain separate entities (and retain their original terms), but the servicer combines them on a single billing statement. With consolidation, the original loans are paid off and a new loan is created under new terms. Lenders are required to sell HEAL loans to another lender if they are being consolidated, but are not required to do so if they are only being combined.

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