Most of you have heard about your students’ loans being “PUT” to the Department of Education (ED), and some of you may even know what that means. If you don’t fully understand what happens when students’ loans are PUT to ED, read on for a brief explanation. Once you understand the why and where, then the discussion of what it means to you and your students will make more sense.

In 2008, many lenders were having difficulty accessing funds to continue lending student loans. Since FFELP was the predominant source of student loans at that time, there was real concern that students and parents would not have access to funding for the coming school year. The Ensuring Continued Access to Student Loans Act of 2008 (HR 5715) was signed into law to make sure funds would be available. Better known as ECASLA, this law included an allowance for ED to purchase certain fully disbursed FFELP loans from lenders or loan holders. This in turn provided much needed liquidity in the market. Lenders could take the money that they made from selling loans in their portfolio and provide funding for new loans. These FFELP loans that were sold would then be serviced by one of five servicers identified by the Department of Education.

Affected borrowers receive notice from their loan holder that their loan is being sold. They also receive a welcome letter from ED with information on where payments must be sent and where they can access information. Unfortunately, students may have some loans sold to ED, but not others. And while ED will make every effort to ensure that all loans sold to them for a particular borrower are serviced by the same servicer, this is not guaranteed. Having some loans PUT and others not would result in the borrower having more than one student loan payment each month. Now add in the fact that all loans going forward will be made through the Direct Loan Program (DL). Students could have 3 or more payments to make each month once they go into repayment. Even if their FFEL, PUT, and or Direct Loan are serviced at the same place, they will not be able to combine the payments. Each would have to be paid separately.

The timing could also get a bit confusing. The sale of the loans could happen while the borrower is still in school or it could happen after they are out. There could be a lag of up to 30 days before NSLDS is updated, so that even a diligent borrower who is trying to keep track of what is happening with their loans may not have access to up-to-date information. And how many of our borrowers are that diligent? Truthfully… we’re lucky if our borrowers even remember who they borrowed from in the first place. Now throw in the idea of some of their loans being sold to ED, some remaining with the original lender or even being serviced by a servicer contracted by the original lender and the fun really begins! Not to mention that throughout this timeframe, lenders have been pulling out of the business which meant that some of your borrowers had to pick a different lender in order to access additional student loans. All of these factors have created a less then ideal scenario for your student loan borrowers.

The Health Care and Education Reconciliation Act of 2010 (HCERA) recognized the likelihood that borrowers would have loans with more than one holder and made an allowance for current students to have the ability to take out a Consolidation loan for one year (July 1, 2010 – June 30, 2011). But there are some drawbacks you should make your students aware of. If a student takes advantage of this consolidation option while they are in school, they will lose their grace period. They will go into repayment immediately after leaving school (potentially even throughout the summer months between school years) if they don’t take some action to apply for a deferment or forbearance.

The school will need to be extra attentive to borrowers during this time. Providing specific information about the current student loan environment without completely overwhelming the borrower will be the balance schools must attempt to achieve. It will be very important, especially at Exit Counseling, to make sure that student loan borrowers understand that the entity they are repaying may not be the same one from which they borrowed – through no fault of their own. The school must make clear the importance of reading all mail and following through on all instructions. Even though the borrower may think that they have everything in place, things could still change, and the borrower should be made aware of that.

Information for borrowers is available from many of your existing loan partners. Even though you will be processing loans through the Direct Loan program going forward, your current partners will continue to work with existing loans (until and unless they are PUT) and are still available to help you educate your borrowers about the repayment process.