[Code of Federal Regulations] [Title 34, Volume 3] [Revised as of July 1, 2003] From the U.S. Government Printing Office via GPO Access [CITE: 34CFR685.220] [Page 863-866] TITLE 34--EDUCATION DEPARTMENT OF EDUCATION PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents Subpart B--Borrower Provisions Sec. 685.220 Consolidation. (a) Direct Consolidation Loans. A borrower may consolidate one or more education loans made under certain Federal programs into one or more Direct Consolidation Loans. Loans consolidated into a Direct Consolidation Loan are discharged when the Direct Consolidation Loan is originated. (b) Loans eligible for consolidation. The following loans may be consolidated into a Direct Consolidation Loan: (1) Federal Stafford Loans. (2) Guaranteed Student Loans. (3) Federal Insured Student Loans (FISL). (4) Direct Subsidized Loans. (5) Direct Subsidized Consolidation Loans. (6) Federal Perkins Loans. (7) National Direct Student Loans (NDSL). (8) National Defense Student Loans (NDSL). (9) Federal PLUS Loans. (10) Parent Loans for Undergraduate Students (PLUS). (11) Direct PLUS Loans. (12) Direct PLUS Consolidation Loans. (13) Federal Unsubsidized Stafford Loans. (14) Federal Supplemental Loans for Students (SLS). (15) Federal Consolidation Loans. (16) Direct Unsubsidized Loans. (17) Direct Unsubsidized Consolidation Loans. (18) Auxiliary Loans to Assist Students (ALAS). (19) Health Professions Student Loans (HPSL) and Loans for Disadvantaged Students (LDS) made under subpart II of part A of title VII of the Public Health Service Act. [[Page 864]] (20) Health Education Assistance Loans (HEAL). (21) Nursing loans made under subpart II of part B of title VIII of the Public Health Service Act. (c) Types of Direct Consolidation Loans. (1) The loans identified in paragraphs (b)(1) through (8) of this section may be consolidated into a Direct Subsidized Consolidation Loan. (2) The loans identified in paragraphs (b)(9) through (12) of this section may be consolidated into a Direct PLUS Consolidation Loan. (3) The loans identified in paragraphs (b)(13) through (21) of this section may be consolidated into a Direct Unsubsidized Consolidation Loan. In addition, Federal Consolidation Loans under (b)(15) of this section may be consolidated into a Direct Subsidized Consolidation Loan, if they are eligible for interest benefits during a deferment period under Section 428C(b)(4)(C) of the Act. (d) Eligibility for a Direct Consolidation Loan. (1) A borrower may obtain a Direct Consolidation Loan if, at the time the borrower applies for such a loan, the borrower meets the following requirements: (i) The borrower either-- (A) Has an outstanding balance on a Direct Loan; or (B) Has an outstanding balance on an FFEL loan and asserts either-- (1) That the borrower is unable to obtain an FFEL consolidation loan; or (2) That the borrower is unable to obtain an FFEL consolidation loan with income-sensitive repayment terms acceptable to the borrower and is eligible for the income contingent repayment plan under the Direct Loan Program. (ii) On the loans being consolidated, the borrower is-- (A) In an in-school period and seeks to consolidate loans made under both the FFEL Program and the Direct Loan Program; (B) In an in-school period at a school participating in the Direct Loan Program and seeks to consolidate loans made under the FFEL Program; (C) In a six-month grace period; (D) In a repayment period but not in default; (E) In default but has made satisfactory repayment arrangements, as defined in applicable program regulations, on the defaulted loan; or (F) In default but agrees to repay the consolidation loan under the income contingent repayment plan described in Sec. 685.208(f) and signs the consent form described in Sec. 685.209(d)(5). (iii) The borrower certifies that no other application to consolidate any of the borrower's loans listed in paragraph (b) of this section is pending with any other lender. (iv) The borrower agrees to notify the Secretary of any change in address. (v) In the case of a Direct PLUS Consolidation Loan-- (A) The borrower may not have an adverse credit history as defined in Sec. 685.200(b)(7)(ii); or (B) If the borrower has such an adverse credit history, the borrower shall obtain an endorser for the consolidation loan who does not have an adverse credit history or provide documentation satisfactory to the Secretary that extenuating circumstances relating to the borrower's credit history exist. (vi) In the case of a defaulted Direct Consolidation Loan, the borrower obtains the approval of the Secretary. (vii) In the case of a loan on which the holder has obtained a judgment, the borrower obtains the approval of the Secretary. (2) Two married borrowers may consolidate their loans together if they meet the following requirements: (i) At least one spouse meets the requirements of paragraphs (d)(1)(i) and (d)(1)(v) of this section. (ii) Both spouses meet the requirements of paragraphs (d)(1) (ii) through (d)(1)(iv) of this section. (iii) Each spouse agrees to be held jointly and severally liable for the repayment of the total amount of the consolidation loan and to repay the loan regardless of any change in marital status. (e) Application for a Direct Consolidation Loan. To obtain a Direct Consolidation Loan, a borrower or borrowers shall submit a completed application to the Secretary. A single application may be used for one or more consolidation loans. A borrower may add eligible loans to a Direct Consolidation Loan by submitting a request to the Secretary within 180 days after the date on [[Page 865]] which the Direct Consolidation Loan is originated. (f) Origination of a consolidation loan. (1)(i) The holder of a loan that a borrower wishes to consolidate into a Direct Loan shall complete and return the Secretary's request for certification of the amount owed within 10 business days of receipt or, if it is unable to provide the certification, provide to the Secretary a written explanation of the reasons for its inability to provide the certification. (ii) If the Secretary approves an application for a consolidation loan, the Secretary pays to each holder of a loan selected for consolidation the amount necessary to discharge the loan. (iii) For a Direct loan or FFEL Program loan that is in default, the Secretary limits collection costs that may be charged to the borrower to no more than those authorized under the FFEL Program and may impose reasonable limits on collection costs paid to the holder. (2) Upon receipt of the proceeds of a Direct Consolidation Loan, the holder of a consolidated loan shall promptly apply the proceeds to fully discharge the borrower's obligation on the consolidated loan. The holder of a consolidated loan shall notify the borrower that the loan has been paid in full. (3) The principal balance of a Direct Consolidation Loan is equal to the sum of the amounts paid to the holders of the consolidated loans. (4) If the amount paid by the Secretary to the holder of a consolidated loan exceeds the amount needed to discharge that loan, the holder of the consolidated loan shall promptly refund the excess amount to the Secretary to be credited against the outstanding balance of the Direct Consolidation Loan. (5) If the amount paid by the Secretary to the holder of the consolidated loan is insufficient to discharge that loan, the holder shall notify the Secretary in writing of the remaining amount due on the loan. The Secretary promptly pays the remaining amount due. (g) Interest rate. The interest rate on a Direct Subsidized Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the rate established in Sec. 685.202(a)(3)(i). The interest rate on a Direct PLUS Consolidation Loan is the rate established in Sec. 685.202(a)(3)(ii). (h) Repayment plans. A borrower may repay a Direct Consolidation Loan under any of the repayment plans described in Sec. 685.208, except that-- (1) A borrower may not repay a Direct PLUS Consolidation Loan under the income contingent repayment plan; and (2) A borrower who became eligible to consolidate a defaulted loan under paragraph (d)(1)(ii)(E) of this section shall repay the consolidation loan under the income contingent repayment plan unless-- (i) The borrower was required to and did make a payment under the income contingent repayment plan in each of the prior three (3) months; or (ii) The borrower was not required to make payments but made three reasonable and affordable payments in each of the prior three (3) months; and (iii) The borrower makes and the Secretary approves a request to change plans. (i) Repayment period. (1) Except as noted in paragraph (i)(4) of this section, the repayment period for a Direct Consolidation Loan begins on the day the loan is disbursed. (2) Under the extended or graduated repayment plan, the Secretary determines the repayment period under Sec. 685.208(e) on the basis of the outstanding balances on all of the borrower's loans that are eligible for consolidation and the balances on other education loans except as provided in paragraph (i)(3) of this section. (3)(i) The total amount of outstanding balances on the other education loans used to determine the repayment period under the graduated or extended repayment plan may not exceed the amount of the Direct Consolidation Loan. (ii) The borrower may not be in default on the other education loan unless the borrower has made satisfactory repayment arrangements with the holder of the loan. (iii) The lender of the other educational loan may not be an individual. (4) A Direct Consolidation Loan receives a grace period if it includes a Direct Loan or FFEL Program loan for [[Page 866]] which the borrower is in an in-school period at the time of consolidation. The repayment period begins the day after the grace period ends. (j) Repayment schedule. (1) The Secretary provides a borrower of a Direct Consolidation Loan a repayment schedule before the borrower's first payment is due. The repayment schedule identifies the borrower's monthly repayment amount under the repayment plan selected. (2) If a borrower adds an eligible loan to the consolidation loan under paragraph (e) of this section, the Secretary makes appropriate adjustments to the borrower's monthly repayment amount and repayment period. (k) Refunds and returns of title IV, HEA program funds received from schools. If a lender receives a refund or return of title IV, HEA program funds from a school on a loan that has been consolidated into a Direct Consolidation Loan, the lender shall transmit the refund or return and an explanation of the source of the refund or return to the Secretary within 30 days of receipt. (l) Special provisions for joint consolidation loans. The provisions of paragraphs (l)(1) through (3) of this section apply to a Direct Consolidation Loan obtained by two married borrowers. (1) Deferment. To obtain a deferment on a joint Direct Consolidation Loan under Sec. 685.204, both borrowers must meet the requirements of that section. (2) Forbearance. To obtain forbearance on a joint Direct Consolidation Loan under Sec. 685.205, both borrowers must meet the requirements of that section. (3) Discharge. (i) If a borrower dies and the Secretary receives the documentation described in Sec. 685.212(a), the Secretary discharges an amount equal to the portion of the outstanding balance of the consolidation loan, as of the date of the borrower's death, attributable to any of that borrower's loans that were repaid by the consolidation loan. (ii) If a borrower meets the requirements for total and permanent disability discharge under Sec. 685.212(b), the Secretary discharges an amount equal to the portion of the outstanding balance of the consolidation loan, as of the date the borrower became totally and permanently disabled, attributable to any of that borrower's loans that were repaid by the consolidation loan. (iii) If a borrower meets the requirements for discharge under Sec. 685.212(d), (e), or (f) on a loan that was consolidated into a joint Direct Consolidation Loan, the Secretary discharges the portion of the consolidation loan equal to the amount of the loan that would be eligible for discharge under the provisions of Sec. 685.212(d), (e), or (f) as applicable, and that was repaid by the consolidation loan. (iv) If a borrower meets the requirements for loan forgiveness under Sec. 685.212(h) on a loan that was consolidated into a joint Direct Consolidation Loan, the Secretary repays the portion of the outstanding balance of the consolidation loan attributable to the loan that would be eligible for forgiveness under the provisions of Sec. 685.212(h), and that was repaid by the consolidation loan. (Approved by the Office of Management and Budget under control number 1845-0021) (Authority: 20 U.S.C. 1078-8, 1087a et seq.) [59 FR 61690, Dec. 1, 1994. Redesignated and amended at 64 FR 58969, 58970, 59044, Nov. 1, 1999; 65 FR 37045, June 13, 2000. Redesignated at 65 FR 65629, Nov. 1, 2000, as amended at 66 FR 34765, June 29, 2001; 67 FR 67082, Nov. 1, 2002]