Your Questions About Direct Loan Servicing

Nagesh answers:

Your best bet will be to go to NSLDS (National Student Loan Database System). This will let you know what loans have been taken out, and who they are currently being serviced by. This may happen many times throughout your payment period of your loans. Once you graduate, you may want to consider consolidating your loans.

After you graduate, you should take the Exit Counseling quiz. This will answer a lot of questions about repayment, forbearance, and deferment. You will not get one big bill. There will be 5 different types of repayment options. Most students are automatically on the “standard” plan. There are also extended, graduated, income-based, and one other payment plan that is available. The minimum monthly payment for a student loan is $50. You will have a 6-month grace period, and after that you will be expected to make payments on your account.

If you enroll in school again, whether it be for undergraduate or graduate classes, you may have the opportunity to submit an “in-school deferment” request. This can only be done if you are going to school full-time.

All-in-all, the finance company will contact you to let them know you owe them! Don’t worry about that part haha.

Nagesh answers:

Mohela is one of the approved servicers for the department of education. Though the loan is owned by the government, they pay servicers to hold and maintain the loans. Direct loans is also a servicer. You should still do your research that this is a legitimate transfer and not a scam, but is normal for your loans to change hands between different servicers. Check www.nslds.ed.gov to find information on your loans owned by the department of education, and who is servicing those loans. If Mohela is listed as the servicer, your loan has been transfered. If direct loans is still listed, you should contact them or the department of education to find out whats going on.

Nagesh answers:

Guaranteed Rural Housing Loans (Section 502)

INTRODUCTION

The Rural Housing Service (RHS) is a part of the U.S. Department of Agriculture (USDA). It operates a broad range of programs that were formerly administered by the Farmers Home Administration to support affordable housing and community development in rural areas. RHS both provides direct loans (made and serviced by USDA staff) and also guarantees loans for mortgages extended by others.

The RHS National Office is located in Washington, D.C., and is responsible for setting policy, developing regulations, and performing oversight. RHS employs a central collection and servicing center in St. Louis, Mo. And a computerized system called DLOS for Section 502 direct and Section 504 loans. In the field, RHS operations are carried out through the USDA’s RD offices. Each RD State Office administers programs in a state or multistate area. The organization of Rural Development offices within a state varies, but typically Area or District Offices supervise Local Offices (also termed county or community development offices) and do the processing and servicing of organizational loans and grants. Local Offices process single family housing applications, assist District Offices with organizational applications and servicing, and provide counseling to applicant families and backup servicing as needed.

PROGRAM BASICS

Purpose

The Section 502 Guaranteed Rural Housing Loan Program is designed to serve rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing. These loans enable low- and moderate-income rural residents to acquire modestly priced housing for their own use as a residence through the purchase of a new or existing dwelling or the purchase of a new manufactured home. In this variation of the Section 502 program, RHS does not make a loan directly to an eligible borrower, but guarantees a loan made by a commercial lender. This guarantee substantially reduces the risk for lenders, thus encouraging them to make loans to rural residents who have only modest incomes and little collateral.

Eligibility

An eligible applicant must have an adequate and dependable income (up to 115 percent of adjusted area median income [AMI]) and a decent credit history, and be unable to qualify for conventional mortgage credit. RHS uses two formulas to determine a family’s ability to undertake the responsibility of a mortgage. First, the burden of principal, interest, taxes, and insurance (PITI) must be 29 percent or less of gross monthly income. Second, the total of monthly debts must be 41 percent or less of the gross monthly income.

Terms

Loans must be from lending institutions that have been approved by RHS. Loans have 30-year terms and fixed rates at market interest rates. Loans may be for up to 100 percent of market value or for acquisition cost, whichever is less. The maximum loan amount is based on what the homeowner can afford. Loans may include closing costs, legal fees, title services, cost of establishing an escrow account, and other prepaid items as long as the appraised value is higher than the sales price. In addition, RHS charges the lender with a one-time guarantee fee of 2 percent of the loan amount. The lending institution may choose to pass this charge along to the borrower. No private mortgage insurance is required, and the loans have Fannie Mae and Ginnie Mae acceptability on the secondary market.

RHS guarantees the loan at 100 percent of the loss for the first 35 percent of the original loan and the remaining 65 percent at 85 percent of loss. The maximum loss payable by RHS cannot exceed 90 percent of the original loan amount.

Standards

The residence to be purchased with the guaranteed loan must conform to the CABO Model Energy Code and to the structure, facility, and termite standards established by the U.S. Department of Housing and Urban Development. There are no restrictions on size or design. Typical amenities, except in-ground swimming pools, are allowed. Manufactured homes must be new and permanently installed.

Approval

Interested borrowers should contact their local Rural Development office for more information on the program and a list of approved lenders. The loan application itself is made with the approved lender, and is subject to their schedule for loan approval. Approximately 30 percent of guaranteed 502 loans are made to families with incomes below 80 percent of AMI.

Basic Instruction

Instruction 1980-D.

Differences Between the Section 502 Guaranteed and Direct Loan Programs

There are several other Section 502 loan programs, but the only one which approaches the guaranteed program in number of loans granted is the Homeownership Direct Loan Program. This program once accounted for almost all the Section 502 loans, but the number of guaranteed loans has greatly increased in the last few years. In Fiscal Year 2001, the guaranteed program obligated approximately $2.3 billion for 29,326 loans, while the direct program obligated approximately $1.07 billion for a total of 14,789 loans. The important differences between the Section 502 guaranteed and direct loan programs are as follows:

* The lender for Section 502 guaranteed loans is a private savings and loan institution, bank, or mortgage company which also handles all the loan servicing. The lender for the direct program is the Rural Housing Service; Rural Development handles the servicing.
* Income levels for Section 502 guaranteed borrowers are capped at 115 percent of the area median income. Income levels for the direct program must be no more than 80 percent of the AMI.
* Payment assistance subsidy is not available through the guaranteed program. Payment assistance, which can reduce the interest paid on the mortgage to as low as 1 percent, is available for borrowers in the direct program and is based on the borrower’s income as a percent of AMI.
* Borrower protections differ between the programs. Applicants for guaranteed loans do not have the rights of moratorium or of appeal that accompany the direct program. Also, in the case of default, Section 502 guaranteed loans are liquidated by the commercial lender, while direct loans are liquidated by the government.

ADDITIONAL INFORMATION

For additional information on Section 502 and RHS, contact the RHS National Office, 1400 Independence Avenue, S.W., Room 5037S, Washington, D.C. 20250; 202-720-4323. Contact your Rural Development State Office to find out the location of the Local Office closest to you. (Visit http://www.rurdev.usda.gov/recd_map.html for the address and telephone number of your State Office.) Copies of RHS regulations are available at http://www.rurdev.usda.gov/regs/.

HAC’s publications list, all information sheets, and most full-length manuals and reports may be obtained free from HAC’s web site at www.ruralhome.org. A printed copy of the publications list is available free, and copies of manuals and reports are available for a charge to cover costs, from HAC, 1025 Vermont Avenue, N.W., Suite 606, Washington, D.C. 20005; 202-842-8600.

This Information Sheet was prepared by the Housing Assistance Council. The work that provided the basis for this publication was supported by funding from the Ford Foundation; an earlier version was supported by funding under Cooperative Agreement H-5925 CA with the U.S. Department of Housing and Urban Development. The substance and finding of that work are dedicated to the public. The publisher is solely responsible for the accuracy of the statements and interpretations contained in this publication and such interpretations do not necessarily reflect the views of the government.

Nagesh answers:

Most students borrow federal loans first. These are subsidized and unsubsidized Direct Stafford loans that you apply for by completing the FAFSA (Free application for Federal Student Aid). Federal loans are awarded on an annual basis, so you have to reapply each year. You can borrow up to the entire cost of attendance for that year provided the amount does not exceed your eligibility. However, the amounts that you would be eligible for are limited and often there is not enough to cover the entire cost of attendance. For example, a full time first year dependent student is normally eligible for $5,500. An independent would be eligible for $9,500. Given that the cost of attendance at most colleges will exceed those amounts, in most cases you will have to find at least some funding from another source. You might be eligible for some state grants or school scholarships to help cover some of this, but often there will be a gap between the aid that is offered and the cost of the school that will have to be covered by private loans.

Each private loan company sets its own policies, but typically they will limit borrowing to the amount needed to meet the cost of attendance for one year. In most cases, unless you are an adult student with established credit, you will need a credit worthy co-signer, but in some cases this co-signer can be removed after you make a number of on-time payments.

As far as lenders go, you would have to check several and compare, because they vary quite a bit. I seem to hear more complaints about service from SallieMae than about other companies from the students I work with. But on the other hand, they also seem to have competitive rates and offer more generous terms than some other companies. The problems seem to come when a student starts getting involved with forbearances or is flirting with default. If you are someone who pays your bills on time, you probably won’t have any problems with SallieMae.

Nagesh answers:

I am assuming these are federal student loans. Federal student loans (stafford, plus, etc) have to be serviced in accordance of what he US Dept of Ed says. This is what consolidastion does regardless of what company:

1. Locks in the current interest rate you have (rounded to the next highest 1/8%). If you have mult interest rates, you will get a weighted average.

Since you receive a lower interest rate during in school or in grace, it is wise to consolidate during your grace period, BUT at the end of your grace period. Since consolidations take 30-45 days to go through, it is wise to time your consol smartly. Apply for your consolidation 45 days before your first payment due date. This will ensure that you lock in your current “in grace” rate AND keep your full 6 month grace period.

NOW – here’s what you getting in the mail – SPAM

They can offer you a reduction for auto debit from your checking account (.25% – most student loan comanies do this anyways- consolidation or not)

They can offer a discount for on time payments.

The US Dept of Ed uses ONE company to service their loans. That company is William D Ford, The Direct Loan Program. Now YOU can choose to go through someone else, but you may face your loan being sold left and right – an how can you make on time paymwnts with that??

I worked for Direct Loans for 7 years. We are scrutized closely by the federal government. They made sure we serviced the loans correctly and fairly.

Whomever you choose, I would ask a million questions, read everything they give and remember that once you’ve consolidated, you cannot re-consolidate and you are locked in.

Direct Loans ph # 1-800-848-0979