Underpayments and Overpayments Tolerance Procedure of the U.S. Department of Education

Underpayment Tolerance Procedures

* If a loan holder receives a payoff from the Direct Consolidation Loan Program for a borrower's loan(s) that results in a net shortage (underpayment) for the borrower by a loan program type* of less than $25.00, the holder may write off the shortage.

* Loan program type refers to the individual loan programs such as Perkins, Subsidized, or Unsubsidized Stafford or PLUS loan.

NOTE: The net underpayment tolerance amount applies to each loan program type being consolidated by the borrower. Thus, a borrower with both Subsidized Stafford and Unsubsidized Stafford loans would have a net underpayment tolerance of $24.99 or less for the Subsidized Stafford loans, and a separate tolerance of $24.99 or less for the Unsubsidized Stafford loans.

* If a borrower has a net underpayment for one or more loan program types that is $25.00 or greater, the LOC will provide payment upon loan holder request. Please refer to the information that was provided with the initial payment for processing instructions. If the holder has a tolerance level greater than $25.00, it may use that higher amount. All underpayment requests must be reported promptly and adjusted to the correct underlying loan account, by loan program type, and must be identified in the request to the LOC.
* Whether the LOC is notified of a Direct Consolidation Loan request or not, loan holders are prohibited from billing the borrower for any underpayment and must notify the borrower that the loans are paid in full. See 34 CFR 685.215 (f)(2) and (5).
* In addition, the Direct Loan Servicing Center will not request an underpayment for less that $25.00 when a FFEL Consolidation of a Direct Loan has been made.

How to request an underpayment or return an overpayment of the U.S. Department of Education

Although U.S. Department of Education's process is designed to be as accurate as possible, there are instances in which the funds we send to payoff a loan are insufficient to satisfy the outstanding balance or are in excess of the current outstanding balance. We have designed the processes below to ensure that "Underpayments" and "Overpayments" are processed timely. Do not return the original payoff check issued by the Consolidation Department if there is an underpayment or overpayment associated with the loan.

Underpayments

If the Consolidation Department’s payment does not satisfy the account balance, use one or more of the following options to send all requests for insufficient funds:

Loan Holders Enrolled in Electronic Return Funds Service: Submit your Payment Adjustment Manifest by logging on to Electronic Payoff and Return Funds Services Online and proceed to the Online Manifest Selection web page section to submit your request. Loan holders enrolled in the EFT Payoff Service will receive underpayments in the next transmission cycle (transmission cycles occur twice a week).

Loan Holder Not Enrolled in Electronic Return Funds Service: Mail your organization’s request to the following address:

How does the U.S. Department of Education Pay Off a Borrower's Loan

The Direct Loans Consolidation Department (Consolidation Department) pays off loans using checks and electronic funds transfer (EFT). For each loan that is paid off, an individual check is mailed to the loan holder using U.S. Mail. If the loan holder is an agency, payment is accomplished through interagency transfers. If the loan holder is an agency that has enrolled in EFT Payoff Services, the Consolidation Department pays off collection costs using EFT.

For agencies and private loan holders participating in Electronic Payoff and Return Funds Services, payoff manifests are posted online concurrent with the release of payments sent through the ACH network or Fedwire. Payoff manifests are a detailed listing of loans being paid off by the Consolidation Department.

How to certify Loans Verification Certificate by U.S. Department of Education

Access the Federal Direct Consolidation Loan Verification Certificate for step by step instructions for filling out paper loan verification certificates (LVC).

Then logon to Electronic Verification Certification (EVC) Services Online and access the EVC User Manual for instructions on electronic exchange of LVC data.

If you have any questions regarding the processing of loan verification certificates, please contact Loan Holder Services at 1-888-799-2474, Monday through Friday from 8:00 AM to 5:00 PM Eastern Time.

What is Consolidation Process in U.S. Department of Education

When a borrower consolidates loans in the Direct Consolidation Loan Program, the U.S. Department of Education (Department) pays off the original Federal education loans and originates a new loan for the total amount of the loan(s) consolidated. Here's how that works:

Step 1: Application Review

We review the borrower's application and enter it into our system. If there is missing or incorrect information, we attempt to contact the borrower directly and/or send a letter identifying the needed information. If a borrower applied for the loan by phone or through the web, the Loan Consolidation Department sends a promissory note to be signed and returned by the borrower. The borrower has 14 days to provide the information to us or the application is cancelled.