Did You Ever Wonder....About The Utilization of DL Rebates for 12 On-Time Payments?

Well, I did and made a FOIA request to the Department of Education to try and get an answer to the question.  I received this reply to my FOIA request:  Download 09-00279-F-1. 

Here is a description of how the rebate is achieved:

• Direct Stafford and Plus loans will receive a 1.5% rebate at the time of disbursement. This rebate is effective only when payments are made on time.  The rebate is given ‘up front’ to the borrower by being added to the borrower’s net disbursement (borrower gets additional money when the loan is disbursed to the school).  The borrower has the understanding that they must make twelve (12) consecutive on-time payments in order to keep the rebate. If the (12) payments are not made in accordance with the agreement, the rebate will be added back onto the loan.

Here is a summary of the utilization of this borrower benefit on an account basis (What percentage of accounts earned the benefit) as well as a dollarized basis (What percentage of total potential rebates was earned?) from August 2001 through October 2008: 

	%age Earning Rebate	%age Earning Rebate
Loan Type	(By Account)	(By Dollars)
Stafford	18.6%	13.2%
PLUS	40.4%	39.4%
Consolidation	47.0%	N/A

Analysis: 

• Those borrowers consolidating their loans tended to have the greatest success at making 12 on-time payments (47.0% of accounts), while Stafford borrowers had the lowest utilization, with only 18.6% of accounts meeting that standard. 
  
  • Consolidating borrowers with only a rebate (and not an interest rate reduction) had rebate achievement figures of over 60% on both an account and dollarized basis. 
  • The percentage of Stafford borrowers earning the rebate on a dollarized basis was even lower at 13.2% suggesting those borrowers with larger loan balances (and higher potential rebates) were even less likely to earn the rebate.
  • About 40% of PLUS borrowers achieved the rebate savings by making the first 12 payments on-time. 
• Stafford borrowers left over $350 million on the table by not making on-time payments during their first year in repayment. 
  
  • Hmmm...wonder if there is a business opportunity here. 
    
    • The proposition goes something like this:  I promise to pester you all year to make sure you make those first 12 payments on-time.  In return, you pay me $1 to pester you (2.5 million borrowers didn't earn a rebate)and a $1 success fee if you achieve the rebate.