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Direct Consolidation

If you have several federal student loans, you may want to combine or consolidate them into one loan. You might consider this option in order to:

  • Lower your monthly payment amount by extending the repayment period
  • Lock in a lower fixed interest rate for the entire repayment period of the loan
  • Combine multiple loan balances under a single loan holder — the US Department of Education (ED) — so that you have to make only one monthly student loan payment

You might want to take advantage of loan consolidation if you can receive a lower Consolidation loan interest rate than the rates you agreed to when you agreed to the loans initially. However, if you consolidate a Direct loan while you’re still in your grace period, you forfeit any remaining grace period and the interest subsidies paid on your behalf on that loan during that period, and you have to begin making payments on your Consolidation loan within 60 days of the consolidation. Therefore, if it’s advantageous for you to take out a Consolidation loan, try to consolidate toward the end of your grace period.

If you’re having trouble making the scheduled monthly payments on your current loans, you can lower each month’s payment by consolidating your loans and extending your repayment period from 10 to up to 30 years. Paying your debt over a longer period of time means you’ll make lower monthly payments, but for a longer time. Extending the repayment term means you’ll pay more interest over the life of your Consolidation loan, and wind up paying more for your loan in total. If you consolidate your loans, your best strategy is to request the shortest repayment period that you can afford that lets you meet minimum payment standards. This will enable you to pay off your loan more quickly and save more interest. And remember, there is no penalty for making prepayments on your loan.

If you consolidate all of your federal student loans, you’ll make monthly payments to only one loan holder, the Department of Education, which may mean less paperwork. By doing that, however, some borrowers may give up some benefits that their existing Stafford, Direct, or Perkins loans provide, such as deferment eligibility or loan cancellation options.

You can consolidate multiple Direct loans while you’re in your grace period (the six months after you leave school before you start making payments) or in repayment, including during a period of deferment or forbearance.

Remember, however, that you are not required to consolidate your federal student loans.

Consolidation is a decision that you should not take lightly. Because consolidation is often a one-time decision, learn as much as possible before deciding. Check out our Direct Consolidation FAQ below as a starting point.

Access the Department of Education’s Direct Consolidation Loans website for more information about obtaining a Direct Consolidation loan.

Direct Consolidation FAQ

No.

A FFELP Consolidation Loan borrower may consolidate that loan into a Direct Consolidation Loan for purposes of:

  • Obtaining the benefit of public service loan forgiveness.
  • Seeking an income-contingent repayment (ICR) or income-based repayment (IBR) plan if the borrower’s loan holder has requested default aversion assistance from the guarantor.
  • Seeking an ICR or IBR plan if the borrower has filed an adversary complaint in a bankruptcy proceeding.

Ask the servicer to figure out what your monthly payment will be if you consolidate, how long it will take to pay the total loan balance, and what you’ll have paid in total at the end of your payments. If the servicer offers you an extended repayment period so that you can have a lower monthly payment, remember that a lower monthly payment may seem appealing, but it may also cause you to pay a lot more in interest over the life of your Consolidation loan.

Ask the servicer to help you figure out whether you should include all of your eligible student loans in a Direct Consolidation Loan. There may be advantages or disadvantages to consolidating certain loans.

It’s not a good idea to consolidate if the interest rate you’ll pay on your Consolidation loan is higher than the rate you’re paying on your current loans.

You can contact the Direct Loan servicer or your school financial aid office for more information about consolidation.

No. If your Direct Consolidation Loan servicer receives information from your school that you are enrolled once again on at least a half-time basis, or receives your request for an in-school deferment, your servicer will change your Consolidation loan status to in-school deferment. You won’t be required to make payments on your Consolidation loan until you drop to less-than-half-time enrollment or graduate. Of course, you can always make loan payments while you’re in school. Every payment you make can potentially reduce the amount of interest that accrues on your Consolidation loan.

Keep in mind that you don’t receive a grace period on your Consolidation loan. You’ll enter repayment within 60 days after you drop to less-than-half-time enrollment or graduate.

However, if you take out additional Direct Subsidized or Direct Unsubsidized loans while you’re back in school, you’ll be eligible for a grace period on those loans after you drop to less-than-half-time enrollment or graduate.

Consolidation loans have most of the same deferments that Direct Subsidized and Direct Unsubsidized loans have. You lose a few deferment options upon consolidation, but the ones most frequently used by borrowers (the in-school deferment, unemployment deferment, and economic hardship deferment) are still available for a Consolidation loan.

Direct Consolidation Loan borrowers remain eligible for forbearance. Forbearance provisions for consolidation loan borrowers are the same as those for Direct Subsidized, Direct Unsubsidized, and Direct PLUS borrowers. Contact your ED servicer for more information about forbearance options.

Yes, you can consolidate during a period of deferment, and in some cases this may allow you to obtain a lower Consolidation loan interest rate. If you have variable-rate Stafford or Direct loans that were first disbursed before July 1, 2006, the interest rate on those loans has two levels. The interest rate is lower when you’re in school, in your grace period (the six months after you leave school before you have to start paying back your loans), and in periods of deferment. The interest rate is higher when you’re in repayment. So if you consolidate a variable-rate Stafford or Direct loan while you’re in a period of deferment, the interest rate on that loan can be as much as 0.6% lower, which will have a positive effect on the calculation of your Consolidation loan interest rate.

If you consolidate during an in-school deferment, keep in mind that you can only include loans that have been fully disbursed in your Consolidation loan. Any future loans that you intend to take out while continuing your education will have to be repaid separately.

You can view a list of all of your federal education loans by going to the National Student Loan Data System (NSLDS) website and using your Federal Student Aid (FSA) ID to access your data.

No.

Yes, as long as you are the borrower of both loans, you can include both of them in a Direct Consolidation Loan. As a matter of fact you can consolidate any of the following types of loans into a Direct Consolidation Loan:

  • FFELP loans (Stafford, PLUS, SLS, and prior Consolidation loans)
  • FDLP, or Direct, loans (Direct Subsidized, Direct Unsubsidized, PLUS, and prior Consolidation loans)
  • FISL loans
  • Perkins loans (formerly National Student Defense Loans)
  • Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)
  • Nursing Student Loans (NSL)
  • Health Education Assistance Loans (HEAL)

Note: If you consolidate a Direct Parent PLUS loan with the other loans listed above, the resulting consolidation loan is not eligible for repayment under the Income-Based Repayment Plan.

No, you cannot consolidate private or alternative loans into a Direct Consolidation Loan. However, if you do decide to take out a Direct Consolidation Loan, your loan servicer will consider your total education loan debt when determining the maximum length of your repayment period under the Consolidation loan. Access the Direct Consolidation Loans website for more information about this.

It’s your decision, but make sure you think it out before taking this step.

One factor to keep in mind is that you may lose certain borrower benefits of Perkins loans, such as loan cancellation or deferment benefits, if you include them in a Consolidation loan. Talk to the school that holds your Perkins loan for more information.

Consolidation loans don’t have all of the deferments that Direct Subsidized and Direct Unsubsidized loans do. However, the deferment options most frequently used by borrowers — the in-school deferment, unemployment deferment, and economic hardship deferment — are also available for Consolidation loans.

Yes. If you extend the repayment period you’ll pay more interest over the life of your Consolidation loan. Don’t be tempted to take a longer repayment period if you can afford the monthly payments at the shorter repayment period; you’ll save more money in the long run.

The maximum length of your repayment period depends on the balance of your Consolidation loan and other education loans you may have. It can be from 10 years to 30 years depending on your balance. Your lender can tell you the maximum repayment period you’re allowed based on your balance, but remember, you don’t have to take that long to repay your loan. Taking less time than the maximum will save you at least some of the interest you’ll add to your balance by lengthening your repayment period.

Yes, you can prepay your Direct Consolidation Loan at any time without penalty, just as you can any other Direct loan. Paying extra on your loan’s principal whenever possible will reduce the amount of interest you pay over the life of your loan. Contact your Direct loan servicer for more information about prepayment.

The Income-Based Repayment (IBR) plan may be an option. IBR is an alternative student loan repayment plan available for FFELP and Direct loan borrowers. Unlike other repayment plans, which may require a one-size-fits-all payment amount, IBR establishes a monthly payment that looks at your unique situation by considering your income, family size, and federal student loan debt. ED has developed a fact sheet that provides more information about the various income-driven repayment plans. Contact your Direct Consolidation Loan servicer for more information about all available repayment options.

FFELP Consolidation FAQ

A FFELP Consolidation loan borrower may consolidate that loan into an FDLP Consolidation loan for purposes of:

  • Obtaining the benefit of public service loan forgiveness.
  • Seeking an income-contingent repayment (ICR) or Income-Based Repayment (IBR) plan if the borrower’s loan holder has requested default aversion assistance from the guarantor.
  • Seeking an ICR or IBR plan if the borrower has filed an adversary complaint in a bankruptcy proceeding.

No. If your lender receives information from your school that you’re enrolled once again on at least a half-time basis, or receives your request for an in-school deferment, your lender will put your Consolidation loan into an in-school deferment status. You won’t be required to make payments on your Consolidation loan until you drop to less-than-half-time enrollment or graduate. Of course, you can always make loan payments while you are in school. Every payment made can potentially reduce the amount of interest that accrues on your Consolidation loan.

Keep in mind that you won’t receive a grace period on your Consolidation loan. You’ll enter repayment within 60 days after you drop to less-than-half-time enrollment or graduate.

However, if you take out additional Stafford loans while you are back in school, you’ll be eligible for a grace period on those loans after you drop to less-than-half-time enrollment or graduate.

Consolidation loans have most of the same deferments that Stafford loans have. You lose a few deferment options upon consolidation, but the ones most frequently used by borrowers (the in-school deferment, unemployment deferment, and economic hardship deferment) are still available for a Consolidation loan.

FFELP Consolidation loan borrowers remain eligible for forbearance. Forbearance provisions for Consolidation loan borrowers are the same as those for Stafford and PLUS loan borrowers. Contact your lender for more information about forbearance.

Yes, you can prepay your Consolidation loan at any time without penalty, just like any other FFELP loan. As a matter of fact, paying extra on your loan’s principal whenever possible will reduce the amount of interest you pay over the life of your loan. Contact your lender for more information about prepayment.

The Income-Based Repayment (IBR) plan may be an option. IBR is an alternative student loan repayment plan available for FFELP and FDLP borrowers. Unlike other repayment plans, which may require a one-size-fits-all payment amount, IBR establishes a monthly payment that looks at your unique situation by considering your income, family size, and federal student loan debt.