Direct Consolidation Loans

A Direct Consolidation Loan may be a good way to simplify your federal student aid payments. However, a Federal Direct Consolidation Loan may also result in paying more interest over time and come with the loss of certain benefits.

You are not required to roll all of your student loan payments into the Direct Consolidation Loan; you may choose to keep one or two eligible loans separate for benefit purposes.

Once you choose to combine your loans into a Direct Consolidation Loan, they cannot be separated again. Review the following sections to learn the pros and cons of applying for a Federal Direct Consolidation Loan, how to qualify for one and what alternatives exist for simplifying your student loan payments.

Who should consider a Direct Consolidation Loan?

A Federal Direct Consolidation Loan can be helpful if you have several federal student loans with different loan servers. A Direct Consolidation Loan simplifies your bill paying process by providing you with one single loan with one monthly payment. It also allows you to switch any loans with variable interest rates into one fixed-rate loan.

Having one Direct Consolidation Loan payment can actually lower the total amount you pay each month in education-related debt by giving you up to 30 years to repay your loans. However, this can also be a downside to the Federal Direct Consolidation Loan program because having a longer period of time to repay usually means making more payments and paying more interest over time.

Whether you lose benefits or gain benefits from filing a Direct Loan consolidation application depends on the terms of your outstanding loans. For example, if you want to consolidate loans other than Direct Loans, you may open access to more income-related repayment plans and have the option of applying for public service loan forgiveness. On the other hand, getting a Direct Consolidation Loan can force you to lose benefits linked to your current loans, such as principal rebates, interest rate discounts or loan cancellation benefits.

Related Article: Private Student Loans

Note that private education loans cannot be rolled into a Direct Consolidation Loan. Even so, private loans can sometimes be counted toward your total amount of educational debt, which can result in more favorable consolidation loan terms. You may want to consider a Direct Consolidation Loan payment plan if you have any of the following types of loans:

  • Auxiliary Loans to Assist Students
  • Direct PLUS Loans
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Federal Insured Student Loans
  • Federal Perkins Loans
  • Guaranteed Student Loans
  • Federal Family Education Loan (FFEL) Consolidation Loans and Direct Consolidation Loans
  • Health Education Assistance Loans
  • Health Professions Student Loans
  • Loans for Disadvantaged Students
  • National Defense Student Loans
  • National Direct Student Loans
  • Nurse Faculty Loans
  • Nursing Student Loans
  • Parent Loans for Undergraduate Students
  • PLUS loans from the FFEL
  • Subsidized Federal Stafford Loans
  • Supplemental Loans for Students
  • Unsubsidized and Nonsubsidized Federal Stafford Loans

Direct Consolidation Loan Requirements and Fees

Usually, you can submit a Direct Loan Consolidation application after you have graduated, left school or dropped below the half-time enrollment level. Although the specific terms for each Direct Loan Consolidation application will vary, some of these eligibility requirements may apply:

  • Consolidated loans must be in a repayment status or in the grace period allowed before the first payment is due.
  • You cannot include an existing Direct Consolidation Loan in a new loan consolidation unless you include another eligible loan.
  • You cannot include a defaulted loan being collected through wage garnishment or court order until these orders have been lifted.
  • You cannot include other defaulted student loans unless you make an acceptable number of consecutive monthly payments (usually three) before consolidation, or you must agree to repay the Direct Consolidation Loan under one of its income-based repayment plans.

The fixed interest rate on a Federal Direct Consolidation Loan is based on a weighted average of the interest rates on the loans being consolidated. This number will be rounded up to the nearest one-eighth of one percent. A Direct Consolidation Loan’s interest rate does not have a cap, but there is no fee to apply for an educational loan consolidation.

How to Apply for a Direct Consolidation Loan

The easiest way to complete a Direct Consolidation Loan application is to do so online on the Federal Student Aid website. If you prefer, you can also download a Federal Direct Consolidation Loan application and submit it by mail to the address printed on the form. It should take approximately 30 minutes to complete the form.

Before logging in to the electronic Direct Loan Consolidation application, make sure you have all the required information you need on hand. This will include a verified Federal Student Aid (FSA) ID number, your email, phone number, address and other personal information. Your Direct Consolidation Loan application also requires you to provide two personal references. These must be people who have known you for at least three years, but do not live with you.

Before starting the Direct Loan Consolidation application, check your FSA account online and review loan documents. If you are planning to repay using one of the income-contingent repayment plans, you must provide verification of your income.

The Direct Consolidation Loan form includes spaces to list every student loan you would like to consolidate. You must provide each loan holder/servicer’s name, address, phone number, loan account number, FAFSA code and the estimated payoff amount. You must provide the same information for any loans you do not want to include in your Direct Consolidation Loan, and choose your preferred repayment plan type.

Direct Consolidation Loan Repayment Terms

You will make your first Direct Consolidation Loan payment within 60 days of the date the loan was issued. Your Federal Direct Consolidation Loan server will tell you when your first payment is due. You will select the type of loan repayment plan you desire at the time of your application. If any of the loans folded into your Direct Consolidation Loan are still in the grace period, you can ask the loan servicer to delay processing your application until closer to the grace period end date.

Direct Consolidation Loan Alternatives

If you determine that a Direct Consolidation Loan will not benefit you over the long term, there are other alternatives to consider. Instead of seeking a direct consolidation loan student loan repayment plan, consider changing to a payment plan that is income-based. Loan deferment and loan forbearance can provide short-term payment relief for qualifying borrowers. Both Direct Consolidation Loan alternatives allow you to stop making payments for a certain timeframe, but deferment also allows you to not pay the interest that accrues while your loan payments are paused.

Related Article: Federal Student Loan Forgiveness

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