A Direct Consolidation Loan allows a borrower to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments.
Consolidation offers lower monthly payments by giving you up to 30 years to repay your loans. However, increasing the length of your repayment period means you will make more payments and pay more in interest than you would otherwise. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan.
Once your loans are combined into a Direct Consolidation Loan, they cannot be removed. The loans that were consolidated have been paid off and no longer exist. Take the time to study the pros and cons of consolidation before you submit your application.
Most federal student loans are eligible for consolidation, including subsidized and unsubsidized Direct and FFEL Stafford Loans, Direct and FFEL PLUS Loans, Supplemental Loans for Students (SLS), Federal Perkins Loans, Federal Nursing Loans, Health Education Assistance Loans, and, in some cases, existing consolidation loans. Private education loans are not eligible for consolidation. If you are in default, you must meet certain requirements before you can consolidate your loans.
To qualify for a Direct Consolidation Loan:
1. Borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace or repayment.
2. For a defaulted loan, borrowers must either make satisfactory repayment arrangements with the current loan servicer(s) before consolidating, or must agree to repay the new Direct Consolidation Loan under the Income Contingent Repayment Plan or the Income Based Repayment Plan.
For additional details, go to www.loanconsolidation.ed.gov.
A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. However, the rate will not exceed 8.25%.
Repayment of a Direct Consolidation Loan begins immediately upon disbursement of the loan. (The first payment will be due within 60 days.) The repayment term ranges from 10 to 30 years, depending on the amount of your consolidation loan and your other education loan debt and the repayment plan you select.