Federal Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans (Stafford, PLUS, and Perkins) into one new loan. All Stafford Loans and PLUS Loans borrowed prior to 2009-10 are Federal Family Education (FFEL) Loans. All Stafford and PLUS loans borrowed after 2009-10 are Federal Direct Loans.
What are the benefits of consolidating my federal loans?
- One Lender and One Monthly Payment
By consolidating your federal loans into one loan you will have just one lender and one monthly payment. This could simplify the management of your educational loans, particularly if you have both Direct Loans and FFEL Loans.
- Flexible Repayment Options
You can select from several different repayment options, including an income-contingent repayment plan. Repayment terms range from 10 to 30 years. A longer repayment period will reduce your monthly payment amount but will also increase the overall cost of the loan. You can switch repayment plans at anytime.
- No Fees
There are no fees or prepayment penalties associated with Federal Direct Consolidation Loans. No co-signers or credit checks are required for consolidation of Stafford and Perkins loans, although PLUS Loans included in the consolidation are subject to a check for adverse credit history.
- Reduced Monthly Payments
A Direct Consolidation Loan may ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a Direct Consolidation Loan may be lower than the combined payments charged on a borrower's Federal education loans.
- Retention of Subsidy Benefits
Borrowers retain their subsidy benefits on any Subsidized Stafford Loans that are consolidated into a Direct Consolidation Loan.
What are the drawbacks to consolidating?
- Loss of Perkins Subsidy and Benefits
Because Perkins Loans have a lower interest rate and certain cancellation benefits, you may wish to exclude your Perkins Loan from a Direct Consolidation Loan. Perkins Loans that are consolidated become unsubsidized loans, and the interest will be capitalized (accrued and added to the principal) during periods of re-enrollment. For example, if the Perkins Loan is included in a Consolidation Loan, interest will continue to capitalize (be added) while enrolled in a graduate program. Interest is not capitalized on a Perkins Loan while enrolled at least half-time. This is something you should consider if you plan on attending graduate school.
- Loss of Perkins Grace Period
A Perkins Loan has a 9 month grace period. If included in a Direct Consolidation Loan, you will lose any grace period remaining.
Do I qualify for loan consolidation?
- To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or FFEL Loan that is in grace, repayment, deferment or default status.
- If the "qualifying" loan is a FFEL Loan, you must also certify that you were unable to obtain a FFEL Consolidation Loan.
- Loans that are in an in-school status cannot be included in a Consolidation Loan. PLUS Loans are not subject to the enrollment rules and can be consolidated anytime after the final disbursement.
How is the interest rate calculated?
The interest rate on a Direct Consolidation Loan is fixed based on the weighted average of the interest rates on the loans at the time you consolidate. The interest rate cannot exceed 8.25%. The consolidation rate is fixed for the life of the loan, which protects you from future increases in variable rate loans but prevents you from benefiting from future decreases in variable rates.
When does repayment begin?
Repayment of Direct Consolidation Loans begins within 60 days of the disbursement of the loan, or at the end of your grace period.
For more information, including a consolidation loan interest rate estimator, visit StudentLoans.gov or call the Federal Student Aid Information Center at 800.4.FED.AID.