At a Glance
If you have multiple federal education loans, you may be able to consolidate them into one through a direct consolidation loan. Consolidating loans turns your multiple loan payments into one, making it easier to manage, and the interest rate will be fixed over the life of the loan which can help save you money.
Direct consolidation loans can be beneficial for several reasons, but there are also disadvantages to weigh to know if it’s right for you. In this article, learn more about:
What is a direct consolidation loan?
Direct consolidation loans allow you to combine multiple federal education loans into one, with one payment per month over a potentially longer period. These loans are made by the U.S. Department of Education, with no maximum loan amount and a loan term of 10-30 years.
Plus, there are no prepayment penalties or fees.
These loans have a fixed interest rate, meaning it does not change over time. The rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest ⅛ of 1%. However, the rate cannot exceed 8.25%.
You must start repaying the direct consolidation loan within 60 days of it being disbursed. Or, if any of the loans you want to consolidate are still in the grade period, you can indicate on your loan application that you want the servicer processing your application to delay the consolidation of your loans until closer to the grace period end date. That way you don’t have to start making payments on the consolidated loans until then.
To apply, you can submit an application online, or download and print a paper application and mail it in. Once you complete this process and you’re approved, you’ll have one monthly payment to make on the new loan.
Federal loan consolidation
If you choose to consolidate your federal loans, you must be aware of the advantages and disadvantages, the types of loans that can be consolidated, and the requirements.
What are some advantages of getting a direct consolidation loan?
- Consolidating multiple federal student loans into one, especially if they are with different loan servicers, can help simplify your monthly loan payments since you will only have to pay one.
- You may get a longer period of time, or term, to repay your loans. In some situations, you may have up to 30 years.
- If you consolidate loans other than direct loans, you may have access to additional income-driven repayment plan options or loan forgiveness programs, such as:
- A standard repayment plan
- A graduated repayment plan
- An extended repayment plan
- The Income-Contingent Repayment (CR) Plan
- The Pay As You Earn Repayment Plan (PAYE)
- The Revised Pay As You Earn Repayment Plan (REPAYE)
- An Income-Based Repayment (IBR) Plan
- If you have variable-rate loans, which means the interest rate can change over the life of the loan, you can switch to a fixed interest rate, which means the rate will not change over time.
- You do not have to consolidate all of your eligible loans, which can be beneficial if consolidation would cause you to lose benefits associated with some of your current loans.
- No prepayment penalties.
- No fees, including no application fee.
What are some disadvantages of getting a direct consolidation loan?
- While increasing the term of the loan can give you more time to repay, you may end up making more payments and paying more in interest in the long-term.
- Any outstanding loan interest on the loans you consolidate becomes part of the original principal balance on your consolidation loan, so interest could accrue on a higher principal balance.
- You may lose certain borrower benefits that are associated with your current loans and not offered with the consolidated loan.
- You could lose credit for payments made toward income-driven repayment plans or loan forgiveness programs if you’re currently paying your loans under one of these plans.
- Private loans are not eligible.
Types of federal loans that can be consolidated
- Subsidized Federal Stafford Loans
- Unsubsidized and Nonsubsidized Federal Stafford Loans
- PLUS loans from the Federal Family Education Loan (FFEL) program
- Supplemental Loans for Students
- Federal Perkins Loans
- Nursing Student Loans
- Nurse Faculty Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
- Federal Insured Student Loans
- Guaranteed Student Loans
- National Direct Student Loans
- National Defense Student Loans
- Parent Loans for Undergraduate Students
- Auxiliary Loans to Assist Students
While private education loans cannot be consolidated, you can consolidate your federal loans with a private consolidation loan. Also note that for some direct consolidation loan repayment plans, the total of your education debt (including private loans) determines how long you have to repay your consolidation loan.
Loan consolidation requirements
If you’ve graduated, left school, or dropped below half-time enrollment, you’re eligible to consolidate your loans. To be eligible, you must meet the following requirements:
- The loans you are consolidating must be in repayment or in the grace period.
- Your existing loan is not a consolidation loan, as those typically cannot be consolidated. Under certain circumstances, you can reconsolidate an existing FFEL Consolidation Loan without including additional loans.
- If you want to consolidate a defaulted loan, you must either make repayment arrangements prior to consolidation, or agree to pay your new consolidation loan under an approved repayment plan.
Should I consolidate my federal student loans?
Whether you should consolidate your federal loans depends on your individual situation and goals.
If you’re having a difficult time keeping track of different student loan payments, consolidating them into one may be beneficial. Additionally, you’ll have access to income-driven repayment plans, which can help ensure you’re able to pay off the loan instead of defaulting. Or, your consolidated loan may be eligible for certain loan forgiveness programs.
Direct loan consolidation also gives you a fixed interest rate, so you’ll be able to calculate more easily how much you’ll owe in interest over the life of the loan, and when you’ll be able to pay it off.
Commonly asked questions
Is a direct consolidation loan a federal loan?
Direct consolidation loans are facilitated by the U.S. Department of Education, and most federal loans are eligible for consolidation.
Can direct consolidation loans be forgiven?
Yes, direct consolidation loans are eligible for some loan forgiveness programs.
Are there alternatives to loan consolidation?
If you’re concerned about the disadvantages to loan consolidation, there are other options you can consider, including loan deferment or forbearance (where if you qualify, you can reduce or postpone repayment for a designated period of time). You can also pursue loan forgiveness programs, such as the Public Service Loan Forgiveness (PSLF).