Direct Loan Consolidation FAQ

By applying for a Federal Consolidation Loan, you are requesting a new loan to pay off a portion or all of your original eligible federal student loans. You will be refinancing your existing federal student loans.

Eligible Loans

Only federal student loans can be consolidated:

  • FFELP Stafford Loans
  • FFELP Graduate PLUS Loans
  • Direct Stafford Loans
  • Graduate PLUS Loans
  • Perkins Loans

You can combine an earlier Federal Consolidation Loan with a new one if you have at least one new eligible loan to consolidate. Check with your lender to make sure the resulting interest rate on your new Federal Consolidation Loan will be advantageous for you.

You cannot include your private educational alternative loans in a Federal Consolidation Loan. BE CAREFUL! Some private student loan consolidators are marketing themselves aggressively and offer to consolidate all your federal student loans, as well as your private consumer loans, into one new consolidation loan. This will be a new consumer loan and will NOT have the advantageous terms and options of a Federal Consolidation Loan.

Consolidation Advantages

There are no fees attached to Federal Consolidation Loans.

If you have trouble meeting your monthly payments, have already changed your repayment plan, have exhausted your deferment and forbearance options, and/or want to avoid default, a Direct Consolidation Loan may help you.

If you send federal loan payments to more than one lender every month and want the convenience of a single monthly payment, consolidation may be right for you. With a Direct Consolidation Loan, you will have a single lender—the U.S. Department of Education—and a single monthly payment.

If you have variable interest rates on your federal education loans, you may want to consolidate. The interest rate for a Direct Consolidation Loan is fixed for the life of loan.

During your grace period, your loans are still charged the lower in-school interest rate rather than the higher in-repayment rate. If you apply to consolidate while you are still in the grace period, which you should do, the lower rate will be used to calculate the weighted average of interest rates that will determine the new fixed interest rate of your Federal Consolidation Loan. However, you will need to request your lender to hold the loan until the grace period expires so that you do not lose your deferment. If you are combining loans with variable or mixed interest rates, your new rate will be a weighted average, which will then be a fixed rate for the life of the loan.

Depending on the total amount of the loans you consolidate, you can stretch out the length of repayment from the standard 10 years to as long as 30 years. (If you extend your repayment to longer than 10 years, you will be paying more due to the application of interest over those additional years.) You also have the option of consolidating your loans but keeping the 10-year repayment period. This is advantageous for those who do not need to lower their monthly loan repayment obligation, but who want to lock into a low fixed rate.

A Direct Consolidation Loan can help you reduce monthly payments and increase your cash flow. This is advisable only if:

  • you are having trouble meeting your loan obligations under the standard repayment term, are not eligible for another repayment plan, and consolidation allows you to keep current on your payments
  • you apply the savings toward the principal of your consolidation loan for faster pay off and decrease your interest costs over the long-term.
  • you apply the savings toward the principal of your higher-cost consumer credit or private educational loans that have no interest rate caps for faster pay off.
  • you apply the savings toward investments that will provide tax benefits and/or higher long-term yields (purchase of a home, 401K, Roth IRA, etc).

Consolidation Disadvantages

Like a home mortgage or a car loan, extending the years of repayment increases the total amount you have to repay.

If you are close to paying off your student loans, it may not be worth the effort to consolidate or extend your payments.

The interest rate, although fixed, is likely to be higher than the interest rate on individual federal loans for the period. 

If you consolidate and stretch out your loan repayment from 10 years to as long as 30 years, you will be paying substantially higher interest charges over the extended life of the loan. Of course, this can be offset if you lock in a very low interest rate, retain a 10-year repayment period, apply savings to outstanding principal, or use the freed-up money for higher-yielding and/or long-term investments.

You give up some cancellation provisions and possibly interest subsidies during later periods of authorized deferment.

Apply for a Consolidation Loan

The Direct Consolidation Loan application is found on the site.

  • Login with your FSA ID
  • Click on Tools and Resources to reach the Direct Consolidation Loan Application  
  • You may complete a Direct Consolidation Loan application now, and request that they delay processing it until the month your grace period is expected to end.
  • Deferments and forbearance are available and there may be payment incentives (reductions for on-time payments and for automatic withdrawal from checking/savings accounts). 

Contact the Direct Loan Consolidation Center at (800) 557-7392 if you have any questions.