Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers the following benefits:
- One Lender and One Monthly Payment With only one lender and one monthly bill, it is easier for borrowers to manage their debt. Borrowers have only one lender, the U.S. Department of Education, for all loans included in a Direct Consolidation Loan.
- Flexible Repayment Options Borrowers can choose from multiple plans to repay their Direct Consolidation Loan, including an Income Based Repayment Plan and an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers.
- With a Direct Consolidation Loan, borrowers can switch repayment plans at anytime.
- No Minimum or Maximum Loan Amounts or Fees There is no minimum amount required to qualify for a Direct Consolidation Loan!
- Varied Deferment Options Borrowers with Direct Consolidation Loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a Direct Consolidation Loan may renew many of those deferment options. In addition, borrowers may be eligible for additional deferment options if they have an outstanding balance on a FFEL Program loan made before July 1, 1993, when they obtain their first Direct Loan.
- 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 A Direct Consolidation Loan can have two components in the form of Subsidized and Unsubsidized loans.
- Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a Direct Consolidation Loan.
Some differences between programs may include:
- Minimum balances or numbers of loans required to apply.
- Types of loans that can be consolidated. A prior account relationship may be required. Repayment incentive benefits to encourage good repayment behavior.
- The convenience of electronic debit, ensuring that monthly payments are made on time. Repayment plans offered, such as payments sensitive to a borrower’s income, family size, and total education indebtedness.
To qualify for Direct Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status.
Loans that are in an in-school status cannot be included in a Direct Consolidation Loan. Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan or Income Based Repayment Plan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Yes, borrowers without any Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Yes, PLUS Loans can be consolidated into a Direct Consolidation Loan.
Yes, it is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.
Yes, With a Direct Consolidation Loan, borrowers can include certain health profession loans sponsored through the U.S. Department of Health and Human Services with other Federal education loans in their Direct Consolidation Loan. Borrowers must include at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan in the Direct Consolidation Loan.
- a longer repayment period;
- a lower monthly payment;
- AND a single monthly payment
Eligible Health Professions Loans include the following:
- Health Professions Student Loans (HPSL)
- Health Education Assistance Loans (HEAL)
- Loans for Disadvantaged Students (LDS)
- Nursing Student Loans (NSL)
Yes. Three conditions must exist:
- Borrowers can consolidate existing consolidation loans into a new Direct Consolidation Loan if they include at least one other FFEL or Direct Loan into the new consolidation loan.
- Borrowers can consolidate a single Federal Consolidation Loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
- Borrowers can consolidate a single Federal Consolidation Loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Yes, Borrowers who consolidate loans that are in grace may receive a lower interest rate on their Direct Consolidation Loans if they are consolidating variable rate loans. However, once grace status loans are consolidated borrowers lose any remaining grace period. Borrowers receive their first bills within 60 days after the new Direct Consolidation Loan is made.
Borrowers in repayment who want to consolidate their Federal education loans should continue making payments until their loan holder notifies them that their loans are paid in full. Borrowers will receive new payment directions after consolidation is complete.
Generally, Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
- Agree to repay the loan(s) under either the Income Contingent or Income Based Repayment Plan.
- OR Make satisfactory repayment arrangements with the current loan holder(s).
Borrowers cannot consolidate defaulted loans under these conditions:
- If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
- If they are trying to consolidate defaulted Direct Consolidation Loans and do not include at least one additional eligible loan in the consolidation.
Yes. If, before applying for consolidation, borrowers want to completely clear the default notation from their credit records, they may want to consider loan rehabilitation . If you rehabilitate a defaulted loan before consolidating it , the loan holder will update your credit record to no longer reflect the default status of the rehabilitated loan(s). Borrowers should ask our counselors about our Loan Rehabilitation Program.
If you consolidate a defaulted loan without rehabilitating it, your credit record continues to show a default status on the loan. This is true even after the consolidation loan pays off the defaulted loan in full. Consolidating a defaulted loan will result in your credit report bearing the notation that the loan was in default but then “paid in full.” Rehabilitating a defaulted Direct Loan or FFEL loan requires that you make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period. Rehabilitating a defaulted Perkins loan requires twelve (12) on-time monthly payments.
Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:
- The Department of Education can immediately demand repayment of the total loan amount due.
- The Department of Education will attempt to collect the debt and may charge collection costs.
- The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers credit ratings.
- Borrowers with loans in default are ineligible for Title IV student aid. Borrowers with loans in default are ineligible for deferments.
- The Internal Revenue Service can withhold borrowers Federal income tax refunds. Borrowers’ wages may be garnished.
When repaying a Direct Consolidation Loan, you may choose from multiple repayment plans with various terms.
- Standard Repayment Plan: You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness.
- Graduated Repayment Plan: Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness.
- Extended Repayment Plan: To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s).
You have two payment options:
- Fixed Monthly Payment Option – You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50.
- Graduated Monthly Payment Option – Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years. Income
- Contingent Repayment Plan (ICR): Your monthly payments will be based on annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years.
- Income-Based Repayment Plan (IBR): Your monthly payments will be based on annual income and family size, and spread over a term of up to 25 years. You must be experiencing a partial financial hardship to initially select this plan and once you select this plan you cannot change to any other plan except the Standard Plan.
Yes. Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.
The consolidation process generally takes 60-90 days.
Borrowers will receive an initial billing statement from the Direct Loan Servicing Center within 60 days of the first disbursement of their Direct Consolidation Loan. Payments are due monthly.
Borrowers receive monthly billing statements from the Direct Loan Servicing Center, unless they enroll in the Electronic Debit Account (EDA). If Borrowers enroll in EDA, they will receive a 0.25 percent discount on their interest rate for as long as they continue to make payments using EDA.
Borrowers may prepay all or part of the unpaid balance on any Direct Loan at any time, without an early repayment penalty. If a borrower makes a payment that exceeds the required monthly payment, the prepayment will be applied first to any charges or collection costs, then to outstanding interest, and last to principal. However, if a borrower’s account has no outstanding interest, the prepayment is applied entirely to principal.