Direct Loan Consolidation

Direct Loan ConsolidationA 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.

From January through June 2012, the U.S. Department of Education will offer certain borrowers two options for consolidation:

  • Traditional Direct Consolidation Loans
  • Special Direct Consolidation Loans

During this time period, borrowers making separate payments on their federal loans to one or more servicers (you repay your loan to a loan servicer) may be eligible for a Special Direct Consolidation Loan. A Special Direct Consolidation Loan offers borrowers different repayment terms and benefits than a traditional Direct Consolidation Loan. There is also a different application process for Special Direct Consolidation Loans.

Difference between Traditional and Special Direct Consolidation Loans

When you consolidate into a traditional Direct Consolidation Loan, you combine all of your eligible loans into one new loan with new terms. When you consolidate your eligible commercially-held FFEL loans into a Special Direct Consolidation Loan, your consolidation loan will be composed of individual parts corresponding to each loan that you consolidate, and each part will retain some of the terms of the original loan. The .25% interest rate reduction will be applied to each eligible loan that is consolidated.

With a traditional Direct Consolidation Loan, you can include all eligible federal loans that you have in the consolidation. With a Special Direct Consolidation Loan, however, the only federal loans that are eligible for consolidation are your eligible commercially-held FFEL loans. Despite this limitation, all of the eligible commercially-held FFEL loans you consolidate will be serviced together with your other Department-held loans by one of the Department’s servicers, resulting in one bill and one payment. Your new bill after consolidation will include those loans that you have consolidated into a Special Direct Consolidation Loan as well as your Direct Loans or Department-held FFEL loans already owned and serviced by the Department.

Traditional Direct Consolidation Loans

Make sure you carefully consider whether loan consolidation is the best option for you. While loan consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. Consolidation offers lower monthly payments by giving you up to 30 years to repay your loans. But, if you increase the length of your repayment period, you’ll also make more payments and pay more in interest than you would otherwise. In fact, in some situations, consolidation can double your total interest expense. 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.

You also should take into account the impact of losing any borrower benefits offered under repayment plans for the original loans. Borrower benefits from your original loan, which may include interest rate discounts, principal rebates, or some loan cancellation benefits, can significantly reduce the cost of repaying your loans. You may lose those benefits if you consolidate.

Once your loans are combined into a Direct Consolidation Loan, they cannot be removed. That’s because 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.

Repayment of a Direct Consolidation Loan begins immediately upon disbursement of the loan. (Your first payment will be due within 60 days.) The payback 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.

There are several ways to apply:

  • Apply online
  • Apply over the phone if you want to consolidate only Direct Loans – 1-800-557-7392
  • Request an application package be mailed to you by: Calling 1-800-557-7392 (TDD 1-800-557-7395) or 334-206-7400 (outside the USA)
  • emailing

Read more about Traditional Direct Consolidation Loans

Special Direct Consolidation Loans

The U.S. Department of Education began offering Special Direct Consolidation Loans to eligible borrowers in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012, for borrowers with

  • at least one student loan held by the Department (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers); and
  • at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).

Special Direct Consolidation Loans are intended to help borrowers manage their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment (borrowers repay loans to a loan servicer). Borrowers will also receive an interest rate reduction on Special Direct Consolidation Loans as a repayment incentive.

You must have at least one loan owned by the Department that is current or less than 270 days delinquent and at least one eligible commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.

Note: If you do not have at least one Department-owned loan that is current or less than 270 days delinquent, you may become eligible for consolidation under this initiative after working with your federal loan servicer to bring at least one Department-owned loan current or less than 270 days delinquent.

The following federal student loans are eligible for consolidation under the Special Direct Consolidation Loan initiative:
While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:

  • Commercially-held FFEL Subsidized and Unsubsidized Stafford Loans;
  • Commercially-held FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and
  • Commercially-held FFEL Consolidation Loans

In order to be eligible for consolidation under this initiative, these loans must be in grace, repayment, deferment, or forbearance.

Benefits of Special Direct Consolidation Loans:

  • One servicer and one payment for eligible loans
  • Interest rate reduction
  • Repayment term will not be changed
  • Credit for Previous Income-Based Repayment (IBR) Payments
  • Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program

Read more about Special Direct Consolidation Loans

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