Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages.
One Lender and One Monthly Payment
With only one lender and one monthly bill, it is easier than ever 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 four different plans to repay their Direct Consolidation Loan, including 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! In addition, consolidation is free.
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
There are two (2) possible portions to a Direct Consolidation Loan: Subsidized and Unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a Direct Consolidation Loan.
2. What are the differences between FFEL Consolidation vs. Direct Consolidation?
Borrowers are encouraged to check with their existing loan holders or servicers to find out about consolidation options available to them. 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.
3. Who is eligible for a Direct Consolidation Loan?
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.
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..
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.
4. Can I obtain a Direct Consolidation Loan if I don't have any Direct Loans?
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.
NOTE: The Direct Loan Servicing Center has information on the Public Loan Service Forgiveness Program.
5. Can I consolidate a PLUS Loan?
Yes, PLUS Loans can be consolidated into a Direct Consolidation Loan.
6. Can I consolidate a Perkins 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.Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Direct Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program.
We recommend that you consider the following points prior to making a decision:
- Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
- Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
- Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
- Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.
The Direct Consolidation Loan Program offers standard, graduated, extended and income contingent repayment plans which may lower monthly payments.
NOTE: Lower payments and extended repayment terms can increase the overall finance charges incurred over the life of loan.http://loanconsolidation.ed.gov/help/faq.html
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