Federal Consolidation

A Direct Consolidation Loan provides an option for federal student loan borrowers to consolidate one or more federal student loans into one loan. Instead of making multiple monthly student loan payments, borrowers are able to make one monthly payment to one loan servicer. Direct Consolidation Loans have fixed interest rates. The interest rate on a Direct Consolidation Loan is the weighted average of the interest rates on the loans included in the consolidation, rounded up to the nearest one-eighth of one percent.

Loans Eligible for Consolidation

The following federal student loans are eligible for consolidation:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized FFEL Stafford Loans
  • Unsubsidized FFEL Stafford Loans
  • Direct PLUS Loans
  • FFEL PLUS loans
  • Federal Perkins Loans
  • Supplemental Loans for Students (SLS)
  • Health Education Assistance Loans
  • Federal Nursing Loans
  • Existing consolidation loans (in some instances)

PLUS loans belonging to parents cannot be combined with the student’s loans in a Direct Consolidation loan.

Private student loans cannot be included in a Direct Consolidation loan.

Pros and Cons of Consolidation

Consolidation can be a great tool for borrowers who need lower payments and simplified repayment. Benefits of consolidation include:

  • One payment to one loan servicer
  • Lower payments by extending repayment term
  • Eligibility for additional repayment plans
  • Fixed interest rate
  • Path out of default

However, consolidation is not right for everyone, and borrowers should be cautious about the potential drawbacks of consolidation:

  • Greater interest costs as a result of extended repayment term
  • Loss of certain benefits attached to original loans
    • Including cancellation benefits, interest rate discounts, and principal rebates

Borrowers should carefully evaluate all options before choosing loan consolidation because once loans are combined they cannot be removed and paid separately. Borrowers who only need to lower payments temporarily should consider deferment and forbearance as an alternative.

Recent News

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