Direct Consolidation Loan
Direct Consolidation Loan is a consolidation of several federal loans into one loan. As the result, you have to make a single monthly payment instead of one.
To consolidate or not to consolidate your loan
The most important question of Direct Consolidation Loan is whether one should at all consolidate all the direct loans that one has taken. The result of consolidation of loans would mean lower payments over a span of 30 years. You could also have access to alternative repayment plans which probably would not have been possible before. However, the flip side is, you would be making more payments and paying greater interest. Before switching to a consolidated loan, you should make a comparative analysis of current monthly payments to the future monthly payments if you consolidated our loan.
You would also be in a position of losing borrower benefits attached with your original loans. You might lose benefits like interest rate discounts, loan cancellation benefits, and principal benefits. Another important point that you should keep in mind is that once you convert your loans into a Direct Consolidation Loan, you cannot have it removed.
Types of Loans which can be Consolidated
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans
- Some existing consolidation loans
Generally, you are eligible to consolidate after you graduate, leave school, or drop below half-time enrollment.
Requirements to Consolidate a Loan
Your loans can qualify to be consolidated loan only if:
- you have at least one Direct Loan or FFEL Program loan that is in a grace period or in repayment
- you make repayment arrangements on the loan with your current loan servicer before you consolidate
However, you cannot consolidate an existing consolidation loan unless you include an additional Direct Loan or FFEL Program loan in the consolidation.
A Direct Consolidation Loan has a fixed interest rate based on the weighted average of the interest rates on the loans being consolidated. It is rounded up to the nearest one-eighth of 1%. However, the rate will not exceed 8.25%.
Various ways of Applying for a Consolidated Loan
- Online application
- Phone application: Apply over the phone at 1-800-557-7392 if you have all Direct Loans.
- Paper Application: Download a paper copy of the application and promissory note at the Direct Consolidation Loan website or 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) or sending an e-mail at the website address above.
Repayment of a Direct Consolidation Loan
You can begin your repayment, 60 days after the loan is disbursed. You can repay your loan within 10 to 30 years, depending on the amount of your consolidation loan.