Direct Loan Consolidation: The What, The Why, and the How

Posted on Dec 28 2012 - 3:44am by admin

A Direct Loan Consolidation (also know as a Direct Consolidated Loan) is a program run by the federal government that allows people to combine their multiple student loans into one loan. This means that instead of making multiple loan payments over the course of a month you will make only one. The purpose of a Consolidation Loan is to help people manage their student debt and make repayments that are appropriate and realistic for them. There is no required minimum loan amount for consolidating nor is there a maximum. Since this is a whole new loan with new terms there is also a new interest rate. The new interest rate is calculated by combining the interest rate of every loan you consolidate and calculating the average. The interest rate, no matter what, will not exceed 8.25% and is a fixed interest rate. You can consolidate your loans anytime after you have graduated, left school, or dropped below half time enrollment.

From January 2012 to June 2012 there was a Special Direct Consolidation Loan. This Loan was meant for students having at least one government held Direct of Federal Family Education Loan and at least one privately held Federal Family Education Loan. Otherwise, The Direct Loan Consolidation Loan program is solely for loans that are held by the government. This means no privately owed loans are eligible for consolidation.


Should I Consolidate my Loans

Why should any student consolidate their loans? There are many reasons to consolidate your loans, the biggest being that loan consolidation helps to simplify your repayments. Instead of making many payments a month you only have to make one and instead of paying many different companies you are only paying one. However, loan consolidation s not for everyone and you should consider carefully whether to consolidate all of your loans, some of them, or none of them.

The first thing you should consider is whether or not you are currently able to make your loan payments. If you are currently have no problem making your payments there are few reasons to consolidate your loans. On the other hand, if you are having issues making your loan payments and you have gone through every payment plan, deferment option and loan cancellation plan that there is available, loan consolidation is a viable option. Loan consolidation can help you avoid defaulting on you loans or open up new avenues for deferment. For reference, a deferment is a period in which your loan payments are temporarily suspended.

The advantage of a consolidated loan over many student loans is you will be paying one monthly payment which may be lower than all your current payments combined. The reason a consolidated loan payment may be less is the repayment period is spread out over 30 years. On the other side, the longer the repayment period the more you will end up paying in interest. A Consolidated loan can also open up new repayment plan options you did not have access to before. At the same time you could loose any borrower benefits that were attached to your original loan, including interest rate discounts, principal rebates, and loan cancellation. The only exception is you cannot loose your subsidized status.

It is completely free to consolidate your loans and there are no associated fees. The one change is you will go from a variable interest rate to a fixed interest rate. Be careful when choosing to consolidate your loans because once you have consolidated your loans you cannot unconsolidate them.


Eligible loans

The following is a list of loans that are eligible to be consolidated under the Direct Consolidation Loan program.

  • Direct Subsidized and Unsubsidized Loans
  • Federal Stafford Loans
  • Direct Plus Loans and Plus Loans from Federal Family Education Loan
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Guaranteed Student Loans
  • Federal Insured Student Loans
  • Direct Subsidized and Unsubsidized Consolidation Loans
  • Subsidized and Unsubsidized Federal Consolidation Loans
  • Federal Plus Loans
  • Direct Plus Consolidation Loans
  • National Direct Student Loans
  • National Defense Student Loans
  • Parent Loans for Undergraduate Students
  • Auxiliary Loans to Assist Students
  • Health Professions Student Loans
  • Health Education Assistance Loans
  • Loans for Disadvantaged Students

Private loans, PLATO Loans, Medical Assist Loans, Law Access Loans, and Primary Care Loans are all ineligible to be consolidated under the Direct Consolidation Loan program. Students cannot consolidate loans their parents have taken out on their behalf but parents are eligible to consolidate those loans.



In order to consolidate your loans under the Direct Loan Consolidation program you will need to meet a few requirements. Firstly, you will need to have at least one Direct or  Federal Family Education Loan that you are consolidating. As well, all the loans you plan on consolidating must be in a grace period or already in repayment. Between July 1, 2010 and July 1 2011 there was a temporary provision you were able to consolidate loans that were in “in school” status. However, students who took advantage of this lost their grace period for all Stafford and Direct Loans.

If you already have a Direct Consolidated Loan, under certain circumstances, you can consolidate that loan into another Direct Consolidated Loan. These circumstances include having at least one other Direct or Federal Family Education Loan  you are consolidating. Your existing Direct Consolidated Loan must be going into or already is in default or you intend to apply for the Public Service Loan Forgiveness program.


How to Apply

You can apply for a Direct Loan Consolidation either online, through the phone, or by paper form. To apply you need to fill in an application and sign a promissory note. When filling out the application you will need your social security number, your driver’s license, the information of two people to act as references, your loan information including type of loan, loan holder, account number, and the estimated amount you have paid to date (for loans you are and are not consolidating). The Promissory note states you have read and agreed to the terms of the loan and agree to pay the loan back. Consolidating, in essence, means you are taking out a new loan and therefore a new promissory note is needed to show the loan holder you are agreeing to the terms and conditions and will be paying the loan back.

To apply online visit:

To apply by Phone call: 1-800-557-7392

To apply via paper you can download the application forms here: or request the forms by phone (1-800-557-7392 or outside the US 334-206-7400). You can also request the application forms by email ([email protected]).

You can correct information on your application by phone, email or mail. However, if you are correcting your name or social security number it must be done in writing.

Phone Number:1-800-557-7392 or outside the US 334-206-7400

Email: [email protected]

Address: U.S. Department of Education

Consolidation Department

Loan Origination Center

P.O. Box 242800

Louisville, KY 40224-2800


Repayment of your Direct Loan Consolidation begins 60 days after receiving your new loan. You can start making payments sooner if you wish. There are several repayment plans to available to choose from. Depending on the repayment plan chosen, repayments can be made over a period of 10 to 30 years.