What should I know before I start the loan consolidation process?
- Guaranteed Student Loans
- National Direct Student Loans
- National Defense Student Loans
- Parent Loans for Undergraduate Students
- Auxiliary Loans to Assist Students
There is one federal loan that does not qualify for the Direct Consolidation Loan program—the Direct PLUS Loan for parents. This cannot be combined with federal loans taken out by the student to be included in a consolidated loan.
Your federal loans are eligible for consolidation after graduation, after you leave school, or once you drop below half-time enrollment. In order to be considered for participation in the federal loan consolidation program, your loans must be in repayment or still be under the six-month grace period.
Your Direct Consolidation Loan will have a fixed interest rate for the entire life of the loan. The fixed rate is calculated as the average of the interest rates on your current loans being included in the consolidation, rounded up to the nearest one-eighth of a percent. There is no limit on the interest rate of your Direct Consolidation Loan.
Once you have signed up for a Direct Consolidation Loan, you will have 60 days after your loans are paid before your first monthly payment is due. If any of your federal loans are still in their grace period, you are able to indicate on your loan application that they should delay the processing of your application until the grace period is complete. This option will allow you until the grace period is officially over to pay your new Direct Consolidation Loan.
What if one or more of my federal loans are in default?
If one or more of your loans are in default, you must make a minimum of three consecutive monthly payments on those loans before you will be allowed to consolidate.
You can also opt to repay the new Direct Consolidation Loan under the Income-Based Repayment Plan, Pay as You Earn Repayment Plan, Revised Pay as You Earn Repayment Plan, or the Income-Contingent Repayment Plan. These are special repayment plans that adjust your payment based on your income and cost of living.
If you are currently paying a defaulted loan through garnished wages at your place of employment, or via a court order, you are not eligible for federal loan consolidation until the order for wage garnishment or judgment has been lifted.
How do I apply for a Direct Consolidation Loan?
- Apply online at .
- Download and print a paper application on and send via mail
Once you have submitted the application, your consolidation servicer will begin the process to consolidate your eligible loans. Remember that you must continue to make payments on your loans until you have been notified by your consolidation servicer that your existing loans have been paid off by your new Direct Consolidation Loan.
What’s the difference between loan consolidation and loan refinancing?
Refinancing allows the borrower to get a new loan with a new interest rate that is hopefully better than what they had before. Private lenders use your credit score and income to determine the new interest rate. Private lenders are also able to consolidate both federal and private loans, while the Direct Consolidation Loan program only allows federal loans to be considered.
How can I use student loan consolidation to increase my credit score?
We’ve all heard that making on-time monthly payments on your student loans can help to improve your credit score. However, student loan borrowers may not know how consolidating your loans can contribute to the process.
Having several student loan bills to pay every month has the potential to lead to missed payments since there’s so much to keep organized. Pulling all those loans into one, with one monthly payment, will make it easier to make your payments on time.