direct consolidation loan application

direct consolidation loan application

Direct consolidation loan application

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DEFINITION of 'Direct Consolidation Loan'

A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.

BREAKING DOWN 'Direct Consolidation Loan'

A Direct Consolidation Loan allows borrowers to lower the number of loan payments they have to make each month, combining them into a single payment. Most federal loans are eligible for consolidation, but private loans are not eligible. Borrowers can consolidate once they complete school, leave school or fall below half-time student status.

Before considering a Direct Consolidation Loan, it is important to consider any benefits associated with the original loans, such as interest rate discounts and rebates. Once the loans are rolled into a new loan, those benefits are lost. Additionally, if the new loan increases the repayment period, the borrower may wind up paying more interest.

Federal Direct Consolidation Guide

If you have multiple student loans out against your name right now, you may be wondering how you can reduce them all into one payment. Sometimes, having multiple loans and payments can be confusing and after a while, you may lose track of how much you owe and where your money is going.

Before you start to panic, there are some options for you to consider to make student loan repayment less of a hassle and that is through federal direct consolidation.

Let’s take a closer look at what consolidation is and how it can benefit you in the long run.

What is Federal Direct Consolidation?

Federal direct consolidation allows you to combine together all of your federal student loans into a single loan. When you do this, you only need to make one monthly payment and you only have one interest rate to worry about.

There are requirements that you must meet to consolidate your loans and it is important to make sure that you meet these requirements before attempting to consolidate. It is also helpful to know which loans are able to be consolidated and we will go over those after we go through the requirements.

First and foremost, you need to apply to consolidate your loans as you will not just simply receive a consolidated loan. In addition, you can only consolidate federal loans with federal loans and not private student loans.

Next, your loan must be ether an FFEL program loan or Direct loan and one of them must be within a repayment period or grace period.

If your loan is in default you cannot consolidate it unless you make some type of satisfactory repayment plan through your loan provider. You must make the repayment plan under one of the following options:

  • Income-contingent repayment plan
  • Income-based repayment plan
  • Pay as you earn repayment plan

Now, we can discuss the types of loans that are eligible to be consolidated. Some of them include:

  • PLUS loans (FFEL and Direct)
  • Direct unsubsidized and subsidized loans
  • Unsubsidized and subsidized federal Stafford loans
  • Federal Perkins loans
  • SLS loans
  • Federal nursing loans

Benefits of Federal Direct Consolidation

There are quite a few benefits and reasons why you may want to consolidate your student loans. One of the main reasons is because the single payment will eliminate the possibility of forgotten payments.

Another reason is because you will receive a fixed interest rate on your loans and only one interest rate as opposed to multiple interest rates over multiple loans. The specific interest rate you receive will depend on what the interest rates are for your current loans. In fact, it will be an average of them all. For example, if you have four loans out right now and each one has an interest rate of 4.5 percent, 6.7 percent, 5.9 percent, and 7.8 percent, your interest rate will fall somewhere between 6.10 percent and 6.3 percent.

Lastly, another benefit that many students enjoy is that you still have protection should financial hardship arise even after consolidation. So, if you lose your job or lose income, you can apply for a different payment structure or income-based repayment option.

How Can I Consolidate My Loans?

To apply for a consolidation, you will need to speak with your federal student loan provider. You are usually able to fill out an online or paper application.

You will need to send in any requested documents when submitting your application as well. Your loan servicer will be in contact with you to help you finish completing the process.

Federal Direct Consolidation is a great option for those students who are looking to combine their student loans into a single payment. Talk to your loan provider today to learn more about the process and whether or not you qualify.

How to Decide If Direct Loan Consolidation Is Right for You

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If you have a lot of federal student loans, it can be hard to keep track of everything. Direct Loan Consolidation can help simplify your student loan repayment strategy and may even lower your monthly payments.

Loan consolidation pays off your existing loans by taking out one new loan in their place. Instead of multiple payments throughout the month, you can have a single – and sometimes lower overall – monthly payment.

While a Direct Consolidation Loan can be a great choice in certain situations, it’s not always the best strategy, nor are all loans eligible. Take the time to review your situation and the benefits and drawbacks of Direct Loan Consolidation before making a decision.

When to choose Direct Loan Consolidation

Depending on your situation, using a Direct Consolidation Loan could be a great strategy to help pay down your debts more quickly:

1. You want to simplify your loans into one monthly payment

If tracking all your student loan payments is driving you crazy, Direct Loan Consolidation may inject a well-needed dose of sanity into your life and budget. Check the federal student aid website for a list of the types of loans that qualify.

2. You want access to Income-Driven Repayment options

Federal Direct Subsidized and Unsubsidized Loans are eligible for all income-driven repayment plans.

However, other types of federal loans must be part of a consolidation loan to be eligible for income-driven plans. These loans include:

  • Stafford Loans
  • Unsubsidized Stafford Loans
  • Federal PLUS Loans made to graduate and professional students
  • Federal Perkins Loans

If you have these types of loans and are struggling to make your payments, you may want to consolidate your student loans in order to qualify.

3. You want to access student loan forgiveness options

Income-Driven Repayment (IDR) plans can not only potentially lower your monthly payments, but they also qualify you for forgiveness of the remaining balance at the end of the repayment term.

Plus, if you are eligible for Public Service Loan Forgiveness (PSLF), which provides tax-free forgiveness after 120 qualifying payments, it’s to your benefit to consolidate so that you’re eligible for income-driven plans.

Even if you’re not eligible for PSLF, the regular forgiveness options under IDR plans shouldn’t be ignored. You just have to wait a little longer – 20 to 25 years – and pay federal income tax on the forgiven balance.

4. You want to convert from variable interest rates to a fixed-rate loan

If you have federal loans (except Perkins Loans) that were disbursed before July 1, 2006, one or more of your loans may have a variable interest rate.

Because Direct Consolidation Loans have fixed rates only, you don’t have to worry about your interest rate going up and down over time. And if interest rates are steadily increasing, locking in a fixed rate can save you money over the long run.

When to avoid Direct Loan Consolidation

While a Direct Consolidation Loan may be beneficial to some, there may be other strategies you can use to save more as you pay down your student debt.

Certain loans, including private student loans, don’t qualify for the Direct Loan Consolidation program. Keep in mind that if you’re a parent with Parent PLUS loans, you can consolidate through a Direct Consolidation Loan on your own. You can’t, however, consolidate your loans with loans that the student received.

2. You don’t want to lose your federal repayment options

Because consolidating student loans effectively erases the original loans, any benefits you had under the original loan’s terms will no longer be available to you. Keep this in mind if you are hoping to apply for PSLF.

With PSLF, you need to make 120 qualifying payments on the loan before you receive forgiveness. If you consolidate your loans, the qualifying payments you made don’t transfer to the new loan.

The same goes with Perkins Loans. If you have these loans and consolidate, you’ll no longer qualify for loan cancellation under that program. Be sure to talk to your servicer before consolidating to be sure you won’t lose any benefits that you’d prefer to keep.

3. You want to strategically pay off loans with higher interest rates first

Consolidating your student loans won’t necessarily lower your interest rates. Instead, the process involves taking the weighted average of the old loans and adding a small percentage on top.

So, if you have a loan or loans with significantly higher interest rates, it may be better to leave those out of a consolidation and focus your early repayment efforts on them to get rid of them more quickly.

4. You want to save money by refinancing with a private lender

If you have a solid income and great credit, you may be able to score a lower interest rate, a lower payment, or both through refinancing.

Some of the top student loan refinancing lenders offer competitive interest rates to those who qualify. Just keep in mind that you’ll lose your federal loan benefits if you go this route.

Also, the lowest rates refinancing lenders offer are typically variable rates and come with shorter repayment terms.

Before choosing to refinance, make sure you’re really ready to forego all of the benefits associated with your federal loans.

5. You want to avoid increased interest charges over the lifetime of the loan

Even if you’re not on an income-driven repayment plan, Direct Loan Consolidation will usually lower your monthly payment. This is accomplished by lengthening the repayment term, which means you’ll pay more in interest over the lifetime of the loan.

If your goal is to pay as little interest as possible, consolidation may still work out. But you’ll need to make extra payments to shorten the repayment period. Use our prepayment calculator to see how the math can work in your favor.

Consider all the factors carefully

Consider the benefits and drawbacks of Direct Consolidation Loans carefully to create a repayment strategy that takes all your goals into account. Remember: Just because a loan is eligible doesn’t mean you have to include it.

Also, know that there’s more to repayment than just math. You likely have other financial goals you want to work – make sure your student loan repayment strategy works with those. For example, if you plan to buy a home, staying in debt longer with a Direct Consolidation Loan may not be appealing.

If you end up deciding that Direct Loan Consolidation is the best choice for you, use our consolidation tool to get started on your application.

Ben Luthi contributed to this article.

How to Add Loans to Your Existing Direct Consolidation Loan

You don’t have to include all of your federal student loans in a Direct Consolidation Loan. However, if after you’ve obtained a Direct Consolidation Loan, you later decide that you would like to add a loan (or loans) to the Direct Consolidation Loan, you may do so—but only for a limited period of time.

You can add an eligible federal student loan (or loans) to an existing Direct Consolidation Loan within 180 days after the date the consolidation loan was made. Once the 180-day time frame expires, you’ll have to apply for a new Direct Consolidation Loan if you want to add more loans.

To add loans to an existing Direct Consolidation Loan within the 180-day time period, you’ll have to fill out a form. You can find the form at Hover over “Tools and Resources” and then click on “Direct Consolidation Loan Application (paper)” to find a form called “Direct Consolidation Loan Request to Add Loans.” (You can also get the relevant form, along with information about where to send it, from your loan servicer.)

You must enter certain information for each of the federal student loans that you want to add to your Direct Consolidation Loan on the form. To locate the information you will need to complete this part of the form, you can look at the last monthly billing statement you received for the applicable student loans, your quarterly interest statement or annual statement, your coupon book, or the website for the lender or servicer for the loan. You may also get information about your federal student loans by going to the National Student Loan Data System (NSLDS) at

Once your completed request form to add a loan (or loans) to your existing Direct Consolidation Loan is received, it will be processed. During this time, if you are currently required to make payments on your existing student loans, you must continue to do so. You must make the payments until you are notified that the loans that are the subject of your request have been successfully added to your Direct Consolidation Loan. (If you are currently having trouble making payments on your existing student loans, contact your loan holder or servicer to find out if you can postpone loan payments with a deferment or forbearance.)

By adding additional loans to your Direct Consolidation Loan, your repayment term may be extended, the interest rate might change, and/or the monthly payment amount could change.

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