Direct Consolidation Loan

What is a Direct Consolidation Loan?

If a federal loan borrower has more than one loan, they may choose to combine their previously disbursed federal student loans into one new loan called a Direct Consolidation Loan.  The Direct Consolidation Loan will pay off the principal and interest of all the loans previously disbursed, and the new loan will have a fixed interest rate based on the combined loans. There is no charge to apply for a Direct Consolidation Loan and the application can be completed on the Federal Student Aid (FSA) website or by contacting your loan servicer.

What’s the Purpose of a Direct Consolidation Loan?

Not all borrowers will want (or need) to consolidate their federal student loans.

Some borrowers may choose to consolidate if they want to:

  1. Eliminate multiple servicers (Note: if you currently have only one servicer, you will only be required to make one monthly payment regardless of how many individual loans you have).
  2. Make non-Direct loans such as Perkins or Federal Family Education Loan (FFEL) Program loans eligible for Direct Loan-only repayment plans.
  3. Make non-Direct loans eligible for forgiveness through income-driven repayment plans or programs -- like Public Service Loan Forgiveness (PSLF).
  4. Move into a repayment plan before the end of their originally scheduled 6-month grace period.

When Can a Borrower Consolidate?

Borrowers may apply for a federal Direct Consolidation Loan only when their loan servicer has been notified by the school that the student is no longer enrolled in school. Some schools report a separation date for all students enrolled at the school at the same time, regardless of the actual medical school graduation date. The registrar or your financial aid staff will likely be able to tell you when your school will report this information; however, it could take 30–60 days before your servicer is notified of your separation date.

Only after your servicer updates your status from “in school” to “graduated” can you submit a Direct Consolidation Loan application.