Students who have more than one federal student loan may want to consider combining the loans into one Direct Consolidation Loan. Consolidating different types of loans into one monthly payment can help borrowers better manage their loan repayment. But loan consolidation isn’t right for everyone. Weigh all of the information before you choose to consolidate.
A Direct Consolidation Loan combines one or more federal loans into a single loan with one interest rate and one monthly loan payment.
- Combine loans of different types into one fixed-rate loan (even consolidate a single, small-balance loan)
- Have more than one consolidated loan
- Choose the same repayment term as they have with a current Direct Loan to keep borrowing costs low at repayment
- Consolidate a Parent PLUS Loan. (Parent PLUS loans cannot be consolidated with federal loans borrowed by students)
- Apply for Direct Loan consolidation online at no cost
- Receive an interest rate reduction if using an Electronic Debit Account for payment
Some of the drawbacks include:
- By extending the repayment period, a borrower is likely to pay more interest over the life of the loan. The total loan cost will be higher
- Giving up the benefits of some individual loans, such as the forgiveness and deferred interest benefits of the Perkins Loan
- Private educational loans cannot be included in a federal loan consolidation (to learn how to consolidate private loans, contact your private loan lender)
Rehabilitation vs. Consolidation: There are benefits to rehabilitating a defaulted loan BEFORE consolidation.
- If you consolidate a defaulted loan without rehabilitating it:
- A borrowers credit record will continue to show that the loan was in default but then “paid in full”
- This can remain on the credit report for up to seven years
- Rehabilitating a defaulted loan BEFORE consolidating it:
- Rehabilitating a defaulted federal loan requires the borrower to make at least nine full payments of an agreed amount
- After the borrower rehabilitates the defaulted loan, the loan holder will update the credit report to no longer reflect the default status
More information about considering loan consolidation can be found on the Federal Student Aid website.
The fixed interest rate of a consolidation loan is the weighted average interest rate on all the loans you are consolidating. See the federal Direct Consolidation Loans website for current interest rate calculations. You can also use their online calculator to estimate your interest rate and determine whether consolidation will save you money.
Remember that if you consolidate your Perkins, Health Professions, or Nursing Loans, you will lose the cancellation provisions of these loans. This could be disadvantageous for certain students, such as those who plan to serve in the Armed Services or Peace Corps. For information about Perkins Loan cancellation, see the federal publication Your Federal Student Loans: Learn the Basics and Manage Your Debt. For information about Health Professions Loan and Nursing Loan cancellation, see your promissory note.
The easiest way to apply is online through the studentloans.gov website using your U.S. Department of Education FSA ID. You can request a paper application by calling 1-800-557-7392.
Sign in at studentloans.gov and either go to the My Account page to access the Loan Consolidation link or find the link under the Tools and Resources on the Home page. During the consolidation process, you will:
- Select a loan servicer: FedLoan/PHEAA, Great Lakes, Nelnet or Sallile Mae. This will be the servicer throughout the life of your consolidated loan.
- Select specific loans you wish to consolidate and choose your repayment plan: If you choose an income-based repayment option, you may allow the IRS tax database to populate this section or retrieve IRS information and enter it manually. (For more about repayment plans, visit the Repaying Your Student Loans page.)
- Read and approve Terms and Conditions.
- Submit personal information and two references.
- Review a summary of consolidated loans and sign your promissory note.
What you will need:
Student Loan Operations (Loans & Collections)