What are consolidation loans?
Consolidation loans are not a form of financial aid, but a consumer product to help borrowers manage their cash flow and reduce paperwork.

What are the benefits?
A Direct Consolidation Loan allows borrowers to combine one or more of their Federal education loans into one new loan with several advantages:

One Lender and One Monthly Payment
With only one lender, the U.S. Department of Education, and one monthly bill, it is easier than ever for borrowers to manage their debt.
Flexible Repayment Options
Just like Direct Loan borrowers, those who consolidate through Direct Loan Consolidation can choose from four different plans to repay and can switch repayment plans.
Grace Period
If a borrower has not used his/her full grace period, he/she may qualify to use the remainder before repayment
Deferment Options
Direct Consolidation Loans offer several deferment options and could even renew previously exhausted deferment options on Federal student loans.
Reduced Monthly Payments
A Direct Consolidation Loan may ease the strain on a borrower’s budget by lowering the monthly payment.
Retention of Subsidy Benefits
Borrowers retain their subsidy benefits of subsidized loans that are consolidated.

Who is eligible?
In order to determine your eligibility for a Direct Consolidation Loan, your loan status (in-school, out of school, in default) and type (student, parent or married) must be determined. The most common status is student borrower.
Please visit the Direct Loan Consolidation website for additional information on other categories.

Student Borrowers are eligible for an Out of School consolidation if they:

include at lest one Direct Loan or
have been unable to obtain a Federal Consolidation Loan.

Should I consolidate?
Borrowers should examine how a consolidation loan would affect both monthly payments and interest paid over the life of the loan.

What type of loans can I consolidate?
Borrowers may include FFEL, Federal Perkins and HHS loans in Direct Loan Consolidation. Parents who have borrowed in both PLUS/Parent Loan can consolidate if they include other eligible, non-PLUS loans in their request as well as meet credit check requirements.

Alternative loans are not eligible for Direct Loan Consolidation.

Can I consolidate a loan in default?
Generally, Federal education loan(s) in default may be consolidated in a
Direct Consolidation Loan if the borrower:

agrees to repay the loan(s) under the Income Contingent Repayment Plan (see repayment plans section for details) OR
makes satisfactory repayment arrangements with the current loan holder(s).

When defaulted Direct Loan or FFEL is included in Direct Loan Consolidation, collection costs of up to 18.5 percent of the outstanding principal and interest are added to the outstanding balance. A defaulted Perkins loan and/or Health and Human Services (HHS) loan can add collection costs equal to the amount owed may be added to outstanding principal and interest. Collection costs are added to all defaulted loans and can increase the amount of indebtedness significantly.

A defaulted Direct Consolidation Loan that originally included defaulted loans cannot be consolidated again.

If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated.

Should I rehabilitate or consolidate my defaulted loan?
If, before consolidating, borrowers who want to clear the default notation from their credit record, they may wish to rehabilitate their loan. Although consolidation will mark the defaulted loans as “paid in full” and the borrower will regain eligibility for Federal student aid, the default notation will remain on their record for as long as seven years.

What are the consequences for defaulting?
Borrowers who fail to make a payment on time are considered delinquent on a Direct Consolidation Loan. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long lasting consequences.

The Department of Education can immediately demand repayment of the total loan amount due.
The Department of Education will attempt to collect the debt and may charge collection costs.
The Department of Education reports defaults to national credit bureaus, damaging a borrower’s credit rating and making it difficult for the borrower to make purchases such as a car or a house.
Borrowers in default are ineligible for Federal student aid.
Borrowers in default are ineligible for deferments.
The Internal Revenue Service can withhold a borrower’s Federal income tax refund.
Borrower’s wages may be garnished.

It is important to stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address or name changes, causing bills to go astray. The Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for deferment or forbearance or change repayment plans.

What are the repayment plans?

Standard Repayment Plan has fixed payments for a maximum of 10 years.
Extended Repayment Plan has fixed monthly payments that are less than the Standard Plan with a repayment period ranging from 12 to 30 years depending on the amount borrowed.
Graduated Repayment Plan has monthly payments that increase every two years with the repayment period varying from 12 to 30 years depending on the amount borrowed.
Income Contingent Repayment Plan has monthly payments that are based on a borrower’s annual income (AGI), family size and total Direct Loan debt, and are spread over a term of up to 25 years.

Borrowers select a repayment plan before entering repayment. Borrowers who do not select a repayment plan will be assigned to the Standard Repayment Plan.

What should I consider when selecting a repayment plan?
Borrowers should use the online calculator at the Direct Loan Consolidation website to determine both monthly payments and total amount repaid.

The Standard Repayment Plan has a shorter repayment period and borrowers are able to repay their loans more quickly and with less interest paid. Monthly payments may be higher.

The Extended and Graduated Plans have longer repayment periods than the Standard Plan and are more likely to have lower monthly payments. Borrowers will pay more interest over the life of the loan. The Extended Plan has fixed monthly payments. The Graduated Plan allows the borrower to make smaller payments first and larger payments later.

The Income Contingent Plan offers monthly payments that vary with a borrower’s annual income. Borrowers with low incomes will have longer repayment periods and more interest charges than other plans. Lower monthly payments may allow a borrower the flexibility in cash flow to avoid default.

How do I apply for a Direct Loan Consolidation?
You can call the Direct Loan Consolidation Program at (800) 557-7392 and request that a Direct Loan Consolidation application and materials be mailed to you.

It is even easier if you visit the Direct Loan Consolidation website and print out a copy of the application and instructional/informational materials. You can even complete your application online using your U.S. Department of Education PIN for your signature. If you elect to apply online, you should have a draft copy of the
completed application to aid your online process.

How long does it take to consolidate my loan once I submit my application?
The consolidation process generally takes 60 to 90 days. Consolidation borrowers can reduce the amount of time by completing their application online

What if I need to correct or update my application?
You can contact the Direct Loan Consolidation Program by telephone at
800-557-7392 from 8:00 a.m. to 8 p.m.

You can email the program at loan_consolidation@mail.eds.com.

You can also write to them at:
U.S. Department of Education
Consolidation Department
Loan Origination Center
P. O. Box 242800
Louisville, KY 40224-2800

When can I expect my first bill?
Unless the borrower is obtaining an in-school consolidation, he or she will receive a bill from the Direct Loan Servicing Center within 60 days of the first disbursement of the Direct Consolidation Loan. Borrowers with an in-school consolidation loan begin repayment after their six-month grace period expires.

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