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1. What are the benefits of a Direct Consolidation Loan? Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages. One Lender and One Monthly Payment Flexible Repayment Options No Minimum or Maximum Loan Amounts or Fees Varied Deferment Options Reduced Monthly Payments Retention of Subsidy Benefits Temporary In-School Consolidation Authority Borrowers will lose the grace period on a FFEL Subsidized/Unsubsidized Stafford Loan or Direct Subsidized/Unsubsidized Loan by consolidating the loan while it is in an in-school status. Similarly, PLUS borrowers who consolidate a Federal PLUS Loan or Direct PLUS Loan that was first disbursed on or after July 1, 2008 will lose the six (6) month post-enrollment deferment period. Parent PLUS borrowers who consolidate a Federal PLUS Loan or Direct PLUS Loan that was first disbursed on or after July 1, 2008 will lose eligibility to defer repayment while the student for whom the loan was obtained is in school. Click here for information on the eligibility requirements for this temporary provision. 
2. What are the differences between FFEL Consolidation vs. Direct Consolidation? Borrowers are encouraged to check with their existing loan holders or servicers to find out about consolidation options available to them. Some differences between programs may include:
3. Who is eligible for a Direct Consolidation Loan? To qualify for Direct Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan. NOTE: Borrowers whose consolidation applications are received on or after July 1, 2010 and before July 1, 2011 may qualify to consolidate loans that are in an in-school status into a Direct Consolidation Loan. Click here for more information and the eligibility requirements for this temporary provision. Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan or Income Based Repayment Plan. Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program. Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan. NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.
4. Can I obtain a Direct Consolidation Loan if I don't have any Direct Loans? Yes, borrowers without any Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program. NOTE: The Direct Loan Servicing Center has information on the Public Loan Service Forgiveness Program.
5. Can I consolidate a PLUS Loan? Yes, PLUS Loans can be consolidated into a Direct Consolidation Loan.
6. Can I consolidate a Perkins Loan? Yes, it is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Direct Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program. We recommend that you consider the following points prior to making a decision:
The Direct Consolidation Loan Program offers standard, graduated, extended and income contingent repayment plans which may lower monthly payments. NOTE: Lower payments and extended repayment terms can increase the overall finance charges incurred over the life of loan.
7. Can I consolidate health professions loans? Yes, With a Direct Consolidation Loan, borrowers can include certain health profession loans sponsored through the U.S. Department of Health and Human Services with other Federal education loans in their Direct Consolidation Loan. Borrowers must include at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan in the Direct Consolidation Loan.
Eligible Health Professions Loans
The Advantages Direct Consolidation Loans offer many advantages to borrowers of health professions loans. These include:
When deciding to consolidate a health professions loans, consider the following advantages:
Issues to Consider Before applying for a Direct Consolidation Loan, consider the following points:
8. Can I consolidate my loans if I am enrolled in school? Yes and No. Effective for Direct Consolidation Loan applications received on or after July 1, 2006, borrowers who are enrolled in school cannot consolidate loans that are in an in-school status. These are loans that have not yet entered or used up the 6-month grace period entitlement. Borrowers still can consolidate loans that are in grace, repayment or deferment Borrowers can add loans to an existing consolidation for up to 180 days after the Direct Consolidation Loan was first disbursed. If more than 180 days has passed, borrowers can apply for a new Direct Consolidation Loan. The new consolidation loan can include the original Direct Consolidation loan and must include another eligible outstanding Federal education loan.
Example: A borrower who has education loans stopped attending school for a year and the loans used up the 6-month grace period and entered repayment. The borrower returned to school and obtained a new loan. While enrolled, the borrower applies for a Direct Consolidation Loan. The Direct Consolidation Loan can include the first group of loans the borrower received, but not the newly received loans. Once the borrower leaves school again he or she can add these new loans to the existing consolidation loan or submit a new Direct Loan Consolidation application to combine the original consolidation loan and the other remaining loans. Temporary In-School Consolidation Authority Note: Borrowers will lose the grace period on a FFEL Subsidized/Unsubsidized Stafford Loan or Direct Subsidized/Unsubsidized Loan by consolidating the loan while it is in an in-school status. Similarly, PLUS borrowers who consolidate a Federal PLUS Loan or Direct PLUS Loan that was first disbursed on or after July 1, 2008 will lose the six (6) month post-enrollment deferment period. Parent PLUS borrowers who consolidate a Federal PLUS Loan or Direct PLUS Loan that was first disbursed on or after July 1, 2008 will lose eligibility to defer repayment while the student for whom the loan was obtained is in school. Eligibility Requirements:
Note: A different interest rate calculation may apply to loans that are consolidated under the Temporary In-School Consolidation Authority. Please click here for more detailed information.
9. Can I consolidate an existing consolidation loan? Yes, under three conditions:
NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.
10. Can I consolidate my loans that are in grace? Yes, Borrowers who consolidate loans that are in grace may receive a lower interest rate on their Direct Consolidation Loans if they are consolidating variable rate loans. However, once grace status loans are consolidated borrowers lose any remaining grace period. Borrowers receive their first bills within 60 days after the new Direct Consolidation Loan is made. The timing in which an application is submitted is important:
11. What special conditions apply if I am in repayment and just consolidating now? Borrowers in repayment who want to consolidate their Federal education loans should continue making payments until their loan holder notifies them that their loans are paid in full.
12. Can I consolidate jointly with my spouse? No, Effective July, 1 2006 a married couple may no longer obtain a Direct Consolidation Loan as joint borrowers.
13. Can I Consolidate a Defaulted Loan? Generally, Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option. Borrowers cannot consolidate defaulted loans under these conditions:
Note: Borrowers with defaulted FFEL or Direct Loan Program loans may be liable for collection costs incurred to collect the loans. If the holder of the defaulted loan, which may be either the U.S. Department of Education or a guaranty agency, retains a collection agency to collect defaulted loans, charges imposed by the collection agency may be added to the amount borrowers owe. This means that the amount of the Direct Consolidation Loan may include collection costs of up to 18.5% of the principal and interest outstanding on the defaulted loan. For defaulted Perkins Loans and health professions loans, collection costs may equal as much as the amount owed at the time the defaulted loan is paid off through consolidation.
14. Can I delay processing of my consolidation application? Yes, you can delay the processing of your Direct Consolidation Loan until closer to the end of your grace period end date if any of the loans you want to consolidate are in a grace period. Normally, when you consolidate your existing loan(s) into a new Direct Consolidation Loan, you will be required to start repayment of your new loan immediately. However, if any loan you want to consolidate is still in a grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date by entering your expected grace period end date (month and year) in the space provided on the application. We will start processing your application about 45 days before the expected grace period end date that you provide. If you leave the expected grace period end date blank on your consolidation application, your Direct Consolidation Loan will enter repayment immediately. You can select a date up to nine (9) months into the future. If your grace end date is more than 9 months away, wait to submit your application.
15. Should I rehabilitate before consolidating my defaulted loan? Rehabilitation or Consolidation? There are many benefits to rehabilitating a defaulted loan before consolidation. If you consolidate a defaulted loan without rehabilitating it , your credit record continues to show a default status on the loan. This is true even after the consolidation loan pays off the defaulted loan in full.
However, if you rehabilitate a defaulted loan before consolidating it , the loan holder will update your credit record to no longer reflect the default status of the rehabilitated loan(s).
Keep in mind that if you default on your loan, you are liable for any collection costs incurred to collect the loan. If you pay off the defaulted loan by taking out a Consolidation Loan, the amount you borrow must be enough to pay off your defaulted loan, including principal, interest, and collection costs. This means that the amount of the new loan may need to be up to 18.5% larger than the principal and interest outstanding on your defaulted loan. Both rehabilitation and consolidation will reinstate your eligibility for additional Federal student aid under Title IV of the Higher Education Act (Pell Grants, FFEL and Direct Loans etc.)
16. What are the consequences of defaulting? Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:
It is important that borrowers with Direct Consolidation Loans 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 and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.
17. What are the repayment plans? When repaying a Direct Consolidation Loan, you may choose from multiple repayment plans with various terms.
If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) you will have one Direct Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month. If you have not chosen a repayment plan, are not required to pay using ICR, and we determine that you currently have other active Direct Loans, we may assign your new Direct Consolidation Loan(s) to the same repayment plan as your active loan(s). If you do not currently have active Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.(See Example A and the Standard and Graduated Repayment Plan Repayment Periods Table) Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase. (See Example B and the Standard and Graduated Repayment Plan Repayment Periods Table) To qualify for this plan, your Direct Loan balance (your new Direct Consolidation Loan Amount plus other Direct Loans) must be greater than $30,000. Your plan options are: Fixed Monthly Payment Option - Under this plan, you will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms. (See Example C and the Extended Repayment Plan Repayment Periods Table) Graduated Monthly Payment Option - Under this plan, you will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase. (See Example D and the Extended Repayment Plan Repayment Periods Table) **Extended repayment terms are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans. Income Contingent Repayment (ICR) Plan The ICR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), loan balance and family sizes. Income is obtained from an ICR Plan & IBR Plan Alternative Documentation of Income Form (discussed below) submitted by you. (See Example E) As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ) or a 4506T IRS transcript. Monthly payments are adjusted annually to reflect inflation, family size and income. NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount. Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Direct Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance. Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. Alternative Documentation of Income Alternative documentation of income is required for Direct Consolidation Loan borrowers if their underlying loans were in the first or second year of repayment when they were consolidated. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources. Income-Based Repayment (IBR) Plan The IBR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), family size, and you must be experiencing a partial financial hardship to initially select this plan. Income is obtained from the Internal Revenue Service (IRS) or from an ICR Plan & IBR Plan Alternative Documentation of Income Form (discussed below) submitted by you. (See Example F) As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ). Monthly payments are adjusted annually to reflect a change in income, a change in family size, or changes to your partial financial hardship status. NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. If your payment does not cover all of the interest accumulating monthly on your Direct Subsidized Loans or Direct Subsidized Consolidation Loans, you will not be charged the remaining portion of the interest on those loans for a period not to exceed three consecutive years from the time you begin repayment under the IBR Plan. Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. NOTE: The IBR Plan is not available for parent Direct PLUS Loans, Direct PLUS Consolidation Loans, or Direct Consolidation Loans that repaid parent Direct PLUS Loans or Federal Family Education Loan Program PLUS Loans made to parent borrowers. If you choose to include any ineligible loans, the resulting new Consolidation Loan cannot be repaid under the IBR Plan. Alternative Documentation of Income It is recommended that you provide Alternative Documentation of Income with your consolidation application. If you submit the income information with the application and we determine you are qualified for a partial financial hardship, you may be able to start repaying your new consolidation loan under the IBR Plan immediately. Otherwise, Direct Loan Servicing will request that you submit your income information and, until it is received, your initial monthly payment amounts will be based on the Standard repayment plan. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.
18. How is the amount of my payment calculated under the ICR Plan? The ICR Plan is designed to keep payments affordable. Generally, you pay the lesser of:
Under the ICR Plan, the monthly payment is $0 for borrowers with family incomes that are less than or equal to the U.S. Department of Health and Human Services poverty level for their family size. Borrowers whose calculated monthly payment is greater than $0 but less than $5 are required to make a $5 monthly payment. Other borrowers must pay the calculated monthly payment. Until the Department receives income information from the IRS or alternative documentation of income, borrowers' monthly payments are equal to the interest that accrues each month. If they are unable to make the interest-only payments, borrowers may request a forbearance until the first scheduled Income Contingent Repayment (ICR) Plan payment is due. The monthly payment in Example E is calculated as follows: Step 1:
Step 2:
Step 3:
Step 4:
NOTE: This example is based on the 2011 income percentage factors and U.S. Department of Health and Human Services (HHS) poverty level guidelines.
19. How is the amount of my payment calculated under the IBR Plan? Under this plan, your required monthly payment will be no more than 15 percent of the amount by which your AGI exceeds 150 percent of the poverty line income for your family size and state, divided by 12. In addition:
Under the IBR Plan, the minimum monthly payment is $0 or $10.00 (or $50.00 if you are no longer experiencing a partial financial hardship). If you are married and file your federal income taxes jointly with your spouse, both your AGI and your spouse's AGI will be used to calculate your monthly payment. If you and your spouse file taxes separately, only your AGI will be used to calculate your monthly payment. Your repayment amount may be adjusted annually. It may be higher or lower depending on changes in your income. In special circumstances when your federal tax return does not reflect your present income (for example, due to loss of employment), you may submit documentation of your current income. Your monthly payment will be based on this documented income information. The Income-Based Repayment (IBR) Plan is designed to keep payments affordable. You must be experiencing a partial financial hardship (PFH) to initially select this plan. A partial financial hardship is: NOTE: Refer to the Glossary for a definition of
"eligible loans". If at any time you are unable to make the payments, you may request a deferment to temporarily suspend your monthly loan payments or a temporary forbearance to postpone payments.
20. What is Alternative Documentation of Income? A form that is used to accurately identify the income level of borrowers that are requesting to repay or are currently repaying their loan(s) under the Income Contingent Repayment (ICR) or Income-Based Repayment (IBR) Plan. The Alternative Documentation of Income (ADOI) form is required: Borrowers may also choose to submit the Alternative Document of Income form if they believe that their (or spouse’s, if applicable) AGI, as reported on their most recently filed federal tax return, does not reasonably reflect their current income such as in loss or change in employment. Borrowers may submit a copy of their most recent tax forms (1040, 1040A and 1040EZ) or a 4506T IRS transcript, as supporting documentation when income is requested for the ICR and IBR plans. NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.
21. Can I change repayment plans? Yes. Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.
22. How long does it take to consolidate my loans once I submit my application? The consolidation process generally takes 60-90 days. Using our online Web application can reduce the amount of time it takes to consolidate a borrower's loan.
23. When can I expect my first monthly payment to be due? Borrowers will receive an initial billing statement from the Direct Loan Servicing Center within 60 days of the first disbursement of their Direct Consolidation Loan. Payments are due monthly.
Borrowers receive monthly billing statements from the Direct Loan Servicing Center, unless they enroll in the Electronic Debit Account (EDA). Borrowers receive a 0.25 percent discount on their interest rate for as long as they continue to make payments using EDA. Borrowers must keep the Direct Loan Servicing Center informed of changes of address and to their names. Borrowers are responsible for making payments on time regardless of whether they receive billing statements. Borrowers should send payments to: U.S. Department of Education
Borrowers may prepay all or part of the unpaid balance on any Direct Loan at any time, without an early repayment penalty. If a borrower makes a payment that exceeds the required monthly payment, the prepayment will be applied first to any charges or collection costs, then to outstanding interest, and last to principal. However, if a borrower's account has no outstanding interest, the prepayment is applied entirely to principal. If the prepayment is twice the borrower's monthly payment, the next payment due date is advanced unless the borrower specifies otherwise. The borrower will be notified of a revised due date.
26. How does Total Education Indebtedness effect the repayment term of my Direct Consolidation Loan? If you elect to repay your Direct Consolidation Loan under either the Standard or Graduated Repayment Plans, your repayment term is determined based on your consolidation loan amount and other eligible education loans that are not part of your Direct Consolidation Loan as long as you provided information about those loans on your application. Here are examples of how Total Education Indebtedness effects the repayment term for your Direct Consolidation Loan. Your Existing Loans:
Examples 1 and 2 assume that you reported all your outstanding education loans on your consolidation application.
In Example 1 you consolidated less that one-half of your eligible outstanding loans. As a result, we base your repayment term on your Direct Consolidation Loan amount plus other eligible indebtedness only in an amount equal to your new Direct Consolidation Loan: In Example 2 you consolidated more than one-half of your eligible outstanding loans so the calculation of Total Education Indebtedness includes all of your other eligible education loans. The result is a longer repayment term than in Example 1. Finally, Example 3 illustrates the impact on your repayment term if you did not report all of your outstanding education loans on your Direct Consolidation Loan application. Your repayment plan term is shorter than in Example 1.
Remember that the longer your repayment term the lower your monthly payment will be. However, this usually means that the total interest paid during repayment will be higher. Only you can decide what plan is best for you. And, you can change plans later if your plan no longer suits your needs. Use our convenient online calculator to estimate your number of monthly payments, monthly payment amounts and total interest to be paid for as many different scenarios as you like.
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