DIRECT CONSOLIDATION LOANS

Consolidation loans allow a borrower to combine different types of federal student loans to simplify repayment. (A borrower with just one loan can choose to consolidate it.) Both the Direct Loan Program and the FFEL Program offer consolidation loans. However, Direct Consolidation Loans and FFEL Consolidation Loans are very different and are discussed separately here.

What is a Direct Consolidation Loan?

A Direct Consolidation Loan is designed to help student and parent borrowers simplify loan repayment. Even though you might have several different federal student loans, you'll need to make only one payment a month for all the loans you consolidate. You can even consolidate just one loan into a Direct Consolidation Loan, to get benefits such as flexible repayment options.

What kinds of loans can be consolidated under a Direct Consolidation Loan?

Most federal student loans or PLUS Loans can be consolidated. All the loans discussed in the Guide are eligible for consolidation. The Direct Loan Servicing Center can give you a complete listing of eligible loans. The toll-free telephone number of the Servicing Center's Consolidation Department is 1-800-848-0982.

There are three types of Direct Consolidation Loans-

Direct Subsidized Consolidation Loans
Direct Unsubsidized Consolidation Loans
Direct PLUS Consolidation Loans

What is the interest rate on a Direct Consolidation Loan?

For Direct Subsidized and Unsubsidized Consolidation Loans, the interest rate is variable but cannot exceed 8.25 percent. From July 1, 1994 through June 30, 1995, the rate is 7.43 percent. For Direct PLUS Consolidation Loans, the interest rate is also variable and may not exceed 9 percent. From July 1, 1994 through June 30, 1995, the rate is 8.38 percent. These interest rates are adjusted each year on July 1.

What are the benefits of a Direct Consolidation Loan?

If you have more than one loan, a Direct Consolidation Loan simplifies the repayment process, because you make only one payment a month. Also, the interest rate on the Direct Consolidation Loan may be lower than what you're currently paying on one or more of your loans.

Another advantage of a Direct Consolidation Loan is that you may gain additional deferment possibilities. An FFEL borrower who consolidates using a Direct Consolidation Loan is eligible for all the deferments available to Direct Loan borrowers, in addition to all the deferments the borrower was eligible for under the FFEL Program.

If you're in default on a federal student loan, you may receive a Direct Consolidation Loan provided you agree to repay the defaulted loan under the Income Contingent Repayment Plan or make satisfactory arrangements to repay your defaulted loan for six months prior to consolidation.

Perhaps most important, a Direct Consolidation Loan gives the borrower expanded repayment options, because all the Direct Loan repayment plans are available to borrowers of Direct Consolidation Loans. (However, Direct PLUS Consolidation Loans are not eligible to be repaid under the Income Contingent Repayment Plan.)

How can I get a Direct Consolidation Loan?

You can get a Direct Consolidation Loan while you're still enrolled in school, during your grace period, or once you have entered repayment. You'll be given more information about consolidation loans during entrance and exit counseling sessions at your school. You may also contact the Servicing Center's Consolidation Department at 1-800-848-0982 for an application or more information.

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