Borrowers who want to consolidate their federal student loans.
Note: There is no application fee to complete a Direct Consolidation Loan application. You may be contacted by private companies that offer to help you consolidate your loans, for a fee. These companies have no affiliation with the U.S. Department of Education (ED) or ED's Federal Loan Servicers.
If consolidation would cause you to lose the benefits associated with some of your current loans and you are working toward earning those benefits, you should not include those loans in your new Direct Consolidation Loan. When you apply for a Direct Consolidation Loan, you don’t have to consolidate all of your eligible loans. For example, if you have both Direct Loans and other types of federal student loans, and you have been making payments toward PSLF on your Direct Loans, you should not consolidate your Direct Loans along with your other loans.
If you’re one of the approximately 45 million Americans who currently have student loan debt, you may have heard the terms “consolidation” or “refinancing” being thrown around. If you’re not sure what these terms mean or how they’re different, you’re in the right place.
Finance is personal and how you choose to repay your student loans is no different. While consolidation might make sense for some borrowers, and refinancing might make sense for others, these options won’t make sense for everyone. Understanding the nuances of consolidation vs. refinancing can help empower you to make financial decisions that work for you.
Part of what makes the difference between consolidation and refinancing difficult to discern is that the two terms are sometimes used interchangeably.
For many working adults, especially those with families and other financial responsibilities like homes and cars, student loan consolidation could be a godsend. If you decide that consolidation is the best route for you to go, the best advice is to first consult one of your lenders for guidance and a good consolidation plan. Lenders for the federal loan program include the federal government’s Direct Loan Program or a Federal Family Education Loan Program (FFELP) lender, such as the very well known Sallie Mae.
Direct Consolidation Loan is a loan offered through the U.S. Department of Education that allows you to combine multiple federal education loans into a single federal loan. Only federal student loans can be consolidated through a Direct Consolidation Loan.
There is no application fee to consolidate loans through a Direct Consolidation Loan.
The resulting interest rate is a weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent.
If a borrower’s monthly payment decreases, it’s likely the result of lengthening the term, which can mean paying more interest over time.
Because the interest rate is a weighted average and not necessarily reduced, federal student loan consolidation is generally not a money-saving option.