What Is a Direct Consolidation Loan?

What Is a Direct Consolidation Loan?
Written by Publishing Team

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Many college students leave school with multiple student loans—usually eight to 12, depending on the program. Managing these many loans can be stressful, but fortunately, there are strategies that can help simplify repayment.

For example, if you have federal student loans, you can combine them into a direct consolidation loan. This process will allow you to get a loan and only one payment to keep track of.

Here’s what you should know about direct consolidation loans:

What is a direct consolidation loan?

You can combine several federal student loans into a direct consolidation loan, which will leave you with only one monthly payment to keep track of.

If you are considering consolidating your federal student loans, here are some important points to consider:

  • Interest rate: Your interest rate on a direct consolidation loan will be the weighted average of the rates for the loans you want to consolidate, rounded up by one-eighth of a percent. If some of your loans have higher interest rates, you may end up paying more interest.
  • Payment schedule: With a direct consolidation loan, you can extend the loan repayment period up to 30 years, which can significantly reduce your monthly payments. Just keep in mind that you will be paying more interest over time in the long run.
  • Loan Balances: Any interest owed on your loans will be added to your principal balance upon consolidation. This means that you may end up paying interest on a higher balance than you started with.

to remember: Federal student loan consolidation is not available for private student loans. However, there are other options that may help you pay off your own loans more easily, such as student loan refinancing.

Learn more: Private student loan consolidation

How to apply for a direct consolidation loan

If you decide to consolidate your federal student loans, follow these four steps:

1. Review your loans

Before beginning the application process, you will need to decide which loans you wish to include in the consolidation. You can review your federal loans through the National Student Loan Data System (NSLDS).

The following loans qualify for federal consolidation:

  • Federal Stafford Supported Loans
  • Unsubsidized and Unsubsidized Federal Stafford Loans
  • PLUS loans from the Federal Family Education Loan Program (FFEL)
  • Supplementary loans for students
  • Federal Perkins Loans
  • Nursing student loans
  • Nursing college loans
  • Health Education Assistance Loans
  • Health professions student loans
  • Loans for underprivileged students
  • Subsidized Direct Loans
  • Unsupported direct loans
  • Direct PLUS Loans
  • FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
  • Insured Federal Student Loans
  • Secured Student Loans
  • Direct National Student Loans
  • National Defense Student Loans
  • Parent loans for undergraduate students
  • Additional loans to help students

2. Gather your documents

To fill out the application, you will need a Federal Student Aid (FSA). If you don’t have an FSA ID, you can set up one at – you’ll just need a mobile phone number, email address, and your Social Security number.

Also be prepared to provide the following in your direct contract loan application:

  • personal informationLike your address and phone number
  • financial information, such as employer and income
  • Information regarding each of the loans you wish to consolidate, such as the service provider and the estimated return amount

3. Complete the order

Once your information is collected, you will need to fill out a direct consolidation loan application. It usually takes about 30 minutes to complete the application.

advice: You can fill out the application online at, or you can submit a paper application to the federal loan service of your choice.

4. Manage your payments

It usually takes 30 to 45 days to complete the integration. During this time, make sure you keep up with all your loan payments.

Next, start making the payments for your new direct consolidation loan. You might consider signing up for an automatic payment to avoid missing out on any payments in the future – many providers offer discount rates for borrowers who opt for automatic payments.

to remember: You cannot consolidate federal loans while you are enrolled in school at least half the time. To be eligible, you must graduate, drop out of school, or drop to less than half of your registered time.

paying off: What happens when you default on a student loan?

Pros of direct consolidation loan

While consolidating federal loans with a direct consolidation loan may be a good move for some borrowers, it is not the right choice for everyone.

Here are some potential benefits to consider when weighing your options:

  • Your payments can be reduced: With a direct consolidation loan, you can extend the repayment period up to 30 years. This may reduce your monthly payments and reduce pressure on your budget – although remember that this also means that you will be paying more interest over time.
  • Combine multiple loans: A direct consolidation loan allows you to consolidate your federal student loans, which can help simplify repayment.
  • It may make you eligible for loan forgiveness: If you have Direct PLUS loans, incorporating them will make you eligible for the Income-Driven Repayment (IDR). This may also qualify you for federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF).

Learn more: Best Parent Student Loans: Choose Special Loans or Additional Loans

Disadvantages of a direct consolidation loan

Here are some potential drawbacks to consider:

  • Higher interest costs: If you choose to extend your repayment period with a direct consolidation loan, your total loan cost will likely increase due to the added interest fee. In addition, any unpaid interest will be added to your principal balance after consolidation – which means you may end up paying interest on a higher loan amount.
  • The tolerance schedule will be reset: Consolidating your loans resets the clock when it comes to getting approved for programs like PSLF. If you have already made eligible payments, they will no longer count toward the 10 years of payments required by the PSLF.
  • You can lose your grace period: Most federal loans come with a six-month grace period. If you collect your loans before this grace period expires, you will have to start making payments within 60 days of processing the consolidation.

paying off: How to Refinance Your Student Loans

Is it better to refinance or consolidate student loans?

Whether it’s best to refinance privately or consolidate your student loans federally will depend on your individual circumstances and financial goals. Depending on your credit, student loan refinancing may lower the interest rate, which may save you money on interest and possibly help you pay off your loans faster.

to remember: Federal loan refinancing will cost you access to federal benefits and protections — such as IDR plans and student loan forgiveness programs.

For this reason, consolidation may be a better option in some cases, especially if you expect to pay off your loans over a long period of time.

If you decide to refinance your student loans, be sure to consider as many lenders as possible to find the right loan for you. Credibility makes this easy – you can compare your pre-qualified rates from multiple lenders in 2 minutes.

Find out if refinancing is right for you

  • Compare actual prices, not pitch estimates – Open rates from multiple lenders in about two minutes
  • It will not affect the credit score – Checking rates on Credible will not affect your credit score
  • data privacy – We do not sell your information, so you will not receive calls or emails from multiple lenders

See your refinancing options
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Direct Consolidation Loans: Frequently Asked Questions

Here are answers to some common questions regarding direct consolidation loans:

How long does a direct consolidation loan take to pay off old loans?

Once you apply for a direct consolidation loan, it will usually take 30-45 days for it to be processed and to pay off your old loans. You can generally expect to start making payments for your new direct consolidation loan within two months of that.

advice: To avoid delays, ensure that all information you provide in the application is as accurate as possible.

What is the interest rate on a direct consolidation loan?

Your interest rate on a direct consolidation loan will be the weighted average of the rates of the loans you choose to consolidate, rounded to the nearest 1%.

For example: Let’s say you combine a $2,000 loan with an interest rate of 4.45% and a $3,000 loan with an interest rate of 6%. The weighted interest rate between these two loans is 5.38% – then rounded to the nearest 1%, the rate will be 5.5%.

Can you cancel a direct consolidation loan?

Yes, if your application for consolidation of your loans has not been processed, you can cancel it. To do this, you will need to contact the service that received the order.

However, if your application has already been processed and the funds are disbursed, you will not be able to cancel the new loan.

Read on: Student loan consolidation vs student loan refinancing

About the author

Angela Brown

Angela Brown

Angela Brown is a personal finance, real estate, and contributor to Credible. Her work has appeared in Fox Business, LendingTree, 1800 Flowers, and FinanceBuzz.

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