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Direct Consolidation Loan

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Direct Consolidation Loan is a feature that can be availed when you have multiple student loans. Under this scheme, you are allowed to combine all the existing student loans into one loan with a fixed interest rate at no extra cost.

Most federal education loans qualify for consolidation, but not private loans. You can combine loans once you withdraw from school, finish school, or fall below half-time student status.

Requirements For Direct Consolidation Loan

You must meet specific eligibility requirements to qualify for a Direct Consolidation Loan.

  • The loans borrowers consolidate must be in the grace or repayment period.
  • You cannot combine existing Consolidation Loans unless they include an additional qualified loan in the consolidation.
  • If you cannot consolidate a defaulted loan collected by garnishing your wages or by court order after a judgment, you’ll have to wait until the judgment has been vacated or the wage garnishment order has been lifted.
  • If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on their loan or agree to repay the new Direct Consolidation Loan under the:
    • Pay As You Earn Repayment Plan,
    • Income-Based Repayment Plan,
    • Income-Contingent Repayment Plan, or
    • Revised Pay As You Earn Repayment Plan
  • In some cases, you may reconsolidate an existing FFEL Consolidation Loan without including any additional loans. You can reconsolidate an existing –
    • FFEL Consolidation Loan to be eligible for the PSLF Program
    • Delinquent or defaulted FFEL Consolidation Loan and repaid the new Direct Consolidation Loan through an income-driven repayment plan
    • FFEL Consolidation Loan to use the no accumulation of interest benefit for active duty service members, which states that borrowers need not pay the interest that accumulates during the qualifying active-duty military service (up to 60 months) period on the portion of a Direct Consolidation Loan that repaid an FFEL Program loan or Direct Loan Program first disbursed on or after October 1, 2008

Applying For A Direct Consolidation Loan

You can apply for a Consolidation Loan by completing the application and submitting online. Alternatively, borrowers can download and print the paper application for submission by U.S. mail.

Once you submit the application electronically or mail a paper application, the chosen consolidation servicer will complete the process required to consolidate the eligible loans.

Note –

  1. The servicer will be your point of contact for any queries regarding the consolidation application.
  2. It is essential to continue making payments on those loans until the consolidation servicer notifies that the new Direct Consolidation Loan has paid off the amount unless the loans that need to be consolidated are in forbearance, deferment, or grace period.

When Should You Begin Making Repayments?

You can begin repaying the Direct Consolidation Loan within 60 days after the loan is disbursed. The loan servicer will notify you when the first payment is due. You can repay loans using any plan, including income-driven repayment plans.

Note –

If any of the loans that you want to consolidate are still in the grace period, you can indicate on the loan application that you want the loan servicer to delay the consolidation of loans until closer to the end of the grace period. If you choose this option, you need not begin making payments on the new Consolidation Loan until closer to the grace period end date on the current loans.

What Is The Interest Rate On The Direct Consolidation Loan?

A Consolidation Loan has a fixed interest rate throughout the loan period. It is the weighted average of the interest rates on the consolidated loans, rounded up to the nearest 1/8th of 1%. There is no cap on the interest rate of this type of loan.

Advantages Of The Direct Consolidation Loan

The advantages of a Direct Consolidation Loan include:

  • The repayment term is extended up to 30 years, and therefore you may be eligible for lower monthly payments.
  • Since Direct Consolidation Loans have a fixed interest rate, you can also get a lower interest rate.