Federal Student Loan Consolidation

The Direct Loan Program was initiated in 1992, by President George  H. W. Bush.  Although the program started as a product of the Reauthorization of the Higher Education Act, it wasn’t until President Barack Obama introduced forgiveness and allotted a new budget for these programs that started new student loans on the Direct Loan Program in 2010. Hence the widely known name “Obama Student Loan Forgiveness.”

The Direct Consolidation of Federal Student Loans allows a former student the ability to combine all of their Federal Loans into one loan, and averaged interest rate, on servicer/ loan holder/ management company, and only one monthly payment.  Many have found this to be a great convenience in keeping track of monthly payments and balances. Not to mention the added peace of mind that possible loan forgiveness provides.

Recap the benefits of Direct Consolidation  of your Federal Student Loans

  • Borrower’s are provided the convenience and peace of mind in repayment of only one student loan, an averaged interest rate, a single servicing company. This simplifies the tracking of balance amounts and the process of remembering payment dates, as well as the advantage of projected forgiveness in certain lower income groups.
  • Borrower’s have a choice in several different payment plans. A Direct Consolidation currently provides opportunities into Standard, Graduated, IBR, Paye, Repaye, or ICR structures. This allows loan recipients the option of a repayment plan that is best suited for their needs. Persons facing unemployment, lowered income, larger family sizes, or disability may even qualify for a $0 monthly payment.
  • In the IBR and Repaye plans, borrower’s are offered forgiveness of the subsidized interest to their loans after three years of eligible payments, and forgiveness of the balance at the end of the term in repayment.
  • Public Service Loan Forgiveness and Teacher Loan Forgiveness options are available to borrower’s after Direct Consolidating their loans even if the loans would not have originally qualified.
  • Direct Consolidation offers a new beginning for defaulted loans. This process is the way to re-establishing yourself in repayment and getting your loans is good standing after a delinquent account has defaulted. Your older loans are bought out of default by the consolidation process and also put into correct standing for IDR repayment plans any possible loan relief at the end of the term of repayment.
  • Interest rates average out in consolidation. This will provide some relief to the amount of accrued interest on the loan.

While this process provides all the benefits mentioned above, entering into a Direct Consolidation will eliminate any benefits of the previous loan. Although most people find the Direct Consolidation a huge benefit, it may not be what is best for everyone. In some cases, an extension is applied to the life of the loan or the number of years in repayment. Persons whose greatest concern is exiting the loan as quickly as possible, and are not burdened by the amount of their monthly payments may not want to consolidate their loans.

After Direct Consolidating your loans, there are many options in repayment. Traditional plans (standard or graduated) continue to be offered, as well as possibilities for an extended fixed or extended graduated. Alternative repayment plans such as the IBR, PAYe, Repaye, and ICR are generally a better fit for those who have had issues with the monthly payments being to unaffordable in the past or are recovering their loans from default.

How long will Direct Consolidating your loans take

Depending on your willingness to complete and sign all forms necessary in applying for your Direct Consolidation your loans could transfer into a new repayment structure as quickly as 30 days or could take as long as 90 days. Once your loans are Direct Consolidated you are issued a weighted average  interest rate. This is calculated by the balance of your loans compared to an average of the interest rates that were previously applied to your loan(s).

The following Federal Student Loans are all qualified for a Direct Consolidation

            -Direct Subsidized

            -Direct Unsubsidized

            -Stafford Subsidized

            -Stafford Unsubsidized

            -Plus Loans

            -Federal Perkins

            -FFEL (can be Direct Consolidated with another type of loan, or when applying for PSLF/ TLF)

               -Health Education Assistance Loans

            -Federal Nursing Loans

            -SLS (Supplemental Loans for Students)

Direct Consolidations can be considered once a students loans have gone into repayment due to graduating, withdrawing, or dropping down to 5 or less credits per semester. Direct Consolidations are not offered while enrolled in school with a status of Full Time.