Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
• Agree to repay the loan(s) under either the Income Contingent or Income Based Repayment Plan.
• Make satisfactory repayment arrangements with the current loan holder(s).
If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation.
Borrowers cannot consolidate defaulted loans under these conditions:
• If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
• If they are trying to consolidate defaulted Direct Consolidation Loans and do not include at least one additional eligible loan in the consolidation.
Yes, borrowers without any Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Loan consolidation can simplify loan repayment by centralizing your loans and giving you one, lower monthly payment. You might also have access to alternative repayment plans you would not have had before, and you’ll be able to switch your variable interest rate loans to a fixed interest rate.
However, if you increase the length of your repayment period, you’ll also make more payments and pay more in interest. Compare your current monthly payments to what monthly payments would be if you consolidated your loans.
You also should consider the impact of losing any borrower benefits offered with the original loans. Borrower benefits from your original loan, which may include interest rate discounts, principal rebates, or some loan cancellation benefits, can significantly reduce the cost of repaying your loans. You might lose those benefits if you consolidate.
Once your loans are combined into a Direct Consolidation Loan, they cannot be removed. The loans that were consolidated are paid off and no longer exist.
Here are some tips on qualifying for a Direct Consolidation Loan:
• You must have at least one Direct Loan or FFEL Program loan that is in a grace period or in repayment.
• If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new Direct Consolidation Loan under the Income-Contingent Repayment Plan or the Income-Based Repayment Plan.
• Generally, you cannot consolidate an existing consolidation loan again unless you include an additional Direct Loan or FFEL Program loan in the consolidation. However, under certain circumstances you may reconsolidate an existing FFEL Consolidation Loan without including any additional loans. For additional details, go to www.loanconsolidation.ed.gov.
There are no application fees for a Direct Consolidation Loan, and you may prepay your loan at any time without penalty.
A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. However, the rate will not exceed 8.25%.
Most federal student loans, including the following, are eligible for consolidation:
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• Direct PLUS Loans
• PLUS loans from the Federal Family Education Loan (FFEL) Program
• Supplemental Loans for Students (SLS)
• Federal Perkins Loans
• Federal Nursing Loans
• Health Education Assistance Loans
If you are in default, you must meet certain requirements before you can consolidate your loans.
A PLUS loan made to the parent of a dependent student cannot be transferred to the student through consolidation. Therefore, a student who is applying for loan consolidation cannot include the PLUS loan the parent took out for the dependent student’s education.
For a complete list of the federal student loans eligible for consolidation, contact us for a free evaluation.
You may be eligible to consolidate after you graduate, leave school, or drop below half-time enrollment.