Federal Direct Consolidation Loans

Who is Eligible?

To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

What are the possible benefits of a Direct Consolidation loan?

Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages.

  • Reduced monthly payments
  • Retention of subsidized loan benefits
  • One lender and one monthly payment
  • Flexible repayment options
  • No minimum or maximum loan amounts or fees

What are the possible cons of consolidation?

  • May increase the total cost of the borrower’s loan due to longer repayment terms.
  • All or a portion of the grace period may be forfeited
  • Borrowers retain their ability to request MOST major deferments, however, certain deferments or benefits may be lost
  • Perkins borrowers lose deferment subsidy and cancellation eligibility.

What types of loan can be consolidated?

  • Federal Direct Student Stafford, Parent PLUS and Grad PLUS Loans
  • FFELP Student Stafford, Parent PLUS and Grad PLUS loans
  • Federal Supplemental Loans for Students (SLS)
  • Federally Insured Student Loans (FISL)
  • National Direct Student Loans (NDSL)
  • Auxiliary Loan to Assist Students (ALAS)
  • Perkins Loan (if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request.
    NOTE:  When deciding to consolidate a Perkins loan, consider the following points prior to making a decision:
    • Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
    • Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
    • Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
    • Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.
  • Health Profession Loans:
  • Health Professions Student Loan (HPSL)
  • Health Education Assistance Loans (HEAL)
  • Loans for Disadvantaged Students (LDS)
  • Nursing Student Loans (NSL)

    NOTE: When deciding to consolidate a health professions loans, consider the following advantages:
  • Borrowers who have defaulted on a HEAL may include the collection costs and late fees in a Direct Consolidation Loan. THese fees may not be included in HEAL Refinancing.
  • Under the Direct Consolidation Loan Program, HEAL borrowers may repay under the Income Contingent Repayment (ICR) Plan for the life of the loan. HEAL lenders are only required to offer an ICR Plan for the first five years.
  • To qualify for an in-school deferment, Direct Consolidation Loan borrowers must be attending school at least half-time. HPSL, HEAL, and LDS borrowers are required to attend school full time to be eligible for an in-school deferment.
    NOTE:   When Deciding to consolidate a health professions loan, consider the following points:
    • HEAL loans have fixed or variable rate that are tied to the average 91-day Treasury bill rate plus 3 percentage points. There is no maximum interest rate for variable rate HEAL loans. In contrast, the interest rate for a Direct Consolidation Loan is based on the weighted average of the interest rates on loans being consolidated, rounded to the nearest higher one-eighth of one percent. It is a fixed rate and will not exceed 8.25 percent.
    • The interest on some health professions loans is subsidized by the U.S. Department of Health and Human Services. This interest subsidy is lost when these loans are included in a Direct Consolidation Loan.
    • Interest does not accrue during deferment for HPSL, LDS, and NSL borrowers. Interest does accrue during deferment on the portion of Direct Consolidation Loans that include health professions loans.
    • Borrowers who consolidate Health Professions Loans do not retain the deferment benefits that apply to those loans. However, they gain the deferment benefits that apply to Direct Consolidation Loans. For example, a borrower may be eligible for additional deferments if they have an outstanding balance on a FFEL made before July 1, 1993, when they obtain their first Direct Loan.

Tips for Consolidating Your Loans:

  • Obtain an accurate account of your loan history from the National Student Data Loan System (NSLDS) https://nslds.ed.gov/nslds/nslds_SA . Apply for a Federal Direct Consolidation loan from the US Department of Education, using the loan information you obtained from NSLDS. Always monitor your aggregate loan amount to make sure you don’t reach your aggregate loan limits before you acquire your degree.
  • If you consolidate, you can continue to acquire federal loans to pay for college (assuming you meet eligibility requirements). In addition, you can consolidate additional loans in the future separately or as an add-on to the current consolidation loan.
  • If you consolidate, when you graduate or when you fall below half-time enrollment you will be required to begin repayment (you will NOT have a grace period) unless you qualify for an unemployment deferment or hardship deferment or receive forbearance.

What are my repayment options for federal student loans?  

You are encouraged to review your loan repayment options online at the studentaid.ed.gov website.

  • Standard Repayment – a fixed monthly payment amount with a minimum payment of $50 and 10 year repayment period.
  • Extended Repayment – this plan is intended for borrowers who owe at least $30,000 within the Direct Loan Program or the FFEL Loan Program. Payment amounts can be either fixed or graduated with up to 25 years to repay the loan. The monthly payment is lower than the Standard Plan, but you pay more in interest due a longer loan repayment period.
  • Graduated Repayment – this plan is intended for borrowers that have an income that will increase steadily over time. Payments start out low and increase every two years. Although the loan period is 10 years, you will pay more in interest than the Standard Repayment Plan.
  • Income Based Repayment (IBR)– this plan is intended for borrowers that have high student loan debt compared to their income level and family size. Monthly payments are capped based on your monthly income level and family size relative to the Department of Health and Human Services Poverty Guidelines. If you pay under the IBR Plan for 25 years and meet certain requirements, the remaining balance is cancelled. After 10 years of making payments under IBR Plan while employed as a public servant, your remaining balance of Direct Loans will be forgiven. If you have FFEL loans, you may be eligible to consolidate them into the Direct Loan Program to benefit from the Public Loan Forgiveness Program.
  • Income Contingent Repayment (ICR) for Direct Loans Only – this plan is intended to give flexibility without causing undue economic hardship. Your monthly payments will be based on your total adjusted gross income (including spouse’s income if married), family size and the amount you owe on your Direct Loans. You will pay a calculated amount not to exceed 20 percent of your monthly discretionary income. The maximum repayment period is 25 years and the unpaid portion after 25 years is discharged. You may have to pay taxes on the amount that is discharged.
  • Income Sensitive Repayment Plan for FFEL Loans Only – your monthly payment is based on your annual income. As you income fluctuates, so does your monthly payment. Maximum repayment period is 10 years. You should contact your FFEL lenders for more information regarding this plan.


Public Service Loan Forgiveness Program

What is the Public Service Loan Forgiveness (PSLF) Program?

The Public Service Loan Forgiveness Program was established to promote student loan borrowers to seek full-time public service employment by forgiving the remaining balance of their William D. Ford Federal Direct Loan Program loans after the borrower has made 120 qualifying monthly payments (after October 1, 2007) under the Standard Repayment Plan, Income Based Repayment Plan or Income Contingent Repayment Plan while employed full-time by a public service organization.

What student loans qualify for the PSLF Program?

Only non-defaulted loans made under the William D. Ford Direct Loan Program are eligible for the PSLF program. This includes:

  • Federal Direct Stafford loans (Subsidized and Unsubsidized Stafford loans)
  • Federal Direct PLUS Loans for parents and graduate or professional students
  • Federal Direct Consolidated loans


Loans made under other federal student loan programs may qualify if they are first consolidated into a Direct Consolidation loan.

What are the Direct Loan repayment options that qualify for the Public Service Loan Forgiveness Program?

The 120 payments must be made under one or more of the following repayment plans:

Is the forgiven balance considered taxable income?

Public Service Loan forgiveness is not considered taxable income.;

What is considered eligible employment under the PSLF Program?

Some examples of qualifying jobs are:

  • Emergency Management
  • Government (excluding Congress)
  • Public Health
  • Law Enforcement and Public Safety
  • Military
  • Public Education and Early Childhood Education
  • Public Interest Legal Services
  • Public Librarians and School Librarians

This Program is intended for individuals with high debt and low income that pursue public service careers. Borrowers employed in public service jobs that have a high level of income and a low level of debt may not benefit from this Public Service Loan Forgiveness Plan.

You can find more details about the Public Service Loan Forgiveness Plan at the Direct Lending Website and at the FinAid.org website.



Last Modified - 05/18/2011