What is the Direct Consolidation Loan Program?

Former students are always looking for ways to ease the pressure of paying back student loans, especially when there are multiple loans to repay. For many, loan consolidation has become a great way to reduce loan payments while eliminating the need to keep up with multiple lenders and interest rates.

You may have heard of a number of consolidation options, including the Direct Consolidation Loan Program. Since it offers a lot of advantages for borrowers looking to consolidate, let’s take a look at what the program is and how you could benefit from it.

What is the Direct Consolidation Loan Program?

The Direct Consolidation Loan Program is one of the consolidation options in existence that helps borrowers combine one or more of their Federal education loans into one new loan.

The loans that qualify for the program include:

• Federal Direct Subsidized Loans
• Federal Direct Unsubsidized Loans
• Federal Direct PLUS Loans
• Federal Direct PLUS Consolidation Loans
• Federal Direct Subsidized and Unsubsidized Consolidation Loans

This program is known for its low loan consolidation rates, which add up to the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent.

Rates are currently holding steady until June 30, 2011, unable to exceed 8.25 percent. To determine what your rate might be, you can check the program’s loan consolidation calculator.

Who is Eligible?

Any student who has obtained a federal student loan that falls into the category of Direct Loan or Federal Family Education Loan (FFEL) for undergraduate or graduate studies is eligible.

Both subsidized and unsubsidized Federal Stafford loans are eligible. Perkins loans are only eligible for inclusion if they are consolidated with a Direct student loan.

Loans qualify under almost any status, including grace, deferment, repayment or default status. The only one that typically does not qualify is in-school status. However, if a consolidation application is received before July 1, 2011, the in-school status loan can also qualify for the program.

The main qualifier is that the loans must be originally obtained from the Federal government. Unfortunately, the program doesn’t offer options for those looking for private loan consolidation since private student loans cannot be consolidated with Federal student loans.

The Difference Between FFEL and Direct Consolidation

You may already be familiar with the FFEL Consolidation program. Like the Direct Loan Consolidation Program, it is a direct consolidation loan offered by the government that allows family members who were who were granted Federal student loans the opportunity to consolidate their loans into one.

According to the government’s consolidation website, there are some differences between the two programs to take note of, including:

• Minimum balances
• Number of loans required to apply
• Prior account relationship requirements
• Repayment incentive benefits
• Electronic debit options
• Repayment plans offered

To determine which program is best for you, it’s good to look at FFEL and Direct Consolidation closely since each program could offer specific perks that meet your financial needs.

Benefits of the Direct Consolidation Loan Program

There are a number of options to keep in mind before deciding to participate in the Direct Consolidation Loan Program. Here are just a few to take note of:

• Flexible repayment options: There are multiple plans to repay the Direct Consolidation Loan and they are all flexible. For instance, you may be able to repay based on your income. The program allows borrowers to switch repayment plans whenever necessary, which helps to meet repayment requirements as many life changes occur.
• Reduced monthly payments: If the borrower is having problems keeping up with payments, the program has been known to lower the borrower’s overall monthly payment.
• Numerous deferment options: The program also offers a number of deferment options for those who have an emergency circumstance that makes it difficult to make payments.
• No minimum amounts or fees: There is no minimum amount required to qualify for the loan. Also, the consolidation process is free.
• Health profession loans are eligible: Borrowers who obtain health profession loans sponsored through the U.S. Department of Health and Human Services, including Health Professions Student Loans (HPSL), Health Education Assistance Loans (HEAL), Loans for Disadvantaged Students (LDS) and Nursing Student Loans (NSL) qualify for the program.
• Spouses can’t consolidate jointly: As of July, 1 2006, a married couple may not enter the program as joint borrowers.

For those who decide to enter the program, the consolidation process typically takes about 60-90 days to finalize after submitting the application. Also, the first payment is due within 60 days of the first disbursement of their Direct Consolidation Loan.

To learn more about the Direct Consolidation Loan program, visit www.loanconsolidation.ed.gov.