Federal Direct Student Loan Consolidation

By Sam Ferdi

Student Loan Consolidation

Definition.

Many people have multiple loans running simultaneously. Direct loan consolidation is a way to manage these loan amounts in a more organized manner. The borrower can merge all loans and pay one fixed rate of interest on the total amount.

Because the interest rate will be the same as for direct loans, you may be able to pay less interest than you’re paying on your current loans. You may be able to reduce your monthly payments. You can also choose the repayment plan that best suits your financial circumstances.

Generally, websites also provide online calculators to compare consolidation rates with existing rates.

Federal direct loan consolidation is a common way for people to avoid paying huge monthly payments on their student loans. With direct student loan consolidation, a person can take their numerous federal student loans and combine them into one loan.

Types of loans that may be consolidated:

• Direct Stafford/Ford Loans (subsidized and unsubsidized)

• FFEL Stafford Loans (subsidized and unsubsidized)
• Direct and Federal PLUS Loans
• Guaranteed Student Loans (GSL)
• Federal Insured Student Loans [FISL]
• Federal Supplemental Loans for Students (SLS)
• Auxiliary Loans to Assist Students (ALAS)
• Federal Perkins Loans
• National Direct/Defense Student Loans (NDSL)
• Health Professions Student Loans (HPSL)
• Health Education Assistance Loans (HEAL)
• Loans for Disadvantaged Students (LDS)
• Nursing student loans

When you choose to consolidate your federal student loans, you are making the choice to not only lower your payments, but to lengthen your loan term.

The way a federal loan consolidation works is simple. The student is issued a new loan equal to his total loan amount after the government pays off all his outstanding loans. The credit rating of the student also improves since his outstanding loans are effectively cleared when the old loans are repaid.

You can consolidate your loans while you’re still in school, during your six-month grace period, or after you begin repayment. If you consolidate while you’re in school, you’ll receive a grace period on your consolidation loan. If you’re attending a non-direct loan school, you must have a direct loan, and you must have either a Direct Loan or FFEL in an “in-school” period. Repayment on consolidation loans begins within 60 days of the first loan disbursement, which means your grace period will be cut short if you apply too early.