Frequently Asked Questions About Federal Direct Consolidation Loans

Q: Can I consolidate my Stafford loans if I'm still in school?

A: Generally no. Effective July 1, 2006, a borrower may no longer request to enter repayment on his or her Stafford loan(s) while still enrolled in school in order to consolidate those loans. You will have to wait until you are in your grace period or in repayment on your Stafford loans in order to consolidate. For specific instances when a borrower may consolidate while in school, see the special note below.

Special note: The Health Care and Education Reconciliation Act of 2010 created a temporary authority that allows certain borrowers to consolidate while in school for a limited period of time. Specifically, it allows ED to make a Direct Consolidation loan for applications received on or after July 1, 2010, but before July 1, 2011 (so over a one-year period).

It is important to understand that the main purpose of this temporary authority is to help borrowers affected by split-loan servicing, which is when a borrower has loans that are held by two or more holders—lenders or ED. The eligibility requirements are as follows:

Eligibility Requirements:

1. A borrower must have loans in two or more of the following categories:

      • Federal Direct loan
      • FFELP loan that has been purchased by ED
      • FFELP loan held by an eligible lender

2. At least one of the above loans must not yet have entered repayment.

Considerations: A borrower will lose the grace period on a Stafford loan by consolidating the loan while in school. Similarly, borrowers who consolidate a parent or GRAD PLUS loan that was first disbursed on or after July 1, 2008, will lose the six month post-enrollment deferment period. Lastly, parent PLUS borrowers who consolidate a PLUS loan that was first disbursed on or after July 1, 2008, will lose eligibility to defer repayment while the student for whom they borrowed the PLUS loan is enrolled in school.

Q: Is it ever financially unwise to consolidate?

A: Generally, it's not a good idea to consolidate if you are close to paying off your student loans. Consolidation may affect your eligibility for certain loan forgiveness programs and interest subsidies (see a list of Eligible Loans below).

Q: How long do I have to decide?

A: You should not feel pressured to consolidate. Generally, consolidation is a one-shot deal, and this is a big decision which you should consider seriously. If you decide to consolidate, the timing of your decision may impact the interest rate you receive on your Direct Consolidation loan. You should keep in mind that it is best to consolidate at a time and in a way that will be most advantageous for you, particularly with regard to the interest rates of the loans that you want to consolidate. The interest rate on a Direct Consolidation loan is the weighted average of the interest rates (as of the date the application is received by the lender) on all of the loans you are consolidating, rounded up to the nearest one-eighth of a percent. (For a sample Consolidation loan interest rate calculation, visit TG's Consolidation Calculator.) Here are a few things to consider.

  • If you took out a Stafford or PLUS loan on or after July 1, 2006, it carries a fixed interest rate.
  • However, if you took out a Stafford or PLUS loan before July 1, 2006, it carries a variable interest rate that is adjusted annually on July 1 (and remains in effect through the following June 30). The new interest rates for variable-rate Stafford and PLUS loans are announced each year in late May, which gives you a chance to see if the rates will increase or decrease.

For information about your specific rates, see the interest rate chart available at TG Online).

Note: Stafford loans that have variable interest rates actually have two levels of rates. The interest rate is lower when you are in school, in your grace period (the six months after you leave school before you have to start paying back your loans), and in periods of deferment. The interest rate is higher when you are in repayment. So, if you consolidate a variable-rate Stafford loan while you are in your grace period or while you are in a period of deferment, the interest rate on that loan can be up to 0.6% lower, which will have a positive effect on the calculation of your Direct Consolidation loan interest rate.

Q: Are there any fees for consolidating?

A: No. There are no origination fees or other charges for obtaining a Direct Consolidation loan.

Q: Is there a minimum balance required to get a Direct Consolidation loan?

A: No. There is no minimum balance required to get a Direct Consolidation loan.

Q: What questions should I ask the Direct Loan Servicing Center if I am considering consolidation?

A: It's a good idea to ask what an approximate monthly payment will be and how long it will take to repay the total loan balance.

You might also ask the Direct Loan Servicing Center to help you figure out if you should consolidate all of your eligible student loans. Since the interest rate on your Consolidation loan is based on a weighted average of the existing student loans, it might be wise to leave out a high interest loan with a low balance — if you can afford to pay it off separately - so it doesn't drive up the interest on your Direct Consolidation loan.

Make sure you inquire about incentives too. As an example, if you agree to make your payments through auto-debit each month or if you make consistent, on-time payments for a specified period of time, you may receive an interest rate reduction.

Q: What loans can I consolidate?

A: Loans from the following federal programs may be consolidated:

  • FFELP loans (Stafford, PLUS, SLS, and Consolidation loans)
  • FDLP loans (Stafford, PLUS, and Consolidation loans)
  • FISL loans
  • Perkins Loans
  • Health Professions Student Loans (HPSL) including Loans for Disadvantaged Students
  • Nursing Loans Program (NSL)
  • Health Education Assistance Loans (HEAL)

Delinquent or defaulted loans can be considered for consolidation if satisfactory repayment arrangements have been made with your lender, guarantor or ED. If this is applicable to your situation, contact your loan holder for more information.

Q: Can credit card debt and private education loans also be included in a Direct Consolidation loan?

A: No. A Direct Consolidation loan may not include credit card debt or nonfederal education loans such as private education loans that are offered by commercial banks and credit unions. It is important to be aware that if you combine other types of loans or debts with your federal student loans into a nonfederal consolidation loan, you risk substantially raising the overall interest rate on the loan. In addition, you will lose the deferment eligibility and loan forgiveness options that a Direct Consolidation loan provides.

For information about the application process, contact the Direct Loan Servicing Center. TG can also help you! Contact us at (800) 845-6267 or send an email message to to discuss whether consolidation is a good option for you.