What does this solution do?

It consolidates federal student loan debt into a single monthly payment. Using this option can immediately bring defaulted debts current. This, in turn, makes you eligible for other programs like Federal Repayment Plans and Public Service Loan Forgiveness.

How does it work

  1. Essentially, you take out a new Direct loan through the federal government.
  2. The interest rate is a weighted average of the rates on your original loans.
  3. The term is determined by the amount you owe and ranges from 10 to 30 years.
  4. Once approved, the servicer disburses the fund to pay off your other loans, leaving only this loan to repay.
  5. If you want a better term or different monthly payments, follow this up by enrolling in a Federal Repayment Plan.

What types of debt does this apply to?

  • You can only use this to consolidate federal student loans
  • Within the loans you consolidate you must have at least one Direct or FFEL loan
  • As long as you have one of those, you can consolidate most types of federal student loan debt, including Perkins and PLUS
  • You can even consolidate previous Direct Consolidation Loans if you need to re-consolidate (as long as you have one new Direct or FFEL loan)

When is this beneficial?

If you have multiple federal student loans to repay, this simplifies the repayment schedule if all you really need is one consolidated bill. However, it’s most beneficial when you have federal loans in default. You can immediately bring that debt current, to quickly become eligible for other federal programs that offer a wider range of benefits.

How does this compare to other options?

There are also private student debt consolidation loans that you can take out. However, using a private option means your debt is no longer eligible for Federal Repayment Plans and Public Service Loan Forgiveness. That makes Direct Consolidation the preferable option for federal student loan debt.