Student Loans

How To Consolidate Federal Student Loan Into Direct Loan

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 11 minute read

You may be making more than one loan payment each month if you’re one of the millions of Americans who have graduated with student loan debt. It’s necessary to get a new loan for each academic year of borrowing. Although the federal government is the source of funding for federal student loans, it does not engage in two-way communication with borrowers. 

Assigns a servicer to handle the administrative tasks (such billing and collecting payments) associated with student loans. Therefore, if you have more than one loan, you may have to deal with more than one servicer, and therefore more than one charge.

When you have a lot of bills to pay each month, it’s easy to feel stressed out. This is where the concept of consolidating student loans comes into play.

Concerning Federal Student Loan Consolidation

Simply said, loan consolidation is the process of consolidating many loans into one. Consolidating many loans into one manageable federal loan is possible. Consolidation loans are used to pay off existing debts, reducing monthly payments to one manageable sum.

This means dealing with only one servicer each month. If you don’t extend the repayment period, the new monthly payment will be equivalent to the sum of the former installments.

Options for Repayment

You have the flexibility to choose between the conventional 10-year repayment plan and an extended payback period of up to 30 years, and you also get a single monthly statement to make it easier to keep track of everything.

The consolidation application will ask you to choose a repayment plan, and that plan will determine how long you may make your payments. Consolidated federal student loans are eligible for the following repayment plans:

  • Financing Term Extension. Repaying your loan over a longer period of time (up to 25 years) will reduce your monthly cost. It’s important to keep in mind that extending the repayment time means you’ll end up paying more in total interest. You have the option of making the same monthly payment for the full 25 years, or switching to a progressive payment schedule in which the payment amount starts off lower and increases every few years. If you have a Federal Family Education Loan Program or Federal Direct Loan debt of over $30,000 and no outstanding amount on any loan borrowed prior to October 7, 1998, you may be eligible for the extended repayment plan.
  • Structured Payment Plan. With the progressive repayment plan, your monthly payment will start off cheaper and gradually climb. Depending on how much you owe, you may request a repayment period of up to 30 years. Time limits for paying off debt are listed in the accompanying table. All payments will rise every two years by no less than the amount of monthly interest accrued and by no more than three times the amount of any other payment.
  • Repayment Schedule Based on Monthly Income. Four different IDR plans are available, and each one has pros and cons to consider. The monthly payout is capped at a particular proportion of what the government considers discretionary based on federal poverty requirements for your state of residence and family size.
  • Depending on the plan, you may be eligible for loan forgiveness after making a certain number of payments or after a certain amount of time has passed since you first took out the loan. However, you shouldn’t stress too much about selecting the optimal plan. Unless you specifically request a different payment plan, your loan servicer will place you on the plan with the lowest monthly payment when you apply for IDR. Please be aware that applying for IDR requires a different form to be filled out.

It is common practice for the first payment on a new consolidation loan to be due no more than 60 days after it has been disbursed (paid out).

Developing a New Interest Rate

Interest rates on student loans are set by federal law and vary by loan type and disbursement year. So, many loans equals various rates of interest. Consolidating your debt results in one new interest rate for all of your loans. This rate is determined as a “weighted average” of all the loans you’re combining and rounded up to the nearest one-eightieth of 1%; it is set for the duration of the loan.

With a weighted average, the interest rates owing on higher amounts are given more weight than the interest rates owed on smaller amounts, rather than just adding all the interest rates and dividing by the total number of loans.

Let’s imagine you took out two loans, one for $5,000 at 5% interest and another for $10,000 at 3.86%. Mathematically, here’s how you get to the weighted average:

  • ($5,000 x 0.05) + ($10,000 x 0.0386)

_____________________________                = 0.0424

                 $5,000 + $10,000

When you add an additional eighth of a percentage point to the weighted average interest rate (4.24%), you get 4.25%.

Consolidating student loans is often misunderstood to reduce interest rates. But as the numbers show, that’s clearly not the case. The new interest rate is greater than the previous lower rate loan but lower than the previous higher rate loan. The goal is to make your new direct consolidation loan interest-free or at least equal to the interest rate on your former loans combined.

Loan consolidation for federal students

To begin the consolidation process, fill out a direct consolidation loan application, either manually or online. Federal Student Aid (FSA), a division of the United States Department of Education (DOE), offers these resources to students through their website, 

Be wary of anyone who offers to combine your federal student debts for a charge. Common con artists target those seeking financial aid for school. Instead, you should apply for an FSA online by going to their website and filling out the form there.

Eligibility & Qualifications

You may combine your federal student loans even if you have a low credit score because the process does not involve a credit check. And if you haven’t already, you can combine any further federal student loans you have (though there are options for reconsolidation).

All of your prior loans will be merged into one manageable federal direct consolidation loan.  This might cause you to lose eligibility for some loan advantages, like debt forgiveness programs, and is especially relevant if you have any Perkins loans. All income-based repayment schemes are forfeited save for income-contingent repayment, which has the worst payback conditions, if a parent PLUS loan is consolidated with other loans. Also, whatever progress you’ve made toward IDR forgiveness would be lost if you consolidate your loans.

Knowing whether to combine your student debts might save you a lot of money. You might choose not to consolidate any debts for which you would incur a loss of advantages.

Generally speaking, there is just one prerequisite for receiving federal student loan consolidation: You either need to be making payments or in the grace period for your loans. One cannot do so till they have graduated from college.

Your student debts will be put on hold while you are enrolled as a full-time student. However, they become due for repayment whenever you cease being a full-time student, either by graduating or dropping below the required half-time enrollment status. After graduating, there is a specific amount of time (the grace period) in which federal loan borrowers are exempt from making payments. The grace period for federal student loans is six months. 

During this time, you can combine your student debts if you choose to do so.
While enrolled in school, you will not be able to combine your student loans. However, a parent PLUS loan can be consolidated at any time.


Once a loan has been consolidated, it cannot often be consolidated again. However, there are certain situations in which this is acceptable. The following are some of them:

  • You’d want to include a loan that wasn’t initially considered. This might be any loan(s) you’ve gotten since your original consolidation loan(s). Consider the scenario where you’ve opted to continue on to graduate school after consolidating your undergraduate debts. It is possible to combine student loans from both undergraduate and graduate programs into a single loan. Two consolidation loans can be merged into one. A consolidation loan cannot be reconsolidated without the addition of additional loans.
  • You need to rehabilitate an existing one. FFEL Consolidation Loan. If you are in default on a consolidation loan from the Federal Family Education Loan (FFEL) Program (a defunct loan program that included federal Stafford loans) and you agree to consolidate the loan as a direct consolidation loan and make three consecutive on-time payments, you can get out of default.
  • Obtaining PSLF eligibility on an FFEL consolidation loan is a priority for you. Direct loans are required to participate in the Public Service Loan Forgiveness (PSLF) Program. As a result, the DOE will let you reorganize your existing FFEL loan into a new one if you apply.
  • You’re in the armed forces and want to consolidate your student loans with one that doesn’t charge interest while you serve. Direct loans do not accumulate interest during eligible periods of active-duty military service. Therefore, the DOE will let a borrower refinance an existing FFEL consolidation loan into a new direct consolidation loan.

Necessary Documentation

All of the necessary paperwork for the consolidation application must be in hand before you can begin filling it out. There is no way to save and resume your work. The relevant data consists of:

  • Your Valid FSA ID Card. To finish the consolidation application, you will need your login details. It is recommended that you first get a confirmed login ID before attempting to visit the FSA website. It might take many days since the Social Security Administration needs to carefully verify your identification.
  • Sensitive Data. You’ll need to provide us with your real-world address, email, and phone number.
  • Data related to money and finance. If you wish to use an IDR plan to repay your consolidation loan, you’ll need to disclose your income details. The AGI from your most recent tax return, which you may get online from the Internal Revenue Service, can be used in the application process. You are needed to provide your two most recent pay stubs if your income has changed considerably from what you claimed on your tax return. If you and your spouse filed a joint tax return, you may need to disclose your spouse’s income in order to participate in an IDR plan that uses both of your incomes to determine monthly payments. Providing your spouse’s Social Security number to the DOE will allow them to obtain their tax return if you filed separately. Pay stubs can be provided as an alternative to tax returns if a significant change has occurred in the taxpayer’s income during tax preparation.
  • Collateral Signature of Spouse. Due to the fact that certain IDR plans factor on spousal income when determining monthly payments, both you and your spouse will need to sign the application in order to participate in such a program. You can submit the application without your spouse’s presence, but the DOE won’t consider it complete until they receive a co-signed copy. Your spouse is not responsible for loan repayment in the same way that a typical cosigner would be.

The Application Methodology

Once you have all the necessary information, you can either apply for a consolidation loan online through the FSA’s website or print off a paper copy to mail in. The entire online application procedure should take no more than 30 minutes and consists of seven basic components.

  1. Pick Which Loans You’d Like to Apply for. The loans you wish to combine must be entered. Keep in mind that you don’t have to combine all of your loans if any of them offer benefits that you wish to keep, such as Perkins loans or loans that you have already begun making payments on through an IDR program.
  2. Pick a Service Provider. From the available list of federal student loan servicers, you can choose the organization of your choice to handle your loan repayments. Your loan servicer may handle things like billing and payments, but they can’t change the conditions of your loan because those are set by the federal government. There is no need to go elsewhere for servicing if you are satisfied with your existing provider. Consolidation, however, allows you to switch servicers if you are displeased with the current one. Misapplication of funds and the absence of details on repayment choices are two of the most often cited causes of dissatisfaction.
  3. Determine your strategy for paying back your student loans. In addition to the normal 10-year payback plan, you can choose between graduated repayment, extended repayment, or one of the income-driven repayment (IDR) plans available for federal direct student loans. If you choose to go with the IDR option, you’ll need to submit a request for an IDR repayment plan.
  4. Please Read All of the Fine Print. Be careful you read and fully comprehend the application requirements before submitting your application. The application becomes a legally enforceable agreement once it is signed. Additionally, once you consolidate your debts, you cannot undo the process.
  5. Applicants, please sign here. Your application will not be processed by the DOE without a signature, either physical or digital. The signature of your spouse is required if you are married and seeking reimbursement through an IDR program.
  6. Keep Making Payments. It usually takes 30–90 days from the time you submit your consolidation loan application until you receive approval for your new loan and can begin paying it off. When your first payment is due, your new loan servicer will notify you. You can notify your loan servicer that you would like to postpone your application until the grace period has finished on any loans you have. If you are currently in debt, however, you must keep up with your current loan payments until your new consolidation loan is finalized. It is possible to request a postponement or forbearance of payments if financial hardship prevents you from making them at the current time.
  7. If you have any concerns about your student loan, you should contact your loan servicer. Please contact the loan servicer you designated on your application if you have any concerns regarding the status of your application or how to keep making payments. Contact details may be found on the FSA website. Prior to submitting an application, feel free to call the student loan support center at 800-557-7394 with any concerns you may have concerning the debt consolidation process.

Bottom Line

Consolidating your student loans doesn’t have to be hard, even if figuring out the best method of paying them back is. Repayment is made much easier because of how simple the process is.

You should know that extending your payback period to achieve lower monthly payments is enticing, but it’s not a good idea if you can make the payments on the 10-year repayment schedule. IDR’s 25- and 30-year payback plans might be a lifesaver if you’re having trouble making your monthly payment as it is. Though it may be difficult at first, paying off your debt early can save you a lot more money in the long run if you can afford to do so.

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