Direct Consolidated Loans and Their Effects by Bruce Mesnekoff

Whoever said that education is the key to unlock the golden door to freedom had never heard of Student Loans! Most students, by the time they graduate, will have multiple loans to repay and each of these loans come with a different interest rate. Whether they are federal student loans, private student loans or a combination of both, the loan repayment is expected to start within 6 months of graduation and they are dark shadows that loom over the student’s future until the loan amounts are totally repaid. For most graduates, if they are prudent in their spending and careful about the loan repayment dates, the loan repayment period can be anywhere between 15 to 20 years; it may even extend to longer than that if the student has opted for either a deferred plan or a plan with smaller monthly repayments.


Interests form a big enough share of the total loan repayment amount to prompt students to look for alternative methods of loan repayment. Another consideration could be the difficulty in keeping up with the repayment dates of each loan. The direct consolidated loan option can help tackle both challenges. Not only does loan consolidation allow all the interest rates to be averaged out into one, but it also helps in just one repayment per month. The ease of repayment and converting very high interest rates into manageable ones are two significant reasons for any graduate to consider converting to direct consolidated loans.


Consolidation of loans is equivalent to refinancing a loan. The terms and conditions of loan repayment and the installment values will change. Keep in mind that only Federal loans can be consolidated. So, if you have taken private loans or loans that carry no federal guarantee to finance your tuition fees and living expenses while in college, be aware that these loans will not come under the purview of consolidated loans. The terms and conditions that you agreed on while applying for any private loan will remain unchanged. The loans that can be included in consolidation are any loans that you have taken under the following programmes : Subsidized or Unsubsidized Stafford Loans, Supplemental Loans for Students (SLS), Federally Insured Student Loans (FISL), PLUS loans, Direct Loans, Perkins Loans and Health Education Assistance Loans.



Since the purpose of direct consolidated loan is to have a certain fixed interest rate, which will be calculated as an average of the various interest rates that you have borrowed on, you can expect some relief with regards to those loan repayments that were borrowed on very high interest rates. Bear in mind that the lowest interest rates will also be affected so do your calculations before applying for the consolidated loan. If you are repaying loans from the time when variable interest rates were in operation, then consolidated loans will convert those variable rates into one fixed rate. The repayment terms of the consolidated loan will also change since it will be considered as a new loan and you may extend the repayment period to up to 30 years. This may not necessarily be an advantageous mix for all, as extending the loan repayment period also increases the total interest to be paid on a loan. For detailed information on how your repayment rates will be affected and how much total interest you will pay in case you opt for consolidated loan, check with the consolidated servicer while filling the application.

Another aspect that may be adversely impacted if you opt for direct consolidated loan is the grace period of your existing loan. If your loan provider has offered you a certain grace period for your loan repayment, that period will be wiped out in consolidated loan. Within 60 days of your application approval for consolidated loan, you are expected to begin your repayment. If you have been the beneficiary of Perkin Loans under the firefighters, police officers or teachers schemes, the future benefits of these loans will also be nullified. From the day your consolidated loan application is approved, you will pay a flat interest rate on all federal loans, irrespective of the type or the scheme under which you were initially offered the federal loan.

An individual can apply for a direct consolidated loan after graduation or half way through the programme in case he/she is dropping out and StudentLoans.gov is the only website through which applications for loan consolidation can be made. Though the department prefers that you apply online, you can also download and fill paper applications to be submitted by regular mail. Any queries on the process, how it will affect you, which loans can be consolidated, technical assistance, etc can be addressed through this site. Once your application has been successfully submitted, you will be assigned a loan servicer who can answer all questions regarding the subsequent process.