DEFINITION of 'Direct Consolidation Loan'

A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.

BREAKING DOWN 'Direct Consolidation Loan'

A Direct Consolidation Loan allows borrowers to lower the number of loan payments they have to make each month, combining them into a single payment. Most federal loans are eligible for consolidation, but private loans are not eligible. Borrowers can consolidate once they complete school, leave school or fall below half-time student status.

Before considering a Direct Consolidation Loan, it is important to consider any benefits associated with the original loans, such as interest rate discounts and rebates. Once the loans are rolled into a new loan, those benefits are lost. Additionally, if the new loan increases the repayment period, the borrower may wind up paying more interest.

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RELATED FAQS
  1. Are direct consolidation loans subsidized?

    Direct Consolidation Loans are not subsidized. Students borrow Direct Subsidized Loans to pay tuition, room and board at ... Read Answer >>
  2. What are the pros and cons of consolidating my student loans?

    Read about the possible advantages and disadvantages of consolidating your student loan debts, and find out how to determine ... Read Answer >>
  3. What are some examples of debts that I can consolidate?

    Read about different kinds of debts than can be combined into a consolidation loan, including unsecured debts, secured debts ... Read Answer >>
  4. Can Direct Consolidation Loans be deferred?

    Student loans bundled into direct consolidation loans may be deferred under certain circumstances. Read Answer >>
  5. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
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