Direct Consolidation Loan

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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