Federal Direct Loan Program (FDLP)

Know the benefits and considerations before taking out a Direct Consolidation Loan

You can consolidate while you are in your grace period (the six months after you leave school before you start making payments), or in repayment (including during a period of deferment or forbearance).

Benefit: You may receive a lower Consolidation loan interest rate if you consolidate variable-rate Stafford loans (disbursed before July 1, 2006) while you are in your grace period or in a period of deferment.

Consideration: If you consolidate a Stafford loan while you are still in your grace period, you forfeit any remaining grace period and, therefore, interest subsidies paid on your behalf on that loan. You will also have to begin making payments on your Consolidation loan within 60 days of the consolidation.

When it is advantageous for you to do so, try to consolidate toward the end of your grace period. Talk to the Direct Loan Servicing Center about the timing that works best for you.

By consolidating your federal student loans, you can extend your repayment period from 10 to up to 30 years.

Benefit: Depending on your total federal student loan debt, you may be eligible for a repayment period of up to 30 years on your Consolidation loan. Paying your debt over a longer period of time means lower monthly payments. If you are unable to make your scheduled monthly payment on your current loans, this may be a good option for you.

Consideration: Extending the repayment term means you'll pay more interest over the life of your Consolidation loan. So you'll actually wind up paying more for your loan in the long run. If you consolidate your loans, the best strategy is to request the shortest repayment period that you can afford that meets minimum payment standards. This will enable you to pay off your loan more quickly and save more interest. And remember, there is no penalty for making prepayments on your loan.

Consolidation gives you one payment with one loan holder.

Benefit: If you consolidate all of your federal student loans, you will make your monthly payments to only one loan holder — less paperwork, less hassle. ED will be the only holder of your federal student loans.

Consideration: You may give up some benefits that some of your Stafford or Perkins loans currently provide, like deferment eligibility or loan cancellation options.