Wonder what “Student Consolidation” or a “Direct Consolidation Loan” is? …and why you should care?
A Direct Consolidation Loan is a government loan program sponsored by the Department of Education, that helps student loan borrowers consolidate multiple federal education loans into a new direct consolidation loan.
The word “consolidation” is tricky in itself, so here’s how the process actually works… After your application to the Direct Consolidation Loan program is approved, the Department of Education issues you a new federal education loan, and pays your existing federal education loans in full to your current federal loan servicers.
- Uses a weighted average interest rate of your current loans, so you won’t be saving or accruing additional interest, but paying the same amount over time
- After consolidation, you have the option to select various alternative repayment plans with terms varying from 10-30 years
- Only available for federal student loans
Pros of a Direct Consolidation Loan
- Only have 1 loan payment a month versus multiple payments
- Only have 1 federal loan servicer, versus multiple federal loan servicers
- Can lower monthly payments, by extending the term of the loan to 20 or 25 years under various alternative repayment plans
- If you have a defaulted loan, a Direct Consolidation Loan can rehabilitate the loan
Cons of a Direct Consolidation Loan
- If the term of the loan has been extended, you will most likely accrue additional interest over the repayment of the loan
- If you use a Direct Consolidation Loan to rehabilitate a defaulted student loan, any negative credit reporting will stay on your credit report versus when you pursue a 9 month traditional loan rehabilitation (which will remove the defaulted student loan status from your credit report)
Student Loan Hero Recommends:
A Direct Consolidation Loan can be a great tool to simplify the repayment process and even help lower monthly payments until your income or employment situation improves. Also, a Direct Consolidation loan can improve your cash flow and lower your debt-to-income ratio which increases your available credit for mortgages, auto-loans and student loan refinancing.
But keep in mind, if you modify the term of the loan from 10 years to 20 years you will end up paying twice as much in interest as initially planned!
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!|
|2.58% - 7.25%||Undergrad & Graduate||Visit SoFi|
|2.99% - 6.99%||Undergrad & Graduate||Visit Laurel Road|
|2.57% - 6.32%||Undergrad & Graduate||Visit Earnest|
|2.57% - 6.49%||Undergrad & Graduate||Visit CommonBond|
|2.56% - 7.82%||Undergrad & Graduate||Visit Lendkey|
|3.11% - 8.46%||Undergrad & Graduate||Visit Citizens|
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