What is Student Loan Consolidation?

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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Refinancing rates from 2.57% APR. Checking your rates won’t affect your credit score.

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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.

Product Details:

  • 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?

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Check out the testimonials and our in-depth reviews!
2.57% – 6.32%Undergrad
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Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.