Is a Direct Consolidation Loan Right For You?
You have a handful of federal student loans and you’re wondering whether it makes sense to consolidate them. Good question! Let’s begin with the basics. A Direct Consolidation Loan allows you to combine your federal student loans into one loan. You can have the convenience of one loan and one loan payment, you can switch older variable interest rate loans to a fixed interest rate, and consolidation can also give you access to alternative repayment plans and forgiveness provisions you would not have had before.
On the other hand, consolidation isn’t right for everyone. Once your loans are combined into a Direct Consolidation Loan, the loans that were consolidated are paid off and no longer exist, so carefully consider whether loan consolidation is the best option for you. Some borrowers have benefits from their original loans like interest rate discounts or loan cancellation benefits that could be lost if they choose to consolidate.
Two Debt Consolidation Application Processes to Choose From
A new electronic consolidation loan application process was launched on the StudentLoans.gov Web site on January 2, 2014. If you do not have one or more defaulted loans assigned to the Department of Education, you will use the new Direct Consolidation Loan application process at the StudentLoans.gov Web site.
But some borrowers will continue to use the older application process while the new process is phased in for all borrowers. You will use the older application on the LoanConsolidation.ed.gov Web Site if you:
- Have one or more defaulted federal education loans assigned to the Department of Education for collection, or
- You need to take action on an application submitted via the LoanConsolidation.ed.gov Web site
The Department of Education expects all borrowers to use the new process sometime after the spring of 2014.
Ready to consolidate? Click here for step-by-step instructions on how to navigate the new Direct Consolidation Loan application process.