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March 7, 2014

Navigating the New Direct Consolidation Loan Application Process

You’ve done your homework and determined that you are ready to consolidate your federal student loans.  Okay, so how do you do it?  Good question!  To begin with, 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.

Here’s what you need to know

The Federal Direct Consolidation Loan Application and Promissory Note process must be completed in a single session.  It should take about 30 minutes to complete. You may complete a paper version of the Federal Direct Consolidation Loan Application and Promissory Note but the electronic application is encouraged and will likely be processed more quickly.

Begin by logging in to your account at studentloans.gov using your four-digit federal Personal Identification Number (PIN).  If you don’t remember your PIN, you can get it here:  pin.ed.gov.  Select Direct Consolidation Loan Application.

1.    Choose Loans and Servicer

The application will be populated with information from your loan record.  You will be asked to review and select loans for consolidation. If you have any loans that are still in the grace period, you may choose to have the processing of your application delayed until closer to the end of the grace period.  You will be asked to choose the federal loan servicer you want to complete the consolidation and service your new Direct Consolidation Loan. You may choose FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Inc., Nelnet, or Sallie Mae.

Which should you choose?  Is none an option?  I have complaints about all of them so don't really recommend one over another.  If you planning to benefit from Public Service Loan Forgiveness, bear in mind that when you file an Employment Certification Form, your loans will be transferred to FedLoan Servicing, the "official" Public Service Loan Forgiveness servicer.  I'd probably go ahead and choose them to begin with.

2.    Repayment Plan Selection

Take care in selecting a repayment plan.  There are lots of choices and it makes sense to evaluate each plan before you select the best plan for your circumstances. Information to help you understand your repayment plan options is at http://studentaid.ed.gov/repay-loans

  • If you want to repay your Direct Consolidation Loan under an "income-driven" plan, you will be directed to complete a repayment plan selection and income-documentation process. You may be able to use an Internal Revenue Service (IRS) Data Retrieval Tool to transfer your income information directly into your application.  If the Adjusted Gross Income (AGI) reported by the IRS does not accurately reflect your current income, you will be instructed to return to StudentLoans.gov and select "Direct Consolidation Loan Applications" located on the left navigation bar under "My Loan Documents" to print the paper request and your consolidation servicer's address information.
  • If you have a spouse who must sign your application, he or she will need to sign in to StudentLoans.gov and co-sign your request within seven days after you submit your application.  Note: Your Direct Consolidation Loan Application will expire if your spouse does not co-sign within seven days, and you will need to submit a new application if you want to apply for a consolidation loan.
  • If you choose Standard, Graduated, Extended Fixed, or Extended Graduated repayment plan, you do not need to complete a separate repayment plan selection process. 

 3.    Terms and Conditions

Be sure to read this section carefully.  The fine print matters.

4.    Borrower and Reference Information

Enter your address, contact, employer, and reference information.

5.    Review and Sign

Check that your application is correct and complete, make any edits you might need, then electronically sign and submit your Federal Direct Consolidation Loan Application and Promissory Note.

After you complete the application, it will be sent to the federal loan servicer you have chosen for processing.  Your servicer will review your application and your eligibility for the repayment plan you selected.  Then your servicer will contact each holder of the loans you want to consolidate to verify that the loans are eligible for consolidation and to confirm the payoff amount.  Your servicer will let you know in writing before paying off the loans and will contact you and let you know if additional information is needed.

Note: In all cases, it is critical that you continue to make payments, if required, on the loans you want to consolidate until your consolidation servicer informs you that the underlying loans have been paid off.  If you are having difficulty, you may contact your original loan servicer for information or to request a loan deferment or forbearance.

Contact your consolidation loan servicer for more information:

  • If you have questions about your Direct Consolidation Loan Application,
  • If you want to cancel your Direct Consolidation Loan Application,
  • If you want to add additional loans to your Direct Consolidation Loan Application (you may do so within 180 days after your new consolidation loan is made without having to submit a new Direct Consolidation Loan application).
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