How Direct Student Loan Consolidation Works

Direct student loan consolidation is a good option for many students who have more than one federal loan to pay off. When you consolidate your loans, the government basically turns all your individual loans into one loan, potentially lowering your payments and lengthening the amount of time you have to pay the money back. Here is a look at how the government's direct student loan consolidation program works.

The Direct Consolidation Loan Program

The U.S. Department of Education runs the Direct Loan Consolidation Program, which is the agency you will deal with when consolidating your loans. The purpose of the program is to allow students with more than one federal student loan to extend their period of repayment, simplify repayment by eliminating the need to make payments to multiple lenders, and in some cases, to lower interest rates.

The Government Pays Your Balances

When you consolidate loans, the federal government in effect pays itself off by paying the balance of all your individual federal loans. They then recalculate the value of the loans and make one new loan to you based on that total. This is your consolidated loan.

Fixed Interest Rate

Federal consolidated student loans have a fixed interest rate. This will be based on the weighted average interest rate of all the original individual loans, but cannot exceed 8.25%.

One Loan, One Payment

Once you consolidate, you will now effectively only have one loan to pay. You will probably find it much easier to keep track of your payments and your financial status, since you will only make one monthly payment directly to the U.S. Department of Education.

Repayment Options

There are four repayment plan options for direct consolidated loans; standard, graduated, extended and income-contingent. You will be able to choose which plan best suits your needs. To see what these plans entail, see this page.

Repayment Period

A consolidated loan will generally allow you to have a longer time to finish repaying your loan. This usually ranges from 10 to 30 years.


You are eligible for a consolidated direct student loan if you have one or more direct student loans that are ready to be repaid. You may even be able to consolidate loans on which you have already defaulted, if you pay according to the income-contingent repayment plan.

No Fees

Consolidating your loans is free. Also, there is no minimum amount you need to owe in order to qualify.

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