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The Complete Guide to Federal Direct Student Loan Consolidation

Federal direct consolidation is an essential move for some student loan borrowers and a huge mistake for others.

Written By: Michael P. Lux, Esq.


Affiliate Disclosure and Integrity Pledge

Temporary Forgiveness Clock Rule: The Department of Education is conducting a one-time update of IDR payment counts. Borrowers that consolidate their federal loans before December 31st, 2023, can avoid restarting their progress toward PSLF and IDR forgiveness.

Federal direct student loan consolidation isn’t easy to navigate. Determining whether or not consolidation should be done is a critical step in planning a repayment strategy.

Generally speaking, federal student loan consolidation is most helpful for borrowers trying to address eligibility issues. Some borrowers can use consolidation to qualify for student loan forgiveness or income-driven repayment plans. 

Today I’ll cover the basics of federal direct consolidation and include a ton of tips on how to get the most out of consolidation.

What is Federal Student Loan Consolidation?

At the most basic level, a federal student loan consolidation combines multiple federal loans into a single loan.

However, to make sense of the multiple rules and fine print of student loan consolidation, it is easier to look at it from a different perspective.

Federal consolidation transforms an old federal loan into a new federal loan. Normally, the process involves combining multiple loans into a single new loan. However, borrowers have the option of consolidating an individual loan.

The emphasis on the “transformation” is there because the process can either be a good thing or a bad thing. Some borrowers make a mistake and transform a loan they might like into a lousy loan. Other borrowers use consolidation wisely and transform a flawed loan into a better federal loan.

What makes a good loan or a bad loan is all about perspective and circumstances. Perhaps the best way to explain how to utilize this transformation is to give a few examples of what to do and what not to do.

When Should Federal Student Loans be Consolidated?

The classic example of a smart use of federal direct consolidation is Federal Family Education Loan Program (FFELP) loans. Up until 2010, FFELP loans were from private lenders, but the federal government guaranteed them. These loans functioned mostly like federal student loans, but they had a few limitations.

Most notably, FFELP loans are not eligible for Public Service Loan Forgiveness. However, going through federal student loan consolidation transforms FFELP loans into a “federally held” student loan. As federally held loans, the new loans are eligible for more student loan forgiveness opportunities.

Another example of a potentially smart use of consolidation is to consolidate Parent PLUS loans. One of the significant issues with Parent PLUS loans is that they are not eligible for an income-driven repayment plan. Likewise, they do not qualify for Public Service Loan Forgiveness. However, by consolidating into a federal direct loan, the Parent PLUS loan can become eligible for the Income-Contingent Repayment Plan and Student Loan Forgiveness.

These two consolidations make sense for many borrowers because a loan with limited federal program eligibility has been transformed into a new loan with better eligibility.

However, this transformation is not always a smart idea.

When is Federal Student Loan Consolidation a Huge Mistake?

The classic example of Federal Student Loan consolidation being a huge mistake is when a borrower combines a Parent PLUS loan with other federal student loans. As noted in the previous section, a Parent PLUS loan can be consolidated to become eligible for the ICR repayment plan. However, the consolidated loan is not eligible for preferable repayment plans such as IBR, PAYE, and SAVE.

If a borrower combines many federal loans into a consolidated loan and includes a Parent PLUS loan, the new combined loan is not eligible for IBR, PAYE, or REPAYE. This mistake could easily cost the borrower many thousands of dollars. It may be the biggest mistake someone can make with Parent PLUS loans.

Due to a potentially harmful outcome from consolidation, borrowers must consider program eligibility and progress before consolidating. In some cases, the consolidation will be an essential step; it would be a huge mistake in others.

How do I Consolidate Federal Student Loans?

The actual process of federal direct consolidation is very simple.

The Department of Education will process all of the paperwork electronically. They estimate that filling out the form takes about 30 minutes.

One potential headache that borrowers should avoid would be third-party student loan consolidation services. These “companies,” perhaps more accurately described as scams, advertise a special relationship with the Department of Education. They claim to help borrowers qualify for Income-Driven Repayment Plans and Student Loan Forgiveness. In reality, they function as a middle-man who gets paid and adds no value to the service. In many cases, they end up making errors and making the process even more difficult than necessary.

These companies have gotten so bad that at the top of the Department of Education’s Student Loan Consolidation information page, it displays the following:

Department of Education Warning on Consolidation

As long as borrowers stick with the official Department of Education Student Loan Consolidation page and are careful only to consolidate when necessary, the process is relatively simple.

Other than deciding which loans to include in the consolidation, borrowers will also need to consider their repayment plan options. One of the options will allow borrowers to pick the plan with the lowest monthly payments. However, because multiple plans may have the same low monthly payment, borrowers should research their preferred repayment plan before consolidating. There are several repayment options that borrowers should consider.

Student Loan Consolidation and Forgiveness Progress

Many borrowers who choose to consolidate may have already made progress toward loan forgiveness under Public Service Loan Forgiveness or IDR forgiveness.

Historically, consolidating meant restarting the “forgiveness clock” at zero.

Fortunately, this old harsh rule has been eliminated. Now, borrowers can consolidate their loans without losing credit for their previous payment efforts.

This rule change makes signing up for the new SAVE plan considerably less risky.

Student Loan Consolidation vs. Refinancing

Student Loan consolidation and refinancing are terms that are often used interchangeably. Many lenders that refinance student loans call their service a consolidation.

The best way for borrowers to keep track of things is to look at it this way:

Student Loan Consolidation is only done by the federal government and transforms various federal loans into a federal direct loan. Student loan consolidation does not lower or raise interest rates. The Department of Education takes the weighted average of the loans and rounds it to the nearest 1/8th percent. The one exception is that some borrowers with FFEL Consolidation Loans may have their interest rate increase if they receive a premium interest rate discount from their lender.

Student Loan Refinancing is a process provided by private lenders. They pay off old loans, and in return, the borrower agrees to repay the new loan with the new lender’s terms. Usually, this is done to get a lower interest rate. Both federal government loans and private loans are eligible to be refinanced. Many different companies provide refinancing services, so borrowers need to research their options and understand the consequences of private student loan refinancing.

Important Details to Know Before Starting Federal Direct Consolidation 

Consolidation may result in two loans instead of one – Federal consolidation typically is presented as a way for borrowers to combine all of their federal student loans into a single loan. Many borrowers will end up with two separate loans if they consolidate. This is because the Department of Education keeps the subsidized loans separate from the unsubsidized.

Consolidation is one of the rare opportunities to switch federal servicers – During the student loan consolidation process, borrowers have the option of selecting their preferred loan servicer.

The credit score impact is minimal – When consolidating borrowers may see their credit score move slightly. For some borrowers, it goes up because the old loans show as being paid in full and it is usually better to have one large debt than many small debts. Others see their score drop because their student loans were the oldest item on their credit score and average credit age is a factor. Generally speaking, consolidation really doesn’t move the credit score needle much. The money saved is a much bigger factor.

Hold off on Consolidation if you are about to buy a house – A ton of major changes on a credit report can cause some concern with mortgage companies. Borrowers who are about to buy a house should discuss consolidation with their mortgage company before starting the process.

The consolidation process can take months – Filling out the form may only take 30 minutes, but the actual process may take months. To consolidate, all of the old loans must be paid off in full, and doing this math takes the Department of Education some time. Don’t be surprised if there are some minor issues with this process.

After the math has been done, the borrower should receive a letter giving them one last chance to opt out of the consolidation. Though no action is required from the borrower during this time, the consolidation process is a bit time-consuming.

Consolidation can be used as a way out of default – Borrowers who have fallen way behind on their student loans can use consolidation as a quick fix to get out of default. However, borrowers also have the option to rehabilitate their loans before consolidation. There are several factors borrowers should consider when deciding between rehabilitating and consolidating their defaulted loans.

Private loans cannot be included in a federal consolidation – Being able to transform a private student loan into a federal government loan would be great, but it is not an option.

There is no minimum credit score or income requirement – Unlike refinancing with a private company, all federal borrowers are allowed to consolidate their federal loans. There is no credit check.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

33 thoughts on “The Complete Guide to Federal Direct Student Loan Consolidation”

  1. I have unsubsidized FFEL loans that have been delinquent for almost 20 years. They have not appeared on my credit report for many years. I signed up for Fresh Start and the IDR Plan and my loans were transferred. I know that due to their age, they will not be reported to the credit bureau even after transferring to IDR. However, if I decide to consolidate before 12/31, will this mean the consolidated loan will now appear on my credit report? Or does the original delinquency date still apply to a consolidated FFEL, so that it won’t be reported? I’d like to avoid credit reporting if possible.

    • Even though it is old debt, a direct consolidation loan is a brand new student loan. I’ve never seen the exact scenario you are describing before, but I can’t imagine a situaiton where the new consolidated loan wouldn’t get reported to the credit bureaus.

  2. I have regular student loans, sub and unsub. I owe 27k left out of 72k and was thinking of consolidating them. If I pay the loan off in 5 years instead of the 20 years, do I save on interest or do will I have to pay the interest as if I took the 20 years to pay? I cant find a direct answer to this. I know if I keep it the way it is, I dont have to pay the interest if I pay towards principle excessively each month.

    • There are a couple of items to hit here.

      First, you can pay extra. There are not prepayment or early repayment penalities. Your monthly bill is the minimum payment, not the maximum.

      Second, interest is charged daily based on your account balance. The more you pay, the smaller your balance will be and the less you will spend on interest in the long run.

  3. Hi – I’ve read everything I can on this but still have a question. In 2018, to be eligible for REPAYE, I consolidated my FFELP loans together. At the time, my Grad PLUS loan was already eligible for at least PAYE, if not REPAYE. It also had the highest interest rate, so I left it alone. Once my FFELP loans were consolidated into a Direct loan, the clock I guess restarted on my qualifying IDR payments. However, my Grad PLUS loan has about 7+ years of repayment in an IDR plan. My question is should I now consolidate my Grad PLUS loan with my Direct loans before the end of the year while there is a pause on resetting the clock for consolidation, and before the count is adjusted for my other loans? From what I’ve read, it seems that the loan with the longest period of qualifying payments/repayment would overrule the others. So if I consolidated them all into a new Direct loan, once the count adjustment was made, the whole loan would then have 7+ qualifying years of repayments. Is this correct? Thank you!

    • You definitely sound like a good candidate for taking advantage of the one-time IDR count adjustment. Combining everything so that you can get the maximum amount of credit is probably the smart move here.

      I’d encourage you to give your servicer a call to talk through the process. I’d also suggest that you estimate what your payment count should be once everything is completed. This will make it easier to identify any errors when they do the update next year.

  4. Hi
    I have Consolidated the plus loans, a few years ago.
    Do The payments that I made before the consolidation count towards the 20 or 25 years of forgiveness?
    Also .. how it is determined 20 or 25 years and who does it?
    Johnny J

    • The progress toward forgiveness for your loans will probably be updated early next year. I’d suggest reading up on the IDR payment count update for full details.

      The 20 or 25-year question depends on a couple of factors. First, the plan selected. Some plans, like PAYE, offer forgiveness after 20 years. Others, like ICR, require a full 25 years. Second, some plans are 20 or 25 years, like SAVE. For these plans, borrowers with only undergraduate debt qualify for forgiveness after 20 years, and those with graduate loans can get forgiveness after 25 years.

  5. Hey Michael! I don’t think I have seen this question asked this specifically on this thread. I have A big variety of loans, Direct Sub, Direct Unsub, Direct Grad Plus, and then I have (3 total) FFELP Unsub, and FFELP Sub. I am wanting to apply for the SAVE IDR plan, and trying to weed through all the details, especially when it comes to consolidation and interest.

    I know that I will need to consolidate the FFELP loans to a Direct Consolidation Loan to be eligible for SAVE, but my question is do I just consolidate those 3 loans and leave my direct sub/unsub and Grad Plus loans alone, or should I consolidate all the loans with the FFELP loans and just have 1 big loan? is it even possible to consolidate just 3 loans and keep the rest individual and still qualify for SAVE?

    This is my thought for why consolidating the direct loans might not be the best idea but I cannot gain clarity on how this will work, so hoping you can provide some insight.
    If and when I consolidate a loan, I know that whatever interest I have now will be added to the principle, and then will be a higher amount that the new interest rate will be compounding on. Do you think that matters long term if they will be forgiven in 25 years? Or could that potentially make even more interest accrue, resulting in a higher loan amount.

    My goal long term would be pay the least amount monthly based on my income (the SAVE plan), while still trying to keep the amount that will be forgiven as low as possible too for when I will have to pay income taxes on it once forgiven. Thanks for any insight you have!

  6. I am not set to re-certify my IBR plan until next year (my income has increased a lot) but I need to consolidate to old FFEEL loans onto SAVE plan. When I consolidate, it asks for my income, how soon does the take effect since I know the actual consolidate can take time. Essentially, when should I consolidate? No or closer to deadline

    • That is an interesting dilemma, Danielle. When you consolidate, you pick a new repayment plan, and it sounds like yours will be headed up no matter what IDR plan you pick. I can see why you would want to wait until the very last second to take advantage of the IDR Count Update.

      The technical rule on that deadline is that you need to submit the application by 12/31/23. That said, I wouldn’t want to cut it that close, but that is because I’m pretty risk-averse. I don’t see a clear answer that is definitely the right approach. If it were me, I’d probably submit my application to consolidate in early November to give myself plenty of time to address any issues that might arise. However, I can see an argument for doing it now and for waiting until the last second.

      Have you discussed this issue with your servicer? They might have some insight into processing times, and they may even have some thoughts on the ideal strategy given your circumstances.

  7. I have a Parent Plus loan with Navient and during the course of this loan they have steered me in the wrong direction with forbearance 2 times w/o realizing the extra cost of this and I am now owing 71,200 and it seems to never do down. Can I consolidate into a Federal Consolidation Loan and apply for loan forgiveness because it was for my daughter and she is a teacher in qualifying schools for over 15 years?

  8. I have FFEL loan with Navient, and I didn’t realize the loan was not eligible for interest freezes or other benefits announced for federal loans. Is it a good idea to consolidate FFEL to a federal direct loan so I can benefit from the $10,000 loan forgiveness announced by Biden on 8/24/22?

    • I work for a non-profit. I’m a recent hire and it’s my first non-profit job post-graduation. I have FFEL loans and have made about 7 years worth of IRB payments toward the 25-yr forgiveness. What happens to those 7 years of payments if I choose to consolidate to a Direct Consolidation Loan? Maybe I’ll work for the non-profit for 10 years and be eligible for public service forgiveness. But I don’t know what the future holds. Does Direct Consolidation erase my progress toward IRB forgiveness?

  9. I have a $29k, PPL for my daughter that loan payments started in 2013 or 2014. Is there a Federal Student Loan program available that she can apply for which allows her to convert the PPL to her name and then eventually take advantage of Loan Forgiveness?

  10. I thought I had everything for the Teacher Student Loan Forgiveness – qualifying teacher, qualifying school, 5 years, etc. I just found out I was denied because they said I had an outstanding balance in 1998 before I consolidated my loans.

  11. I have a two private loans with Navient. I have paid the majority of my loans off over the years. Since these are private loans I understand that I am not eligible to qualify for Public Service Loan Forgiveness.
    I have worked in Public Service for 20 years.
    I thought refinancing with Sofi was going to get me a Direct Consolidation loan but I was mistaken. Still private loan.
    Is it possible to to move my private loan to a Direct Consolidation loan so that I can eventually qualify for PSLF? If that’s the case what company/organization/bank does that? I’m so frustrated with the confusing information and lack of help from my private loan company. I’d appreciate your assistance. Thanks!

  12. Hello Michael,
    Should I consolidate my Navient (FFEL) loan individually into a Direct Consolidation Loan OR consolidate my Navient loan AND my Direct Unsub Consolidation Student Loan together into one Direct Consolidation Loan?

    What would be the best thing for me to do to qualify for the TPSLF program and to possibly receive a refund for my Direct Unsub Consolidation Loan payments?

    I have made payments on the Navient loan since 2004 and I have made payments on my Direct Unsub Consolidation Loan since 2017.

  13. Are you available to do a fee based consulting for my wife’s student loans?

    The FFEL loans are serviced by Navient and my wife teaches public high school (TCLI).

    I’m want to defer the payments till May and then hopefully have them forgiven. However, Navient keeps giving conflicting information and I simply don’t have the time to navigate this maze. Happy to pay $250hr to get me aimed in the right direction.

      • I’ve been paying on my student loan for over 14 years and still have a balance that I’m hoping can be considered for forgiveness. My confusion is that the loan is with AES. I know that to be considered for the public service loan forgiveness I need to consolidate that loan with a direct loan servicer, which I’m not 100 percent sure ‘who’ is considered direct vs private. My main question, however, the Biden Admin forgiveness must be with a federal student loan servicer, so if I would consolidate to the direct loan servicer will both the public service forgiveness and Biden forgiveness be okay for consideration? Also, can you give me an idea of federal direct loan servicers?

  14. So I have an FFEL loan I’ve been paying on well over 10 yrs and my employer qualifies for PSLF.
    My kid recently graduated college and I have about $12K PLUS Loan which I have not started paying on yet due to the President’s payment waivers (so far).
    My question; Should I consolidate my PLUS Loan with FFEL and then apply for PSLF? Will I be eligible? I ask because I have not made any payments on the Plus loan so would the clock start over?
    Or do I just concentrate on consolidating FFEL?
    If I consolodate just the FFEL now would I be able to consolodate the PLUS loan(s) at a later time?


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