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Consolidation to Direct Fed Loan and early pay off
March 16, 2020
4:57 pm
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Hailey Vuong, RN
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If I consolidate my FFEL loan to a direct federal loan repayment program, will I get any penalties for paying it off earlier than the 10 or 25 years? Also, my current FFEL loan interest rate is 7%. Will my interest rate lower if I switch to a Direct-Fed loan consolidation program?

March 16, 2020
5:09 pm
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Indiana
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There is no penalty for early repayment of any federal student loan.

Direct consolidation does not give you a lower interest rate on your loan. When you combine loans, the Department of Education takes the weighted average of the old loans, rounds to the nearest 1/8th percent, and that is the interest rate on your new loan. Typically, federal direct consolidation is done not to improve interest rates (b/c they stay the same) but to gain eligibility for certain programs and repayment plans.

However, because we are in a unique time due to the coronavirus, it is possible that federal direct consolidation of a FFEL could temporarily give you a lower interest rate. Emphasis on COULD because we are still waiting for full details from the Department of Education.

More on that here: https://studentloansherpa.com/trump-freezes-student-loan-interest-details/

March 16, 2020
5:09 pm
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Indiana
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