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?
May 3, 2014
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/…..t-details/