9 Important Facts About Federal Consolidation Loans

Federal consolidation loans can be a huge relief to students with loans

Flickr user Adam Simmons

Federal Direct Consolidation Loans are a type of loan that merges multiple federal student loans into a single loan. The single biggest advantage of federal consolidation loans is that you only have to make a single monthly payment as opposed to making multiple payments on different days of the month. It’s definitely more convenient and less stressful.

As great as it sounds, federal consolidation loans are not necessarily the right option for every federal borrower. There are a few drawbacks that may make this the wrong choice for you. As with any other repayment plan, it is crucial to take time to understand what is involved and pay special attention to the pros and cons so you can make an informed decision. Here are 9 important facts about federal consolidation loans.

Almost all federal student loans are eligible for consolidation

Including but not limited to:

Make sure you check the complete list of loans that are eligible for consolidation if this is an option you are considering.

You do not have to consolidate all of your loans if you do not want to

Depending on your circumstances and your future plans, you can choose to consolidate your student loans or only a few select federal student loans. Once you decide to go ahead with the consolidation, it is irreversible, which is why you must make this decision only after carefully considering all scenarios.

Earnest company logo.

Save money on your student loans by refinancing with Earnest

Variable APR as low as 5.72% - 9.74% with auto-debit

Learn More

Think about interest rates

One scenario where it does not make sense to consolidate all your federal student loans is if you have one or more loans with considerably higher interest rates as compared to the other loans. Paying off the higher interest rate debt separately and at an accelerated pace will help you save a significant amount of money over a period of time.

Think of consolidation as a new loan

When you consolidate your loans, the new loan is considered as an entirely new entity with none of the benefits associated with any of your old loans. If any of your existing loans offer you benefits that you do not want to lose, you can choose not to consolidate them so you can still get their benefits at a later date.

First payments come fast

Once your consolidation loan application is approved and paid out, you will have to make the first payment on the new loan within 60 days, after your loan grace period. Keep making payments on your old loans until your consolidation finalizes and you receive a formal notification. This may not apply if any of your loans are in forbearance, deferment or grace period.

A con for Parent PLUS

You cannot include Parent PLUS loans in your federal consolidation loan.

Default and consolidation

Special conditions may apply if you are currently in default on any of the loans that you wish to include in the consolidation process.

The Federal Consolidation Loan application process is free and easy.

Private companies often contact borrowers, offering to help with the process for a fee. This is completely unnecessary. You can apply to get your loans consolidated for free throughout the U.S. Department of Education. The process is relatively user-friendly and you can easily do this on your own.

You are allowed to consolidate a consolidated loan but a few restrictions apply.

A single consolidated loan cannot be consolidated by itself. However, you can consolidate two consolidated loans into one. An existing consolidation loan can re-consolidate, but only if combined with another loan or loans not consolidated earlier. You can choose to re-consolidate a consolidated loan only once.

Are Federal Consolidation Loans Right For You?

There is no one answer that is right for all federal student loan borrowers. Whether or not federal loan consolidation is the right choice for you depends on your individual circumstances. Thus, weighing the pros and cons is a good way to get started:



  • The extension of your loan life means you will pay more in interest on your consolidated loan than you would with your individual loans. (The lower monthly payments compensates for this disadvantage.)
  • Applying for a federal consolidation loan may not be worth it if you are close to paying off your loans.
  • Consolidating your federal student loans may mean losing certain benefits associated with your current loans. For example, you may lose repayment and student loan forgiveness benefits and/or your grace period.

How To Apply For A Federal Consolidation Loan

If you’ve decided that a Federal Consolidation Loan is the right option for you, you have to apply for it by logging into your account at the Department of Education.

Once you have logged in, you have to choose your loans and service from the options listed. Then select your repayment plan, and read through the terms and conditions, and the reference information.

Before you sign, you will receive a summary sheet where you can review your application details. It is important to review this sheet thoroughly to confirm that you chose the right loans to include in the new consolidation loan.

And when federal loans aren’t enough, you’ll need to find the right private loan for you. Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side!