The federal government offers Direct Student Loans to borrowers at a low interest rate, allowing student to finance their post-high school education with affordable student loans. Rather than a bank or other financial institution servicing those loans, they are issued and handled by the U.S. Department of Education. The Direct Loans Servicing Center becomes the one-stop office that a borrower works with on loan repayment options.
Borrowers who set up accounts at the Direct Loans Servicing Center(www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp) can manage their accounts online using their U.S. Department of Education PIN (the same PIN given when applying for federal loans or filling out FAFSA). Making payments online, seeking information about Direct Loan Consolidation and other repayment FAQ’s are available at the Servicing Center.
Direct Loans Terms and Repayments:
Direct loans begin repayment when the student finishes or leaves school, after an initial grace period. The grace period for Direct Loans and most FFEL loans is six months; Perkins loans have six to nine months depending on initial disbursement; and health professions loans have nine to twelve months.
Several repayment options exist for direct loans, including standard, extended, graduated and income related repayments.
1. Standard repayments are fixed amount monthly payments of at least $50 over a 10-year term. The monthly payment amount is higher, but the overall interest you pay is less typically than with other repayment options.
2. Extended repayment options are for borrowers with more than $30,000 in direct loans. Loans are paid back over 25 years, in either fixed monthly payments or graduated monthly amounts that start lower and increase every two years.
3. Regular Graduated repayment is a low initial monthly payment that increases amounts every two years. This is a Ǫ-year repayment term.
4. Income Contingent repayments are 25-year terms based on an annual calculation from your adjusted gross income (AGI) as reported on your taxes. A monthly payment amount is established based on the total of your direct loans, your AGI plus, if married, your spouse’s income and family size. You’ll pay the lower amount of either 20% of your monthly discretionary income or aಌ-year loan repayment plan amount multiplied by a variable income factor changing with your annual income.
5. Income-Based repayment is calculated as a monthly payment based on your income at times when you have some financial hardship. The terms of repayment may exceed 10-years and under certain qualifications over a length of time, remaining portions of your loan balance may be cancelled.
Direct Loan Consolidation:
Under the Higher Education Act loan consolidation is available to borrowers on all forms of student loans including Federal Family Education Loans (FFEL) and Direct Loans. Direct Loan consolidation is intended to make the repayments of multiple loans simpler with a single monthly payment. It also often lowers the interest rate compared to one or more than one of the individual loans so that the borrower is less likely to default on the loan during repayment. Direct Loan Consolidation essentially pays off the existing loans and combines the totals into a new single loan.
Borrowers who wish to apply for Direct Loan consolidation can apply online at the Direct Loan Servicing Center under the loan consolidation link at their website found at https://loanconsolidation.ed.gov.
Loans Eligible For Direct Loan Consolidation
Both subsidized and unsubsidized loans issued from the federal government are eligible for Direct Loan Consolidation, including Federal Stafford Loans, Guaranteed Student Loans, Direct Subsidized Loans, Federal Insured Student Loans, TEACH loans, Nursing Student Loans, Federal PLUS loans, Direct PLUS Loans, Perkins Loans, HEAL loans, Loans for Disadvantaged Students and others.
For a complete list, see the eligibility page at the Direct Loan Servicing Center: http://loanconsolidation.ed.gov/index.html
Some loans are not eligible for Direct Loan Consolidation such as private lender or state loans that aren’t guaranteed by the government, Primary Care loans, PLATO loans and Medical Assist loans. These may be considered in calculating repayment terms on your Direct Loan Consolidation, however.
Contacting the Direct Loan Servicing Center:
The Direct Loan Servicing Center can be reached by toll-free phone (1-800-848-0979) during business hours of 8 a.m. to 8:30 p.m. EST and 5 a.m. through 5:30 p.m. PST, Monday through Friday. Online account information is accessible 24/7 at www.dl.ed.gov. Email the Direct Loan Servicing Center using your account PIN via the link on the “Contact Us” page of the website.
For Direct Loan Consolidation information, contact the center toll-free at 1-800-5ș-7392 or for hearing impaired persons, TTY at 1-800ᇋ7-7395. You can use the Direct Loan Consolidation calculator to estimate your monthly payments if you are trying to decide if loan consolidation is for you.
The Direct Loan Servicing Center offers repayment calculators, so borrowers can plan for the terms of their loan repayment and begin calculating expected interest rates when their loan comes to repayment. Additional information is available about each kind of repayment plan, adding loans to an already consolidated direct loan, other forms of student aid and electronic payment options. Direct loan services and current year tax information for loan borrowers is available here.
Consolidation is similar to refinancing a loan. You can consolidate all, just some, or even just one of
your student loans. Before making the decision to consolidate, you should consider the pros and
cons as discussed on the Student Loan Borrower Assistance web site
(www.studentloanborrowerassistance.org) and the Department of Education web site (www.ed.gov).
Direct Loan Consolidation
Under the Direct Loan Consolidation program, you can consolidate most federal student loans.
Loans that are not eligible for consolidation include state or private loans that are not federally
guaranteed. You must have at least one outstanding FFEL or Direct Loan to obtain a Direct
Consolidation Loan. This means, for example, that a Perkins Loan on its own cannot be
consolidated into a Direct Loan. If the âqualifying” loan is a FFEL loan, you must also certify that
you were unable to obtain FFEL Consolidation or unable to obtain a FFEL Consolidation Loan
with acceptable income sensitive repayment terms. This should not be a problem because there are no
more FFEL consolidation loans as of July 1, 2010.
How to Apply for a Direct Consolidation Loan
Before you start filling out the application, you should get a list of your federal loans from the
Department of Education’s National Student Loan Data System. You can get this information online
at www.nslds.ed.gov or by calling 1-800-4-FED-AID.
You can apply for a Direct Consolidation loan on-line at https://loanconsolidation.ed.gov/.
The current application forms and a sample application are provided in this packet. The forms you
need to fill out and send in are:
You can also download the forms from this web address or use the contact information numbers
below to request an application.
1. Application and Promissory Note
2. Repayment Plan Selection
3. Additional Loan Listing Sheet (only if you cannot list all of your loans on the application
form)
4. Income Contingent Repayment Plan and Income-Based Repayment Plan Consent to Disclosure
of Tax Information (only if you are selecting an ICRP or IBR)
5. Alternative Documentation of Income Form (only if you are applying for an ICRP or IBR and you
are in your first year of repayment on a Direct Loan or if you have been notified that this
form is required. You may also choose to fill out this form if your income on your most
recent tax return does not reasonably reflect your current income.).
In addition to the forms above, make sure you read the following:
1. Dear Borrower Letter
2. Borrower’s Rights and Responsibilities (attached to Application and Promissory Note)
3. Instructions for Application and Promissory note
Where to Mail the Completed Application
Once you have completed the application, you should make a copy for your records and send the
original to: U.S. Department of Education, Loan Consolidation Center, P.O. Box 242800,
Louisville, KY 40224-왰. You should consider sending by certified mail with a receipt.
What to Expect After Application
The Department says that it takes 60-90 days to process consolidation applications, but it could take
longer. You can call the servicing phone numbers below to check on your application. Applying
on-line can speed up the process. You can request forbearance while the application is pending,
especially if you are in default and are worried about collection.
For More Information:
Direct Loan Consolidation Telephone Numbers:
€¢ Toll free: 1-800-557-7392
• Hearing Impaired Borrowers with a TDD: 1-800-557-7395
Customer Service Representatives are available to answer borrower phone calls from:
• Monday through Friday 8:00 am E.S.T. toň:30 pm E.S.T.
• Monday through Friday 5:00 am P.S.T. to 5:30 pm P.S.T.
We appreciate you taking the time to visit us today. The following pages form a basic guide about Direct Loan Consolidation and Federal Loan Consolidation. You will find an objective view of Direct Loan Consolidation and the related options that you have available to you when considering the sometimes difficult task of consolidating your student loans. If you have any questions about this information or site please do not hesitate to Contact Us.
“Direct Loans,” or as they are more commonly known, William D. Ford Federal Direct Loan Programs (FDLP)” are United States Department of Education programs that provide loans and direct loan consolidation to help students pay for higher education. They are loans that the government makes directly to the student with no middleman (bank) involved. Recently, President Obama has made this the ONLY direct loan consolidation program available. Under this program you can participate in Direct Loan Consolidation, Federal Loan Consolidation or Education Loan Consolidation programs that are available. This may provide significant help to both current and former students.
Here are some thoughts to consider before starting any Direct Loan Consolidation, Federal Loan Consolidation, or Private Loan Consolidation:
To be eligible for Direct Loan Consolidation, students are required to be responsible for a minimum of a single Direct Loan or Federal Family Education Loan (FFEL) currently in a grace period, repayment, deferment. Students with these types of loans that are currently default are also eligible for Direct Loan Consolidation. However, any loan that is currently being deferred because the student is still completing school is not eligible for Consolidation. Â
How many monthly payments do you have? Many students in repayment have two, three or even four. Are the multiple payment dates from a Direct, Federal or private loan becoming a headache? Are they causing bank account balance to overdraft? The freedom of only one payment every month from a Direct Loan Consolidation may work for you and your bank account. With a Direct Loan Consolidation, there will be only one lender, the United States Education Department.Â
What type of interest rates do you have on your Direct, Federal or Education Loan? If your interest rate is variable, consolidation may be for you. The set rate of interest on a Direct Consolidation Loan is set at the same percentage during the entire term of the loan’s consolidation.
The direct loan consolidation rate will be set according to the average rate of interest associated with the loans subject to consolidation. However, these interest rates are rounded to the nearest higher 1/8 of 1% and cannot pass 8.25%. However, rates are scheduled to change on July 1st of this year.
Current or former students who do not have a Direct Loan might also be allowed to consolidate their Direct Loans. However, they must be responsible for a minimum of a single FFEL Loan and have not been able to osecure a Federal Loan Consolidation from a FFEL lender for the purpose of consolidation. They may also be eligible for a Direct Loan Consolidation if they have been unable to obtain a Federal Loan Consolidation with income-linked repayment terms that work for them. Finally, anyone that intends to fill out an application for forgiveness of loans from a forgiveness program for public service loans can also apply for such a loan consolidation.
Borrowers who only have a Direct Loan Consolidation cannot consolidate again unless they include an additional loan.
All this sounds great, right? Well, sometimes it is and sometimes it is not. This is a key point in considering a Direct Loan Consolidation. Read the next few paragraphs carefully and consider all your options.
What amount of the loan can you handle over a long period of time? Much like any loan, increasing the amount of time associated with the repayment of the loan, by default, raises the amount of money that you have to repay through interest
If you have multiple loans and are currently making your payments on time, a plan called “debt stacking” will often allow you to pay off your loans faster. It’s very simple. Just pick the student loan with the lowest balance and pay as much as you can on that loan to pay it off sooner. Meanwhile, refinance larger loans at lower rates, if possible. If there are any monthly savings, apply the savings to the lower balance loan. How does that work? The goal is to pay the lower balance off as soon as possible. Then, you “stack” the payment you were making to the smaller loan on the larger loan. You will be amazed by how fast you can pay off multiple loans this way.
However, you should take into account the amount of time left in your loan repayment. The closer that you are to completing the repayment of your loans, the less worthwhile it is to consolidate or increase the length of time during which you are making payment.
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