How to Consolidate Your Loans

There are a few reasons you might want to consolidate your loans:

  • If you only have a Federal Family Education Loan or a Perkins loan, that means you’re not eligible for Public Service Loan Forgiveness — but, if you consolidate your loan into a Direct Consolidation Loan, your loan will become eligible.
  • Typically, consolidation is the best option for getting out of default quickly, as you’re able to move directly into an Income-Driven Repayment plan and can immediately start building credit toward Public Service Loan Forgiveness if you’re eligible.
  • For student loan borrowers with older loans like Federal Family Education Loans, consolidation can make you eligible for newer repayment plans that may be more favorable.

You can consolidate into a Direct Consolidation Loan even if you only have one federal student loan. This may seem confusing (we typically think of “consolidating loans” as multiple loans becoming one), but consolidation is important because it may change the type of loan you have. A Direct Consolidation Loan allows you to consolidate multiple federal education loans into one loan at no cost to you.

It’s important to find out if consolidation is best for you, because there are some cases where consolidating your loans might not be the best option at the time. Here are some things to consider before diving in to the consolidation process:

  • Do you have loans that are already making progress toward Public Service Loan Forgiveness? PSLF eligibility is retroactive: If you are able to answer yes to all the eligibility requirements going back some years, those payments should count toward your required 120-payment total. However, if you consolidate loans on which you have been making qualifying payments toward PSLF, you will lose that progress. A Direct Consolidation loan is a new loan taken out to pay off an old loan. In this case, you will have paid off the loan that was making progress toward PSLF, and you now have a new loan that will require you to start your 120 payments all over again.
  • Do you have Parent Plus loans in addition to federal student loans you took out for your own education? If you do, you should make sure not to consolidate your Parent Plus loans with your other federal student loans. Parent Plus loans should only be consolidated with other Parent Plus loans. If you include other types of federal student loans in a consolidation with Parent Plus loans, you may lose access to better income-driven repayment options. Parent Plus loans are only eligible for Income-Contingent Repayment, but only after you consolidate them. After that, they also become eligible for Public Service Loan Forgiveness. If you consolidate other federal student loans with Parent Plus loans, all of your loans will only be eligible for an Income-Contingent Repayment Plan.
  • Do you really need to consolidate? Some people choose to consolidate their loans for convenience; it’s much easier to track one or two loans instead of 20. However, you can only consolidate your loans once. That means, once you’ve consolidated, the consolidation option will be off the table if you need to do so later—for example, to get yourself out of default. If you don’t need to consolidate your loans to get into an income-driven repayment plan and Public Service Loan Forgiveness, you should consider not consolidating, in order to leave that option available if you need it in the future.


Common questions

The interest rate on your Direct Consolidation Loan will be the weighted average of the interest rates on the loans you are consolidating, rounded to the nearest higher one-eighth of 1 percent. There is no cap on the interest rate that is determined under this formula. The Department of Education will send you a notice that tells you the new interest rate on your loan. The interest rate on a Direct Consolidation Loan is a fixed rate, meaning that the interest rate will remain the same throughout the life of your loan.

The Department of Education may transfer the servicing of one or all of your loans to another servicer when you consolidate your loans. If this happens, they will notify you of the new servicer’s name, address and telephone number, the effective date of the transfer, and the date when you must begin sending payments or directing communications to that servicer.

The entire loan consolidation process must be completed in a single session. Most people complete the process in less than 30 minutes.


Consolidating Loans for Public Service Loan Forgiveness

Gather all of your education loan records, account statements and bills so you will have all the information needed to complete the “Federal Direct Consolidation Loan Application and Promissory Note.”

  1. To begin, you must apply online through, or download an application form and mail a completed copy to the Department of Education.
  2. Review all the information on your application. When you have completed the form, make a copy for your records and mail the original pages 1, 2, 3, 4 and 5 to the department, along with the completed form(s) identified in the Repayment Plan Selection section and any required additional forms or documentation.
  3. As soon as your completed application and supporting documents have been received, the department will begin processing your application. During this time, the department might call you with questions. In the meantime, if you currently are required to make payments on your loans, continue to do so. You will need to continue making payments until you receive written notification that your loans have been successfully consolidated and it is time to start paying your Direct Consolidation Loan. If you are having difficulty making payments on your loans, contact your servicer to find out ways you might be able to reduce your loan payments; you should ask specifically about your “Income-Driven Repayment” options.
  4. You must inform the department by the deadline specified in the notice if you do not want all of the loans listed in the notice to be consolidated. The notice may also include information about loans you listed in the Loans You Do Not Want to Consolidate section, but these loans will not be consolidated.
  5. The department will notify you that your loans have been successfully consolidated and when/where you should begin making payments on them.


IMPORTANT: The department will send you a notice before they pay off your loans. This notice will:

1. Provide you with information about the loans and payoff amounts that they have verified with your loan holder(s) or through NSLDS, and

2. Tell you the deadline by which you must notify them if you want to cancel the Direct Consolidation Loan, or if you do not want to consolidate one or more of the loans listed in the notice.


Consolidating Loans in Default

To consolidate a federal student loan, you’ll be asked to make at least three voluntary consecutive on-time payments on the defaulted loan. If you don’t want to make three voluntary payments, you can still consolidate your loans if you agree to enter into an income-driven repayment plan.

  1. To begin, you must apply online through, or download an application form and mail a completed copy to the Department of Education.
  2. Once you’ve applied, the department will mail you a detailed listing of all the loans that would be included in the consolidation and the repayment plan you selected. You will have 15 days to review and dispute any of the terms or details of your loan(s), including what repayment plan you’re going to be placed in and interest rates. If you don’t contact the department in that 15-day period, the agency will assume everything is correct and process the consolidation. While the department is putting all this information together, the agency will most likely request that you to make interest payments on the loans. If you can’t afford the interest payments, you can apply for forbearance until the department can notify you to confirm your new consolidated loan payment amount.
  3. The collection costs associated with your defaulted loan will likely be added to the principal of your new Direct Consolidation Loan. Legally, however, the costs cannot exceed more than 18.5 percent of the outstanding principal and interest. For example, a defaulted loan of $8,500 plus $1,500 of accrued interest = $10,000. Fees of $1,850 can be added to the $10,000, which means the new consolidated loan amount totals $11,850.
  4. In order to qualify, you will be asked to make three consecutive reasonable and affordable monthly payments or agree to enter into income-contingent repayment or an Income-Based repayment plan.

After that, all of your loans will be rolled into one loan so you’ll only have to make a single payment each month, and you can begin making your regular payments.




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