What Is a Direct Consolidation Loan? What To Know in 2025

Credible takeaways

A Direct Consolidation Loan is a type of federal loan that combines multiple federal loans into one, usually to help simplify repayment.
Consolidation doesn’t reduce the interest rate you pay since the new loan’s rate is a weighted average of the previous loans’ rates.
Though consolidation and refinancing are often used interchangeably, consolidation is only for federal loans and can’t be used for private loans.

A Direct Consolidation Loan from the U.S. Department of Education allows you to combine multiple federal student loans into one. Consolidation is a popular option for borrowers. In 2024, Direct Consolidation Loans represented $62.2 billion of the total $147.7 billion disbursed for federal student loans, according to the Fiscal Year 2024 Annual Report from the Department of Education. But that doesn’t mean consolidation is right for everyone.

Here’s what you need to know about federal Direct Consolidation Loans.

Current student loan refinance rates

What is a Direct Consolidation Loan?

A Direct Consolidation Loan is a type of student loan offered by the U.S. Department of Education. It allows borrowers to combine multiple federal student loans into one. There’s no application fee to apply for a consolidation loan.

Consolidating with one of these loans will streamline the repayment process, as the borrower will only have to make one monthly payment. It typically also extends the repayment term. But Mark Kantrowitz, author of “How To Appeal for More College Financial Aid,” cautions borrowers against assuming that consolidation will save them money.

“Consolidation does not reduce the interest rate on federal education loans,” he says. This is because the interest rate on your consolidated loan is a fixed rate calculated as the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of a percent. In other words, you’ll be paying about the same interest rate.

Your monthly payment may still go down after you consolidate, though. “Consolidation may lead to a lower loan payment if the repayment term is extended,” Kantrowitz says, “but usually this means an increase in total payments and total interest over the life of the loan.”

Who qualifies for a Direct Consolidation Loan?

Most borrowers with federal loans are eligible for a Direct Consolidation Loan. Specifically, the following types of federal student loans qualify for consolidation:

Direct Subsidized and Unsubsidized Loans
Direct PLUS Loans
Subsidized and unsubsidized FFEL program loans
FFEL PLUS loans
Federal Perkins Loans
Nursing Student Loans
Nurse Faculty Loans
Health Education Assistance Loans
Health Professions Student Loans
Loans for Disadvantaged Students
FFEL Consolidation loans and Direct Consolidation Loans (under certain conditions)
Federal Insured Student Loans
Guaranteed Student Loans
National Direct Student Loans
National Defense Student Loans
Parent Loans for Undergraduate Students
Auxiliary Loans to Assist Students

It may surprise borrowers to learn that defaulted loans are eligible for consolidation. Borrowers in default can return to good standing through a Direct Consolidation Loan, but they must either agree to repay the new consolidation loan under an income-driven repayment plan, or they must make three consecutive, on-time payments on the defaulted loan before applying for consolidation.

Learn More: How To Get Out of Default With Student Loan Consolidation

Eligibility restrictions on Direct Consolidation Loans

Even with such broad eligibility for borrowers, Direct Consolidation Loans do come with a few important restrictions, including the following:

Private student loans can’t be included in a Direct Consolidation Loan.
A student borrower can’t consolidate a parent PLUS loan borrowed on their behalf along with their own student loans. However, “parents can consolidate the parent PLUS loans they borrowed with their own student loans,” says Kantrowitz.
Loans must be in repayment or in a grace period to be consolidated.
An existing consolidated loan can only be consolidated again if the borrower includes an additional eligible federal student loan in the consolidation.

Kantrowitz also points out that timing matters for Direct Consolidation Loans.

“Borrowers can apply for a consolidation loan after they graduate, drop out of school, or drop below half-time enrollment,” he says. “They can consolidate their loans during the repayment and grace periods, but not during the in-school periods.”

What are the pros and cons of a Direct Consolidation Loan?

A Direct Consolidation Loan can be a helpful tool for managing federal student loan repayment, but it’s not right for every borrower. Make sure you understand all the potential benefits and drawbacks of this loan type before you apply.

Pros

Single monthly payment instead of juggling multiple loan payments
Can lower your monthly payment
Can give you access to income-driven repayment plans
Can give you access to income-driven repayment forgiveness and Public Service Loan Forgiveness
Allows you to keep federal loan protections and perks

Cons

Does not lower your interest rate
Extending your repayment term can increase your total loan costs
Can trigger interest capitalization, meaning unpaid interest will be added to the principal balance of the new loan
Can lose credit toward loan forgiveness
Not available for private student loans

How do you apply for a Direct Consolidation Loan?

Borrowers can apply for a Direct Consolidation Loan online or by mail. The online application process typically takes 30 minutes or less and doesn’t need to be completed in one sitting. You’ll need the following information to complete the application:

Your FSA ID
Your mailing address
Your telephone number
Your email address
Your current income
Your current student loan information, including:
- Loan type
- Loan servicer
- Loan amount
- Interest amount

During this process, you can also select your preferred repayment plan.

“I recommend using Federal Student Aid’s loan simulator tool before you apply. It’s a helpful way to compare repayment plans and get an estimate of your monthly payments and total interest charges, so you can choose the option that best fits your budget.”

— Renee Fleck, Student Loans Editor, Credible

Once you’ve submitted the application, a loan servicer will take over to manage the process of consolidating your loans and will become your point of contact.

You must continue to make payments on your loans until the servicer has let you know that your Direct Consolidation Loan has paid off your previous loans.

Check Out: How To Consolidate Student Loans: Benefits and Steps to Take

How is consolidation different from refinancing?

You may hear the terms consolidation and refinancing used interchangeably, but they’re not the same thing. Both federal loan consolidation and student loan refinancing combine multiple debts into one, but they’re otherwise very different.

Federal loan consolidation doesn’t reduce your interest rate, but it’ll keep your student debt in the federal loan program. By contrast, refinancing federal loans with a private lender replaces them with a private loan, which means losing access to federal protections and repayment plans. However, refinancing with a private lender can potentially lower your interest rate, especially if you have excellent credit.

FAQ

Does consolidation affect my credit score?

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Applying for a Direct Consolidation Loan doesn’t have a meaningful effect on your credit score, nor does the process of consolidating your loans. However, your balance, payment history, and other information about your loan will be reported to the credit bureaus, and making payments on time can have a positive impact on your credit.

Can I consolidate loans more than once?

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If you have an existing consolidated loan, it can only be consolidated again if you include an additional eligible federal student loan in the consolidation.

Does a Direct Consolidation Loan have a fixed interest rate?

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Yes. The fixed interest rate on a Direct Consolidation Loan is determined by calculating the weighted average of the interest rates on all the loans being consolidated, rounded up to the nearest one-eighth of a percent.