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Federal Consolidation Loan

Last updated 25th Nov 2022


A federal consolidation loan allows student borrowers to combine one or more of their federal education loans into a one new loan. Offered by the U.S. Department of Education, Direct Consolidation Loans often provide lower interest rates as well as the convenience of making one monthly payment.


With only one lender and one monthly payment, it is easier for former students to manage debt associated with attending school. Federal consolidation loans have only one lender, the U.S. Department of Education. When repaying a Direct Consolidation Loan, student borrowers may choose from four repayment plans:

  • Standard Repayment Plan: offers fixed monthly payments for a maximum of 10 years.
  • Extended Repayment Plan: offers fixed monthly payments, which are less than payments under the Standard Plan, with the repayment period ranging from 12 to 30 years, depending on the size of the loan.
  • Graduated Repayment Plan: offers monthly payments that increase every two years, with the repayment period varying from 12 to 30 years, depending on the size of the loan.
  • Income Contingent Repayment Plan (ICR): offers monthly payments that are based on a borrower's annual income (AGI), family size, and total Direct Loan debt. The ICR loan is spread over a term of up to 25 years.

The qualification rules for Direct Consolidation Loans require student borrowers to have at least one Federal Family Education Loan (FFEL) or a Direct Loan that is in grace, repayment, deferment, or in default. In-school status loans are not eligible for consolidation.

Related Terms

Student Loans, Federal Family Education Loan, Federal Stafford Loans, PLUS Loans

Moneyzine Editor

Moneyzine Editor