Special Direct Consolidation Loans

As you may (or may not) have heard, the U.S. Department of Education will offer Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. As with traditional consolidation loans, this program is intended to assist borrowers with loans split among loan servicers by simplifying the repayment process, resulting in one monthly bill and payment. However, this program does not offer borrowers a traditional federal Consolidation loan and cannot be used to resolve defaulted loans.

The window for this special, short-term consolidation opportunity will close June 30, 2012. For borrowers to participate, they must meet two criteria:

o They must have at least one student loan held by the Department of Education (either a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers).

o They must also have at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).

PROS of the Program: Borowers could receive a possible .5% interest rate reduction - which could mean huge savings!

o The U.S. Department of Education will give a 0.25% interest rate reduction from that rate as of the date of consolidation.
o They will also give an additional 0.25% interest rate deduction if the borrower chooses to repay his or her consolidation loan by auto-debit from the borrower's bank account.

Based on a 10 year repayment period, 6.8% interest rrate and 20,000 in debt, the savings could be as high as $ 611.00 (http://www.aie.org/paying-for-college/finance-tools/college-loan-calcula...).

Another positive feature: Borrowers could receive credit for previous Income-Based Repayment (IBR) payments. If a borrower made any payments on his or her lender-held FFELP loan(s) under an IBR plan prior to consolidation under this program, those payments will count toward the required number of payments for loan forgiveness if the borrower remains under the IBR plan. By consolidating into a Special Direct Consolidation Loan, any previously lender-held FFELP loan(s) will become a Direct loan and may be eligible for PSLF if the borrower meets the additional eligibility requirements - another HUGE potential savings.

BORROWERS IN GRACE: You should note that you may lose part of the grace period upon consolidation if you consolidate a lender-held FFELP loan that during the grace period,

Beginning in January 2012, the DOE servicers should begin contacting eligible borrowers. However, if you are interested and want to get started immediately, you may contact the DOE servicer currently servicing your ED-held loan(s) for assistance.

As with any consumer decision - investigate your options, do your research and make an informed decision. For more information, you can call 1-800-4-FED-AID (1-800-433-3243) or visit:

One Final Note of Caution: Please let your school know if you consolidate your student loans. Many schools offer their students support while in repayment and consolidating may disconnect the school's linked access to their borrower's accounts.


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Different Student Loan consolidation Applications out there with different functions can possibly provide debtors a variety of different advantages. You are going to want to be conscious of all these advantages before starting on any one of them, so you can be sure that you are doing elements right.


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