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Special Direct Consolidation Loans

Beginning January 17, 2012 and ending June 30, 2012, the Department of Education will offer Special Direct Consolidation Loans to eligible federal loan borrowers.  To be eligible for this Special Consolidation Loan, a borrower must have 
  • at least one Direct Loan or Department of Education held Federal Family Education Loan (FFEL) that is current or less than 270 days delinquent AND
  • at least one commercially-held FFEL loan

Although you must have at least one loan owned by the Department of Education and one commercially held FFEL loan to qualify for this Special Consolidation, only your commercially-held FFEL loans are eligible for consolidation under this program.  Eligible loans include

  • FFEL Subsidized and Unsubsidized Stafford Loans
  • FFEL PLUS Loans (both Grad PLUS and Parent PLUS Loans) and
  • FFEL Consolidation Loans. 

These loans must be in grace, repayment, deferment or forbearance to be eligible and cannot be in default or loans that the borrower is seeking to have discharged through bankruptcy.   Loans that are in an in-school status are not eligible for consolidation.  Previously defaulted loans that have been rehabilitated are eligible for consolidation.   

Ineligible loans are

  • FFEL loans in default or subject to a bankruptcy proceeding
  • Perkins Loans
  • Private Loans
  • Health Education Assistance Loan (HEA), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL) and Loans for Disadantaged Students (LDS).

Benefits of Consolidating under this Special Direct Loan Consolidation:

  • You will receive a 0.25% interest rate reduction on your commercially-held FFEL loan(s) as of the date of consolidation and this new rate will be fixed for the life of the loan and cannot exceed 8.25%.
  • Special Direct Consolidation Loans will be eligible for an additional 0.25% interest rate reduction if the loans are repaid through the Department’s automatic debit system. 
  • Each consolidated loan retains its original repayment term.  In other words if you were repaying your commercially-held FFEL loans on a ten-year term and have been paying for three years, and you choose to repay under that same 10-year plan, you would have only seven years to repay these loans.  As a result, borrowers will pay less interest over the life of the Special Consolidation loan than they would under a traditional consolidation program where the repayment term starts over.  
  • Payments made under the Income-Based Repayment Plan prior to consolidation will count towards the required 25 years of payments for IBR loan forgiveness.
  • Commercially-held FFEL loans that are consolidated into a Special Direct Consolidation Loan will be eligible for Federal Public Service Loan Forgiveness.
  • Continuation of deferment or forbearance status if an eligible loan is in that status at the time of consolidation. 

If you are eligible to consolidate your loans under this limited-time offer, you will be notified by one of the Department of Education’s servicers and provided with instructions on how to apply on-line.  Department of Education servicers for this special initiative are FedLoan Servicing (PHEAA), Great Lakes Education Loan Services, Inc., Nelnet and Sallie Mae.

If you are interested in obtaining a Special Direct Consolidation Loan, it is critical that you do not initiate the traditional Direct Consolidation Loan process at the website, as this will preclude you from eligibility for the Special Direct Consolidation Loan. 

The same five repayment options are available to you under this Special Direct Consolidation:

  • Standard
  • Graduated
  • Extended
  • Income Contigent
  • Income Based

Remember, your repayment term does not start over under this Special Consolidation.  Each commercially-held FFEL loan that you consolidate will retain its original repayment term. 

For further information, call 1-800-4FED-AID (1-800-433-3243) or log on to