How to Consolidate Student Loans Through Direct Student Loan Consolidation

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Since the economy has turned downward, legislative cuts by Congress has made it more challenging to consolidate student loans. The nation’s largest student-loan lender, Sallie Mae, recently said it will stop offering federal consolidation loan and others are sure to follow.

That’s because most loan consolidation rates are 75 basis points lower than the rates offered on Stafford and Plus loans, so there isn’t much profit available for the lenders.

Direct Student Loan Consolidation to the Rescue

However, don’t give up yet. It still might be possible for you to combine all of your existing Federal education loans into one new student consolidation loan by applying at Direct Student Loan Consolidation. If it’s available, you would have a lower monthly payment than your other payments combined. And because the U.S. Department of Education would be your only lender, you will have only one monthly bill.

When you apply at Direct Student Loan Consolidation, you will be able to choose from up to four different plans.

Consolidation is free, there’s no minimum amount required for you to qualify, and you might even qualify for additional or renewed deferment benefits.

How to Consolidate Student Loans

Before going online you should gather all of the information about your student loans. How many loans do you have? Who are your lenders? What are the interest rates? How much do you owe?

If you don’t know who your lenders are, you can get the information you need online at the National Student Loan Data System.

The NSLDS is the central database for student aid. It will provide you the information you need about your Federal Perkins student loans, Federal Pell Grants, Federal Supplemental Educational Opportunity Grants (SEOG), Federal PLUS (Parent) loans, Subsidized Federal Stafford loans, as well as Unsubsidized Federal Stafford loans.

Next, you will want to find if there are any upcoming new interest rates and compare them to the current rates. For example, interest rates for July 2009 will be available sometime in June of 2009. If the rates will be higher you might want to lock into the current rates. Conversely, if the rates will drop you can wait until the month they become effective before you consolidate.

When you’re online you will be able to use their loan calculator to get a ballpark figure of your monthly payments, the interest rates, and the term of your new loan.