Special Direct Consolidation Loans

US Department of Education is no longer accepting Special Direct Consolidation Loan applications as of July 1, 2012.

From January through June 2012, the US Department of Education will offer certain borrowers a Special Direct Consolidation Loan. During this period of time, eligible borrowers will receive an additional interest rate reduction on a portion of the loans consolidated.

To qualify, a federal loan borrower must have at least one Direct Federal Stafford, Grad PLUS, Parent PLUS, or Consolidation Loan AND at least one Federal Family Education Loan (FFEL), Federal Stafford, Grad PLUS, Parent PLUS, or Consolidation Loan. Qualifying Special Direct Consolidation Loan borrowers will receive a .25% interest rate reduction on their consolidated FFEL loans plus the .25% interest rate reduction for payments made through automatic debit.

The big difference between the Traditional and Special is that the Special is not really a new loan... but a consolidated account in which all of the existing loans are held and the rates and terms of the old loans are held... but one "consolidated" payment is made.

So, unlike Traditional consolidation, your repayment length in Special Direct Consolidation does not change. The nice thing, is that if you had earned discounts on the old loans for good behavior or on time payments, that is the rate that is taken into the new Special Consolidation "account" and, the Fed's will throw in an additional .25% discount just for moving it and the .25% for ACH if you continue to do that.

What to do? Well, you actually cannot do anything yourself. One of the Department of Education loan servicers will actually reach out and contact you if you are eligible and they will then walk you through the process. If you believe you are eligible and want to learn more, head here: http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp

Pro's

  • One monthly payment
  • One lender or servicer to contact
  • Lower monthly payment (because of interest rates being lowered-not because of term)
  • No fees
  • No credit checks
  • No prepayment penalties
  • Borrower benefits---the .25% reduced rate for making the switch and .25% for ACH

Con's

  • No major con's other than the fact that if you enjoyed the service of your previous lender/servicer, that will go away and you will be subject to the Direct Loan servicer who gets assigned the loan

* Please be aware that other federal loans, such as Perkins Loans, Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), and Loans for Disadvantaged Students (LDS) cannot be consolidated through the Special Direct Consolidation Loan but may be included in the Traditional Direct Consolidation Loan.