at least one student loan held by the Department (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers); and
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).
Special Direct Consolidation Loans are intended to help borrowers manage their debt by ensuring all of their federal loans are serviced by the same entity, resulting in one bill and one payment (borrowers repay loans to a loan servicer). Borrowers will also receive an interest rate reduction on Special Direct Consolidation Loans as a repayment incentive.The information below describes the eligibility requirements and benefits of taking out a Special Direct Consolidation Loan.
Who is eligible for a Special Direct Consolidation Loan?
You must have at least one loan owned by the Department of Education and at least one commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.
What federal student loans are eligible for the Special Direct Consolidation Loan program?
While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:
FFEL Subsidized and Unsubsidized Stafford Loans;
FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and
FFEL Consolidation Loans
In order to be eligible for consolidation under this initiative, these loans must be in grace, repayment, deferment, or forbearance.
The following loans are ineligible for this program:
FFEL loans in default or subject to a bankruptcy proceeding;
Perkins Loans;
Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS); and
Private student loans
What are the benefits of Special Direct Consolidation Loans?
Interest rate reduction: If you consolidate into a Special Direct Consolidation Loan, you will receive a 0.25% interest rate reduction from the current interest rate on your commercially-held FFEL loan(s) as of the date of consolidation. The interest rate will be fixed for the life of the loan and cannot exceed 8.25%.
Repayment term will not be changed: The repayment term on your Special Direct Consolidation Loan (the length of time you have to repay the loan) will remain the same as your current repayment terms and will not be reset. As a result, you will pay less interest over the life of the loan than you would with a traditional Direct Consolidation Loan.
Credit for Previous Income-Based Repayment (IBR) Payments: If you made any IBR loan payments on your commercially-held FFEL loans prior to consolidation, those payments will count toward the required repayment time for cancellation if you remain in IBR. Under IBR, any remaining loan balance is forgiven after 25 years of repayment.
Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program: By consolidating your commercially-held FFEL loans into a Special Direct Consolidation Loan, those loans become Direct Loans, and as result, are eligible for the PSLF Program if you meet the additional program requirements. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers. Source: http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp
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