Student borrowers may consolidate, or refinance, their federal student loans, including Direct, Stafford, and Perkins loans, into a federal consolidation loan. Borrowers may even consolidate just one loan.

There are two main reasons borrowers decide to consolidate their federal loans: a fixed interest rate and lower monthly payments. Other reasons include the convenience of having just one loan with one monthly payment and preventing one from defaulting on one's loans.

The consolidation loan is a new loan, so the borrower needs to complete an application and a promissory note. The borrower lists all of the various loans to be consolidated on the application. The eligible loans listed on the application are paid off by the consolidation loan. The application may be completed online, on paper, or over the phone (restrictions apply).

There are no fees, no credit checks, and no pre-payment penalities on a federal student consolidation loan.

The interest rate for a federal consolidation loan will be a fixed rate, which is determined by the weighted average of the interest rates on the loan(s) being consolidated, rounded to the nearest higher one-eighth of one percent.

Most of the current deferment and forbearance provisions of Direct student loans are retained after being consolidated. Specific deferment options include: