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A Federal direct loan is a loan borrowed directly from the Federal Government, not through a lending institution. Federal direct loan consolidation is the process of consolidating loans. It offers a chance to unify outstanding loans held by various lenders into a single new loan with a single monthly payment. Loans such as the Stafford and PLUS are offered through the Federal Family Education Loan Program (FFELP) and are consolidated through federal direct loan consolidation.

The federal government straightaway provides direct loan consolidation through the Federal Direct Student Loan (FDSL) program. Federal direct loan consolidation is a practical repayment management option that unites all direct student loans received by a student to finance a college education into a single loan. The minimum requirement for a federal direct loan consolidation is that the student should have a degree and has a minimum outstanding balance of $10,000 in federal direct loans. The key things to consider when considering consolidation are the available deferments, interest rates, repayment incentives and service levels.

There are many benefits in consolidating a federal direct loan. It can reduce the monthly payment by 50%. Consolidation enables the customer to lock in a lower rate for the life of the loan. Consolidation generally improves credit rating and reduces the interest rates by availing benefit packages and allows stretching the repayment period from 10 to 30 years. The borrower is eligible to retain the interest subsidy enjoyed from subsidized student loans. The various repayment plans in this scheme include standard repayment, income-contingent repayment, extended repayment and graduated repayment.