Federal Student Aid - IFAP

With a Direct Consolidation Loan, borrowers combine
certain health professions loans with other undergraduate
and graduate federal education loans to make one payment.
They must include at least one Direct Loan or Federal
Family Education Loan (FFEL) in the Direct Consolidation

The Loans

- Health Professions Student Loans (HPSL)

- Health Education Assistance Loans (HEAL)

- Loans for Disadvantaged Students (LDS)

- Nursing Student Loans (NSL)

Primary Care Loans are not eligible for Direct Consolidation.

The Advantages

Direct Consolidation Loans offer many advantages
to borrowers of health professions loans. These
may include: a longer repayment period, a lower
monthly payment, a lower interest rate, and a single
monthly payment. Borrowers should weigh carefully
the benefits of their loans and the following additional
advantages of a Direct Consolidation Loan.

- Borrowers who have defaulted on a HEAL may
include the collection costs and late fees in a Direct
Consolidation Loan. These fees may not be included
in a HEAL consolidation loan.

- Under the Direct Consolidation Loan Program,
HEAL borrowers may repay under the Income
Contingent Repayment (ICR) Plan for the life of
the loan. HEAL lenders are only required to offer
an ICR Plan for the first five years.

- To qualify for an in-school deferment, Direct
Consolidation Loan borrowers must be attending
school at least half time. HPSL, HEAL, and LDS
borrowers are required to attend school full time
to be eligible for an in-school deferment.

Issues to Consider

Before borrowers apply for a Direct Consolidation
Loan they should also consider the following:

- Borrowers whose loans are in a grace period should
be encouraged to wait until the last month of that grace
period to apply for consolidation. Repayment on
consolidation loans begins within 60 days of the first
disbursement and, thus, could cut short the grace period
of a borrower who applied too early.

- The interest rate is fixed at 5 percent for HPSL, LDS,
and NSL borrowers. HEALs may be offered as fixed or
variable rate loans; the maximum interest rate is based
on the average 91-day Treasury bill rate plus 3
percentage points and is not capped. The interest rate
on student loans under the Direct Consolidation Loan
Program is variable with an 8.25 percent cap for the life
of the loan.

- The interest on some health professions loans is
subsidized by the Department of Health and Human
Services. This interest subsidy is lost when such a loan
is included in a Direct Consolidation Loan.

- Interest does not accrue during deferment and grace
periods for HPSL, LDS, and NSL borrowers. Interest
does accrue during deferment and grace periods on
Direct Consolidation Loans that include health
professions loans.

- Borrowers who consolidate health professions loans
do not retain the deferment benefits that apply to those
loans. However, they gain the deferment benefits that
apply to Direct Consolidation Loans. They may be
eligible for additional deferment benefits if they include
an FFEL borrowed before July 1, 1993, in the
consolidation loan. Borrowers should be counseled
concerning this trade-off.